If you have been reading the articles posted by our company,
HST Relief, you likely have a good understanding of how the HST New Housing
Rebate and the New Residential Rental Property Rebates work. If not, have a look at this brief article here to get up to speed.
The HST rules are slowing purchasing speed and stabilizing
the condo market by making it more costsly and difficult for investors to buy new construction real estate. How? Simply because purchasing new construction now costs investors more, as CRA demands HST to be paid on new construction. First, those who cannot prove to their developer that they are moving
into the new unit themselves (whether true or not) are being charged the HST
rebate upon closing. Having to come up
with an additional $16,000 - $29,000 upon closing is a large consideration to
those investors who look to the condo market as a place to earn a quick
buck. The deterrents don’t stop
there. If you are caught wrongfully
claiming a condo as your primary residence to avoid the HST bill, CRA will have you remedy it by paying the HST plus penalties, plus interest. CRA has an entire division dedicated to these audits called the GST/HST New Housing Rebate Division. What makes things particularly nasty on the
part of CRA’s auditing team is that they often do not audit until the 2 year
mark post-closing, when the investor no longer is eligible for the New
Residential Rental Property Rebate to recover the HST that they paid on closing and to get their money
back. The initiative comes from the fact
that CRA estimates that 70% of primary residence claims through the builder are
false. CRA also claws back the HST rebate you received when you sell your investment
in less than 1 yr - 18 months after the final closing date and may accuse you of
"flipping” for investment purposes and send you a bill for full business income tax instead of
capital gains on your profit. There are several articles online that describe how CRA is specifically creating programs to target those who are making big bucks in Ontario's real estate market. Clients ask us all the time why the HST Rebate program exists (especially when you can file with a 1 year lease to get your HST due on closing back in 45-60 days) - the answer is because CRA uses the information you provide during the HST Rebate filing to track your real estate investments. They want to make sure you are paying your fair share of taxes when you go to sell the property. Several news outlets are now reporting on exactly this process - read more about that here.
In spite of this, real estate is still undoubtedly the best
investment for Ontarians. The market is
growing steadily with over 100,000 people moving to the GTA annually, creating
a steady demand for housing. Real estate
is the only investment one can leverage 5 times with growth of the total
aggregate with only a mere 20% down payment (in the case the the real estate investment is mortgaged at 80%).
So, what advice does HST Relief:Rebates & Loans give to investors? Continue investing and use our services to
keep yourself in CRA’s good books. HST
Relief offers loans for the HST amount due on closing as a sort of bridge
financing until we can reclaim your HST rebate. Do not lie and say a pre-construction condo or house is your primary residence when
it’s not. Have HST Relief file your HST
rebate for up to $29,000 and get your money back. There are several loopholes that CRA uses to
deny rebates. Do not fall into this trap
yourself. Have us look out for your funds. HST Relief was founded by real estate investors and a mortgage broker
all with over 15 years experience in the industry – we’re in the business to
allow our family and friends to continue investing! For more online reading, check out our
clients’ FAQs with our team’s detailed answers posted here.