The GST/HST ramifications and potential self-assessment for builders of new residential properties is often a complicated endeavor, especially for those planning on renting once construction is completed. If GST/HST rules aren’t properly followed, the financial implications can be severe.
When it comes to GST/HST rebates, it’s also important to understand who is eligible and how these rules change based on the buyer’s intent to rent or own. In this article, we break down everything you need to know about the GST/HST rules for new residential properties.
Understanding the GST/HST self-assessment
For builders selling new residential property
As GST/HST must be charged on the sale of new housing, this could drive down the price of these properties since buyers need to factor in the HST as an added cost of a property. However, there is a silver lining for builders. Any GST/HST paid during the construction phase – including materials, legal fees, and labor – is recoverable. If you’re registered for GST/HST, this refund comes in the form of an input tax credit. When the new housing is sold, the builder can offset any GST/HST owing to the government from the sale of the property with the GST/HST paid during construction. This represents a significant saving to the builder. It must be noted that when claiming the input tax credit, documentation is key. The invoice must be made out to the entity claiming the credit.
For builders planning to rent
Some builders who opt to hold their property and rent it out are caught off guard by the self-assessment provision in the GST/HST rules.
If a builder decides to keep a property for the intent of renting it out long term (for rental periods exceeding 30 days), they are deemed as having sold and repurchased the residence due to the GST/HST change of use rules. This means they must remit GST/HST on the fair market value of the property – less any GST/HST paid during the construction phase – when the residence is substantially complete.
The GST/HST Self-Assessment
When completing a self-assessment, keep in mind that the CRA sees fair market value as the highest price obtainable in an unrestricted, open market. A self-assessment must be done before 90 percent of the unit or property is completed or on the first day a tenant moves in.
Builders can have their properties appraised to find the market value, but it’s important to avoid the common mistake of waiting too long to get this appraisal done. If done and filed late, the penalties can be severe. Another common mistake is expecting to continue to recover GST/HST incurred after the self-assessment. If the builder is now a landlord, once the self-assessment occurs, they can no longer recoup GST/HST paid.
It’s also crucial for builders to have proof of the value used to remit the GST/HST in case of any future CRA audits.
What to know about the GST/HST rebate
Landlords who are renting new housing may be able to use the new residential rental property GST/HST rebate based on the first use of the property. To be eligible, the property must be the primary place of residence for an individual tied to at least a year-long residential lease.
When calculating rebates, property type matters. For multi-unit residences, each unit is calculated separately, though duplexes can be treated as a single unit. At this time, the typical rebate is approximately $24,000 per unit in Ontario.
Re-assigning the rebate – From buyer to seller
Those buying a new property are also eligible for a GST/HST rebate. If the buyer plans to use the property as their primary place of residence, they can assign the rebate to the seller, meaning the buyer would pay the 13 percent HST minus the amount they receive from the rebate. If the buyer plans on renting the property, they are still eligible for a rebate, but cannot reassign to the seller.
Partners in real-estate
Completing an accurate self-assessment can be a complicated process with negative financial implications. Our real-estate experts at Zeifmans can guide you through this process. Contact us to get started or email us at firstname.lastname@example.org.