New Condo as an Investment in Canada: Which GST/HST Rebates Apply?

Buying a pre-construction condo to rent out looks simple on paper, but the federal GST/HST relief that applies depends on how the unit will actually be used. Many investors assume the new housing rebate they hear about from owner-occupiers is open to them too.

This article explains who the new housing rebate is for, how the rental property rebate differs, and which conditions investors tend to trip over. It is general information, and your own purchase agreement and plans matter a great deal.

This article covers Canadian federal tax law, which applies in every province.

Why the new housing rebate usually does not fit an investor

The new housing rebate applies when a builder sells a new condominium unit to an individual who acquires it as their own or a relation's primary place of residence, and the total consideration is under $450,000. The intent to use the home as a primary residence has to be evident at the outset of the purchase.

An investment property does not qualify, and neither does a home you plan to use on some more distant occasion, such as retirement. CRA's rental property guide puts it directly: an investor who will not live in the unit cannot claim the owner rebate.

There is one wrinkle worth knowing. The home can be the primary residence of a relation, so buying for a family member who will live there can qualify if every other condition is met, and the first occupant must be the buyer or a relation.

The rental property rebate is the investor's route

The new residential rental property rebate is aimed at people who buy to lease. A purchaser who is not the builder may be entitled when tax first becomes payable, if the property includes a qualifying residential unit and the tax is not recoverable as an input tax credit. A qualifying unit is self-contained, held for exempt residential rental, and first used as a primary residence for at least one year.

The amount is calculated with a formula based on the unit's fair market value, and you apply on Form GST524 within two years after the end of the month in which tax first became payable. The new residential rental property rebate is for units leased or held for lease as residences, and it uses fair market value rather than the rules for the owner rebate.

The rental property rebate is not paid where the individual qualifies for the new housing rebate on the same housing.

Conditions and limits that catch investors out

• The rebate is not paid for purchases of existing occupied rentals where no GST/HST was payable, for units that are not self-contained or not held for exempt residential leases, or where the tax is recoverable under another law.
• If a qualifying unit that is not part of a multi-unit complex is sold within one year of first occupancy to a buyer who will not use it as a primary residence, the rebate must be repaid with interest at the prescribed rate less 2% per year.
• A separate purpose-built rental housing rebate exists, but it excludes condos and single units, and it cannot be claimed together with the rental property rebate on the same property.

Whether a given unit satisfies the one-year first-use condition or the input tax credit rule often turns on the details of your plans, so these are good points to confirm with an accountant or lawyer.

Individuals, corporations and the first-time buyer top-up

Only individuals can claim the new housing rebate. Partnerships and corporations cannot, and an individual cannot claim if a partnership or corporation co-owns the house. A corporation (not a co-op) that buys a taxable new unit to rent out, and is not the builder, can still claim the rental property rebate on Form GST524.

The first-time home buyers' rebate is also an owner-occupier measure. The buyer must be the first occupant and be buying as a primary residence. A buyer who fails the first-time buyer test may still qualify for the regular new housing rebate.

If the contract was assigned to you, there may be two builders, and you may pay GST/HST to the original builder and to the assignor. Only the builder who sells the house can pay or credit a rebate, so an assignee must claim directly from CRA on Form GST190.

What to do next

• Decide, and document, whether the unit will be rented or lived in by you or a relation.
• Check whether you are buying personally, through a corporation or with co-owners.
• Ask whether your contract is an assignment and who charged the GST/HST.
• Confirm whether the tax you pay is recoverable as an input tax credit.
• Keep your statement of adjustments and lease records, and talk to a tax lawyer or accountant before closing.

Frequently asked questions