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.