The Ins and Outs of the HST Rebate on New Homes

The HST rebate for new homes is available to anyone in Ontario who purchases a new home or condo from a builder (or who hires a builder to construct a new house), provided that certain criteria are met.  If you qualify for the rebate, you may be entitled to get back up to $24,000 of the provincial taxes paid, and up to $6000 of the federal taxes paid.

Who is entitled to the HST rebate?

The HST rebate was introduced to encourage home ownership by families.  It was never intended to benefit investors or corporations that are seeking to turn a quick profit from new home or condo purchases.  As a result, there are some stringent rules in place, and only those individuals who satisfy the criteria are allowed to benefit.

In a nutshell, the eligibility requirements for the HST rebate include the following criteria:

• The purchaser must be an individual, not a corporation
• The purchaser must have paid the HST to the builder when the purchase was made
• The purchaser (or a spouse, parent, grandparent, or sibling of the purchaser) intends to use the home/condo as his or her primary place of residence
• The purchaser must be the first person to occupy the unit.

The HST rebate is also available in some circumstances to a person who buys a new home but rents it out to a tenant immediately, for at least one year.  This rebate is known as “The Ontario New Residential Rental Property Rebate,” or “NRRPR”. Different rules apply to the NRRPR, and buyers seeking to benefit from this rebate should consult their legal advisor to ensure that they qualify for it.

How is the New Housing HST Rebate calculated?

Different rules apply to the federal portion of the rebate and the provincial portion, so the calculation can be quite confusing.  However, since the provincial portion of the rebate is significantly larger (it could be as much as $24,000, compared with a federal rebate maximum of $6,000), it is far more relevant.

Provincial Tax Portion

The amount of the provincial tax rebate depends on the purchase price of the property in question. If the purchase price is $400,000 or less, the rebate will equal 75% of the provincial tax paid. In other words, a buyer could potentially recoup $24,000.  Keep in mind, though, that the rebate is capped at $24,000, so even if you purchase a more expensive property, you will never recoup more than $24,000 of the provincial tax paid.

Federal Tax Portion

The amount of the federal tax (GST) rebate also depends on the purchase price of the property in question, though the maximum rebate (36% of the GST paid) is only available for homes that cost $350,000 or less. Homes that cost between $350,000 and $450,000 still qualify for a rebate, though the amount steadily decreases.  There is no rebate of the GST paid in respect of homes that cost over $450,000.

Overall, the maximum HST rebate (provincial and federal combined) that can ever be received is around $30,000. 

Some Food for Thought

Regardless of how much of the HST will be refunded, there are additional hurdles that a purchaser may encounter.  Canada Revenue Agency (CRA) has set out some stringent criteria that must be met before a purchaser will qualify for the HST rebate, and recent newspaper reports show that CRA is eager to identify people who are abusing the system.  For example, CRA may challenge a purchaser who has claimed the HST rebate on the grounds that the home/condo was not intended to be the purchaser’s principal residence.  In a recent case, a purchaser’s failure to change his address on record on his driver’s licence or OHIP card wasconsidered to be relevant.  As well, simply purchasing a few pieces of furniture and a toothbrush is not enough to convince CRA that the purchaser had a genuine intention to establish a principal residence at the new unit.  CRA needs to be reasonably convinced that the purchaser is not trying to use the system to make a few dollars while flipping the condo.

The lesson to be learned here is that buyers should clarify their rights and obligations regarding the HST rebate before entering into a new home/condo purchase.  Only if they intend to move in and make the new property their primary residence on closing, or if they rent it out for a full year after closing, will they be entitled toa rebate.