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What You Need To Know About Getting An HST Rebate
Today, the cost of purchasing a new home in Ontario is higher than ever. This is uniquely so when you are buying a home that is newly constructed. These houses are subject to HST at a rate of 13% and is payable on the sale price. This is such the case whether it is a freehold/townhouse or condominium. To assist new homebuyers, the provincial and federal governments provide relief in the form of a New Home Rebate under the primary residence category and under the New Home Rental Rebate category.
HST combines two separate components: the already existing 5% federal GST, and Ontario’s 8% Retail Sales Tax (RST). There is a new housing rebate available for each component, and each has its own rebate formula.
The first rebate is the federal GST New Housing Rebate. On the first $350,000 of the purchase price, the GST rebate is 36% of the 5% GST payable. The rebate rate of 36% declines to zero between $350,000 and $450,000. Using a straight-line formula, the rebate is eliminated entirely when the price reaches $450,000. There is no GST rebate at all if the pre-tax price exceeds $450,000.
The second rebate is called the Ontario HST New Housing Rebate. Despite its name, this rebate actually applies only to the Ontario RST component of the tax. This rebate consists of 75% of the 8% RST component— in other words, the rebate is 6% of the sale price of the new home. The Ontario HST rebate applies only to the first $400,000 of the sale price, and therefore has a maximum amount of $24,000. Where the price of a new home exceeds $400,000, the Ontario rebate is a flat $24,000. Unlike the GST rebate, the RST rebate does not decline and vanish above a fixed price point.
The following example calculates the rebates on a new home priced at $200,000 and assumes that the purchaser will qualify for the rebate:
- Total HST on $200,000 at 13% is $26,000, made up of $10,000 GST (at 5%) and $16,000 RST (at 8%)
- The 36% GST rebate reduces the GST of $10,000 by $3,600 for a net amount of $6,400. ($10, 000 – $3, 600 = $6, 400)
- The 75% RST rebate reduces the RST of $16,000 by $12,000 for a net amount of $4,000. ($16, 000-12, 000 = $4, 000)
- The total tax after the rebates is $6,400 + $4,000 = $10,400. Therefore, the new home agreement will price the home at $210,400 inclusive of HST (the $200,000 price before tax, plus the net taxes of $6,400 and $4,000).
- The rebates have been built into the price.
- The transfer that the purchaser registers at closing will state that the consideration is $200,000. Land transfer taxes are calculated on this amount.
- The agreement will state that if the purchaser does not qualify for the rebates, then the $210,400 sale price will be adjusted at closing by adding to it the $3,600 and $12,000 rebate amounts, resulting in a final price of $226,000 ($200,000 plus 13%).
In more recent times, the Canada Revenue Agency appears to be keen on clawing back rebates given when it comes to their attention that the Titled person (the person who’s name is on the title) is not residing at the home. For example, see Hagos v. The Queen, 2014 TCC 65 where the Purchasers decided that it would be an investment property before closing. Nevertheless, they claimed the rebate on closing on the basis that it would be a primary residence. The rebate was disallowed and the court decided that it would need to be paid back.
While the above is very straightforward, there is some grey area when it comes to whether a purchaser will qualify for the rebate in certain circumstances. Most notably, the uncertainty arises when somebody comes on title strictly for the purpose of allowing the original Purchaser to obtain a mortgage.
In Davidson v. The Queen, 2002, Philip Davidson was the original Purchaser as per the Agreement of Purchase and Sale. On his own, Mr. Davidson did not qualify for financing. His friend Carol Waterhouse agreed to come on title, which means she co-signed for Mr. Davidson, strictly for the purpose of qualifying for the mortgage. Ms. Waterhouse was simply a friend and had no intention of occupying the premises. Therefore, the Court held that Mr. Davidson did not qualify for the rebate. What we can take away from this decisions and many others after it is that if there are two people on title, they or an immediate family member must reside at the premises. Otherwise, the rebate will be disallowed.
However even more recently, there seems to be clarity as to what needs to happen when somebody comes on title for the purposes of obtaining a mortgage. In Crooks v the Queen, 2016, the court held that the Purchaser, Sheryl Crooks was entitled to the rebate. Prior to closing, she was forced to add somebody on title for the purpose of obtaining a mortgage. The Court held that the other person coming on title was solely for the purpose of obtaining the mortgage and had no beneficial interest in the property.
In light of the foregoing, it is difficult to arrive at a definitive answer as to how HST Rebates will be applied moving forward but Crooks is of some comfort for purchasers who have no alternative but to add a third party on title for the purpose of obtaining a mortgage.
How to Apply for the HST Rebate:
A form called the GST-190 must be filled out and filed to the Canadian Revenue Agency. The form can be found online and must be submitted electronically. You must apply within two years of the new home closing. Here is the link to the form is: http://www.cra-arc.gc.ca/E/pbg/gf/gst190/gst190-13e.pdf
It is always important to explore these options with your lawyer well before closing to make sure you do not run into any last minute surprises. Drop by or give us a call for more information!
Please note the content on this web site is provided for general information purposes only and does not constitute legal or other professional advice of any kind.