HST REBATES ON NEW HOUSING (INCLUDING REBATES FOR RENTALS)

Post by: Khiam Nong

Builders who sell new or substantially renovated housing need to be aware of the HST New Housing Rebate (“NHR”).  The NHR can be assigned to a builder from home purchasers (“Purchasers”) on the unit/home sale closing.

Builders and Purchasers of new homes also need to be aware of the fact there is a rebate of HST available to the landlord of a new property (including a single home or residential condominium unit) if the first occupant of the property is a tenant.  This rebate is referred to as the New Residential Rental Property Rebate (“NRRP Rebate”).

Purchasers who rent out a new home so that the first occupant of the new home is a tenant are entitled to the NRRP Rebate but cannot obtain the NRRP Rebate from the builder.  Such Purchasers must apply for the NRRP Rebate directly after closing.  To find out how and where to file the NRRP Rebate application, see page 31 of the Canada Revenue Agency (“CRA”) publication found here.

In markets with the potential for Purchasers to acquire property for investment purposes, builders should be aware of the existence of the NRRP Rebate so they can advise their Purchasers of the existence of the rebate.  The obligation for a Purchaser to pay the full 13% HST without being aware of the NRRP Rebate can discourage a Purchaser from completing the purchase.

Further, awareness of the NRRP Rebate may also deter misrepresentation by Purchasers to the CRA.

Of late, we have noticed that, in order to avoid being responsible to their builder for lost NHR, some Purchasers have been dishonest about their intentions to rent out a property and misrepresented that they intend to occupy the property as their primary place of residence.

If Purchasers are made aware that they can obtain the NRRP Rebate on new homes that they lease out to tenants, we suspect some of this dishonesty will be dissuaded.

New Housing Rebate

The NHR allows Purchasers to recover some of the federal portion of the HST, which is 5% in Ontario.  For homes with a base price (exclusive of any HST or rebates) up to $350,000, Purchasers may recover a rebate of 36% of the 5% federal portion.  The allowable rebate declines on a sliding scale when the purchase price is between $350,000 to $450,000.  If the base price is or exceeds $450,000, the federal portion of the NHR is not available.

Regarding the remaining 8% of the HST, which is the provincial portion, Purchasers may recover 75% of the 8% provincial portion up to a maximum of $24,000.  Unlike the federal portion, the amount of the provincial portion of the NHR does not slowly decline once the purchase price reaches $350,000.00.  The provincial portion of the NHR simply does not apply to any purchase price in excess of $400,00.00, thereby limiting the amount of the provincial portion of the NHR to $24,000.00.

For the purposes of the NHR, the term “builder” generally includes a person in the business of constructing or substantially renovating houses for sale, but may also include:

(i)                 a manufacturer or vendor of a new mobile home or floating home;

(ii)               a person who buys a previously unoccupied new house for resale;

(iii)             a person who acquires an interest in a house while the house is under construction or substantial renovation and completes or engages another person to complete the construction or substantial renovation; or

(iv)              a person who has converted a non-residential property into a house without substantially renovating the property. [1]

A “builder” for the purposes of the rebate acquires, builds or substantially renovates housing (or hires someone else to do so) as its trade.

An individual who buys, builds or renovates a house to use as his or her primary residence does not fit the definition of builder, however, such an individual is still entitled to the NHR if he or she meets all of the usual criteria.

Purchasers may assign the NHR to their builder.  The builder may apply for the rebate on the Purchasers’ behalf.

A builder may pay the total amount of Purchasers’ NHR directly to them or credit that amount on the purchase price of the house.  It is highly unusual to pay the NHR directly to Purchasers.

A builder who chooses to credit Purchasers with the amount of the NHR must send in a fully completed Form GST190 and all applicable provincial rebate schedules.

The following is a list of additional conditions Purchasers must meet to qualify for the NHR:

(a)               the Purchasers bought a new or substantially renovated house from a builder and HST is due on closing;

(b)               the builder sold the Purchasers the house and related land on which the house is located under the same written agreement of purchase and sale;

(c)                when the Purchasers signed the agreement of purchase and sale, it was intended to be the primary place of residence for the Purchasers or their relations;

(d)               ownership of the house is transferred to the Purchasers after construction or substantial renovation is completed;

(e)               no one occupied the house before possession being given to the Purchasers; and

(f)                 the Purchasers or their relations are actually the first occupants of the house after construction or substantial renovation.

One of the main criterion for eligibility for the NHR is that Purchasers, or their relations (meaning immediate family members related by blood, marriage, common-law partnership or adoption within the meaning of the Income Tax Act), must use the house/unit as their primary place of residence.  The factors the CRA considers when determining whether a house is an individual’s primary place of residence include:

○                    whether the individual considers the house as their main residence;

○                    the time the individual has lived in the house; and

○                    the designation of that address on personal and public records.[2]

Purchasers who fail to meet all eligibility requirements should not be entitled to the NHR and if the NHR is obtained, can be required to repay the rebate.

New Residential Rental Property Rebate

The NRRP Rebate is obtained by Purchasers making an application as noted above.  The NRRP Rebate cannot be credited to the Purchasers on closing by the builder.

The application for the NRRP Rebate must be filed within two (2) years after the house purchase closes.

The amount of NHR is calculated on the same basis as the NRRP Rebate.  Generally the rules for eligibility are the same as those considered in respect of the NHR.

It is important to note that Purchasers will have to repay the NRRP Rebate if they should sell their home within one (1) year after it is first occupied as a primary place of residence after construction, unless the home is sold or leased to an individual who will occupy the home as their primary place of residence.

The foregoing is a summary of the HST rebates available when selling or buying a new or substantially renovated home/unit.  For more detailed information on the NHR and the NRRP Rebate, see the following CRA publications or talk to your tax advisor.

http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-12e.pdf

http://www.cra-arc.gc.ca/E/pub/gp/rc4231/rc4231-12e.pdf



[1] RC4028 GST/HST New Housing Rebate, page 6, www.cra.gc.ca, February 26, 2013.

[2] Ibid.

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