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ED
NewBee
reply 8 vote 1
 

Understanding the HST in the purchase of a new condo

Hi All,

I am considering investing in a preconstruction condo in Toronto but need to understand all the issues around the HST in a purchase of a condo. A few questions to start off:
1. Is the HST included in the list prices that developers or realtors make available to potential buyers?
2. I understand that the HST is handled differently if you are the end user of the unit or an investor planning to flip or rent. Can someone provide some details on this, specially flip vs rent?
3. Can some explain the HST rebate?

I know there is a wealth of knowledge in this forum and hope someone can shed some light on my HST questions or elaborate on anything I need to be aware of re. HST.

Thanks
11
Canada / New Home Q&A
 
 
 
ISSACK DERCHANSKY
Buzzer
reply 13 vote 8
 
 
3 BEST REPLY
To build on what some posters have already written...

Most pre-construction Agreements that I have seen contain a clause stating that the purchaser is purchasing the property for the purpose of residing in it. There are various reasons that builders do this. One such reason is because purchase prices are generally inclusive of HST less the amount of the HST New Housing Rebate, which is available only if you are purchasing the property for your own use or the use of a relation. See here: http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-07-13e.pdf.

Some posters have already advised that there is a lesser known HST rebate that you can apply for if you are purchasing the property as an investment. In this case, since you advised the builder you are purchasing for your own use but actually aren't, the builder's lawyer will add the amount of the HST New Housing Rebate to your purchase price owing on final closing (which can reach five figures). After closing and after paying this extra amount of the HST New Housing Rebate to the builder, it will be up to you to apply for the rental rebate on your own. See here: http://www.cra-arc.gc.ca/E/pub/gp/rc4231/rc4231-13e.pdf.

Regardless of which option you choose to follow in closing your pre-construction deal, remember that you will likely be asked, at some point, to sign a statutory declaration with respect to your intention for the property (principal residence or rental). Swearing a false declaration is a violation of the Criminal Code.

Finally, please remember that the HST New Housing Rebate and the HST rental rebate are not the same thing as land transfer tax. Your status as a first time buyer has no relevance with respect to the HST rebates for which you can apply. This can be your 5th property and the rebates will still be available to you if you meet their criteria.

Hope that helped...


 
 
 
CESAR
NewBee
reply 4
 
 
Hi Ed,
How are you? I'm doing a pre-construction syndication for investors @BISHA or BISHA.com check them out. I can provide investor package if you like. For more info info@cjrealestateinvestments.com
Now for your questions.
1. Tax is included in the purchase of condos, that is the price listed by realtors or developers.
2. As the end user you will be charged a land transfer tax, if you are in Toronto, that is now doubled! On a 500k condo lets say you are going to be looking about 10-15k closing costs.
3. You can do an assignment on the condo, if you are looking to flip it, that means that you don't atcually close on the condo, come time when the development is done. This is great if you are flipping, because you don't do step 2, the end user does step 2.
4. HST Rebate, this is only for first time home buyers, looking to purchase their principle residence. If you have a principle residence, this doesn't apply to you. If you plan to invest and flip, this also doesn't apply to you.
Hope that Helps
Cesar
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2299 vote 171
 
 
Hey @Ed and @Cesar,
I just spoke to a lawyer, and here is what they said (of course, this is not legal advice.... just relaying the message):
1. HST is typically included in the purchase price listed by developers for sale of new condominium units. To be sure, ask the salesperson that provided you with the price list.

2. There are two types of HST new housing rebates - one for personal occupancy (or by direct family member) and another that may be available to the individual or entity acting as a landlord renting the unit for residential purposes. See our separate blog on HST for investors http://blog.buzzbuzzhome.com/2011/06/new-residential-rental-property-rebate.html

3. The rules surrounding both the federal and the provincial components of the new housing rebate programs are complicated. It is recommend that you speak with your real estate lawyer for specific transaction advice. General public information can be accessed via the federal Canada Revenue Agency website - www.cra-arc.gc.ca
 
 
AMAR PAL
Buzzer
reply 98 vote 8
 
 
Not a response directed to you Ed, but incase anyone in BC is wondering the same thing, this is how it works over here:
-HST is usually not included in the price, you must add to it to determine the end price of your presale condo
-Rebates are available on both the 7% provincial portion and the 5% federal portion.
For the federal portion a buyer can get back 1.8% of the 5% on homes up to $350K, and a diminishing portion of that refund up to $450K.
The provincial portion, buyers get back 5% on homes up to $525K, which makes a max refund of $26,250. Homes above that will still get back this max $26,250 but no more, so it diminishes away from the full 5% as the price goes higher.
Basically for homes up to $525,000 there is not a significant change from before HST was implemented but as buyers move into higher priced new homes the difference starts to add up.
More info on this and other basic Presale questions on my Presale 101 page (shameless plug):
http://vancouverpresales.com/presale-101-faq/
Vancouver based but some of it might be useful in Toronto terms as well.
 
 
MARY
NewBee
reply 5
 
 
Matthew said:
Hey @Ed and @Cesar,
I just spoke to a lawyer, and here is what they said (of course, this is not legal advice.... just relaying the message):
1. HST is typically included in the purchase price listed by developers for sale of new condominium units. To be sure, ask the salesperson that provided you with the price list.

2. There are two types of HST new housing rebates - one for personal occupancy (or by direct family member) and another that may be available to the individual or entity acting as a landlord renting the unit for residential purposes. See our separate blog on HST for investors http://blog.buzzbuzzhome.com/2011/06/new-residential-rental-property-rebate.html

3. The rules surrounding both the federal and the provincial components of the new housing rebate programs are complicated. It is recommend that you speak with your real estate lawyer for specific transaction advice. General public information can be accessed via the federal Canada Revenue Agency website - www.cra-arc.gc.ca
 
 
MARY
NewBee
reply 5
 
 
If you flip are you not subject to capital gains tax and if so what would the amount be on a 500K condo?
 
 
ED
NewBee
reply 8 vote 1
 
 
Thanks all for the information.
Definitely something that needs to be looked at very carefully.
@Matthew, the blog you quoted in your response is excellent. Definitely recommended to anyone interested to learn more about this.
 
 
ED
NewBee
reply 8 vote 1
 
 
1
In doing more research on the internet about this topic, I found this blog article from Mr Andrew la Fleur on HST.
http://truecondos.com/the-elephant-in-the-room-hst
Another interesting article (also within Mr la Fleur's) on the HST implications for investors: http://homelegalcost.com/hst.asp
It is worth to read them as the HST may come as a surprise for some INVESTORS (pre-construction) as it could potentially increase closing costs by thousands of dollars... In the example in the article, for a $500,000 unit one could pay an additional $40,000, which I presume would be at closing...
Perhaps 'expert' pre-construction RE agents could weight on this or provide additional information/clarification.
 
 
IDAN MIZRAHI
NewBee
reply 3
 
 
Hello everyone,

My name is Idan Mizrahi (idan@rebate4u.ca  1-855-588-7328) from Rebate4U.ca, we are government rebates consultants.  

I have read this blog now and I saw some inaccurate information.

I will touch on the HST Rebate on condos and if you would like to get further information you are welcome to visit our website: www.rebate4u.ca

The Hst rebate on condos is split to 2 scanarios:
1. If you bought a brand new condo from the builder and moved in to the unit as your principle residence, THE BUILDER WILL CREDIT YOU THE REBATE UPON CLOSING.
2. If you bought a brand new condo from a builder as a rental property and never moved in yourself, the builder will demand that you will pay  the HST on the unit PRIOR to closing. 

Based on the 2nd Scanario: after the condo owner paid the builder the HST and leased is unit, WE CAN GET HIM BACK THE HST THAT HE PAID THE BUILDER.

Please feel free to contact me with any question related to HST Rebate on condos.

Idan Mizrahi
idan@rebate4u.ca
1-855-588-7328
2700 Dufferin st. unit 68 Toronto,ON                  
 
 
SIMON
NewBee
reply 1
 
 
What if you are intending to move in or a family member but then plans change upon closing? Would you still be penalized? 

Life happens right?
 
 
IDAN MIZRAHI
NewBee
reply 3
 
 
Hi Simon,

If upon closing you end up not moving in to the unit and rent it out instead, you will have to pay the builder the rebate back and upon signing a lease we can help you get the same amount back through an investors rebate program.

Feel free to contact us anytime: www.rebate4u.ca  or 1-800-610-4510

All the best,
Idan Mizrahi    
 
 
 
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