Don’t Lose Your HST Rebate

New homes in Ontario are subject to HST. When the builder sets the price on a new home, the builder includes the HST as part of the purchase price. So on closing you don’t have to pay HST in addition to the purchase price … except some purchasers will be in for a surprise when they do have to pay the extra HST. You see, when the builder sets the inclusive HST price, the builder assumes that the purchaser will be living in the home or the purchaser’s immediate family members will be living in the home (as opposed to the purchaser buying it as an investment and renting it out or “flipping” it for a profit before the closing date). Why? Because the government set charge for HST on new homes which are occupied by a purchaser is not 13%. The government reduces the HST ultimately payable (this is the “HST Rebate”) and the builder uses this “reduced HST amount” as the HST inclusive purchase price. How much is the HST that is included in the price using the HST Rebate? Well that depends on the purchase price of the house. Remember that the HST is composed of the 5% GST and the 8% PST. For homes under $400,000, 75% of the 8% PST portion gets discounted up to a maximum of $24,000. As for the discount on the 5% GST portion, for homes up to $350,000 (excluding HST), 36% of the GST portion gets discounted. For homes between $350,000 and $450,000, the 36% is reduced on a sliding scale and is unavailable for houses costing more than $450,000 (excluding HST).

Remember, for purchasers residing in the new home or buying it for family members, these numbers don’t really matter because the builder set the HST inclusive price taking all these rebates into consideration. These numbers will matter though for the investor purchaser.

If in fact a purchaser or his or her immediate family don’t actually live in the house, when the builder forwards the HST to the federal government, the builder can’t take into account the HST rebated amount and has to forward the full 13% HST. Guess who has to come up with the difference? That’s right – you – the purchaser. That is because the standard builder form of Purchase Agreement requires the “investor purchaser” to come up with the difference. So for example if the price of the home excluding HST is $350,000, an “investor purchaser” will have to pay an additional 36% of the GST and 75% of the PST or $27,300 on top of the purchase price.

So, for any purchaser who intends on renting out or flipping a property for investment, beware of this extra cost!