Canada’s HST New Housing Rebate program, created under section 254 of the federal Excise Tax Act, offers a rebate of up to approximately 36% of the HST payable on a new home to purchasers who qualify for the rebate, provided that the property they are buying also qualifies. The eligibility criteria are complicated, and have been strictly applied by the courts.
The rebate is intended for purchasers of newly constructed (or significantly renovated) properties who buy the property to live in it. When you purchase a new house from a builder, typically the builder has the purchaser assign the right to collect the rebate to it on closing in exchange for receiving credit for the rebate at that time. You can see that for this to work, the purchaser must qualify.
To qualify to get the rebate on the closing of the purchase, the purchaser or a member of their immediate family (which includes parents, siblings, children, spouses, and common-law spouses) must occupy the house as their primary residence after the purchase is completed. If the house is being bought as a rental property, or if the purchaser is a corporation, the rebate is not available on closing and the purchaser will have to pay an amount equal to the rebate to the builder on top of the purchase price. The purchaser would then have to apply to CRA for the rebate after closing. There is a two-year window in which to apply for the rebate.
Problems can arise where the purchasers listed on the purchase contract are not the same individuals who take title to the property on closing. There are many reasons this could happen. For example, a person may be added to the title because he or she is providing funding for the purchaser, or because the mortgage lender requires it. Perhaps the original purchaser may want to add a family member to the registered title. If more than one purchaser is named in the Agreement of Purchase and Sale, the failure by everyone in the group (or a relation, as narrowly defined) to move into the property can be fatal to the refund claim. A change of heart about what to do with the purchased property (for example, should the purchaser opt to rent it to tenants instead of living there) can also render the purchaser ineligible for the HST New Housing Rebate. Alternatively, the original purchaser could decide to sell (assign) the right to purchase to another person. In some cases, purchasers have received credit for the rebate from the builder on closing, only to have it clawed back by Canada Revenue Agency.
It is essential to speak with your lawyer before you sign any new home purchase contract to make sure that you understand how the HST rebate laws affect you.