Toronto Real Estate Blog

As part of the GST cut to 6%, the federal government provided a 1% transitional rebate to all purchasers who bought a newly built home on or before May 2, 2006 (the day of the federal budget), whether days, weeks, months or years before, as long as the closing date is on or after July 1, 2006.This formula-driven rebate is reduced by the existing GST new housing rebate, but still works out to almost $2,000 on a $300,000 home. On homes priced above $450,000, where there is no GST rebate, it is a straight 1%, so $4,500 or more depending upon the purchase price.

Some buyers are having trouble believing that this rebate is theirs, partly because it sounds too good to be true, but also due to some confusion between the existing GST new housing rebate and this new transitional rebate. The matter is further complicated by the builders’ standard practice of pricing their homes GST included and taking an assignment of the GST new housing rebate.

Many builders’ agreements contain very broad and sweeping GST new housing rebate assignment clauses, which seem to capture the GST transitional rebate as well. However, we know for a fact that from the outset, the federal government intended for this rebate to be paid to the purchasers.

The way GST is normally remitted by the builder is based on the statement of adjustments on closing. The difference between the 6% GST on tens of thousands of closings on homes priced based on 7% GST would have represented a massive windfall for the builders. But the government stipulated that these agreements would close as 7% deals as far as the builder remittance was concerned, with the 1% “transitional” rebate going to the purchaser.

When the federal government saw the potential loophole with the GST new housing rebate assignment clauses, it added a Q&A entry on its website. The question posed was: “Can the transitional rebates available for purchasers (notice the intentional phrasing) of new housing be assigned or transferred to builders?”

The Canada Revenue Agency answer: “No, there is no provision to assign, to the builder or any other person, the transitional rebate available to purchasers of new housing. The purchaser must complete a separate application for the transitional rebate and submit it to the Summerside (P.E.I.) tax centre. Where the purchaser qualifies for a transitional rebate, payment of the transitional rebate will be made by the Canada Revenue Agency to the purchaser only.”

You can’t get much clearer than that, but for added measure, the rebate form (GST193), clearly states that “the builder cannot pay or credit the GST transitional rebate to you.”

For further GST information, visit http://www.cra-arc.gc.ca.

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