GST on New Homes and Rebates
If you are buying or selling a newly constructed residential property, it is very important that you pay attention to GST. The builder and buyer should discuss this specifically and clarify the GST part to ensure that no one ends up disappointed at the end of the day. I am not qualified to provide a complete discussion of how GST and the rebate system works for new residential properties. The best thing to do is contact the GST office directly and ask them for a written ruling in your situation. This article is only to serve as a warning to check things out carefully ... not to provide you with answers or advice. I say that because GST may appear simple but it can be a mine field. It would be very difficult to write a comprehensive article that covers everything yet at the same time be simple to read.
Generally How Rebates Work
GST is payable on the full contract price for a new residential property. In Saskatchewan, if a builder wants to net $300,000.00 for a new home and the GST rate is 5% (remember it changes every once in a while) then there will be $15,000.00 of GST payable. This brings the selling price to $315,000.00. However, the buyer is, in certain cases, but not all, entitled to a rebate of 36% of the GST payable. This works out to a $5,400.00 rebate in the above situation. The buyer can pay the builder $315,000.00 on closing. Then the buyer can apply for the $5,400.00 rebate by filling out some forms and mailing them in. It takes a number of months for the rebate to arrive. In the end, the buyer has paid $309,600 net. The net GST paid by the buyer would be $9,600.00 in my example ($15,000 GST less the $5,400 rebate).
Most builders, but not all, recognize that their buyer doesn't want to front the rebate money and wait several months to get it back. Because of that, the builder will often agree to let the buyer pay the price plus the GST net of the rebate. The buyer pays $300,000.00 + $9,600.00 = $309,600.00. The buyer also signs a form to assign the rebate to the builder. Then the builder is entitled to receive the $5,400.00 rebate. If this is what the builder and buyer are agreeing to, they should say so clearly in the offer and discuss it so there is no misunderstanding. A simple way to cover that would be to say that the purchase price is $309,600.00 including GST other than the value of any rebate and the buyer will assign the GST rebate to the builder. Doing this won't put more money in the pocket of the builder. It is purely an accommodation for the buyer. In both examples, the builder is collecting the same total of $315,000. The rebate isn't free money to the builder because the builder will have to remit the full GST to the federal government, minus any GST they have paid out on their costs.
If you are buying the property as a rental property, or if any of the buyers won't be living in the home on closing, the builder cannot give you the rebate as a credit against the purchase price. If one buyer will live there but the other buyer is only a friend or uncle, that other person is not a qualifying close family relation and the rebate won't work. The applicable form GST524 doesn't provide for it. If the government discovers it, and it apparently has, they will demand the money back. If it is a rental property or a buyer won't be living there, you may need to pay the GST up front and then apply for the rebate yourself, if you qualify.
Not Every Buyer Qualifies for a Rebate
GST rebate rules normally require the buyer to be moving into the property as their own primary principal residence. It may also extend to close family members moving in. If one buyer will live there immediately after closing but the other buyer won't and they are not a qualifying close family relation, the rebate is not available. Be wary of mortgage brokers or bankers who make a second person go on title because the primary borrower doesn't qualify. Doing so might disqualify you from the rebate if the other is not a qualifying close family member under the government's rules. Check it out before proceeding on that basis.
If the property will be used as a residential rental property, it may also qualify. In the case of a rental property, you should use the form GST524. However, you must contact the GST office and verify this. I am not advising you that this will work as there are too many exceptions and qualifications that may apply. For example, you will probably need to give the GST office a copy of your long term lease of at least one year showing that the tenant will occupy the property as their home. If you have a month to month lease or shorter term you probably will not qualify for the rebate. However, you need to verify all of this directly with the appropriate government office. Multi unit properties may also qualify but again, check directly with the CRA for their requirements.
There is a different form to use depending on whether the buyer or family member will live in the property sold or if it will be a revenue property. Check to ensure the right form is being used. The government is quite reasonable in giving time to file it along with the necessary receipts and documents but do it early so you don't run out of time or forget.
If you are buying the property to re-sell it and it will not be lived in or used for long term rental in the meantime, then the buyer may very well not qualify for any rebate. Also remember that every buyer or person going on title must qualify. Even if a 2nd person will only own 1% of the property, if they don't qualify, there may be no rebate for anyone. Check it out first. This is very important for the builder to verify as they might unwittingly give the buyer a credit for the rebate and find out that their rebate application is rejected. The same applies for someone purchasing a property for rental purposes. Again, check with the GST office.
If the buyer purchases the property and then re-sells it before anyone has lived in it, they might be obligated to charge GST on the sale again to the next buyer. If this might be you, you should contact the GST office and discuss this. There may be a way to deal with it and avoid the problem if you are proactive from the beginning.
There are Limits on Rebates. It's not a Straight 36% of GST
After a certain price point ($350,000 in March 2014), the amount of the GST Rebate starts to go backwards and eventually diminish to zero. It is not a straight 36% of everything. At $350,000 (not including GST), you have the best possible rebate which is $6,300. For any price higher than $350,000, the rebate gets smaller at the rate of $63 for every $1,000 in price until the entire rebate vanishes to zero by the time you hit $450,000. I am referring to the rebate on a single family dwelling (not including GST). At $450,000 there is no rebate. At $449,000 the rebate is only $63. Again, don't rely on this article. It is a warning to check with the CRA. It is not advice to you. I can't update this article every day so things can change or I might have been given incorrect information. Also, multi-unit residential properties have their own rules. Check it all out directly with the Canada Revenue Agency.
Your GST Rebate may Vanish Completely at A Certain Price
As of November 2017, my last update to this article, the GST Rebate vanishes completely if the price for a single family dwelling before GST reaches $450,000.00. I don't just mean that you don't get an rebate on the excess tax paid over this price. I mean that you get absolutely no GST rebate whatsoever. (At $350,000 the rebate hits its peak at $6300 and then it starts to slide down to zero. When the price excluding GST reaches $450,000 the rebate is gone. At $449,000 the rebate is only $63. However, you need to verify this with the GST authorities.) The government must assume that anyone with enough money to buy a house of this value doesn't need the rebate so you get nothing at all. Again, don't rely on this article. Instead, take it as a warning to check this out for yourself.
PST on Labour-Services Component of New Homes in Saskatchewan
In 2017, the Saskatchewan Provincial Government started charging PST at 6% on the value of labour or services going into new home construction. As an oversimplification, any labour or services put into the house before April-May 2017 does not have PST on it and there may be some other exceptions. No one but the builder will know exactly what the value of the PST is on a given house as it only applies to the labour or services portion but not the materials portion. Therefore, it is not possible to predict the dollar value. That makes the calculation of GST on the final house price impossible to guess unless you know the value of the PST that is built into the house price. GST is not charged on the PST.
The Program can Change. If GST rates change, this may affect you also
Also, remember the rebate program can change at any time. The information in this article easily can become out of date. If the GST rate changes, the government sometimes has a "transitional rebate" because your contract may have been signed when one rate was in effect but the possession date occurs when a different rate is in effect. Check it out.
This article is only a warning. It is not meant to give answers or advice.
First of all, this website deals with Saskatchewan property. Some provinces have HST so my rebate numbers won't apply to those cases. However, the overall concept is going to be similar. But ... check it out directly with the government. Don't rely on this for anything except to serve as a warning about what could happen if you don't check things out carefully in advance. If in doubt, ask the CRA/GST office for a written ruling. Verbal advice from the government is not binding on them.
Notice: The information on this website is general in
nature only. It relates to Saskatchewan, Canada and may not be
applicable in your jurisdiction. It does not constitute legal
advice to you and no solicitor client relationship will be established.
You should seek specific legal advice regarding your circumstances
from a lawyer entitled to practise law in your jurisdiction.
www.rickcarlson.com | Tue, 20 Nov 2018 06:06:24 CST1
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