HST New Housing Rebate May Be Denied When Purchasing with Co-Owners

Co-Owner Lawyer With HST New Housing Rebating, It is well-known that purchasing a resale home will be exempt from HST; however, it is similarly well-known that all new builds, whether condos or single-family homes, are subject to GST/HST.

Typically, however, in nearly all new build agreements the builder will include HST in the total purchase price.  If the buyer is eligible for the “new housing rebate” as provided for in section 254(2) of the Excise Tax Act, then the buyer will, at closing, assign its interest in this rebate to the builder so that the builder may claim the GST/HST recovery on behalf of the purchaser.

In essence, and subject to certain conditions not discussed in this article, the “new housing rebate” provided for in section 254(2) of the Excise Tax Act allows for the partial recovery of GST or the federal portion of HST paid for a new or substantially renovated home that is intended by the buyer (or a relation) as his or her primary residence. There are two tax elements at work here – the Federal portion at 1.8% on the consideration paid not more than $350,000 (the Federal rebate is not available for homes priced between $350,000 and $450,000, and is not available for homes over $450,000; and, the Ontario portion. Practically speaking, most Ontario buyers will not qualify for this Federal rebate, given house prices in most markets.  However, they will qualify for the Ontario portion of the tax rebate, which is limited to the lesser of $24,000 and 75% of the provincial portion of HST (with no limit on purchase price).

But, what happens if the purchasers are not closely related (defined below)?

In situations where co-owner purchasers are not related, it is possible that the HST new housing rebate will not be available upon closing. This is because to be eligible for the HST rebate, at the time the agreement of purchase and sale is entered into with the builder, the individual must be purchasing the home for use as their primary residence for themselves or a ‘relation’. A ‘relation’ means parents, siblings, and children, but excludes aunts, uncles and cousins.

The leading case on this issue, as decided by the Federal Court of Appeal, is Canada v Cheema 2018 FCA 45 (“Cheema”).  In that case, Mr. Cheema purchased a new home in Ontario, but in order to qualify for financing, he had his friend, Akbari, co-sign an agreement of purchase and sale.  It was the intention of the parties that only Cheema would live in the property, and Akbari would not use the home as his principal residence.  As a result, the purchasers could not avail themselves of the HST rebate, and were liable for the full amount of HST upon closing.

The key take-away for co-owners purchasing a new build together is that: the co-owner lawyer use of the property must be satisfied by one of them, or a relation.  In the closing process, co-owners must ensure that, if the purchaser is comprised of several people, the conveyance documents should include provisions that can be relied upon if the application for the HST rebate is denied upon review.  It is almost important that, instead of having one or more ‘non-relations’ co-buying the property, perhaps the deal can be structured by way of a gift, loan or secured guarantee from the extended family member or friend.

Our firm is the Ontario’s leading residential co-ownership practice.  If you have questions or issues relating to purchasing your new home with several co-owner lawyers, please contact us to setup a consultation.

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