Since in this blog we are discussing tax rules, I would strongly suggest you to get the advice from a qualified tax specialist.
What prompted us to write a blog on the subject is frequent misinformation posted on various popular online forums stating that one must reside in the property for 1 year or more in order to qualify for the hst new construction rebate.
Before we get to it let’s quickly recap what is the new construction hst rebate, and how it works in Ontario.
A purchaser of a newly constructed residential unit may be entitled to federal and provincial hst rebate. For all intent and purposes, around GTA the buyers will not currently qualify for the federal portion of the rebate because vast majority of the newly constructed units sell above the $450K threshold established by the federal government, but will qualify for the provincial part of the rebate because there is no established price limit, and the maximum amount of the provincial hst rebate is $24,000.
There are two types of rebates available:
GST/HST new housing rebate: this rebate is available for purchases who intend to occupy it as a principal residence. Typically the builders reduce the quoted price of the unit by the amount of the rebate. If the unit is sold for $700,000, in this total included is the price of the unit plus hst less the rebate.
GST/HST new residential rental property rebate: this rebate is available for purchases of units which will be rented out. There are few differences between the former and the latter, one is that the buyer can’t assign the rebate to the developer, and if the quoted price for the unit is $700,000 the buyer will have to pay $724,000 to the builder and apply for the $24,000 rebate from CRA after the title is transferred. The net amount is the same, but the buyers are $24,000 out of pocket for few months.
The legend of the 1 year rule.
I have come across many posts on some of the popular online forums and even a mortgage broker website which stated that in order to qualify for the GST/HST new housing rebate the owner or the family must live there for at least 1 year.
Let’s see what cra lists as the requirements, the below screenshot is taken from CRA website, a comprehensive guide to the rebate.
There are number of the requirements listed: the property must be considered a principal residence from the outset, length of time inhabited, designation of personal and public records, must have been intended to be a principal residence, and so on.
As you can see it says the length of time inhabited is considered as one of the factors but it never says one must occupy it for the full year.
We have called cra personally and have discussed the issue with tax lawyer who deals with the HST new construction rebates and they have confirmed our understanding of the rules, as of the time this blog is written, 1 year residency is not a requirement. It obviously may change in the future, but there is no such rule at the moment, currently it simply is a common misconception and CRA reviews the application on the case by case basis, and takes into consideration other factors.
Consult a tax specialist when it comes to HST new housing rebate.
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