Harmonized Sales Tax (HST) is a hybrid of provincial and federal sales tax.  It combines Canadian Goods and Services Tax (GST) and Provincial Sales Tax (PST) and is paid by the buyer when the sale is closed.  The seller in turn pays the tax to the Canada Revenue Agency (CRA) at year end.

There is a growing interest in purchasing real estate for investment purposes.  When a novice investor is interested in obtaining a newly built property from a builder, they may not be aware that HST is due at the final closing.  If it is not remitted, the entire sale can stall on the spot.  HST on new property can be a significant amount of money. 

Rebate Opportunity

The good news is that CRA is offering an HST new housing rebate for investment property.  The bad news is that the HST must still be paid at the time of closing; appropriate filings made with the CRA, and then wait for the CRA to review the application and a refund to appear. 

Rebate Loan

Banks are generally unlikely to offer the interim loan necessary to cover the HST.  Recognizing this dilemma, HST relief companies are cropping up to offer some options.  This is a lender that offers a short-term second mortgage on the investment property in question.   

The buyer is responsible for the amount of the second mortgage, any accrued interest, and any fees associated with the loan.  HST relief companies are also offering to file the rebate application with the CRA on behalf of the investor. 

Loan Eligibility

There are, of course, requirements to qualify for the loan.  These include a property value under $450,000 on new construction or considerably renovated property that is intended for long-term residence.  There are other specifics that can be discussed with the lender.  For property in Ontario that exceeds the $450,000 cap, there is a provincial rebate. 

Paperwork 

There is always paperwork.  There are certain documents that need to be submitted with the application.  If any of these are incomplete or missing, or the amount is miscalculated, the rebate is denied.  So it is important to double and triple check everything.  You might also consider a consultant to review your work.

Be sure to keep copies of all the completed forms including receipts, invoices and contracts.  You can be audited for up to six years, so be sure to have everything in order and in a safe place for at least that amount of time. 

Repayment 

There are conditions where the rebate may need to be repaid to the government.  If the transaction involved a Type 6 lease, plus various criteria like the property was sold within a year after the initial purchase by a resident, or it was not used as a primary residence.  It could be that you will need to repay not only the rebate, but an interest that accumulated.

Bottom Line

Like most complicated financial transactions, it takes careful planning and research but it is certainly achievable.  Just read everything and be certain that you qualify.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team