A HST rebate on a new home? Can your client potentially get one? Recently, a realtor asked, “how can builders avoid charging HST on new homes?”
Another realtor also reached out to me, asking “the HST implications on buying assignments that are pre-construction homes”.
There’s a lot of confusion when it comes down to HST charged on new homes and HST rebate calculation.
I recently made a video talking about this in depth that you can watch here:
HST Rebate & Implication on Purchasing a Brand New Home
Buying a new home often means that the buyer has to wait for it to be designed and built from scratch.
From the moment your client signs that “Agreement of Purchase and Sale” to the time they physically move in, could range from one year to five years, and sometimes even longer.
And like anything that is purchased here in Canada, HST is applicable when your client purchases a new build too.
Yes, your client could get a portion of the HST back as a rebate assuming they qualify.
Now, most people simply assume that they are going to get their full HST back. Unfortunately that’s not the case. nly get a portion of that money is given back – the rebate.
If the house is $500K before HST, they have to pay $565K in total ($500K x 1.13).
. In the example below , the HST rebate on this house is $24,000.
Pre-HST Price $500K
HST charged 13% $65K
Less: HST rebate ($24K)
Net sale price posted by builder $541K
This $541K is the advertised price posted by the builder, with the assumption that the buyers intended to move into the unit. (Your client may be eligible to assign the HST rebate application to the builder if the intent is to move into the property as a primary residence. The builder will get the HST rebate on behalf of your client and your client would pay the builder $541K only instead of $565K.)
This rebate is called New Residential Home Rebate.
As I mentioned above, it’s a common misconception to think that a full rebate is applicable. Most realtors mistakenly think that their clients would get their full HST back. Unfortunately that’s not the case. It’s important to note that your client only gets the rebate – a portion of the money back.
But… What if your client doesn’t intend to move into the property at all?
As it turns out, this $24K HST rebate is still claimable if your client is renting this new rental as someone else’s primary residence with a one year lease.
The process of applying is a bit more complicated.
Instead of paying $541K in our example, your client would have to tell the builder ahead of closing that your client isn’t moving into this new home.
Because your client isn’t moving into this new home,they cannot assign the New Residential Home Rebate for the builder to claim it on behalf of them.
As a result, builders cannot claim the rebate and they’re out of pocket for the $24K rebate.
At closing, your client/s would pay the builder the $24K, which is $565K in total.
Once they sign a one year lease with their tenant, they can submit an application to CRA under the HST New Residential Rental Property Rebate instead.
With proper documentation and application form, your client’s can potentially get their $24K back within 3 months after their application. Not a bad turnaround time.
Ultimately, your client is still getting their $24K back, it’s just going to take a bit longer to claim the money back.
Example 1 – HST Rebate New Home (winning court case)
In a recent court case, a taxpayer originally purchased a new home with the intent to move in after his wedding. Unfortunately the couple split up and the wedding didn’t happen. He sold the house a short time afterwards.
CRA dismissed the HST rebate application on the basis that the taxpayer did not have the intention to move into the new home as the primary residence, largely based on the fact that he didn’t change his address with CRA and Ministry of Transportation from his parents’ house in which he lived, prior to living in his new home.
He appealed to the court and he was able to win the case, with the help of his hydro bills that were sent to his new place, and with his friends’ testimonies stating that they helped him move from his parents place to his new place.
This takes me back to my previous blog post – keeping good documentation matters. Even something as trivial and unimportant as hydro bills, could still be evidence in court to substantiate your client’s position and claim.
Keep in mind that to qualify for HST rebate under the New Residential Home Program, your client/s needs to demonstrate that they intend to move in at the time when the agreement of purchase and sale is signed.
Now, Intention is a subjective matter. Providing all corroborative evidence to substantiate a claim would definitely help the position of your client’s claim.
On the other hand, if your client’s intention is truly to invest in a newly built home and they have never had the intention of moving in, advise them not to lie.
They still have a chance to claim the same amount of rebate back. All your client needs to do is to come up with the money up front at closing. With a one year lease and proper documentation, your client can still get the same amount back with New Residential Rental Property Rebate
Example 2 – HST Rebate New Home (losing court cases)
In a 2016 court case, the taxpayer claimed she moved into a new house for half a year, before she moved back in with her husband and rented the new residence out.
Although she claimed to have moved into her new home, she was unable to provide independent evidence (such as hydro bills) to substantiate her claim that she had lived in her new home. Her appeal to the court was disallowed and she didn’t get her HST rebate back.
Similarly in another 2016 court case, a taxpayer claimed that he and his wife were living in the new home that they just purchased while waiting for their old residence to be listed and repairs to be completed. They subsequently sold their new home 3 months after closing.
CRA caught on to them. Because they sold their newly purchased homes within 3 months after closing, CRA thought that they never moved in. If they never moved in, they would not have the intention to move into the newly purchased homes. Because they never had the intention to move in, at least in CRA’s eyes, they would not have qualified to assign the HST rebate to the builder to claim.
This couple disagreed with CRA’s position, and took CRA to court. The couple had to provide evidence to support their intention and their claim.
The taxpayers provided an agreement to list their old residence for sale, dated 2 years after they sold their new build, attempting to prove that they did move into this new build for a short period of time as their primary residence. The judge sided with CRA as the agreement to sell was dated 2 years afterwards. Inconsistent with the couple’s claim.
In conclusion, if your client wants to move into a new home, make sure they know they do know that they have to move in. They need to have evidence such as utilities bills, internet bills, moving bills, furniture delivery bills and driver license address change showing that they have moved in.
If your clients are planning to purchase a new built as your rental, make sure they know not to assign the right to the builder to claim the residential rebate back. All they need to do is fill out a different form and they should be eligible to claim the same amount of rebate back with a one year rental agreement.
However, If your clients are planning to flip the new house without moving in, make sure you consider the loss of HST rebate as part of their cost.
Now, it’s always better to be prepared than to be sorry. Therefore, I always advise my clients to sit with their tax advisor for a personalized consultation of their situation. If you or your clients need a consultation, we’d be happy to sit with you and your client and assess the situation.
I do hope you now understand the HST rebate on new homes – New Residential Rebate – is now simplified for you.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Real Estate Agent Accountant
P.S If you are a realtor looking to know about the tax deductions you can make, read this post here.