If you buy a newly constructed home and plan on living in it, you need to pay HST on the purchase. However, if you purchase a used residential property, you generally don’t need to pay HST on it. The government provides an HST rebate on new residential properties to make it an even playing field between used and new homes. To qualify for the New Housing Rebate, you use the home as your primary place of residence
How Do I qualify?
You generally qualify for a rebate if you purchased a new home as the primary place of residence for you or a relative.
What if I Buy an Old Home and Renovate It?
You may also qualify if you complete “substantial renovations” of a home. A “substantial renovation” is when you renovate “all or substantially all” (i.e., 90% or more) of the house. If you “substantially renovate” a home, you can claim a rebate on the HST you pay on the following items:
- building materials
- architectural fees
- connection and installation of electrical power, and
- construction of a patio and open deck
You will need to complete Form GST191-WS Construction Summary Worksheet
Can the Builder Apply On My Behalf?
The home builder will often apply for the rebate on behalf of the purchaser.
Note that builders will often price in the New Housing Rebate in the purchase price. In other words, the builders reduce the purchase price by the New Housing Rebate. The builders automatically assume that you will qualify. Because of this assumption, the builder will ask you to give them back the New Housing Rebate that you will receive.
Suppose a home costs $100,000 and the HST rebate is $5,000. The builder will list the home for $95,000 and ask you to assign back the $5,000 rebate to the builder. This makes the house appear cheaper. But you need to be careful that you qualify. If you don’t, your cost now becomes $100,000. As the buyer, you are responsible for meeting the conditions to be eligible for the rebate
What Happens If I Buy a Home and Flip it?
Many people buy a new home and sell it soon after due to the hot Ontario real estate market.
If you buy the home and sell it before occupying it, you may still be able to apply for the rebate as long as the sale is exempt from HST. In this case, you have to demonstrate to CRA that you intended to use the home as a primary place of residence. You should speak to a qualified tax expert if you fall under this fact pattern.
How is the Rebate Calculated?
There is both a Federal and Ontario rebate. You file two separate forms to claim the rebate. We discuss these details in the headings below.
Federal Rebate
The Federal Rebate is equal to 36% of the federal portion of the HST.
The maximum rebate is $6,300, equal to 36% of the GST payable on a $350,000 home.
When your home’s fair market value exceeds $350,000, the rebate is “clawed back” as the value of the home rises from $350,000 to $450,000. If your home purchase price is $450,000 or more, the federal rebate becomes $0.
Here’s the formula:
Federal rebate = $6,300 x ($450,000 – B) / $100,000
where, B = greater of ($350,000 or the fair market value of the home)
As you can see, if the home’s value is $450,000 or more, the rebate is $0. In Ontario’s red hot real estate market, it is common for people not to get a federal rebate.
Ontario Rebate
If you of the conditions for the federal rebate, you would also be entitled to claim an Ontario new housing rebate on the provincial part of the HST.
Unlike the federal rebate, Ontario doesn’t limit the purchase price. Therefore, you can claim the Ontario rebate even if you cannot claim the federal rebate.
The Ontario rebate is equal to 75% of the provincial part of the HST paid, up to a maximum rebate of $24,000. In other words, if the value of the home exceeds $400,000, you should qualify for the maximum rebate of $24,000.
Fair Market Value vs. Purchase Price
Note how the formula uses the “fair market value” when you paid HST (i.e., closing date). The rebate is not based on your purchase price. The fair market value (FMV) is the highest price you can get in the market between unrelated parties and should be comparable to similar housing in the local real estate market. FMV does not include any GST/HST payable on the FMV or provincial land transfer taxes.
CRA may ask for documentation to support the FMV of your qualifying residential unit (such as a professional appraisal).
Example
Suppose you have the following situation:
- Dr. Rachel entered into a written agreement of purchase and sale for a new condo located in Waterloo, Ontario, on January 13, 2022.
- The purchase price is $400,000.
- Rachel took ownership and possession on June 15, 2022. The condo is subject to the HST at 13%, and the total HST payable is $52,000.
Rachel is entitled to a new housing rebate of $27,150:
- The federal portion of the rebate: $6,300 x ($450,000-$400,000)/100,000 = 6300 x 50% = $3,150.
- The Ontario portion of the rebate: $44,200 x 8/13 = $32,000 Ontario Portion of HST x 75% = $24,000.
Forms to Complete
Only one individual needs to apply, even if two or more people own the home.
For the federal rebate, you need to file Form GST 190. You can click here to access this form.
For the Ontario rebate, you need to file Form RC7190 and attach it with your federal Form GST 190 (mentioned above). You can click here to access this form.
Even if your federal rebate works out to $0, you still need to complete Form GST190 and attach Form RC 7190 to get your Ontario rebate.
Even if you are completing these forms yourself, double-check if you completed these forms correctly with your tax accountant.
How Long Does it Take to Get the Rebate
The CRA audits all claims. Therefore, It could take up to six months before receiving your payment.
Supporting Documents to Send to CRA To Speed Up Refund
If the builder pays or credits you with the rebate amount, you do not have to send CRA any documents. The builder will send the rebate application.
If the builder does not credit you with the amount of the rebate, you have to send CRA:
- a copy of your statement of adjustments
- the documents for the assignment of the purchase and sale agreement, if applicable.
Deadline to Apply for Rebate
You have to file the rebate application within two years after the end of the month, in which HST first becomes payable on your purchase.
Don’t Fall Into This Common Pitfall
When people buy a pre-construction home, the builder will claim the New HousingRebate on their behalf and reduce the purchase price.
Now suppose, the buyer decides before taking procession to rent it out instead; in that case, they should’ve applied for the New Residential Rental Property Rebate. CRA denied the New Housing Rebates to these buyers. In many cases, it was too late to file the New Residential Rental Property Rebate form (due to the 2-year limit), and the buyer lost the rebate.
New Residential Rental Property Rebate Takeaways
- Make sure to send in your supporting document for a speedy refund
- File the correct forms
If you change your mind from owner-occupied to rental, make sure you notify CRA and file the appropriate form within the 2-year limit.
