HST applies to any sale/assignment of a new home:
1. Never occupied and;
2. Purchased for the primary purpose of selling (not occupying).
Builder or Personal Home Buyer?
Canada Revenue Agency (CRA) wants to determine if you are operating as a builder or as an individual intent on buying a home you will live in yourself or rent it (not just flip it). Thus primary purpose or intent is the key factor in determining if HST applies or is exempt.
Example: the primary intention was to live in the condo unit, use it as a vacation home, or rent it to another individual for use as their place of residence.
Factors in determining the primary purpose
All of the relevant factors surrounding entering into a purchase and sale agreement should be considered in determining the primary purpose for a person’s acquisition of an interest in a new house.
The following factors may indicate that, for GST/HST purposes, a person entered into a purchase and sale agreement for the primary purpose of selling an interest in the new house or the house itself. The factors are not listed in any particular order and there is no intent to weigh one more heavily than another.
- The person offers to sell their interest in the house or takes other actions to attract buyers before, or while, the house is under construction.
- The person finances the purchase of the house by a short-term mortgage or an open mortgage that can be paid off without penalty, rather than by a long-term or closed mortgage.
- Financing of the house is beyond the person’s means and that person is relying on the increased value and salability of the house, or an interest in the house, in a rising housing market.
- The person is an individual and their stated intention to occupy the house as a place of residence is not supported by the circumstances of the case. For example, an individual has a family of four and enters into a purchase and sale agreement for a one-bedroom condo unit where they are not contemplating any changes in family circumstances.
- The person’s pattern of activity is such that their occupancy of the house does not have the qualities or characteristics of being permanent. For example, the person purchases more than one house at or around the same time. This factor may be given extra weight where the person has previously entered into a purchase and sale agreement for purposes of selling the house or an interest in the house. There are no outward indicators to support a contrary primary intention (i.e., an intention contrary to an intention of resale). For example, an individual is selling a condo unit, one or more of the above factors are present, there are no physical actions or evidence that the individual’s primary intention was to live in the condo unit, use it as a vacation home, or rent it to another individual for use as their place of residence, and no evidence that the sale of the condo unit was triggered by some unforeseen event.
HST applies to Profit + Recovery of Deposits
The consideration charged for the sale of an interest in a house generally includes amounts that a person paid to a builder (e.g., a deposit) and that the person wants to recover when assigning their interest in the house. The sale price for the interest may also include a profit, i.e., an amount over and above amounts the person had paid to the builder. If a person’s sale of their interest to an assignee purchaser is taxable, the total amount payable for the sale of the interest is subject to GST/HST, including any amount the person paid as a deposit to the builder, whether or not such an amount is separately identified.
A first purchaser enters into a purchase and sale agreement for a new house with a builder (Builder A) and pays a deposit of $80,000 at that time. The first purchaser does not make any further payments to Builder A. The first purchaser subsequently assigns the agreement to an assignee purchaser for $100,000. If the sale of the interest in the house from the first purchaser to the assignee purchaser is subject to GST/HST, tax applies to the full $100,000. This is the case even if the assignment agreement identifies that the $80,000 is a recovery of the deposit that the first purchaser paid to Builder A.
When GST became HST by adding the provincial portion (8% in Ontario) of this “value-added” tax to the 5% GST federal tax, a rebate program was created to reduce the 13% HST tax for new home purchases when purchase met certain qualifications. This rebate can be up to $27,000.
Qualifications – personal use or renting for a year
Qualifications for the HST rebate include occupying the condo for personal use or renting for 12 months from final closing. The months of occupancy or rent during interim occupancy does not count. The claim can be made immediately after final closing as soon as proof of either personal use, i.e.; changes of address on driver’s license or rent, i.e.; a one-year lease agreement is available.
Who gets the rebate?
Builders, on closing an assignment sale, will require the assignee to pay the rebate amount that was included as a credit in the original purchase price and leave it to the assignor to apply to CRA for the rebate, if assignors meet the qualifications to receive it.