Ontario Pre-Construction Condo Bought as a Rental: HST Rebate

Buying a condo before it is built, or taking over someone else's agreement by assignment, often means you will rent the unit out rather than live in it. The HST you pay on closing is a real cost, and a rebate may reduce it.

Whether you can claim depends on how the unit is used first, its value and the timing of your purchase. This article walks through the main tests and the paperwork that tends to decide the outcome.

The rebates that may apply

The federal New Residential Rental Property (NRRP) rebate lets a landlord who bought a newly built or substantially renovated rental property recover part of the GST or the federal part of the HST. It phases out, and none is available for a unit with a fair market value (FMV) of $450,000 or more.

In Ontario, a rebate of part of the 8% provincial part of the HST is also available, subject to a maximum amount, whatever the unit's FMV. It can be claimed even where the federal rebate is unavailable only because the FMV is $450,000 or more.

Together with the Ontario enhanced rebate, the Ontario rebates can reach up to 100% of the 8% provincial part. For a lease of building and land the combined maximum is generally $80,000. The enhanced rebate is reduced for units with an FMV over $1.5 million and under $1.85 million, and none is available at $1.85 million or more.

There is also a separate purpose-built rental housing rebate of 100% of the GST or federal part of the HST for eligible new purpose-built rentals. Construction must begin after September 13, 2023 and before 2031, and be substantially completed before 2036. A multiple-unit complex needs at least ten residential units (or at least four units with a private kitchen, bath and living area), and 90% of the residential units must be held for exempt leasing.

Ontario's rules for these rebates have been changing, and the amount can depend on when construction started. Confirm the current rules for your project with a lawyer or accountant before you count on a specific figure.

The one-year residential use test

The NRRP rebate requires the unit's first use to be as a primary place of residence for at least one year. That can be the tenant's, or the owner's or a relation's, or an equivalent period for certain other arrangements.

For an investor, this means the condo should not first be used as something else, such as a short stay. A unit that sits vacant or is first used in another way may raise questions about eligibility, so confirm your plan before closing.

Also remember that long-term rentals of residential accommodation of one month or more are exempt from GST/HST. As a landlord you do not charge it and generally cannot claim input tax credits on related costs. That is one reason it is worth checking early whether a rebate applies to the tax you paid on the purchase.

Assignments and builder agreements

The two-year filing period runs from the end of the month in which tax first becomes payable on the purchase. When that happens in your case depends on your documents. With an assignment, the paperwork can be more complicated because more than one buyer may be involved. Who qualifies for a rebate, and how the tax was treated, depends on the facts and the documents.

Have a lawyer or accountant review the assignment agreement, the builder's consent and the statement of adjustments before you rely on a rebate. The exact wording of those documents matters, so it is worth having them read carefully.

If you are not a Canadian citizen or permanent resident, other rules may apply to the purchase itself. The federal Prohibition on the Purchase of Residential Property by Non-Canadians Act bars non-Canadians from buying residential property, and the ban was extended to January 1, 2027. It covers buildings with three homes or fewer and parts of buildings, such as a condominium unit, but property located outside Census Metropolitan Areas and Census Agglomerations is not covered by the ban. Ontario's Non-Resident Speculation Tax is 25% on residential property bought by a foreign national, with possible exemptions and rebates. Check the current position before you sign.

Closing documents and timing

You claim on Form GST524, with Form GST525 for co-op and multiple units. A purchaser-landlord must apply within two years after the end of the month in which tax first becomes payable on the purchase.

Your closing documents show how the tax was dealt with and when. It is practical to gather them in one place so a lawyer or accountant can review them with you:

• The agreement of purchase and sale, and any assignment agreement.
• The statement of adjustments from closing.
• Anything you have about the unit's value and any builder credits.
• The lease, and records of how the unit was first used, since the rebate looks at first use as a primary place of residence.

What to do next

• Write down the closing date and the date tax first became payable, then mark the two-year deadline.
• Confirm the unit's FMV, since it decides whether the federal rebate is available and can reduce or remove the Ontario enhanced rebate.
• Plan for first use as a primary residence for at least one year.
• Check whether the project may qualify as purpose-built rental housing, which has its own tests.
• Ask a lawyer or accountant to review your documents before you file.

Frequently asked questions