Tag Archives: Canada Revenue Agency
Why CRA wants $30,000 HST rebates back
If you’re planning to flip a condo or new property, be sure to check the HST rules
By Mark Weisleder – Moneyville
Some investors who bought new homes or condos in the past few years planning to flip them in a hot Toronto market are facing HST bills of up to $30,000.
That’s because they didn’t read the fine print on the purchase agreement and they now have a problem that relates to the HST rebate that is available to buyers of new homes under certain conditions.
When you buy a new home or condominium, there are rebates for the federal 5% portion of the HST and in Ontario, the provincial 8% portion.
You can qualify for a rebate of 36% of the federal portion of the HST if the home costs $350,000 or less. If the home costs between $350,000 and $450,000 there is a sliding scale. At $450,000 the rebate ends. For the provincial portion, everyone can apply for up to 75% of the HST paid, to a maximum of $24,000. You can also apply for the rebates if you build your own home as well.
It can add up to a sizeable sum. If a new home costs $300,000 and there was no rebate, the HST would be 13% of the price or $39,000. With the rebates, you’d pay $15,600 for a saving of $23,400
The catch is that in order to qualify, the new home or condo has to be your primary residence, or you must prove that you have rented it out for at least a year. If you move in on closing, the builder often builds the rebate into the sale price and then applies to the Canada Revenue Agency for the refund on your behalf. Before the builder will do that, you have to sign a document saying that you will move in. If the builder suspects you will not be moving in, they have the right to ask you to pay the rebate on closing.
If you bought the house as an investment and plan to rent it out, you can apply for the rebate immediately as well, but will have to send proof that you closed your deal and a copy of the lease agreement. If you sell the investment property within a year, you have to pay the tax.
Many investors who bought new homes or condominiums several years ago from plans are trying to take advantage of the hot real estate market by selling without moving in. However, these same investors signed papers with the builder promising that they would move in, so the builder applied for HST rebates on their behalf. Now CRA wants the HST rebate back with interest. That can be as much as $30,000.
I’ve heard plenty of stories from realtors about investor clients receiving demand letters from CRA about the HST.
The lesson is that buyers must understand their obligations if they intend to apply for any HST rebate on a new home or condominium. Either you must move into the home as your primary residence on closing, in which event you can immediately apply for the full rebate, or you must rent it out for at least one year and then apply for the rebate. If you are intending to immediately re-sell your home without moving in, then just pay the full HST amount when you buy the home from the builder, and don’t apply for any rebate.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Does HST Apply To A Seller Of A Condo Assignment?
Stephen H. Shub Professional Corporation
Barrister, Solicitor, Notary
www.home-legal-cost.com
Inevitably, an offer to purchase an assignment property (often on an OREA form 140 or 141) by a buyer’s sales representative will state that, if applicable, HST is included in the purchase price (as we typically see in any offer to buy resale residential properties). The sales representative who represents a seller of an assignment (and who is advising the seller) MUST be aware that according to the Canada Revenue Agency, there are sometimes situations where HST will, in fact, be applicable and payable by the assignor/seller who is assigning a contract to buy a newly constructed unit/residence.
When applicable, HST will be payable by the Assignor (buyer #1 from the builder) on the portion of the assignment sale price related to the return of deposits (paid to the builder by the assignor/seller) PLUS the gross profit (the difference between the builder price and the assignment price).
The confusing question is whether or not HST is, in fact, applicable to the assignment and, since realtors should not undertake the responsibility to advise a seller on such a matter, MAKE SURE THAT AN ASSIGNMENT SALE WHICH STATES HST IS INCLUDED IN THE PRICE IS CONDITIONAL ON ASSIGNOR’S/SELLER’S LAWYER’S APPROVAL so that the lawyer for the assignor/seller will be responsible to advise a seller whether or not HST is applicable to the assignment/sale. The idea is to shift the burden of responsibility from the shoulders of the listing sales representative to the shoulders of the lawyer for the assignor/seller.
Believe it or not, whether or not HST is applicable to an assignment depends on the original intention/the plan (in the mind of the assignor/seller) when the offer to purchase was made with the builder. If the PRIMARY PURPOSE by the assignor/seller in buying from the builder was to profit by assigning/flipping the deal, THEN HST IS APPLICABLE to the assignment/sale.
On the other hand, if an individual originally signed an offer to purchase a condo apartment (to be newly constructed by a builder) with the primary intention that the unit bought would be used (for example) by:
(1) a son or daughter when attending University/College, OR
(2) a parent who wanted or needed a place to reside, or
(3) a spouse who planned to separate from the family, or
(4) the buyer(s) who intended to downsize, or
(5) the buyer(s) who intended to use the apartment when working downtown or when visiting Toronto
(6) a son or daughter who was engaged to be married, or
(7) buyer wanted to move closer to a workplace OR to relocate a place of work
THEN the Canada Revenue Agency would typically conclude that HST is not applicable on the assignment/sale if (at a later date) a reasonable change in circumstance resulted in an assignment/sale of the unit if, for example,
(1) such son/daughter chose not to go to University/College, or
(2) the buyer’s mom or dad no longer could use or wanted to use such apartment as a residence
(due to their death or needs a retirement home), or
(3) intention to separate from family changed, or
(4) decision was made later not to downsize, or
(5) the buyer(s) reasonably changed his/their minds about such intended use, or
(6) the engaged son or daughter decided not to marry or decided to live elsewhere, or
(7) the workplace location changed or the intended relocation of workplace changed
The question is whether the facts or circumstances would indicate to the Canada Revenue Agency that the condo was originally being acquired from the builder for the primary purpose of personal use versus buying the unit for only a potential profit with the intention of assigning or flipping the deal. If a buyer purchases two or more new condo units or has a corporation purchase a residential unit, it is more difficult (perhaps impossible) to try to explain to the Canada Revenue Agency that the primary purpose in buying from the builder was to acquire the unit for personal use as a residence for an immediate family member.
The bottom line is that a listing realtor, seeing an offer from an assignee, should encourage the assignor/seller to sign back the offer with a condition for approval of the terms of the sale by the lawyer for the assignor/seller.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–
Incoming search terms
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Toronto’s wealthiest are the most indebted
By Francine Kopun – Toronto Star MoneyVille
The average Toronto household is carrying nearly $40,000 in debt on top of their mortgage, according to new statistics from Environics Analytics.
And the households carrying the largest debt are in Toronto’s toniest neighbourhoods, including the Bridle Path, Rosedale, Leaside and The Beach, where single-family homes are pushing past the $1-million mark.
“There’s always the question of how much is this wealth the illusion of wealth? The fact that these people live in expensive houses doesn’t necessarily mean that they are debt-free, said Peter Miron, senior research analyst for Environics Analytics.
Environics Analytics crunched numbers from surveys of financial behaviour and data from the The Bank of Canada, Statistics Canada and the Canada Revenue Agency, among others, to get at neighbourhood and Census Metropolitan Area (CMA) data.
Even once mortgages are taken out of the equation, residents of the Bridle Path, Rosedale and The Beach have higher levels of debt than households along the Danforth. In part, this reflects their ability to carry higher levels of debt because they earn more money.
But that kind of lifestyle can topple quickly in a financial downturn.
“If you’re expecting your $150,000 bonus to cover interest on the $3-million mansion, it’s a rude awakening when the markets fall,” says Miron.
He says 2008 and the summer of 2009 saw slowed growth in real estate values in areas like Rosedale as compared to the rest of the city.
Net worth in the CMA grew 9.6% to $553,896 between 2007 and 2010, with Liberty Village, downtown Toronto along the Gardiner Expressway, and Vaughan recording the strongest growth.
Of that wealth, $297,060 is in real estate equity and $296,531 in assets like stocks, bonds, mutual funds, savings, chequing accounts, term deposits and RRSPs. On average Toronto households owe $39,694 in consumer debt on top of their mortgage.
Vancouverites owe just a bit less — $38,424, while Calgarians owe much more; $50,890.
Much of that increased wealth is due to rising real estate prices, says Morin.
Environics Analytics data also show a move out of the stock market and into savings and other conservative investments. Toronto investors increased bank deposits by 47.2%.
According to Statistics Canada data released Tuesday, Canadian household net worth fell 0.3% in the second quarter of 2011 — a total of $21-billion — as the increase in the value of residential real estate was more than offset by the latest decline in the value of household equity holdings.
Household debt also grew during the second quarter, a result of both higher mortgages and more consumer borrowing.
The Canadian household-debt-to-income-ratio has increased from 88.6% in 1990 to 150.8% in 2011.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Incoming search terms
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