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HST Puts Strain on Investment Property Closing Costs

HST Puts Strain on Investment Property Closing Costs

Beginning in July of 2010, the Government of Canada introduced the HST Rebates to offset the newly combined harmonized sales tax and goods and services tax on new build investment properties. This new sales tax was a combination of the provincial and federal sales taxes paid on nearly all goods. The Rebate is available to individuals who have purchased a preconstruction investment property, provided they meet all conditions for 1 of two rebate programs. Closing costs associated with a real estate purchase may include land transfer tax, legal fees, and levies on new builds. It is important to communicate clearly with your builder or contractor what the primary intended use of your residence will be. In many circumstances, the Agreement of Purchase of Sale from the builder assumes that the purchase will be using the property as a primary residence – in which case, the builder will pay the HST and receive your property’s HST New Housing Rebate in lieu of you owing anything on final closing. In this case, a new build property being used as a primary residence by the purchaser or the purchaser’s immediate family, signing over the rebate to the builder means that purchaser is not responsible for the HST on final closing.  However, investors who purchase a new build investment property or condo are responsible for a component of the HST, determined by purchase price, on final closing.  Investors also qualify for the HST Rebate through the program called the New Residential Rental Rebate Program.

Who Qualifies For HST Rebates?

The qualification process for the New HST Housing Rebates can make matters very confusing for investors. When HST was introduced, the government recognized the increased burden that this would put on investors and introduced a rebate system reimburse investors. The purchase price of a newly constructed property is subject to HST. The Ontario HST rebate for new properties is available to anyone in the province who purchases a new property or condo from a builder, or who hires a builder to construct a new house. When purchasing a new residence for investment purposes, the Ontario New Residential Rental Property Rebate can only be applied for by the buyer after closing and never by the vendor. While a rebate can only be applied for after closing, this additional financial burden can leave investors in financial distress, the portion of HST due on closing can range anywhere from $16,000-$29,000.

What Are Some Options for Investors?

It takes on average, three to five years for a condo to be built and closed. Closing a new build investment property for a non-owner occupied residence is expensive. Failure to pay the required HST due on final closing may jeopardize the owner’s deposit and can result in litigation from the builder for breach of contract. If you’re looking to invest in a property to generate income, but do not have the additional cash on hand for final closing, there are companies willing to help. The first waive of investment condos are closing since the new HST rules took effect in 2010 and many investors are left unsure about the amount of HST due on the date of closing until about five days prior when their solicitor notifies them, leaving them with very little time to come up with a solution. Since banks do not lend for HST tax purposes, companies like HST Relief: Rebates & Loans have had to step in and give financial aid to those purchasers to close their investment properties. HST Relief can help investors feel comfortable about the purchasing process, as they not only will lend you the necessary cash, but they also file and collect your rebate from the CRA, helping to make the process as stress-free as possible. Filing incorrectly may cause an investor to forfeit their rebate.

Can you finance closing costs for an investment property?

Is it possible to get financing for the closing costs on my investment property?  Including HST, there will be many expenses.  I don't know if I can afford to close the condo.


By HST Relief (Admin)
Good question.
Our company offers loans for the HST portion due on a new construction home, townhome or condo closing.  So, if you only have a limited amount of funds for closing costs, use what you have to pay for the development charges, lawyer's fees, etc. and take the HST loan with us.  Call us today to set up your HST loan - 1.866.832.1990
The schedule A banks in Canada are mandated not to lend for tax related purposes (such as for the HST due on closing) and they also will not allow you to roll-in other closing costs and fees with your mortgage.  Luckily, we are here to lend for HST on your new property.  We will also file for the HST rebate and recover the total loan amount for you, to pay your loan off.  You will receive our HST rebate in 45-60 days after final closing.
Call or email us for more information - 1.866.832.1990  info@hstrelief.ca

How much is HST?

Hi there,
I have a condo in Toronto closing in early December - purchase price was $304,499.  Can someone please tell me how much I need for closing.  My lawyer keeps giving me ball-park answers. 


By HST Relief (Admin)
If you are using the new condo for anything other than your primary residence, you will owe $22,573.22 on closing in HST.  This is the reabate-able portion of HST, which means that you will be able to file for an HST Rebate and recover these funds after final closing. 
You will need to have a 1 year lease in place to qualify for the rebate.  Call us to prepare your filing or if you need a loan or financing to close your property.  1.866.832.1990

Should I flip my condo on assignment to avoid having to pay HST on final closing?

I am concerned that I cannot afford to pay the HST that will be due on closing for my preconstruction investment condo purchased at Westlake.  My real estate agent has suggested that I sell on assignment prior to closing.  If I do sell, what are my HST implications?  Am I free from having to pay HST if I sell the condo before closing?


By HST Relief (Admin)
It is not true that you will avoid owing and having to pay HST on a new investment condo if you sell the new construction property on assignment.  There are 3 major issues to completely understand before selling or "flipping" a new construction condo:
1. CRA has decided to look at condo flipping sales differently than a regular sale of a property that the buyer has had title over for a year or two.  Instead of taxing the capital gain, CRA is now taxing these sales as inventory which means that the profit will be added to your taxable income.  Please call us to discuss in greater detail.  You can reach one of our agents at: 416.879.2181 directly or at 1.866.832.1990
2.  For assignment sales, CRA will charge you HST on your deposit and on your profit from the sale.
3.  There are additional implications for HST depending on whether you are selling the unit to another investor or if you are selling the unit to someone who will be using it as a primary residence.  Also, your assignment clause has be carefully worded and approved by the builder in order for your buyer to qualify for the HST Rebate.  For this issue, it is best to call us at 416.879.2181 or 1.866.832.1990 for information that applies to your specific situation.  
For these 3 reasons, it is in our clients' best interest to close the property, hold on to the investment for a significant period of time and then sell.  This situation is exactly why we offer HST Loans in the form of bridge financing to help clients successfully close their investment properties and to salvage their investment.

HST and mortgages for new construction investment condo

I owe HST upon closing for my new investment condo in Toronto. Can I get a mortgage for a larger amount to cover the HST due upon closing?  I can easily qualify for an additional 25,000 in mortgage amount.   


By HST Relief (Admin)
Hi Alek, No. The major banks in Canada have a mandate NOT to lend for tax related purposes.  So, you cannot get a mortgage that will cover the HST amount due upon closing.  For this same reason, you cannot get a credit line for HST from a major bank either.  However, our company, HST Relief: Rebates & Loans provides a loan service to cover the HST that will be due for your upcoming closing.  We will then file your HST rebate and make the loan whole with the funds you get back from CRA.  This service essentially serves as orm of bridge financing.  Check out this link for more information on the pricing of our loan service: http://hstrelief.ca/pricing/

Getting a loan for HST amount due on closing for new Toronto condo

Hi there, I went to my bank but they said they cannot give me a line of credit to pay the HST that I will owe on my condo. Are there any private lenders who can loan me the HST amount before I get my HST rebate?


By HST Relief (Admin)
Hi Phillis, 
Yes, the major banks in Canada have a mandate not to lend for tax related purposes, which is why they will not give you a line of credit to pay the HST due upon closing of your investment property.  Banks will also not allow you to roll-in additional costs into your mortgage, including taxes (like HST and land transfer tax) nor other closing costs (levies, lawyer's fees, etc.).  
Our company, HST Relief: Rebates & Loans will lend the amount of HST that is due on closing and file for the HST Rebate.  The Rebate amount will be returned against your loan in 45-60 days, such that you only have to pay interest for 1-2 months.  This is a wonderful product and loan service for those who were left with little time to understand how HST works before the funds are due to CRA at closing and may not have liquid cash to pay the HST.    
Give us a call for more information at: 1-866-832-1990 

Do I get an HST Rebate for my $1 million dollar investment condo in Toronto?

Hi, I heard from friends that I do not qualify for the HST rebate because my investment property in Toronto is over the $450,000 price range.  Is this true?  Can I expect any HST rebate when I close on my downtown condo this fall? 


By HST Relief (Admin)
Good question.  If you purchase an investment property over the $450,000 price mark and you qualify for the New Residential Property Rental Rebate (i.e., you have a 1 year lease in place with a renter), you still qualify for the Ontario provincial rebate.  Over this price point, the Ontario portion of the rebate maxes out at $24,000.   

How much will I owe in HST for my condo?

I have bought a condo in Etobicoke and I need to find out how much I will owe for my condo in HST.  Is the HST 13% of the purchase price?  My condo is $325,330. Please let me know how much additional cash I need to have to close my Toronto condo.  My condo closing is in only a few months and I sincerely appreciate your help - Many thanks.


By HST Relief (Admin)
Finding out how much you owe in HST before closing can be an unnecessarily stressful task.  Harmonized Sales Tax (HST) is due to the Canadian Revenue Agency (CRA) upon closing of a new construction or new build property. Part of the HST is built into the purchase price and a portion of the HST is due upon closing the new build house or condo. 
If the new build will be used as the purchaser's primary residence, then the builder will cover the portion due upon closing to the CRA and have you sign over the right to reclaim the rebate to the builder.  The net effect for a primary residence is that there will be no HST due upon closing.  If the unit is an investment property, then the purchaser is required to front the HST amount to the CRA on the closing date and then file for the New Residential Rental Property Rebate. 
For a new build investment condo that was purchased at $325,330, the amount of HST that you will owe on closing is $24,122.  If you meet the criteria for the rebate (e.g., have a 1 year lease in place with a tenant), you may qualify for the HST Rebate.  Give us a call for more details on what you owe in HST and how to reclaim your HST rebate - 1-866-832-1990

First Canadian Place • 100 King Street West • Suite 5700 • Toronto, ON • M5X 1C7

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