If you are buying a new home or condominium, a GST or HST (and in Quebec, QST) New Housing Rebate may be available to you – but there are a number of traps and pitfalls that can cause you to lose the rebate.
Amount of rebate
The federal rebate, offsetting in part the 5% GST on the new home, is 1.8% of the purchase price, or 36% of the GST. However, the full rebate is available only up to a purchase price of $350,000, where the maximum rebate is $6,300. After that the rebate is phased out, and disappears entirely once the home price exceeds $450,000.
In Quebec, an additional rebate is available of 4.9875% of the purchase price (50% of the 9.975% Quebec Sales Tax — QST). However, the full rebate is available only up to a purchase price of $200,000, so the maximum rebate is $9,975. After that the rebate is phased out, and disappears entirely once the home price exceeds $300,000.
In Ontario, an additional rebate is available of 6% of the purchase price, or 75% of the 8% Ontario portion of the HST. However, the full rebate is available only up to a purchase price of $400,000, so the maximum rebate is $24,000. After that level, the rebate remains at $24,000 no matter how expensive the home.
No other province provides an additional rebate, although Nova Scotia offers a rebate to “first-time buyers” (persons who have not owned a home in the past 5 years) which is not part of, or based on, the GST/HST rebate system.
The rebate is normally credited to you by the builder on closing, though you can also apply for it directly to the Canada Revenue Agency (or in Quebec, to Revenu Québec).
Most new home builders price their homes to include the GST/HST or QST, net of the rebate, but also provide in their standard Agreement of Purchase and Sale that they will credit you the rebate and that you will in turn pay or transfer the amount of the rebate back to the builder. In these cases, calculating the rebate using the above percentages does not quite work, because the technical purchase price on which the rebate is calculated includes the rebate itself.
Conditions for rebate
If you are purchasing a new home or condominium from a builder, you can normally claim a rebate if you meet the following conditions:
- • The sale of the home is subject to GST or HST.
- • At the time you sign the agreement of purchase and sale, you are acquiring it with the intention of using it as your (or a close family member’s) “primary place of residence”. (If instead you are intending to rent out the property for at least one year, there is normally a parallel “landlord’s rebate”.)
- • You pay all the GST/HST on the purchase.
- • The construction is “substantially complete” by the time ownership is transferred to you.
- • The home has not yet been lived in (if it has, the builder should have paid the GST/HST on it and there should be no GST/HST when you buy the home). However, occupancy of a condominium unit under an agreement of purchase and sale before closing is allowed — often this happens as a temporary rental before the condominium project is registered and ready to be transferred.
- • Either you (or a close family member) are the first person to live in the home after substantial completion, OR you re-sell the home without GST/HST before anyone moves in.
What happens if someone else helps you with the financing?
Beware of what can happen if you get help from a friend, or a relative who is not a close family member (e.g., an uncle), with your financing.
Some mortgage lenders insist that a person who wants to co-sign or guarantee a home purchase loan must sign onto the Agreement of Purchase and Sale as a co-purchaser. If this happens, and the person is not “related” to you as defined in the Income Tax Act, you will lose the rebate. The reason is that every person who signs the purchase agreement must meet all of the conditions above, and your friend or uncle is not intending to live in the home.
Even if the other person signs a bare trust agreement confirming they have no real interest in the home, the rebate will be lost. This was determined by the Federal Court of Appeal in February 2018 in the Cheema case (2018 FCA 45).
What’s included in the purchase price?
If your new home costs under $350,000, you can increase your GST rebate by having “extras” included in your contract as part of the new home price. For example, the CRA’s administrative policy permits appliances sold with a new home to be considered part of the purchase price in certain cases. Other extras, such as landscaping, can also become 1.8% cheaper when included in the price this way.
On the other hand, if your new home costs over $350,000 but less than $450,000, you will want to exclude such “extras” from the purchase price and contract for them separately, so as to stop the erosion of the rebate that happens once the purchase price exceeds $350,000.
If you are in Ontario or Quebec, these calculations need to also take into account the Ontario or Quebec rebate.
Co-operative housing corporations are similar to condominiums, but you don’t actually buy a unit as you do with a condominium. Instead, you buy a share in the corporation, which gives you a right to occupy a particular unit.
For GST/HST purposes, the share is exempt – you pay no tax on it (just as when buying any shares of a corporation — this is an exempt “financial service”). However, the housing corporation will have paid GST or HST in constructing the building. You can therefore claim a rebate from the CRA when buying a new co-op unit. The rebate is 1.71% of the value of the co-op share up to $367,500. Above that level, the rebate is again capped at $6,300 and gradually phased out for more expensive shares. For Ontario and Quebec, similar adjustments are made to the provincial rebate.
The numbers are different than for houses and condominiums because the price you pay for the co-op is already a “GST-included” price, reflecting the GST the housing corporation paid on the construction.
If you build your own home, you can claim the new housing rebate directly from the CRA. The rebate is 36% of the GST you pay on construction costs (trades, materials, etc.).
If the completed value of the home (including the land) is over $350,000, the rebate is capped at $6,300 and then phased out so that it disappears once the value of the home reaches $450,000, using the same formula as above for purchased homes. For this purpose, the value of both the house and the land are counted.
The additional Ontario and Quebec amounts are also available for the owner-built home rebate.
If you are buying a new home, condominium or co-op or building yourself a house, be aware of the availability of the new housing rebate, and of all the conditions that must be met for you to be entitled to the rebate. The CRA actively reviews new housing rebate applications, and will check to make sure the conditions are met by every purchaser or co‑purchaser. If they are not, the CRA will assess you to recover the rebate, plus interest, even if the builder credited it to you on closing. If you are in Ontario, this can easily cost you $25,000 or more; in Quebec, $17,000 or more, and in other provinces, $6,500 or more.