Tax Basics for Purchasers: HST Payable on Newly Constructed Residential Dwellings

When purchasing a newly constructed home, many buyers mistakenly believe that Harmonized Sales Tax (HST) is either not payable on the transaction or is included in the purchase price. This common misconception can lead a purchaser to incur significant unexpected additional costs when closing on the purchase of their new home.

The first, most essential approach to avoid this unplanned cost is by carefully reviewing your agreement of purchase and sale, preferably at the outset. Within the agreement, you will find provisions stating whether or not the total purchase price is inclusive of the entire HST payable pursuant to Canada’s Excise Tax Act.

In most cases, the agreement will state that HST is included in the purchase price, however, there are other caveats that you must be aware of as a purchaser. Vendors calculate the purchase price that is presented to buyers by taking into consideration federal and provincial new housing rebates that may be available to purchasers regarding newly constructed residential units. The portion of the HST which is actually incorporated into the purchase price is not the entire HST that is paid for the home. The sale price presented by the vendor includes the HST payable after deducting the anticipated HST rebate for which a purchaser may qualify.

Vendors assume that you, as a purchaser, will be eligible for these new housing rebates and your agreement of purchase and sale will provide that you agree to transfer and assign the HST rebate to the vendor. However, there are many factors that may not entitle you to receive these rebates. It is important to be aware that vendors are careful to protect themselves from ineligible purchasers within the agreement of purchase and sale. Your agreement will typically include provisions making you responsible for paying that portion of the HST rebate that the vendor was unable to collect on your behalf due to your ineligibility. In these cases, you could be liable to pay as much as $24,000 in addition to the purchase price set out in your agreement of purchase and sale.

For the aforementioned reasons, it is essential for you, as a buyer, to consult with a real estate lawyer to ensure you will not be surprised with additional charges when purchasing your new home. If you are looking for someone to help protect you through your purchase of a new home, please contact us at info@parenteborean.com.