The entire rebate process is complex. Every individual’s situation is different. And the CRA websites don’t make the process any easier. So, if you have a question before you submit your GST/HST Rebate application form for your new or substantially renovated home or investment property feel free to call us.
With more than 15 years of experience helping people successfully get their GST/HST New Housing Rebates and GST/HST New Residential Rental Property Rebates these are the top five questions that we field from clients and prospective clients.
1. Can I Claim The New Housing Rebate If The Value of My Home Is More Than $450,000?
Probably the most frequent question that we field from Ontario-based clients is owners asking whether or not they can claim the GST/HST New Housing Rebate if the value of their newly built or substantially renovated house exceeds $450,000. This probably stems from individuals searching the internet for the new housing rebate and encountering the GST191 rebate application first, which is the form for the federal portion of the GST rebate. A quick read of the form and the reader will see the following, “If the Fair Market Value (FMV) of the house, including the land, is $450,000 or more, do not fill out Part D since you are not eligible to claim a GST/HST New Housing Rebate for some of the GST, or the federal part of the HST.” While this may apply to most provinces, Ontario owners are entitled to a rebate based upon the Ontario portion of HST paid to build or renovate their homes up to a maximum rebate available of $24,000.
The federal portion of the New Housing HST Rebate is based upon the FMV of the property at the time of occupancy, whereby the Ontario rebate is based on the actual cost of the goods and services, and HST paid on the purchase of the property if applicable. If the FMV of your home is greater than $450,000, how much money could you be missing out on? Not really, the federal portion of the rebate available tops out at $6,300 for houses with an FMV of $350,000 or less.
2. What Is Fair Market Value & Why Is It Important?
In the previous question, we touched upon the issue of Fair Market Value. For the purpose of HST rebates, Canada Revenue Agency (CRA) defines Fair Market Value (FMV) as “the value of both the building and applicable land. It is normally the highest price that can be obtained in the real estate market between unrelated parties and should be comparable to the values of similar housing in the local real estate market. It does not include provincial land transfer taxes or any GST/HST that may be payable on the FMV.”
For GST/HST New Housing Rebates, the rebate calculation is straightforward. How the FMV is used to calculate the New Residential Rental Property Rebate (NRRP Rebate) is a little more complex. At the time of closing the builder’s solicitor will prepare a Statement of Adjustment which will calculate the HST Rebate that the purchaser must remit based upon the purchase price of the new property minus the GST/HST paid. This amount is used by the builder to calculate the HST rebate amount. A disconnect happens when the buyer submits their application. The buyer must use the FMV of the property at closing which could be significantly higher than it was when the original purchase transaction happened. As a result, your actual rebate could be lower than what you paid the builder at closing.
For illustrative purposes, a residential property with an FMV of less than $350,000 qualifies for a maximum Federal rebate of $6,300. A property with an FMV of more than $450,000 does not qualify for a Federal rebate. And properties between $350,000 and $450,000 will receive a prorated amount. Note that Provincial rebates do not use FMV to calculate the rebate amount.
3. What Happens If I Purchase An Investment Property & Claim It As My Primary Residence?
Real estate investors that purchase a new home in order to lease that property are required to inform the builder prior to closing that the property is being purchased as an investment. As a result, the builder will not assign the rebate to themselves and are required to collect an amount equivalent to the rebate value from the purchaser. Once the purchaser has secured a tenant for a minimum period of one year, the investor can claim the New Residential Rental Property Rebate from the Canada Revenue Agency (CRA).
First-time investors are either unaware that they need to inform the builder of the property’s use, or they believe that by claiming the property as their primary residence that the CRA will not catch up with them. While such actions save the purchaser the need to outlay the amount of the HST Rebate at the time of closing, it could lead to additional costs such as penalties and interest, in the long run.
Given the complexity of the Canada Revenue Agencies (CRAs) systems, there is a significant chance that the CRA will identify the property as a rental and note that the purchaser did not pay the New Residential Rental Property Rebate at the time of closing. At such time the CRA notes the anomaly, they will contact the purchaser to verify that the property is being occupied as their principal residence. If the purchaser is unable to provide the CRA sufficient evidence that it is then they will be required to pay the New Residential Rental Property Rebate, plus they will be assessed a penalty and interest.
We have helped numerous Landlords that may have found themselves in this situation and we can help you minimize the costs associated with having to reclassify your GST/HST rebate. Contact us, we would be happy to discuss your situation further with you.
4. How Is The HST Rebate Calculated In Ontario?
In Ontario, both the GST/HST New Housing Rebate and the GST/HST New Residential Rental Property Rebate (NRRP) requires homeowners to file for both the provincial and federal rebates.
Eligible new home buyers can claim a rebate for 36% of the federal portion (5%) of the HST paid on a new home with a pre-tax price less than or equal to $350,000. Where the pre-tax price is more than $350,000, but less than $450,000, the rebate for the federal portion of the HST is gradually clawed back and no rebate is available where the purchase price is more than $450,000. The maximum rebate available for the federal portion of the HST is $6,300.
In addition, an eligible new home buyer can also claim a rebate of 75% of the Ontario portion (8%) of the HST. Although this rebate is available for all homes, regardless of their purchase price, the Ontario portion of the rebate is capped at a maximum of $24,000.
5. How Long Must I Own My Property Before I Can Sell It and Not Have to Repay My Rebate?
One of the most valuable tax breaks Canadians have is the ability to claim the Principal Residence Exemption (PRE) on the sale of a home. The PRE provides homeowners with an exemption from tax on the capital gain realized when you sell the property that you have designated as your primary place of residence.
We receive numerous calls from clients inquiring as to how long they need to “own” a property before they sell it. The primary rule for getting the tax-free PRE status is that you MUST take occupancy of the residence. The CRA Interpretation Bulletin on this issue says that PRE status will be conferred if there is personal occupancy for “…a short period of time”. The amount of time is not defined but this use of language in the CRA’s own Interpretation Bulletin will be interpreted by the courts liberally in favour of taxpayers.
While the CRA does not specify a timeframe for the PRE a number of precedent cases that have gone through tax court lead us to believe that the CRA will settle on 4 months of occupancy to get tax-free status. The CRA will still review resales within 6, 7 or even 8 months of getting title since many taxpayers pay the reassessed amount, penalties and interest out of fear.
If you do not take occupancy and the CRA insists that you repay the New Housing Rebate on HST paid on purchase, usually an amount of $24,000; we recommend that you appeal their decision. The courts have ruled that eligibility for this rebate is based on your personal circumstances at the date of signing the Agreement of Purchase and Sale and that failure to move in does not disqualify you from getting the rebate. Customized upgrades at the time of signing the purchase offer are strong proof that the property is being bought for personal usage and not to make a profit.
Our Tax Experts Ensure The Highest Possible Rebate
For real estate investors of all types, our in-house tax experts can be a valuable asset. We can help you figure if you may be eligible for specific tax rebates, and help you make the application in a timely manner. Our experts understand all of the government guidelines, rules and regulations. We streamline the application process for a stress-free experience.
Every home rebate claim requires supporting paperwork and documents. In fact, any mistakes or oversights might delay a claim or result in a denial of the claim altogether. When you work with our rebate experts, your rebate application is completed by one of our in-house experts. Prior to submission, all new housing rebates undergo a final review by a second expert. After the documents are submitted we will work, on your behalf, with the appropriate government agency to handle any issues that might arise.
Our in-house tax experts provide a streamlined application process, with minimal stress to the applicant. You can find out more by calling 1-647-281-5399 or by visiting www.my-rebate.ca. One of our experts will be in touch to discuss your tax rebate questions, and to help out with your particular application.