If you have purchased or are contemplating purchasing a new home from a builder, you may be told that the purchase price of the home includes GST. Although this sounds simple enough, there are a couple of matters you should be aware of.
Firstly, the purchase of a new home attracts the full Goods and Services Tax (GST), which presently is 5%. Individuals that purchase or build a new home may be eligible to offset a portion of the GST by applying for a new home housing rebate from the federal government. The new home housing rebate is equal to 36% of the GST, but the total amount of GST cannot exceed $6,300. The amount of the rebate is progressively reduced where the price of the new home is $350,000 to the point where there is no rebate available where the purchase price exceeds $450,000. To be eligible for the new home housing rebate, you must meet the following conditions:
- the unit is a single-unit residential complex
- you purchase the land and unit from a builder in a single transaction
- ownership is transferred to you after the construction is completed
- you or an immediate family member are the first occupant and it is used as a primary place of residence.
The application must be submitted within two years after the date on which ownership was transferred to you and only one application may be submitted for each home.
The rebate covers all GST paid in relation to the home, including the initial GST paid to the builder, and all GST paid for subsequent improvements to the property within the two-year time period, including driveways, landscaping and fencing.
When the GST and the new home housing rebate were first introduced, most builders established their price and the purchaser was obligated to pay the full GST at the time of closing. The purchaser then would be eligible to apply, in due course, for the rebate by submitting the necessary application form to Revenue Canada.
Since most purchasers qualify for the new home housing rebate, over time builders began to market their property as a “GST included price”. Today most building contracts or agreements for new homes are based upon a GST included price, with the new home housing rebate being assigned to the builder. In essence, the agreement provides that the purchase price includes the non-rebateable portion of the GST and the rebateable portion of the GST (the new home housing rebate) is assigned or transferred to the builder as additional consideration and as part of the transaction. The result is that the purchase price is a net GST price. For most purchasers the only concern is the end price. What most don’t realize is that, in assigning the new home housing rebate to the builder, they are forfeiting any opportunity to recover any portion of the GST on any subsequent improvements made to the property over the two-year time period. This may be somewhat academic, depending on the purchase price of the home, since the amount of new home housing rebate progressively declines, as noted earlier.
Most of the contracts also provide that if the purchaser is ineligible for the new home housing rebate (for example, if it is not used as a primary residence but as rental property), then you will be obligated to pay the builder the rebateable portion of the GST over and above the original GST included purchase price. In the case of a new home purchased for rental purposes, the federal government offers a new home housing rental rebate, which is equivalent to the new home housing rebate, except that under the current legislation the rebate cannot be assigned to the builder. In that situation, the purchaser must pay the full amount of the GST and, once the deal is concluded, then he can apply for the rebate.
NOTE: Usually, the total Purchase Price indicated on your Purchase Agreement will include the net G.S.T – that is, your base purchase price, plus the full G.S.T. payable, less an amount equivalent to any applicable G.S.T. rebate. However, your Purchase Agreement may say you have to pay the G.S.T. in addition to the total Purchase Price show on the Purchase Agreement.
If you receive a credit for the G.S.T New Housing Rebate on your Purchase Price, you will have to assign the G.S.T New Housing Rebate to your Builder. This means your Builder will apply for the Rebate and you will not be able to.
If you do not qualify for the G.S.T New Housing Rebate, you must pay the full G.S.T payable to your Builder even if the Purchase Price indicated on the Purchase Agreement shows a credit for the Rebate.