Tag Archives: purchase agreement
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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Plan for all condo costs
Helen Morris, National Post
There is nothing quite like walking into your very own brand new condo. However, it is likely a number of years have passed since you first signed up to buy the place and secured a pre-approval letter from your mortgage provider.
“The pre-approval process is the regular process for somebody who is buying a property in the next 90 days,” says Militsa Fiuza, a mortgage broker with Invis in Toronto. “It’s just that if their financial situation gets any worse, the pre-approval is virtually worthless.
When you’re buying a condo from plan, Ms. Fiuza says, the builder usually requires you to have 20%-25% down. “The initial 5% is paid when you sign the purchase and sale agreement, and the remaining is in instalments in the next four to six months.”
While you cannot always control whether or not you lose your job, she says, it is essential to be aware of things you can control, such as new debts and major purchases that will affect your credit score while the condo is being built.
This is particularly important if you purchase before ground is even broken. The time between signing the purchase and sale agreement and registration can be long and unpredictable. Waiting, however, can have its upsides.
“The timeframe of purchasing a condo also allows buyers to save more money to put down,” says Mira Tomljenovic, principal with In2ition realty in Mississauga.
If you have been offered a job out of town or your personal or financial situation has changed and you no longer want to own the new condo, your options are limited prior to registration, when you have title to the place.
“Most agreements provide that the purchaser is not entitled to terminate the agreement and get his money back,” says Leor Margulies, head of the real estate group at Robins Appleby & Taub LLP in Toronto. “He’s not even entitled to flip the unit or assign his or her purchase agreement until he closes.”
If there is no assignment clause, it may be worth asking the builder if they are willing to take back your place or resell it.
“Most developers will not want you to market [your condo] because it will reduce the value of any unsold units,” says Mario Deo, vice-president of the Toronto chapter of the Canadian Condominium Institute. However, Mr. Deo says, in a strong market where all or most of the units in the building have sold, the builder may allow re-sale.
“Assignment clauses… are generally with a fee and the builder’s approval. The purchaser can sell the paper to someone and get their original investment back,” Ms. Tomljenovic says. “If by any chance they can’t close on the condominium purchase, they usually lose their deposit. It is all at the discretion of the builder.”
It’s important to budget enough money to pay occupancy fees for the period between moving in and registration. Occupancy fees are monthly and consist of maintenance fees, taxes and the monthly interest component, Ms. Tomljenovic says. The money you pay during this period does not reduce the amount you owe on closing.
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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
Related posts:
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Undisclosed costs can really add up
Bob Aaron – Yourhome.ca
It’s hard to think of any consumer purchase contract where the price on the front page is not the full purchase price, where additional charges are unlimited, and where the seller has no legal obligation to make full disclosure of extra charges to the buyer at the time of sale.
And yet this is a common practice among some Toronto-area condominium builders. It is an issue that cries out for the government to intervene in the public interest.
I was reminded of this problem once again last week while I was reviewing a client’s pre-construction purchase contract for a unit in a large mixed-use condominium development in downtown Toronto.
When I added up all the extra charges buried in the disclosure statement but not even hinted at in my client’s purchase agreement, the total came to just shy of a staggering $70,000.
The 33-page purchase and sale agreement for this project is typical for pre-construction condominium contracts. For a mere $935,3000, the buyer gets a floor plan without measurements or any guaranteed size, along with an obligation to pay a number of disclosed but unlimited charges such as government taxes and levies, and the costs of utility meters and connections. In order to discourage buyers — and their lawyers — from actually reading the contract, it is written in the tiniest type face possible. (No wonder I have to use trifocals after years of reading these contracts!)
But the $935,300 cost of the condo (plus the disclosed but unlimited extras) is far from the total tab the buyer has to pay.
Under the 1998 Condominium Act, at the time a purchase contract is signed, the builder is required to deliver to the purchaser a thick volume of materials which includes the proposed condominium organization documents and a disclosure statement setting out 27 specific details of the project.
Buried in the disclosure document is a statement setting out whether the unit buyers jointly will be required to purchase assets or services from the developer.
In my experience, the vast majority of buyers find these disclosure documents intimidating and incomprehensible and do not bother to read them.
In reviewing the disclosure statement for the new downtown project with my client last week, I pointed out that after the condominium project is registered, all of the unit owners as a group will be required to purchase from the developer:
• Up to 6 guest suites at $200,000 plus HST each, or $1,356,000, plus 8% interest over 10 years,
• A superintendent unit for $565,000 including HST, plus 8% interest over 10 years.
• A recreation centre for an astonishing $11.3 million, repayable without interest over 10 years.
Including $860,000 in interest on the guest suites and superintendent’s unit, the unit owners as a group are on the hook to the developer for a total of slightly more than $14 million during the first 10 years of ownership.
My client’s share of the total cost works out to $69,560, or a hit of more than 7.4% in addition to his purchase price.
None of these charges were disclosed in the sales office, so when I calculated it out for my client, he was in shock at the total amount of the costs.
In my experience, this project marks a new high — or low, depending on your viewpoint — in undisclosed extra charges for condominium buyers. It’s a situation which demands greater government protection for unsuspecting consumers.
And it’s also an issue which the members of the Building Industry and Land Development Association might want to tackle before the government does it for them.
Until the disclosure laws are changed, condominium buyers can protect themselves by taking several steps:
• Ask about undisclosed charges in the sales office before signing anything.
• Read the disclosure statement and especially Section 17 (about extra costs).
• Above all, always have an experienced condominium lawyer review the purchase agreement and disclosure statement within the 10 day cancellation period after signing it.
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Contact the Jeffrey Team for more information - 416-388-1960
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