When it comes to pre-construction condos, there are certain questions I hear again and again. Some of the most common are related to the harmonized sales tax (HST). How is it calculated? How does the rebate work—and what percentage can buyers expect to get back once they file?
There’s a lot of confusion surrounding the subject of HST, which can cause significant headaches during the purchase process. If you’re thinking of buying a pre-construction condo, here’s what you should know…
The down-low on HST
When you buy a pre-construction condo, HST needs to be paid. The amount will be 13 per cent of your purchase price (5 per cent for GST, and 8 per cent for PST). How that impacts your closing costs will depend on whether you’re planning to live in your condo, or rent it out. The good news is, you can get all (or in rare cases, most of) your money back either way.
First off, builders usually include the rebate in their pricing. So if you’re considered an “end user” (which means you or one of your direct relatives will be living in the unit), you’ll get it right away through a reduced purchase price.
If you’re an investor who’s planning to rent out your unit, you won’t qualify for the built-in pricing. For units under $350,000, you’ll pay 7.8 per cent of the tax at closing. For those over $450,000 you should be charged precisely $24,000.
Fortunately, once you can prove that you’ll be renting your unit out for at least a year (by providing the Canada Revenue Agency with a solid lease agreement), you can apply to get the amount you’re charged back!
So, how much HST should you get back? The answer, if you pay properly and on time, is usually all of it.
As I’ve already mentioned, HST will be built into your purchase price if you’re an end user. It’s important to take the necessary steps to prove to the Canada Revenue Agency (CRA) that you or one of your direct relatives is living in the condo. That includes things like changing the address on your license so that it reflects your condo’s status as your primary residence. Also be aware that only a spouse, common-law partner, parent, child, or sibling is considered a direct relative.
If you’re an investor, you’ll need to have the amount you’ll be charged in HST ready to go at closing. To get the money back, promptly apply for a New Residential Rental Property Rebate. You should receive the amount you’re entitled to within about a month. For condos over $450,000, expect to pay (and get back) $24,000. Below that sum, a sliding scale applies.
Remember: in most cases, you should get all of the HST you paid back (so long as you play by the rules). If you have questions about the tax you’ll pay in your specific set of circumstances, talk to your lawyer.
If you sell
So, are you still entitled to the rebate if you decide to sell your unit? It depends on the timeline. If you or a direct relative live in the condo for at least a full year, there’s no problem. The same is true if you lease it out for that crucial 12-month period. If you decide to sell sooner, it’s a different story.
The government has been cracking down on pre-construction condo “flipping,” which is why they require proof of who will be living in a new unit (and for how long). If you break the rules, you’ll have to pay back your HST rebate—it’s that simple.
The bottom line
If you’ve found yourself confused by the HST charged on pre-construction condos, you’re not alone. Many investors are unsure about how this tax is calculated—and how to get their money back. The good news is, it’s not as complicated as many people believe.
To ensure that you fully understand your closing costs (and how to recoup those you’re entitled to), work with a real estate agent who can offer solid condo expertise.
Thinking of buying an investment condo in the GTA? I can answer all of your questions. Call or text me at 416-500-5360, or send me an email at email@example.com and ask away!