Why not to review out going GST once again…
GST and New Homes
When you purchase a newly built home, condominium or townhouse, the entire purchase price, including land, is taxable. If the property is bought with the intention of renting it to tenants, the full five per cent GST is charged on the purchase price. However, if the home is going to be your primary place of residence, it may qualify you for a partial GST rebate, depending upon the sale price.
For homes costing $350,000 or less, you will receive a rebate of 36 per cent of the GST paid, to a maximum of $6,300. That means you pay 3.84 per cent GST (not five per cent) on the purchase price. An example to better illustrate this is presented as follows:
New home purchase price inclusive of GST is $300,000.00. The 5% GST is $14,534.88, less a 36% rebate of $5,232.56. The result is that you pay $9,302.32.
1. $300,000.00 ÷ 1.032 = $290,697.67
2. $290,697.67 x 5% = $14,534.88
3. $14,534.88 x 36% = $5,232.56
Understand that the value of the GST rebate decreases proportionately once the purchase price of the new dwelling exceeds $350,000.00. Thus, the maximum GST rebate – irrespective of purchase price – is $6,300.00. To show an example:
New home purchase price is $400,000.00. The GST rebate is $6,976.75 with the total GST owed being $19,379.85.
1. $400,000.00 ÷ 1.032 = $387,596.90;
2.$387,596.90 x 5% = $19,379.85
3.$19,379.85 x 36% = $6,976.75
4. Maximum rebate =$6,300
It is important to note that for new homes that include GST in the selling price $472,500 is the rebate cut off and any increase thereafter will not qualify for a GST rebate. It is also useful to understand that “substantially renovated” homes purchased from builders who supply both the land and the house as a single transaction carry the same GST rebate conditions described above.
GST and Investment Properties
One of the qualifications for the applicability of the GST new home rebate is that the buyer must use the new home as his or her primary place of residence or the primary place of residence of a family relation. This requirement of the governing legislation would seem to suggest that investors who buy and rent out newly-built homes or condominium units are excluded from the benefit of this rebate. Up until 2001 this was, in fact, the case.
Strong lobbying of the federal government by investor/purchaser groups, however, resulted in a change to the then existing law in June, 2001, with the addition of the GST New Residential Rental Property Rebate (“New Rebate”) to the underlying statute. Under the new law, investor/purchasers of new homes/condominium units are also eligible for the rebate – which is calculated the same manner as it is in respect of owner-occupied dwellings.
In a notable departure from the GST rebate afforded owner occupied dwellings, however, the New Rebate is not limited to individuals as it can also be paid to corporations. Just like the ordinary GST rebate, however, there are criteria which must be met in order to claim benefit of the New Rebate; a few of the notable ones are listed as follows:
(a)New home/condominium investor/landlords must have paid full (5 per cent) GST on their purchase, but did not receive the ordinary GST rebate;
(b)The unit must be a “self-contained residence” with private kitchen facilities, private bath and private living area; alternatively, the unit is a suite or room in a hotel, motel, inn, boarding house, or in a residence for students, seniors, or the disabled; and,
(c)It is “reasonably expected” that the first use of he unit is or will be by a tenant occupying the unit as their primary place of residence for at least one year.
Purchasers have two years after the month in which GST was paid to file their rebate application with the Canada Revenue Agency (CRA). Required supporting documentation will include the Agreement of Purchase and Sale, the Statement of Adjustments, the insurance policy on the property as well as the lease with the first tenant.
It is important to note that while investor/purchasers of new long-term rental accommodation are eligible for the New Rebate, speculators are excluded. Under the new law, anyone who buys and rents a new home or condominium unit must repay the full amount of the New Rebate (plus interest) if the property is sold within one year – unless the new purchaser acquires it for use as their (or a relation’s) primary place of residence.
If you have any questions or require more information, please do not hesitate to contact me and I will be happy to assist you.
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