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Real Estate

Real Estate: Buying an Investment Condo Pre-Build and the GST/HST Rebate

A few months ago my clients came in to sign the builder documents for interim occupancy for their condominium unit which they purchased pre-build as an investment to rent out. My clients told me that that they had contacted the builder to get consent in order to allow them to rent their unit during the interim occupancy period. I advised them that if they do rent their unit during interim occupancy, they will not qualify for the GST rebate provided by the federal government.

The GST rebate (which is roughly 1.71% of the total GST payable) is available on new homes under $450,000.00. Eligibility requires that the purchaser or their related family member must be the first primary occupier of the home.

The price set on the agreement of purchase and sale typically includes GST minus the rebate. Therefore, on final closing the purchaser must assign their rebate back to the builder because the builder factors in the GST and rebate amounts in representing their price for the home. The stipulations regarding GST and the assignment thereof are contained in the builder’s standard agreement of purchase and sale. Also contained in the builder’s standard agreement are the interim occupancy provisions which provide that the purchaser must be the primary occupant of the home during the interim occupancy period and if the purchaser wishes to rent out their home during the interim occupancy period, he or she must get consent from the builder.

If the builder becomes aware that the purchaser (or a related family member) is not going to be the first primary occupier of the home, the builder cannot receive the assigned rebate because of the purchaser’s ineligibility. As a result, the builder will charge the purchaser all of the GST payable. In fact there was a situation in our office where the builder knew that the purchasers rented their unit during interim occupancy and on closing the builder adjusted their price to include the total GST payable.

For some investment purchasers not receiving the rebate may make good financial sense if the amount discounted by the rebate is less than the amount of rental income they will receive from their tenants during the interim occupancy period.

Of course like everyone else, investment purchasers want to have their cake and eat it too by receiving the rebate and renting their property before occupying it. However the rebate is designed to help people own their homes and not to benefit investors. With new HST, the rebate rules have changed somewhat, however the eligibility described above will remain, an article on the new tax and rebate is coming soon, so stay tuned!