With soaring home prices and concerns over affordability, it’s unlikely even the casual news observer goes a day without hearing something of the red-hot Canadian housing market. For today’s installment, I offer up something of a niche topic falling under the broad housing market umbrella: HST/GST rebates available on purchasing a “teardown” home. Working and living in the Greater Toronto Area (GTA), I’ll focus on the Ontario provincial HST rebate.
New home sales in Canada are subject to GST/HST whereas resale homes are not. As an equalizer of sorts, GST/HST rebates are available to new home purchasers. The Federal GST rebate tends to be about $6,000 but is lost in full on the purchase price exceeding $450,000 – an easy feat given prices in the GTA. More lucrative is the Ontario HST rebate which hits its ceiling of $24,000 on spending $400,000 and is not subject to any claw-back provisions on “expensive” homes as with the Federal rebate.
In cases of clear-cut brand-spanking new homes purchased from a reputable builder, the rebate process tends to be straight forward. The builder will either discount the purchase price by the rebate or signoff the rebate application form filed by the purchaser after closing.
The definition of a new home for purposes of both rebates includes the teardown and rebuild scenario. With residential landmass becoming scarcer in the GTA, teardowns have gained popularity and the trend will undoubtedly continue.
Sticking with teardowns, this is where some unscrupulous builders/flippers are illegally gaining at the expense of unsuspecting buyers (and frankly all of us in eroding the tax base). Specifically these sellers are misrepresenting teardowns as being resale rather than new build. In doing so, they get around having to remit 13% GST/HST of the purchase price to the CRA (and pocket it instead). Intuitively the basis for buyers claiming the rebate is having first paid GST/HST that is in-turn remitted to the CRA by the seller.
To be cynical for a moment, the resale framing is often only step one in the seller perpetrating another tax fraud or two or three. For example, they may also be sidestepping income tax on the sale by claiming the principal residence exemption (i.e. by purporting to have lived in the reincarnated residence for a period of time).
Canada Revenue Agency’s perspective
As noted the purchaser can file for the rebate after closing. However, the CRA actually paying out is conditional on either of: the seller signing off the rebate application form or the buyer producing a Statement of Adjustments splitting out GST/HST from the purchase price. A duped buyer will find neither of these options are available after the sale closes. There is a quasi-appeals process with the CRA, but in speaking to experts in the field, without either of the aforementioned, buyers are wasting their time.
As brief commentary, it seems tax enforcement dollars in this arena would return a handsome ROI. Case in point: CRA adjustors taking the blinders off and sizing up files with more than just the Statement of Adjustments.
Warning signs for teardown buyers
Here are red flags suggesting something suspect may be in play:
- The seller prepares the purchase and sale agreement using the Ontario Real Estate Association (OREA) resale agreement template.
- The seller refuses to split out GST/HST from the purchase price in the Statement of Adjustments sale closing document.
- Look for subtle signs the seller is attempting to build a case for having lived in the rebuilt home. In other words, some detective work may be in order. For example, perhaps during viewings you notice the seller directed unnecessary personal mail to the home.
To sum up
Understanding your entitlements to GST/HST home purchase rebates – teardowns or otherwise – can put up to $30K in your back pocket (Ontario resident).
Financially speaking, a home purchase is no different than most other areas of personal financial planning. A successful outcome will result from educating oneself and working collaboratively with the right professional.
Pat Kenney, CPA, CA, is a senior manager with parker simone LLP and an eleven year veteran of the public accounting space. He is a self-described student of all things business, accounting, taxation, personal finance and current events (thank-yous to Steve Paikin and John Moore). Pat’s interest in sports and local organized runs was the driving force behind his existing stance as a fitness and wellness enthusiast at-large. Pat is active in community based volunteer work focused on financial literacy and was recently nominated for a CPA Canada volunteer award in this capacity.
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Disclaimer: GST/HST housing rebates are technical and dynamic in nature. I therefore recommend potential buyers and sellers seek out professional advice before transacting. The information above is meant to be general in nature and should not be acted on in isolation.