5 QUESTIONS ON THE 13% HST IN TORONTO REAL ESTATEBy CondoWong Saturday, September 14, 2019
In Toronto, when you go to a restaurant to eat or when you shop for something new, you always have to add 13% HST on top.
For a $100 item, you actually have to pay $113.
What about buying real estate then?
Do you need to pay an extra 13% HST as well?
Let me share with you:
What type of residential real estate is subject to HST?
Who is responsible for paying the HST?
When is the HST paid?
How can you get an HST rebate?
Why is the government creating this rebate process?
Question 1: What type of residential real estate is subject to HST?
We have resales, assignments and pre-constructions.
Buying a resale unit is the same as buying 2nd hand used products, so you do not have to pay 13% HST on a resale.
Buying an assignment or a pre-construction unit is the same as buying new products, so they are both subject to 13% HST.
But when you look at the price list of a pre-construction project, you always see this line that says “Prices Include HST”.
Does that mean the developer is paying the HST? Well, yes and no. There’s a catch.
This brings us to:
Question 2: Who is responsible for paying the HST?
There are 2 types of buyers, an end-user who’s planning to live in the unit or an investor who’s planning to rent out the unit.
If you are an end-user, then the developer will take care of the HST for you.
If you are an investor, then you will need to pay a portion of the HST and claim in back as a rebate. For a new property over $500K, this portion is always $24K.
Let me give you an example. Say you purchase a $500,000 pre-construction unit, the purchase price has already included the 13% HST except the $24K.
Even if you buy a 1 million dollar unit or 10 million dollars brand new unit, the amount you have to pay will still be $24,000.
Question 3: When is the HST paid?
When your unit is ready for final closing, you will have to tell your lawyer whether you are an end-user or an investor.
If you are an investor, your lawyer will collect the $24,000 HST from you.
Question 4: How can you get an HST rebate?
If you have a minimum 1-year lease agreement to show that your unit is an investment for rental purpose, then you can file an HST rebate application to the CRA.
You can fill out the application yourself or you can get my team to fill it out for you.
It typically takes 6-8 weeks for CRA to approve the application and issue the rebate to you.
In most cases, you will get the full $24,000 rebate.
In some cases, you may get a few thousand dollars less if the CRA decides that there’s a significant appreciation in your unit since you purchased it a few years ago, that’s a good problem to have.
Question 5: Why is the government creating this rebate process?
You pay the $24,000, then you claim it back as a rebate, sounds like the government is just creating work?
The main purpose is to discourage speculators to flip units.
The key to get the HST rebate is a minimum 1-year lease agreement.
So if you sell the unit shortly after final closing, then you will be disqualified for the rebate.
The rebate process encourages healthy investment for long term rental.
If you have further questions regarding HST rebate, you can schedule a call with me.
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