The red hot real estate market in Ontario is making rental properties a good investment for Doctors. If you buy a new residential property to rent out to a tenant, you need to pay HST on the purchase. However, if you purchase a used residential property, you generally don’t need to pay GST/HST on it. The government provides a partial HST rebate on new residential rental properties to level the playing field between used and new homes. To qualify for the New Residential Rental Property Rebate, you or your corporation will need to rent out the property for at least one year. In this article, we break down how doctors can get at least $24,000 back from the government on new rental properties they purchase.

How Do I qualify?

You generally qualify for a rebate if you purchased a new home and you paid HST on it, and the first use of the unit (or is it reasonable to expect that the first use of the unit will be) one of the following

• Your or your relation’s primary place of residence for a period of at least one year (or for a shorter period if, after the shorter period, the unit is leased to an individual who will occupy the unit as their primary place of residence).
• A lessor’s, or their relation’s, primary place of residence for a period of at least one year (or for a shorter period if, after the shorter period, the unit is sold or leased to an individual who will occupy the unit as their primary place of residence).
• An individual’s primary place of residence and the individual will occupy the unit continuously for a period of at least one year (or for a shorter period if the unit is sold to another person for use as the primary place of residence of that person or a relation to that person, or taken by the person or lessor, or a relation of the person or the lessor, for use as their primary place of residence).

Generally, CRA will recapture your rebate with interest if you sell the property within one year to a purchaser who is not acquiring it for use as their primary residence.

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:

• 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 rents the condo out to a tenant and has a one-year lease agreement signed.

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

For the federal rebate, you need to file Form GST 524. You can click here to access this form.

For the Ontario rebate, you need to file Form RC7524 and attach it with your federal Form GST 524 (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 524 and attach Form RC 7524 to get your Ontario rebate.

If you are already registered for HST, you can file your rebate application online. You can do this by using the “File a rebate” service in My Business Account or Represent a Client.

Even if you are completing these forms yourself, double-check if you completed these forms correctly with your accountant.

Supporting Documents to Send to CRA To Speed Up Refund

We have generally found that the CRA will ask for the following documents. If you want your rebate to be processed faster, please send in the following with your application:

1. Signed Purchase and Sale Agreement (excluding attachments),
2. Statement of Adjustments, and
3. The Rental Agreement.

What if I Buy a Property in a Corporation? Do I Qualify?

Yes. Even if you purchase a rental property in a corporation, your corporation will be eligible for federal and Ontario rebates. Your corporation will complete the forms mentioned above.

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

Note that there is also a rebate if you purchase a new home that you are living in (not renting out). This is called the “New Housing Rebate.”

When people buy a pre-construction home, they tell the builder to claim the new home rebate on their behalf and reduce the purchase price (you can do this for the New Housing Rebate but not the New Residential Rental Property Rebate).

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 people. 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

1. Make sure to send in your supporting document for a speedy refund.
2. File the correct forms.
3. 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.