How the HST rebate works with new and pre-construction condos

Home buyers exploring the idea of purchasing a new or pre-construction property (or who have already closed on one) are often confused about the HST rebate. Questions like, “Who pays for HST on a new home?” and “How is the HST rebate calculated?” are often top of mind. And for good reason. The HST rebate can add up to a sizeable sum and mean upwards of a $30,000 difference to your bottom line.

To make it a little easier to understand the ins and outs of the HST rebate in Ontario for a new condo or house, TheRedPin has broken down the facts around the rebate program.

The advice outlined in this post is intended to be a starting point for new home buyers; it’s critical to consult with your lawyer and accountant regarding the HST rebate.*

Who’s entitled to the HST rebate?

Condo seekers purchasing a pre-construction unit that’s yet to be built aren’t the only segment of buyers entitled to receive the HST rebate. Under certain circumstances, even homeowners who are drastically renovating their property are eligible for the rebate.

Here’s a breakdown of who can receive the HST rebate in Ontario:

• Both end users and investors purchasing a pre-construction condo or house
• Home buyers purchasing a newly constructed residence that’s never been lived in
• Homeowners who drastically renovated their home (kitchen or basement renovations don’t apply here; instead, only head-to-toe transformations that impact every room in the home are considered eligible)
• Individuals who built a new home themselves

HST rebate: End user vs. investor

First and foremost, it’s critical to know that applying for the HST rebate differs depending on whether you plan on actually living in the new home yourself or if you’re an investor who wants to lease the residence immediately after closing as a rental property.

End user

If you plan on moving in and living in the new property, you must apply for the New Home Rebate (NHR).

Under an NHR, you’ll receive the HST rebate based on the fact that you (or a direct blood relative) will occupy the new property as the principal resident for at least the first year.

In the majority of cases, particularly when buying a pre-construction condo in the Greater Toronto Area (GTA), you’ll receive the HST rebate right away in the form of a discounted purchase price. Most condo and home developers already factor the HST rebate into their price lists.

If the new property is sold before the initial one-year window, the Canada Revenue Agency (CRA) will require you to pay back the HST rebate in full, which can add up to as much as $30,000.

Key facts to remember:

• The new home buyer (or a direct blood relative) must occupy the new home as their principal residence for at least the first 12 months after closing.
• If the property is sold in the first year, the buyer will be required to pay the HST rebate back in full.
• Important: If the new home is leased in the first year, you may be required to pay the HST in full or you could still be eligible for the rebate by refiling for a New Residential Rental Property Rebate (see the next section).
• Only the new home buyer or a direct blood relative can occupy the new property as their principal residence. Under the CRA’s definition, only children, parents, siblings, spouses or common-law partners are considered direct blood relatives while uncles, aunts and cousins are not.
• All co-signers are required to live in the new home as a primary resident in order for the HST rebate to be viable.
• It’s critical to take all the steps in claiming the new home as your principal residence, including changing your driver’s license address.
• You can apply for the HST rebate up to a maximum of two years after closing. After those two years pass, you’re no longer eligible to apply for the rebate.
• Typically, the HST rebate is already factored in pre-construction condo price lists.

Investor

Whether you’re a Canadian or foreign investor, you’re still eligible to receive the HST rebate on a new home. However, rather than file for an NHR, you must apply under the New Residential Rental Property Rebate (NRRPR).

To receive the HST rebate through an NRRPR, you must provide a one-year lease agreement in order prove the new home will be rented to a tenant for at least the first 12 months after closing.

The new home must be leased for at least the first year before it’s sold. If the investor flips the property before the one-year window closes, the HST rebate is no longer viable and the taxes must be paid in full.

Unlike an NHR, investors who file for a New Residential Rental Property Rebate must pay the entire HST upfront and will receive the rebate around two or three months after proof of the lease agreement has been submitted.

Key facts to remember:

• Investors must provide a one-year lease agreement and rent the new home for at least the first 12 months.
• If the new home is flipped within the first 12 months, the HST must be paid in full.
• Under an NRRPR, investors must pay the HST in full at the time of purchase and will only receive the rebate two or three months after the lease agreement is submitted. Therefore, investors must have more cash on hand at the initial time of purchase.
• Investors who plan on the leasing the unit can’t apply for the HST rebate through an NHR and must file for an NRRPR.
• You can apply for the HST rebate up to a maximum of two years after closing. After those two years pass, you’re no longer eligible to apply for the rebate.
• Typically, the HST rebate is already factored in pre-construction condo price lists.
  
  

How much is the HST rebate?

Harmonized Sales Tax in Ontario adds up to 13% of a new home’s purchase price—a total of 5% GST and 8% PST.

The rebate program allows for new homebuyers to receive a significant portion of the HST back.

The HST rebate amount varies depending on the new home’s price tag. If a new house or condo is priced under $350,000, you’re eligible to receive a maximum of $30,000 back (36% rebate on the GST portion and 75% on PST). Between $350,000 and $450,000 a sliding scale applies. And for properties costing more than $450,000, a maximum rebate of $24,000 can be received.

For a more detailed look into how the HST rebate is calculated, click here.

*This post is purely for informational purposes only. Please consult with your lawyer regarding details around the HST rebate