There are rebates available to purchasers of new residential homes that reside in provinces subject to Harmonized Sales Tax (HST), however these rebates are also available to purchasers of residential rental property for use as a tenant’s principal residence.
New Housing Rebate
The combination of the Goods and Services Tax (GST) and the Provincial Sales Tax (PST) into the Harmonized Sales Tax (HST) that has taken place in the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island, has resulted in increased sales tax charged to purchasers of a number of consumer goods and services. Perhaps the most notable item affected by the new harmonized sales tax is on the purchase of new residential property, which has resulted in a significant increase to the total cost of new property to purchasers within these provinces. In order to mitigate the increased expense to purchasers, the Canada Revenue Agency has introduced the GST/HST New Housing Rebate, through which purchasers of new or substantially renovated property are eligible for a rebate of the federal portion of GST/HST. Rebates for the provincial portions of HST paid are also available for properties located in Ontario and Nova Scotia, and on properties purchased in British Columbia prior to the repeal of the harmonized sales tax on April 1, 2013. For properties located in Quebec, a rebate of both the GST and QST payable on new property is also available.
Who is eligible?
The rebate is primarily for individuals who:
Purchased a new or substantially renovated house, including a residential condominium unit, a duplex, a mobile home (including a modular home), and a floating home from a builder;
Built, or hired someone else to build, a house on land the individual owns or leases;
Substantially renovated, or hired someone to substantially renovate, the individual’s existing house;
As part of a renovations of the individual’s existing house, built, or hired someone else to build, a major addition that at least doubles the size of the living area of the house; or
Purchased a share of the capital stock of a co-operative housing corporation (co-op.)
Primary place of residence
The main condition for eligibility for the new housing rebate is that you must buy or build the house for use as your or your relation’s primary place of residence. As such, purchasers who do not ordinarily reside in Canada are generally not able to claim the rebate. This results in a larger financial burden to individuals that purchase property in Canada for use as an investment or income property; and for non-residents for use as a principal residence upon eventual repatriation to Canada.
GST/HST New Residential Rental Property Rebate (NRRP)
For individuals purchasing property for rental purposes on which HST was payable by the purchaser, there is a rebate available in the form of the GST/HST New Residential Rental Property Rebate (NRRP). This rebate is available to landlords who, for residential rental purposes:
Purchased newly constructed or substantially renovated housing from a builder;
Constructed, or hired someone else to build, housing or an addition to housing;
Substantially renovated, or hired someone else to substantially renovate, housing;
Converted a non-residential property into housing; or
Made an exempt lease or sublease of land to another person.
This opens the door for non-resident individuals to receive a rebate of HST paid on purchase of residential property by ensuring that the property is rented to a third-party for use as a principal residence.
The NRRP rebate is only available to purchasers of property that will be rented to an individual to be used as a principal residence for a period of at least one year. As such, no rebate is available on the purchase of a property used for personal use (i.e. cottage/vacation property), or on rental property that will not be occupied by an individual as a principal residence for a period of at least one year. In order to ensure eligibility for the rebate, it is important to enter into a lease for a period of no less than one year.
How is it calculated?
The federal portion of the NRRP rebate is calculated as 36% of the GST paid on purchase, to a maximum of $6,300 depending upon the property’s value. A rebate for the provincial portion of HST payable on purchases of residential rental property are also available for properties located in Ontario, and for those purchased in British Columbia prior to April 1, 2013. The Ontario rebate is calculated as 75% of the provincial portion of the HST paid on purchase, to a maximum of $24,000. Purchasers are eligible to claim the federal and provincial NRRP rebates for a period of up to 2 years after the purchase date, renovation, or construction is completed.
To sum it all up…
The New Housing Rebates available to purchasers of new residential property can greatly decrease the additional sales tax liability resulting from the harmonization of sales tax in participating provinces. With these rebates now extended to purchasers of property used for rental purposes in the form of the NRRP rebate, non-residents of Canada are able to realize significant tax savings on investments in Canadian property. For non-residents, this represents an important consideration when considering the purchase of Canadian property for investment or as a future principal residence.
Provided by and for more information please contact:
Arun (Ernie) Nagratha, CPA CA, CPA (Illinois)
T: 416-214-7833 x102