HST and Investment Properties

Under the Ontario HST regime which came into effect on July 1, 2010, the buyer of a new home that he intends to rent must not only pay the full 5% GST on closing but also the full 8% portion of the old Ontario provincial sales tax. Under the new HST regime, home builders typically include in the purchase price: • 64% of the 5% GST (an effective rate of 3.2% built into the purchase price), and • 25% of the 8% Ontario portion of the HST (an effective rate of 2% built into the purchase price. This means that a buyer who is not an owner-occupant of the new home, must pay, as an adjustment on closing, the following: • 1.8% of the purchase price thereby paying the full 5% GST, plus • 6% of the purchase price (75% of the 8% Ontario portion of the HST) thereby paying the full 8% Ontario portion of the HST.For example, on a purchase of a brand new $300,000 home, (that is $300,000 net of any tax), the additional 7.8% of the purchase price payable on the closing of the purchase by the buyer is an additional $23,400!This excess tax payable by the buyer on closing is fully recoverable by the completion and filing of the Residential Rental Property Rebate Application (Form GST524) and the GST524 Ontario Rebate Schedule together with a copy of the residential lease and the Statement of Adjustments provided by the builder’s lawyer on the closing of the transaction.

courtesy of Ross Talarico,Talarico & Schwisberg Law Offices LLP