Bought the Condo Now Pay GST

You knew when you purchased the condo that you were going to "flip it" or "rent it" so it should not be a surprise when you get handed a bill for the GST on your purchase.

Lets recap;

Some years ago you committed to purchase of X Dollars with a 15% down payment paid over a 90 day period. That condominium unit was in Toronto, Mississauga, Oakville. Now the building is built and ready for occupancy. The builder has notified you, in writing, that on date Y your unit is available for final inspection and move in (Interim Occupancy) Please bring your certified cheque in the amount of (final 5% down). You now have 20% equity in the condo purchase.

Are you moving in? Cough, UMMM,, Hesitation, Eye Mis - direction, Silence.

The contract requires that you, in writing specify if someone other that you or a family member is taking interim occupancy of the unit. Now you are in conflict with your agreement of Purchase and Sale. Why does it matter?

It Matters! because at the final closing and registration of your condominium unit you are signing a Statutory Declaration that you are the end user / occupant and that GST claw backs are available to the builder. You have purchased the Tarion warranty.

Stan Gelman says;

Nothing underscores the difference between the PST and GST than real estate. Most services in a real estate transaction are currently subject to GST. As the GST “net” is a broader, the six levied on items like legal fees, surveyor charges and real estate commissions increase starting Canada Day 2010, from 5% to 13%

Ontario’s HST will impact the development industry more than any segment of the economy. The basic rule for the new homes/condominiums is simple. AS OF JULY 1, 2010, 13% TAX WILL BE CHARGED ON THE ENTIRE PURCHASE PRICE OF ANY NEW HOME OR CONDOMINIUM, 5% FEDERAL, 8% PROVINCIAL), LESS ANY REBATES.

While the GST is a direct tax, a significant PST component is buried in the price of new homes/condominiums today. “Currently, the (PST) applies to building supplies used in the construction of new homes. The single sales tax would remove this embedded tax. Based on a recent Canada Mortgage and Housing Corporation study, this embedded sales tax rates from about two percent to three percent, on average on the final sale of a new house in Ontario. Effectively that fixes the PST rate on new homes/condominiums at about 2% of the purchase price.

To maintain the status quo for lower-priced units, a rebate was proposed on prices below $500,000. (Just as the Ontario HST would be in addition to the federal GST, this Ontario new housing rebate would be in addition to the GST New Housing Rebate). For new homes/condominiums bought as a primary residence and priced under $400,000, the rebate would be 75% of the 8% Ontario HST, or 6% of the purchase price. At 2% the net Ontario HST would be comparable to the current rate of embedded PST in a new home/condominium.

Between $400,000 and $500,000 the Ontario new housing rebate would be phased out, and totally eliminated at $500,000. For new homes/condominiums priced over $500,000, 8% Ontario HST would be charged on the full purchase price (in addition to the 5% GST).

At $400,000, the gross Ontario HST would be 8% of the purchase price ($32,000). The net Ontario HST would be 2% of the purchase price (or $8,000), as the Ontario new housing rebate (75% of the 8& Ontario HST [i.e. 6% of the purchase price], or $24,000), would be deducted

1) If either occupancy or ownership of a new home/condominium is transferred before July 1, 2010, the deal is not subject to Ontario HST (reason: the occupancy ownership date)

2) If both occupancy and ownership of a new home/condominium are transferred after June 30, 2010, the deal is not subject to Ontario HST (reason: the grandparent exemption)

For contracts entered into after June 18, 2009 and before July 1, 2010

3) If either occupancy or ownership of a new home/condominium is transferred before July 1, 2010, the deal is not subject to Ontario HST (reason: the occupancy/ownership date)

4) If both occupancy and ownership of a new home/condominium are transferred after June 30, 2010, the deal is subject to Ontario HST (reason: the grandparent exemption does not apply. Constantly growing, this is clearly the category of greatest concern. However, the buyer MAY be eligible to a PST Transitional Housing Rebate

Besides being the day when the sweeping changes were announced, June 18, 2009 was Queens Park’s choice as the grandparent exemption cut-off date. That means consumers never had the opportunity to knowingly buy a new home or condominium under the grandparent rules. Buyers with grandparented transactions have attained that status by luck, not by choice.