How HST And The HST Rebate Works For Pre Construction Purchases In Ontario
The HST rebate – and who pays HST on new construction Condos and Townhouses in Ontario – can be a complicated subject.
It can be easy to get lost in all the legal talk and acronyms – with things like the “New Home Rebate (NHR)” and “New Residential Rental Property Rebate (NRRPR)” – and a lot of other complexities and jargon.
By the time you look into the actual details as to how the HST rebate is calculated your head will probably be spinning…
That’s why in this article, we’ve simplified all the possible information and provided guidance so you know exactly what to expect when it comes to HST and the HST rebate when buying a pre construction Condo or Townhouse in Ontario.
On top of that, we’ve included a simple real life example to walk you through what the numbers look like in reality.
Please note we still highly recommend that you should also get professional advice (either from an accountant or lawyer) during the buying process to ensure that you don’t make any mistakes that later come back to haunt you.
That’s why we offer free legal review & advice for free as part of our service with Pre Construction Pros for all our buyers.
A Quick Summary Of HST And The HST Rebate For Pre Construction
When it comes to HST on new construction in Ontario, we can actually simplify the rules into just one statement:
If someone will be living in the property you purchase (either you, a tenant, family member or anyone) during the entire first year, you will qualify for the full HST rebate and not have to pay more than the list price (which includes HST and the HST rebate).
In addition to this HST is already fully factored into the purchase price for every single pre construction project we know of – meaning you almost don’t need to worry about it at all.
The only catch is if you are buying as an investment (to lease out the property), there will be some cash flow timing implications – in that you will have to pay some portion of HST upfront then claim it back later (we’ll cover that below).
But the only people who will not get the HST rebate and have to pay some kind of additional HST (that can’t be reclaimed) are those who are planning on selling the home within the first year or leaving it vacant for the first year.
The only reason to even consider whether you plan on living in the home or are buying as an investment is simply due to how the rebate is processed – investors have to pay a portion of the HST on closing and then later reclaim it, where as if you were buying to live in it you’d get the rebate automatically upfront and not have to pay this portion.
Here’s how the actual process works, depending on the purpose of your purchase:
- If you’re buying for you (or a family member) to live in the home:
If you or a family member (see section below on who is included as a ‘family member’) are planning on living in the home, you qualify for the HST rebate and HST and the HST rebate is already factored into the price for pre construction purchases – so you literally don’t need to do anything.
The price you pay will be what the developer tells you and HST and the rebate is already fully factored in and fully included.
- If you’re buying as an investment:
You still qualify for the HST rebate in full but the only difference is that you have to pay the HST rebate portion amount upfront then claim it back. So, it’s really just a cash flow issue.
You only pay the HST rebate portion – not the full HST amount – on top of the purchase price, and only when the unit sale closes.
After this, you can claim this back this money by providing a copy of a one year lease – showing that you have rented the home and someone will be living there for at least the first year.
Once you do this, the Government pays you back the HST rebate portion that you paid on top.
Below, we’ve provided an example using real numbers which will help clarify things – whether you’re an investor or planning to live in the home.
A Simple Real Life Example To Explain How It Works In Practice
To make things easy – let’s use a simple real life example where you see a pre construction Condo or Townhouse listed for sale and the list price is $500,000.
Your ‘HST rebate’ would be $24,000 – this amount is actually the same for any property over $450,000.
Here is how HST would be calculated and how the rebate would work in reality (for this $500,000 example):
- If you’re buying for you (or a family member) to live in the home:
You will pay $500,000 to purchase the home. The HST and rebate is already fully factored in.
The home price will actually technically be $463,716 plus HST. This works out to $524,000 including HST.
As noted, you qualify for the $24,000 HST rebate – the builder automatically applies this for you and you pay $500,000.
So, everything – HST and the HST rebate – is completely baked into the price already – there is nothing for you to worry about.
- If you’re buying as an investment:
You will pay $524,000 to purchase the home. This is because you have to add back the $24,000 HST rebate portion on top of the purchase price, then claim it back from the Government later.
The home price is still technically $463,716 plus HST. Which – as mentioned above – is $524,000 including HST.
To get the $24,000 rebate, you then have to file paperwork and send in a signed 1 year lease showing that you do not plan on leaving the property vacant for the first year.
You’ll then be refunded the $24,000 in full and then effectively have paid $500,000.
As you can see, in both examples, technically you are buying a $463,716 property plus HST – not buying a $500,000 property. But in both cases it works out to the $500,000 price that the builder listed it for including all HST and the rebate.
This is what we mean when we say that HST and the HST rebate are both already factored into the price the developers use when they list pre construction properties for sale.
In both situations you pay the listed price of $500,000 for the pre construction property in the end – the only difference is simply cash flow and timing.
How Does The HST Vary For Different Purchase Prices?
For any purchase above $450,000, the rebate amount is exactly the same – $24,000 and the process is the same (everything is included in the price).
So, if you are an investor buying a pre construction property over $450,000 you will always pay $24,000 than the list price then claim it back after.
If you or a family member (see below for details) are buying to live in it then you will simply pay the list price since this already includes the HST and your $24,000 rebate.
If you’re buying a property under $450,000 there will be small differences in the rebate amount (and thus how much you have to add back to the purchase amount as an investor).
But the process and rules are exactly the same no matter what the price – HST and the rebate will already be included in the developer’s price and investors will always have to add back the HST rebate portion on top then claim it back.
What Family Members Count For The New Construction HST Rebate?
For qualifying for the rebate upfront, your family member must be a “direct blood relative”.
Only children, parents, siblings, spouses or common-law partners are considered direct blood relatives.
Uncles, aunts and cousins are not.
In the situation where your family member does not qualify you’ll have to follow the steps and rules for an investor – paying the HST rebate upfront at the time of purchase then providing a 1 year lease to get it back.
So, continuing our $500,000 example, if your uncle was moving into the property you’d have to pay $524,000 on closing – then provide a one year lease between yourself and your uncle – at which point you’d be given the $24,000 rebate.
What Happens If I Sell Within One Year?
Regardless if you’re an investor or planning on living in the home or anything really – if you sell the home in your first year of ownership this will trigger you having to repay the rebate in full.
So, you will simply have to make this part of your decision process when selling and factor this into any sales price you are offered.
To continue the simple example presented above, if I bought a property for $500,000 and someone offered me $524,000 on day one for it then I would not be making any money:
I’d have to repay the $24,000 HST rebate because I’m selling within one year and their offer would ‘effectively’ be $500,000.
As An Investor, How Long Will It Take To Receive My Refunded Rebate?
Assuming you are able to quickly file the documents and paperwork, this rebate is usually provided to you in 1 to 3 months.
You actually have 2 years to make the claim by providing the required documents (some tax forms plus a one year lease) showing that the property was being lived in during the first year.
What If I Move In Then Move Out Within One Year?
Technically to get the rebate upfront, you or your family member have to live in the property for at least one year.
If you got the HST rebate because you bought the property to live in – but then move out within the first 12 months you will then have to repay the HST rebate and follow the same rules as investors – presenting a lease for the remainder of the year before they will then refund you the money.
The reason for this is that these rebates are actually run under 2 different programs.
For people living in the home it’s called the New Home Rebate (NHR) and for investors it’s called the New Residential Rental Property Rebate (NRRPR).
When you move out, you no longer qualify for the NHR, so you have to follow the rules of the NRRPR – which means paying back the rebate and then later reclaiming it again.
How Do I Prove That Either Me Myself Or A Family Member Is Living There?
When you complete the pre construction deal you’ll sign a ‘legal statement’ which indicates that you or a family member plan on living in the building and that you therefore qualify for the upfront HST rebate under the New Home Rebate (NHR) program.
Beyond this, there is no way for the Government to really know if you moved in – unless you happen to be audited.
However, if it was found you deliberately knew you had zero plans to live in the home and lied by signing this statement then you could face fraud charges, interest, penalties and more – so do not take this decision lightly.
What Are The Technical Details Behind The Calculations?
All the information above covers everything you need to know – so you really don’t need to know how the rebates are technically calculated.
But if you’re the sort of person who likes this information, here’s how it works:
- HST in Ontario is 13% – which is made up of GST of 5% and PST of 8%.
- For a new home under $350,000 the rebate you get is a maximum of $30,000 which is 36% of the GST and 75% of the PST returned to you.
- Between $350,000 and $450,000 there is a sliding scale.
- Above $450,000 the rebate is simply capped at a maximum of $24,000.
Remember though that properties listed for sale by the developer already include HST and the rebate.
So, a $500,000 property is actually a $463,716 property plus $60,283 HST minus $24,000 rebate = $500,000.
You need to strip out the HST already included in the purchase price to see which bracket above your home fits into.
Alternatively, this calculator is a good tool: https://buildersontario.com/HST/calculate.php
Why Does The HST Rebate Program Even Exist?
The Government wanted to reduce the amount of ‘flipping’ of properties and speculation in the market.
On top of this, they also wanted to reduce vacant homes (where people buy the home purely as an investment and just leave it empty – which is aggressive speculation).
They therefore brought in these rebate programs to ensure that someone – whether that be the owner, family member or a tenant – is living in the home for at least the first year.
The HST rebate program – in this sense – is effectively a tax on empty newly built homes.
What If I Have More Questions About HST On Pre Construction In Ontario?
We hope you found this article useful.
If you’re looking to get the latest and best pre construction projects then click here to sign up for our free pre construction project alerts and lists of the best deals.
Otherwise, if you have any questions for your particular situation about HST on new construction Condos and Townhouses in Ontario – or the HST rebate – feel free to leave to email us at email@example.com.
You can even give us your numbers and we’ll calculate your HST and HST rebate on your pre construction purchase for you!
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