PLEASE NOTE THAT ANY INFORMATION ON THIS WEBSITE INCLUDING THE BLOG POSTS SHOULD NOT BE CONSIDERED LEGAL ADVICE AND READING IT DOES NOT GIVE RISE TO A SOLICITOR-CLIENT RELATIONSHIP. IT IS FOR GENERAL INFORMATION ONLY. AS EVERY SITUATION IS UNIQUE, PLEASE CONTACT A LAWYER FOR LEGAL ADVICE.
Today’s post stems from a common inquiry with respect to HST-related consequences for clients buying a newly built property. This applies to newly built residential real estate property in Kitchener, Waterloo or anywhere else in the Province of Ontario.
It is often the case that buyer that has signed up to purchase a newly built property either to reside within or to invest may not be fully aware of his or her HST-related obligations. This realization usually comes up at the time our office is contacted by a real estate client seeking closing costs or when the agreement of real estate is shared by a realtor while introducing the buyer(s) to our office for closing.
Essentially, there are two types of HST issues that are addressed in this article. The first being the HST New Housing Rebate and the second being the HST New Residential Rental Property Rebate. The New Housing Rebate may be available for those buyers that are going to own and occupy the property (with limited exceptions). The property can be a newly built home or a condominium. The second rebate is relevant to a buyer that is buying for the purposes of investment.
First, we touch on the HST New Housing Rebate which is the most common type for buyers. Put simply, if a buyer does not qualify for the HST New Housing Rebate, he or she has may be obligated to pay an additional portion when it comes time to close the transaction. This often comes as a surprise to many buyers when they visit or inquire about closing with their lawyer. The result could be that the buyer has to come up with thousands of dollars to close the deal.
Eligibility for the HST New Housing Rebate has a number of criteria in addition to what’s mentioned here but the crux of it may be summarized as follows:
- The buyer (or a relation) has to have an intention to occupy the property as their primary place of residence at the time the agreement was signed.
- Once construction is substantially completed, the ownership has to be transferred to the buyer.
- The first occupant of the property must be the buyer or a relation.
Typically a process is followed by which the Buyer is provided credit by the builder with respect to this HST New Housing Rebate which is then assigned to the builder (at the time of closing, which is when the buyer(s) sign such documents). The concern arises from cases in which the authorities, Minister of National Revenue (MNR) goes after the buyer(s) for an improperly claimed rebate.
While many of the above-noted and other criteria in qualifying for the rebate have been subject to court cases, in a case called Yang v. The Queen, 2009 TCC 636 (CanLII), the question as to what constituted a primary place of residence was before the court to which the court provided some guidance. Here, two individuals purchased a property together with intent to occupy it as their primary residence. However, one of the parties occasionally stayed at her son’s place at a different address and also used the son’s address in her tax return. Despite these issues, and after consideration of other relevant factors, the that the property was bought as their joint primary place of residence.
The Court provided guidance by stating:
“Many factors that assist in determining what constitutes a primary place of residence are found in previous decisions of this Court as well as in policies issued under the Goods and Services Tax/Harmonized Sales Tax legislation. Some of these factors are the following:
– the parties ‘intention with regard to the use of the housing unit as their primary residence; their length of stay at the new unit; the address they use for correspondence; when they moved in and when they moved; their personal belongings, and if the move was delayed, what events occurred that caused the delay; details of the insurance coverage; what they did with their former residence or rental unit; and other factors that may be relevant depending on the facts of the case.”
The other type of rebate, being the HST New Residential Rental Property Rebate also requires professional tax and legal advice. This rebate is relied upon in a situation where a property is being purchased for investment / rental purposes and buyers are directed to further explore the requirements and eligibility of the HST New Residential Rental Property Rebate. It may be possible for a potential landlord to apply for a rebate after closing of the transaction. Depending on how the agreement of purchase and sale is entered into, the buyer(s) set to purchase an investment property may likely be called upon to provide additional funds to close the transaction as they do not qualify for the HST New Housing Rebate. This is usually because at the time the agreement of purchase and sale for a newly built property is entered into, the buyer may not have disclosed this intention.
Given that there is usually a significant time gap between signing of the agreement and the actual transfer of ownership, it can also be the case that the buyer may not have had the intention to use the property as an investment at the outset, only to have decided to rent it out some time later. This may bring up the following scenario: what if one had bought the property as their to-be residence but perhaps due to work, or personal situation (birth of children) or other unplanned circumstances, the property no longer suits the original plan? For example, if a couple with a child on the way was living in a 1 bedroom condominium but signed an agreement of purchase and sale for a two-bedroom house in the same neighbourhood, it may be understood that they had bought the new house to use as their primary residence due to the expansion of their family. However, if the husband lost his job locally but found one in another too-distant to travel from the area, then could one argue that they had the intention to reside in the property? This is an example of the type of situation the MNR may consider and try to identify the original intention at the time of purchase. There is case law that suggests that ‘intention’ at the time of entering the agreement of purchase and sale is a key factor in determining eligibility for HST Rebate.
It may be even more difficult to qualify for the rebate in the event that two or more parties are buying the property. The requirements are more onerous in that all parties may be required to be eligible instead of just one. The key is to understand whether you qualify for the rebate or not as the eligibility criteria can be on an ‘all or nothing’ basis meaning everybody must satisfy this criteria. If all parties are buying for the purpose of residing in the property and nothing changes in that they actually do end up residing in the property and use it as a primary place of residence, then the coast may be clear for this rebate. For example, a married couple bought to occupy the property and in fact ended up doing so is a simpler example of parties that may qualify. However, buyers come in various forms and things aren’t always clean cut. For example, if a married couple is buying a property to occupy it along with a parent or sibling assisting them by being on the title (perhaps for mortgage purposes), one must be aware of the possibility of losing the eligibility. Such loss means more money required to close the transaction – an untended result.
As a result, it is important to know what you are getting into and seek advice to avoid unpleasant surprises. It is recommended to have your agreement reviewed by a lawyer so that you can be better prepared for unexpected costs if any. As real estate lawyers, our office assists with the purchase and sale of real estate including newly built homes and condominiums not only the Kitchener-Waterloo region but also beyond.
For any questions related to
real estate, wills, estate and probate, give our office a call.
PLEASE NOTE THAT ANY INFORMATION ON THIS WEBSITE INCLUDING THE BLOG POSTS SHOULD NOT BE CONSIDERED LEGAL ADVICE AND READING IT DOES NOT GIVE RISE TO A SOLICITOR-CLIENT RELATIONSHIP. IT IS FOR GENERAL INFORMATION ONLY. AS EVERY SITUATION IS UNIQUE, PLEASE CONTACT A LAWYER FOR LEGAL ADVICE.
