Purchase of an existing building or a used residential property (i.e. the property is not a new build) for the express purpose of using it as a principal residence is GST-exempt transaction. Revenue Canada’s definition of a “used residential property” includes an owner-occupied house, condominium, duplex, apartment building, vacation property, summer cottage, or even a non-commercial hobby farm.
When purchasing a “resale” home, ask the vendor for a certificate specifically indicating the resale nature of the transaction and the used state of the property for GST purposes.
To qualify as “used”, the vendor must not fall within the legal definition of a builder. The law defines a builder as one engaged in the business of building or making substantial renovations to a property.
A recently completed property may also qualify as used so long as it was substantially complete at the time it was bought and has had at least one previous owner. If you are self-employed and are using one of the rooms in your principal residence (resale home) as an office, the entire house may be GST-exempt provided it is primarily used as your residence. However, if the property is used primarily for commercial business purposes and is within the zone for that type of activity, your GST exemption would only apply to the portion of the house allocated to serve as your residence.
Purchasing a newly constructed home
The purchase of land together with a new construction is subject to GST, even if it is to be your principal residence, or if the home is bought on behalf of a relative. In this context, a new home is taken to include a residential dwelling, be it a condominium, apartment or town house, simple family house or even a mobile home. The amount of GST is supposed to be 5% of the purchase price of the property.
A partial rebate on GST is allowed on purchases of principal residences, depending on the price. Homes costing $350,000 or less are entitled to the maximum rebate – the lesser of $8,750 or 36% of the GST amount due. Thus:
- A purchase price of $350,000 attracts 5% GST or $17,500. The maximum rebate rate is 36% of the tax due or $6,300. Net amount of tax to pay is $17,500 less $6,300 = $11,200
- A purchase price of $200,000 implies a tax due of $10,000 on which the potential rebate is equivalent to 36% or $3,600 – which can be claimed in full since it is less than the $8,750 cap. The net amount of tax to pay is $10,000 less $3,600 = $6,400.
Properties priced at $450,000 or higher are not eligible for any GST rebate. Properties priced higher than $350,000 but less than $450,000 are eligible for partial rebate but on a diminishing scale, until it reaches 0%.
If the purpose of the purchase is investment – to be offered for lease or rental purposes – or if it is purchased through a limited company, the full GST amount must be paid, irrespective of the value of the property.
When you purchase the home, you can claim the rebate directly from the builder or have it deducted from the GST you are supposed to pay through the builder to Revenue Canada. It is necessary to complete the “GST New Housing Rebate” form (available from builders, real estate agents, or Revenue Canada).