GST/HST NEW HOUSING REBATE — TECHNICAL FIX IN THE APRIL 19 FEDERAL BUDGET

Background

We last discussed the GST/HST New Housing Rebate in detail in our September 2018 issue. Generally, if you are purchasing a new home or condominium from a builder, you can normally claim a rebate if you meet the following conditions:

• The sale of the home is subject to Goods and Services Tax (GST) or Harmonized Sales Tax (HST).

• At the time you sign the agreement of purchase and sale, you are acquiring it with the intention of using it as your (or a close family member’s) “primary place of residence”. (If instead you are intending to rent out the property for at least a year, there is normally a parallel “landlord’s rebate”.)

• You pay all the GST/HST on the purchase.

• The construction is “substantially complete” by the time ownership is transferred to you.

• The home has not yet been lived in (if it has, the builder should have paid the GST/HST on it and there should be no GST/HST when you buy the home). However, occupancy of a condominium unit under an agreement of purchase and sale before closing is allowed — often this happens as a temporary rental before the condominium project is registered and thus ready to be legally transferred.

• You, or a close family member, are the first person to live in the home after substantial completion, OR you re-sell the home without GST/HST before anyone moves in.

A similar rebate is available if you build your own home.

The federal rebate (of part of the 5% GST) is only available if the total cost of the home (including the land) is less than $450,000. Up to $350,000, the rebate is 36% of the 5% GST. Above $350,000, it is phased down to zero as the cost approaches $450,000. As these dollar thresholds have not changed since they were introduced in 1991, this rebate is no longer useful for most new home purchases in some Canadian cities, as homes have become more expensive.

In Ontario, there is an additional rebate of 75% of the Ontario 8% portion of the HST, up to a purchase price of $400,000. The maximum rebate is thus $24,000. This rebate is not phased out for more expensive homes, as the federal rebate is. Thus, in practice, in a city like Toronto where virtually every new home or condominium now costs over $400,000, the rebate is a flat $24,000.

The rebate is normally credited to the purchaser by the builder on closing, and is factored into most builders’ quoted sale prices.

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The “family friend” problem

As noted above, one of the conditions for the rebate is that you acquire the home with the intention of using it as your, or a close family member’s, “primary place of residence”.

Until now, this condition has applied to every co-purchaser, if multiple people are listed as purchasers on the Agreement of Purchase and Sale.

This has posed a problem in cases where the “real” purchaser does not qualify for mortgage financing, and the bank or mortgage company insists that they find a relative or friend with good credit to co-sign the mortgage. If the person who helps out in this way is a close relative such as a parent or sibling, the “intended as primary place of residence” condition is still met, since a close family member qualifies. However, if the person is merely a friend, or a more distant relative such as an uncle or cousin, the condition is not met for any purchaser. The “real” purchaser loses the rebate!

This has led to many purchasers unexpectedly losing the rebate — the CRA assesses them months or even years after the purchase, to recover thousands of dollars. 

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The problem is being fixed

Finally, the government has addressed the unfairness of these cases. The April 19, 2021 federal Budget states:

Budget 2021 proposes to remove the condition that where two or more individuals buy a new home together, each of them must be acquiring the home for use as their primary place of residence or the primary place of residence of a relation. Instead, the GST New Housing Rebate would be available as long as the new home is acquired for use as the primary place of residence of any one of the purchasers or a relation of any one of the purchasers.

This change is included in Bill C-30, the Budget bill which received First Reading in Parliament on April 30, 2021 and at time of writing was expected to be enacted by mid-June. However, it will apply only where the purchase agreement is signed after April 19, 2021.