06 Jan HST & New Rental Investment Property
HST. The following outlines our understanding of the HST implications with respect to purchase of new residential housing for residential rental investment. As we are not experts in tax advice, we recommend that this be independently verified for accuracy and cannot provide a representation as to the accuracy of same. Our understanding of the rebate process for rental/investment purchase of new single family subject to HST is as follows:
1 Purchase Price with new homes is typically provided based on residential, owner occupied purchaser with an assignment of HST Rebate by the end user (owner occupied purchaser) to the Builder. The sale price includes within what is referred to as Net HST and in closing, the builder assumes the additional liability for the HST due beyond the Net HST included in the sale price. By example a Builder marketed home has a Net HST Price of $259,900, the price then before HST (this is actually the price recorded as the sale price at the registry) is $246,958.
2 What happens with a $246,958 sale? The total HST is 13% of $246,958 = $32,104 of which the Buyer is paying the Net Portion of $12,942 and assigning the additional rebates (Federal & Provincial) to the Builder to recover later. So in essence, the deal is $246,958 plus 13% but builder is reducing the amount to the Net HST sale price and going to get the rebate that has been assigned to reduce this to the actual amount. This is how a typical owner occupied new home buyer sale transpires.
3 Using the same example as 2) for Investor Purchaser the contract is done at $246,958 plus all HST as there is no Net HST included in the sale price; it is then reduced to the base purchase price before the Net HST. The Purchaser as Investor Buyer, following closing applies for the Rebates (Federal & Provincial) that they would normally be assigned to the builder. The Buyer needs to provide the following documentation to support the rebate request:
- The Statement of Adjustments from closing
- The Purchase Agreement
- A copy of a lease/rental agreement to show it is rental housing stock (this is key as the intent of the rebate to investor is predicated on this being true – if purchase is to buy and resale, full HST likely applies)
- A copy of the insurance policy (owners policy, not tenants – likely looking for rental definition within this)
1) GST/HST New Residential Rental Rebate Property Application… Form GST524E(12) this application is Type 6
2) GST524 Ontario Rebate Schedule… Form RC7524-ON E (it’s confusing that the forms title is the form number for previous but it is part of calculation for this)
3) The investor buyer then submits the above documents and forms (make copies for your files of all records sent) and applies for a rebate for a portion of the HST / GST. The portion to be rebated based on our example here should equate to the Total HST less the Net Amount that would normally be included in purchase price. By example 2) above the Total GST / HST Paid is $246,958 x 13% = $32,104 and the rebates due back should equal Federal: $4,445 and Provincial : $14,817 for a total of $19,262 which offset against the total paid yields a Net HST paid of $12,842 which if we add to the base purchase price before Net HST (contract sale price, investor buyer) yields a total purchase price of $$246,958 + $12,842 = $259,800 (same price owner occupied buyer assigning rebate to builder would pay).
The end result is the Investor Purchaser who meets all of the qualifications outlined herein should pay the same price as an owner occupied purchaser with one caveat and that is the investor purchaser has to pay the full HST/GST upon closing and apply for the rebate resulting in both an upfront cost and delay in credit of the rebate that would normally be assigned and processed by builder. Our due diligence for this opinion includes three calls to the government service line to clarify points of review, review of the GST/HST Technical Information Bulletin and completing a sample application of the forms to calculate the rebates.
We are not tax experts and therefore we cannot warrant the accuracy of the information contained herein. We recommend independent review and hope that this summary assists that review. More information can be found at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html . We value the accuracy of our information and welcome any input regarding any inaccuracies found within. We have used our best efforts to provide accurate information, as noted herein E. & O. E.