A house that is newly constructed or substantially renovated is subject to GST/HST. However, prospective buyers are able to recover part of the GST or HST under the new housing rebate if they intend to use the property as their primary place of residence. If you are planning to buy a new build, take time to understand all the conditions that must be met in order to qualify for the Federal Rebate. For homes that are valued at no more than $350,000, the Federal Rebate is given as 1.8% of the price of the home. This rebate is not available for homes that are priced at more than $450,000.

Why was the Federal Rebate put in place?

Originally, this rebate was designed to act as an incentive to prospective buyers. This rebate allowed many first-time home buyers to access affordable housing by removing the GST. However, the thresholds for this rebate haven’t changed in a long time and this has made it difficult to achieve the goal of access to affordable housing because the cost of construction has increased significantly since 1991 when the GST was introduced.

Could the rebate be denied?

In order for one to qualify for the Federal/Ontario rebate, one important condition that must be met is making sure that at the time of entering into an agreement with the builder, the individual is buying the home to use as their primary residence. You could be buying the home for a relation (only parents, siblings and children are considered as a relation). If the home was sold to two individuals, each is considered a “particular individual”. Both parties involved in the same must intend to use the property as their primary place of residence. If it is discovered that one of the parties under the agreement for purchase and sale did not intend to use the home as their primary place of residence, then the rebate will be denied in full.

Builders beware

Sometimes the builder extends a credit to the buyer only to find out that the rebate is not available to them. The builder then has to rely on the buyer’s covenant to recover the rebate from the buyers. As a builder, you need to understand the rules and conditions before extending a credit to a buyer. This is especially important when dealing with buyers who are comprised of multiple individuals. Make sure the purchase and sale agreement includes provisions that will protect you as the builder if the application of rebate is denied later on.

How to ensure the rebate is not denied

As a buyer, there are situations where you may need financial assistance in order to purchase a newly built construction. Consider taking financial assistance in the form of a gift or a loan from a friend or extended family member in order to purchase the home instead of co-signing the purchase and sale agreement. This will help to ensure that you are eligible for a rebate if the sale involved multiple individuals.