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HST Can Be a Surprise Condo Closing Cost in Toronto

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Condo Closing Costs in Toronto Preconstruction Real Estate Market

 
Many investors are taking advantage of the hot real estate market in Toronto by investing in new construction condominium units to be used as investment properties. The number of condominiums being constructed in Toronto is staggering, yet small compared to the increasing demand for Toronto housing. New preconstruction projects being continiously launched is allowing more investors to continue to purchase newly built investment properties from the many builders across Toronto and the GTA.
 
New construction condos will require a deposit in order to secure the unit. Expenses that should be budgeted for a condo closing include the down payment, legal fees for closing as well as both the Provincial and City of Toronto land transfer taxes. These significant expenses are all due by the final closing date of the property before the title of ownership is changed from the builder to the purchaser. Final closing typically occurs within 6-9 months after the occupancy date of the condo.
 
One of the expenses that can be especially confusing for new condo owners is the HST. The rules surrounding the HST are largely not well understood by investors and even realtors. Most investors are unaware of the specifics for eligibility and the pitfalls of how the HST Rebate process can trigger an audit for their new property. This is also true of the HST New Housing Rebate, which has been put in place to help owners who are using the preconstruction property as a primary residence to immediately recover the amount of HST that is paid at final closing. Understanding of the HST requirements and the HST rebate is further complicated due to the different rules that come into effect, which are chiefly dependent on whether the condo will be owner-occupied or used as an investment property.
 

Who Pays the HST for New Construction Properties?

 
The party typically responsible for paying the HST will differ depending on the intended use of the property after it changes title.
 
It is common for builders to draft an Agreement of Purchase and Sale that does not charge the purchaser the HST Rebate amount.  Part of the HST is built into the sticker price that the builder charges upfront, and the second portion of the HST (exact percentage breakdown depend on the purchase price and operate on a sliding scale) is dealt with on closing and termed the HST Rebate amount.  Most Purchase Agreements assumes that the property will be used as a primary residence by the purchaser; it entitles the builder to receive the HST New Housing Rebate on behalf of the client and in return, the builder credits the purchaser on the Statement of Adjustments this Rebate amount.  In effect, it is a net wash for the purchaser.  No additional HST is due on closing and the builder adjusts the HST with CRA directly themselves.
 
In the case that the new condo, home or townhouse that will not be owner-occupied and will be used as an investment property, the purchaser will be required to pay the entire HST, which includes the amount built into the Purchase Agreement Price and the HST Rebate amount (typically $16,000 - $29,000) by the final closing date before the title transfer can occur.  Investors who are unfamiliar with the HST rules will not have these additional costs budgeted into the final closing costs for the condo.  Failure to pay the HST amount due on the final closing will jeopardize the closing, which can result in the deposit being lost and possible legal action being taken by the builder.
 

Financial Help for Paying HST on Investment Properties

 
The major banks will not provide specific HST-related loans to help cover these unanticipated costs because the major banks in Canada are mandated not to lend for tax-related purposes (similar to how the banks will not lend a mortgage to include closing costs, the closing costs have to be paid in cash by the purchaser). Luckily, there are specialized HST-as-applied-to-real-estate companies that will provide HST Rebate Loans to clients to ensure that the HST can be paid in full and the final closing is not compromised.
 
The client will need to be eligible for the HST Rebate while also having a credit score above 650 on their credit bureau. The HST Rebate Loan is issued in the form of an unsecured loan or as a second mortgage. The loan will then be paid off when the HST rebate is received from the CRA. The HST relief company may even file the paperwork for the HST rebate on the investor’s behalf as a further convenience.
 
Don’t let unexpected condo closing costs in Toronto compromise your final closing. Discover how an HST Rebate Loan can help you pay the HST on your new investment property today.

HST on new homes in Ontario

Can someone explain to me how HST is applied to new homes in Ontario?  We bought a new home, but I am unsure who is responsible for the HST - the builder or the purchaser?

Answers

By HST Relief (Admin)

Since 2010, HST is applied to all new construction real estate transactions but NOT resale transactions.   A portion of the HST is included in the Purchase Agreement that the purchaser signs with the builder at the time of the sale, before the home or condo has been constructed.  The second, HST rebate portion of the HST is due at the time of closing.  Now, whether or not the purchaser or the builder is responsible for that portion of the HST depends on how the property will be used.

 
If the purchaser will be moving into the new condo or house as a primary residence (or a qualifying immediate family member), then it's a wash.  The builder credits the purchaser the HST rebate and is responsible to sort it out with CRA themselves later.  If the new construction condo or house will not be used as a primary residence, then the purchaser is responsible to come up with the HST rebate due at the time of title transfer and building registration.  Then, the purchaser can reclaim the HST from a government rebate program with CRA to get his portion paid back after closing.  This amount of HST due on closing ranges from $17,000 to $30,000, depending on the purchase price of the property.
 
HST Relief is a team of accountants and tax lawyers who specialize in HST rebate filings.  We advise our clients what to expect on closing and how to reclaim their money back from Revenue Canada.  We also provide loans to finance the amount of HST due on closing so investors can continue to buy hot Toronto real estate.  Call us at 1.866.832.1990 info@hstrelief.ca 

Help with HST on new construction

I am the broker of record at a major real estate office in North Markham.  Many of my agents are unsure about how HST applied to real estate will impact their clients and I believe they should be as educated as possible before selling preconstruction and new projects off plans.  We want everyone to know where they can get help with HST applied to their new condo and newly built homes in new developments. 

Answers

By HST Relief (Admin)
Give us a shout at HST Relief - we often schedule presentations in real estate offices to explain how HST is applied to new construction.  There are many considerations for your clients and many potential pitfalls that can put them in a vulnerable place in terms of CRA audits if clients are not properly educated on the new rules and regulations.  We agree that to give your clients the best service, you need to explain the HST rules properly but also have experts to refer to when you have questions about complicated situations.  
 
Give us a call at 1.866.832.1990 and info@hstrelief.ca
 
 

HST on new homes, resale and rental properties

I appreciate the information on this forum, very helpful.  Can you explain generally how HST affects home buyers in Toronto and Ontario?  Thanks.

Answers

By HST Relief (Admin)
Generally, here is the key information everyone should understand on how HST affects real estate:
 
HST came into effect on July 1st 2010.  HST is not applicable to the purchase of a resale home or condo.  However, HST does apply to the purchase price of newly constructed homes (new construction condos, townhomes and houses).  If you are going to live in the house as a primary residence, the builder will cover the portion of HST due on closing for you and the agreement of purchase and sale will assign the right to claim the HST Rebate to your builder. The trouble comes when you will NOT be using the newly constructed home as your primary residence.  In this case, you will how the portion that is the HST Rebate to CRA on your closing date.  You will make a cheque out to your solicitor and it will be paid through the solicitor's trust account.  There are programs in place to recover this amount after closing.  The most common is the New Residential Rental Rebate Program.  For this, you need to have a 1 year rental agreement in place with a renter.  If you are leaving the property vacant or using it as a vacation or second home, then you will not qualify for a rebate.
 
There is not HST charged on rent. 
 
There is HST charged on all aspects of home renovation and one can apply for the substantial home renovation HST Rebate, if they renovated their primary residence by 90%. 
 
For the basics, check out the CRA page on HST and Housing.  www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/hsng/menu-eng.html
 
Please call us for more specific questions at 1.866.832.1990

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