On July 1, 2010, the Ontario government introduced Harmonized Sales Tax (HST) and this substantially increased the cost of purchasing a house in Ontario, as these purchases went from being subject to a 5% tax (GST) to a 13% tax (HST). In response to this increased cost, the Ontario government introduced various HST rebates to reimburse some Purchasers with a portion of these taxes.
One such rebate was the New Housing HST Rebate, which allowed the Purchaser of a newly built home, which they intended to use as a primary residence for either themselves or an immediate family member, to reclaim a substantial portion of the HST paid.
Shortly after the New Housing HST Rebate was introduced, it became common practice for the Builders of new homes to provide a credit to the Purchaser in exchange for the Purchaser assigning their New Housing HST rebate to the Builder. This practice has been beneficial to both parties, as the Builder is able to advertise a lower purchase price on new homes and the Purchaser is able to more easily qualify for a mortgage at the lowered purchase price.
Similarly, there is the Residential Rental Property Renate (NRRP Rebate) which is available to Purchasers of new builds who intend to use the new house as a rental property, where a tenant will be using the home as their primary residence for at least 12 months after the house is built.
The question arises as to whether the Purchaser can also assign the NRRP rebate to the Builder in exchange for a lower purchase price in the same way that they would with the New Housing HST Rebate.
Unfortunately, the short answer is “No.” The longer answer is that the Ontario Excise Tax Act specifically speaks to and excludes the possibility of a Builder applying for the NRRP Rebate on behalf of the Purchaser. Under the legislation, the Builder is only permitted to apply for the NRRP Rebate if they themselves will be the one acting as landlord over the new rental property.
Accordingly, the Purchaser of a new build who intends to use the house as a rental property must apply for the NRRP Rebate on their own behalf, directly with the Canada Revenue Agency (CRA) after closing.
This can create some headaches for a Purchaser as it may create cash-flow issues, as the Purchaser will be required to pay the HST up-front to the builder and apply for the rebate after closing. This also places the onus on the Purchaser to apply for the rebate when typically the Builder will have experience applying to the CRA for HST rebates.
The good news for Purchasers is that they have 2 years from the time of closing to apply for any applicable rebate (although they must be mindful to maintain all necessary documentation, including a signed 12-month lease in the case of the NRRP Rebate) and they can typically expect to receive their rebate within 2 months of making their application.
In sum, a Purchaser is not able to assign their New Residential Rental Property HST Rebate to a builder in the same way that they would typically assign their New Housing HST Rebate. However, this doesn’t preclude a Purchaser from seeking expert advice on the rebate application process in order to claim their HST rebate as quickly and efficiently as possible.
If you have any further questions or concerns, or would like advice on claiming any HST rebate, please feel free to contact our office.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.