In Parts 1 and 2 of my previous posts of Real Estate & HST Can Be Taxing, I wanted to illustrate the many situations as to how how Ontario’s “Harmonized Sales Tax” (HST) can impact the real estate selling and buying process. Before we leave this topic there is one more area worth discussing when it comes to HST and the purchase of real property. That is the matter of new homes, condominiums and properties that have undergone extensive renovations.
When they are sold, newly constructed homes in Ontario are subject to HST and given where prices have gone in recent years HST is no small number. This actually started back in January 1991 when the former GST known as the Goods & Services Tax came into being. When the 7% GST tax came into effect in Ontario, new homes were often advertised where the price read $399,000 plus GST. Most of us back then were rather annoyed at facing yet another tax. Once the 7% GST was factored in, that home you liked at $399,000 was actually costing you closer to $427,000. At some point in time, it appeared that builders and developers became aware of consumer’s displeasure with that form of advertising where you saw the price in big bold print with “plus GST” in smaller print below. New home advertising changes after that whereby the price was stated with the notation GST included. That trend has continued today with respect to HST where an ad might read: “prices starting at $699,900 HST included.”
Notwithstanding the clearer advertising message, there is still one aspect when it comes to HST and the purchase of a new home be it a single family, semi detached, town home or condominium etc. Newly built homes as well as those that have undergone a substantial renovation may be eligible for the “new housing rebate” offered by the federal government. The GST/HST new housing rebate allows an individual to recover some of the federal part of the HST paid for a new or substantially renovated house that is for use as the Buyer’s primary place of residence, when all of the other conditions regarding the new home rebate are met. Here in Ontario, if you paid the HST to buy, build, or substantially renovate a house located in the province you may be entitled to claim a provincial new housing rebate for some of the provincial part of the HST that you paid. The key thing to note as stated above is the house or dwelling you are purchasing or renovating must be for use as your primary residence and this is where things can get both confusing and costly here in the southern Georgian Bay area.
In addition to the property needing to be the Buyer’s primary residence, for the purpose of determining whether the HST new housing rebate applies, the federal government has established the following basic criteria amongst others:
- The fair market value of the house at the time that the work is substantially completed is less than $450,000 (the fair market value of the land, building and any other structures must be included in determining this value).
Here in Ontario, an Ontario new housing rebate may be available even if the fair market value of the house is $450,000 or more for owner-built homes. You are eligible to claim an Ontario new housing rebate if you are an individual who paid the HST to build or substantially renovate a house, build a major addition that forms part of a renovation of your house, or convert a non-residential building to residential use, that house is located in Ontario and is for use as your, or your relation’s, primary place of residence, and either:
- you are eligible to claim a GST/HST new housing rebate for some of the federal part of the HST
- the only reason you are not eligible to claim a GST/HST new housing rebate for some of the federal part of the HST is that the fair market value of the house is $450,000 or more
The maximum Ontario new housing rebate amount for newly built houses depends on whether you paid the HST on your purchase both the house as well as the land. The rebate is limited to a maximum of $24,000 if you paid the HST on the purchase of the land, and $16,080 if HST applied to your purchase of the house along and not the land.
As REALTORS® in the southern Georgian Bay market many of the Buyers we deal with are purchasing area properties as a secondary home for weekend, seasonal and or recreational use. In those cases, the new home rebates both federal and provincial are not applicable as the property will not be the Buyer’s primary residence. That begs the questions how does this affect the purchase price? This is where the “fine print” or a specific clause in the builder/developer’s Agreement of Purchase and Sale can enter into the equation.
In many cases when a builder or developer builds a residence(s) where the HST is advertised as being “included in” the purchase price, the builder is factoring in or assuming that the Buyer(s) is purchasing the property for use as their primary residence and as such the “new housing rebate” will be available. Essentially they have factored the rebate(s) into both the sale price and their profit margin. Agreements of Purchase and Sale with home builders and developers will typically include a clause whereby you as the Buyer(s) agreed to assign the rebate back to the builder. Again, they have built that rebate(s) into the sale price and their profit margin so effectively the rebate is their money and not yours. When the Buyer(s) is purchasing the home not to be used as their primary residence there is no rebate available so the question becomes what then?
In those instances where the federal and provincial rebates are not applicable, the Buyer(s) is then required to pay an additional amount above the stated purchase price. The rebate available is limited to a maximum of $24,000 as stated above. Several years ago I sold a newly built condominium for $620,000. My Buyer clients were purchasing the unit for weekend use so we were fully aware that the new housing rebate(s) was not applicable therefore there was no rebate amount to be assigned back to the builder. As such, the Buyers were required to make up the loss of the $24,000 rebate which effectively raised their purchase price to $644,000.
During my twenty plus years as a real estate practitioner I have always made a point to look at every transaction with the question “what could go wrong here” or are their any “red flags” as often there are. Whether it’s a tax issue like HST, visible defects in a house, zoning issues or other matters that could create problems for my Buyer or Seller clients, we as REALTORS® are required to exercise care and skill: to have the requisite knowledge and skills; provide complete and accurate information or to recommend clients seek relevant experts, where applicable including lawyers, accountants, tax experts, home inspectors are others.
If you are thinking of selling or purchasing a property is 2021 and are not sure about the issue of HST or have any tax or other related questions regarding real estate please do not hesitate to Contact Me. If I can’t answer your question I will certainly point you in the right direction as to who can.