Buying a home, especially a newly built home, is already an expensive process. Along with land, construction, and property taxes, there’s also that troublesome GST or HST to pay. While GST/HST isn’t charged on purchases of an existing property, newly built homes will have the tax levied on it, and it can add thousands to the cost of a typical home.
Fortunately, there’s some relief from this cost in the form of the GST/HST New Housing Rebate, and it’s one thing you’ll want to add to your list of to-dos when budgeting for your new home. In this case, filling out a single form can save you thousands of dollars in taxes if you’re buying a newly constructed home.
But what is this rebate, and how does it work? Here’s how the GST and HST new housing rebates are calculated, and the details you’ll want to know about when claiming the rebate for your new home.
What is the GST/HST New Housing Rebate?
If you’re buying a newly built home, you’ll need to pay HST or GST on top of the purchase price. You pay it for the same reason that you pay sales tax on almost everything else you buy. Whether you’ll pay GST or HST depends on your province, as will your final tax rate. But no matter where you live, you can qualify for one of two housing rebates. While the rebate is often used by first-time home buyers, it’s available to everyone.
First, the new housing rebate equals 36% of the GST that all buyers need to pay when buying a new home in Canada. This rebate is up to $6,300 and valid on homes with a fair market value of $350,000 or less. If you’re buying a home priced above this amount but still less than $450,000, don’t fret. There’s still a partial rebate that can be claimed.
What’s in it for those paying HST? In HST participating provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island) the rebate is 36% of the federal component (the GST) of the tax. There may be additional provincial rebates available for the remainder of the HST.
Who’s eligible for the GST/HST rebate?
As long as you, and anyone else you’re buying with, are an individual home buyer and not a corporation or business partnership, you’re eligible for this rebate if:
- Your home is listed as your primary place of residence, and
- You’ve purchased a new or substantially renovated a single, semi, condo, townhouse, mobile, or modular home from a builder, or you purchased a share of interest in a co-operative home.
And yes, first-time home buyers are also eligible for the GST/HST new housing rebate, on top of other programs available to them.
What if I’m building my home?
In the case of owner-built houses, you’ll have to have built your new home on land that was previously owned or leased by you. If this requirement is fulfilled, then you need to be able to show that more than 90% of the interior from the previously existed house was removed or replaced. You can also qualify if you owned a non-residential property and later rebuilt it into your home. Lastly, for costs from major additions to the house to be eligible for any rebates, those additions must have increased living space by a factor of two.
Calculating the GST/HST New Housing Rebate
For both the GST and HST rebates, the calculations are similar. Let’s take a look at how you would calculate the taxes and rebates on a home purchased in Ontario.
First, we’ll say the home you purchased was valued at $320,000. In some cases, the builder of your home will have already included the HST in the purchase price. The only difference here is that you’ll be able to automatically include the purchase price plus HST amount in your mortgage. However, in all other cases, you’ll pay whatever HST rate is applicable in your province or territory (13% in Ontario) on top of the $320,000 pre-tax price:
$320,000 x 13% = $41,600 ($16,000 GST portion of HST and $25,600 provincial portion of HST)
Next, we’ll calculate the value of the rebate that can be claimed. In this case, it’s 36% x $16,000 ($5,760) for the GST portion of the HST and 75% x $25,600 ($19,200) for the provincial portion of the HST. That adds up to $24,960.
It’s important to note that for new homes in Ontario, the maximum rebate amount for the provincial portion of the HST is capped at $24,000. It’s the maximum amount available on any new home valued at $400,000 or more.
Which form will I need?
There are two different tax forms. The first is for houses purchased from a builder (Form GST190), which will ask you to fill in information about the claimant (details about your place of residence and contact info), house, and builder. The second is for owner-built houses (Form GST191).
You just need to submit one of these forms along with your personal income taxes for the year. This needs to be done within two years of the actual closing date.
The bottom line
The GST/HST new housing rebate is a simple rebate to claim. However, unlike some other rebates and incentives, it’s not automatic. Instead, it requires you to apply manually. It’s important that you don’t forget to do this at tax time!
As a general rule, it’s a good idea to hire a tax accountant to assist you with your taxes if you’ve made any large financial transactions in a given year. Buying a new home certainly meets that standard, so it’s probably worth getting some professional advice.
- What is the Home Buyers’ Plan and How Does It Work?
- What is the First-time Home Buyers’ Tax Credit and How Does it Work?
- How my Wife and I Saved a 50% Down Payment
- 5 First-Time Mortgage Experiences
This article was originally written by Sara Lian in July 2016.