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October 25, 2018

Why is there GST on the price of my new home?

Why is there GST on the price of my new home?  Do I qualify for a rebate?
 
This is a question that is often asked in the new home buying process, and we’re here to give you all the details on when GST is charged, and how you can qualify for a rebate or a partial rebate. 
 
Just like when you are purchasing a new car or pair of shoes, GST is charged on newly constructed or substantially renovated homes. Substantially renovated is defined in the legislation as “removal or replacement of most of the house construction components except for the foundation, external walls, interior supporting walls, floor, roof and staircase”.
 
Used residential housing is not subject to GST.
 
That being said, you can qualify for a rebate on the GST if you are purchasing a primary residence or a rental property.
 
If you are purchasing as a primary residence, the home (whether jointly owned or otherwise) will be where you intend to live on a permanent basis and must be evident at the time of purchasing your home. Second homes, recreational properties, properties purchased by a corporation or partnership or properties that you intend to retire into, but plan to rent out in the interim do not qualify.
 
If the Purchaser (or a certain related family member) is planning to reside in the new home as their primary place of residence, they may be eligible for a GST New Housing Rebate. 
 
The rebate is available for those purchasing a new home up to $450,000 (excluding GST).
 
If you are purchasing a new home for $350,000 and under (excluding GST), the full rebate of 36% is applicable.
 
Example:
Purchase Price - $350,000 (excluding GST)
Gross GST - $17,500 (5% of $350,000)


GST New Housing Rebate - $6,300 (36% of $17,500)
Net GST - $11,200
 
In this case, as the purchase price is $350,000, the full rebate is available.  For homes valued between $350,000 - $450,000, the rebate is gradually reduced and is calculated using the following formula:
 
$6,300 x ($450,000 – the purchase price)/$100,000
 
Lets take a purchase price of a new home at $400,000 excluding GST:
$6,300 x ($450,000 - $400,000)/$100,000 = $3,150
 
Purchase Price - $400,000 (excluding GST)
Gross GST - $20,000
 
Partial GST New Housing Rebate - $3,150
NET GST - $16,850
 
It’s important to note that at completion, the Purchaser is responsible to pay the full 5% GST, and will apply directly to CRA for the GST New Housing Rebate.  This means the Purchaser will need to ensure they have the additional funds to cover the 5% GST at completion.
 
If the Purchaser is planning to rent out their new home, they may be eligible for a GST New Residential Rental Rebate.
 
The full rebate is available on homes priced up to $350,000 (excluding GST), and a partial rebate is available for homes priced between $350,000 - $450,000, and the calculations are identical to the rebate calculations for the GST New Housing Rebate.
 
In order to be eligible for the GST New Residential Rental Rebate, there are certain conditions the Purchaser must meet:
 
1.   The Purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the rental unit.
2.   The rental unit must be a “qualifying residential unit” which means the person applying for the rebate must be the owner of the unit and the unit must be a self contained residence as defined in the Excise Tax Act;
3.   The unit must be held by the owner for the purpose of making exempt supplies (for example, a residential tenancy);
4.   The unit must be used as a primary place of residence by the tenants and must be used for at least one year
 
The Purchaser will be required to pay the full 5% GST on completion, and then claim the GST New Residential Rental Rebate afterwards directly from CRA.  The Purchaser will need to ensure they have the necessary funds to cover the 5% GST on completion.
 
For more information on the GST Rebate, and to access the applications, visit https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-home-construction/gst-hst-new-housing-rebate.html

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