Claiming the Rebate on a New Cottage or Vacation Property in Canada

If you are buying a new seasonal cottage or vacation property, you may hope the federal GST/HST new housing rebate will reduce the tax. The rebate is built for homes people live in, so a cottage usually runs into a problem.

This article explains why, what the rules say about intent, and which other situations might be treated differently. A lawyer or accountant can confirm how the rules apply to your purchase.

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

Why a cottage usually does not qualify

The rebate applies where the buyer acquires the new home as their own or a relation's primary place of residence. CRA says that a recreational cottage, an investment property, or a house you plan to use on a more distant occasion such as retirement does not qualify.

The intent to use the house as a primary place of residence must be evident at the outset of buying, building or substantially renovating. A seasonal use plan generally does not meet that test.

The word relation matters here. It includes blood relatives (parents, children, descendants, siblings), spouses, common-law partners and adoptive relations, and for the new housing rebate only, former spouses and former common-law partners also count. A cottage that relatives use only for holidays still raises the same primary residence problem.

When a cottage might be different

For a builder purchase, the rebate covers a new single unit residential complex or residential condominium unit that the individual acquires as their own or a relation's primary place of residence. If the property is genuinely to be the primary place of residence of you or a relation from the outset, and the first occupant is you or a relation, the residence conditions can be met.

The other conditions still apply, including total consideration under $450,000 for a builder purchase and that you paid all applicable tax. Where total consideration is $350,000 or less, the rebate is the lesser of $6,300 and 36% of the GST (or federal part of HST) paid. Between $350,000 and $450,000 it phases out, and at $450,000 or more the base rebate is nil.

As an example of the phase-out, with 5% GST paid on a $400,000 home, the rebate works out to $3,150. The rebate is a percentage of tax paid, not of the price.

Only individuals can claim, and an individual cannot claim if a partnership or corporation co-owns the house. If several individuals own the home, only one of them can claim, and the others are listed as co-owners on Form GST190. Whether a particular property fits depends on the facts, so get advice before relying on this.

Other relief to be aware of

• The first-time home buyers' rebate also requires you to buy as your primary residence, so a seasonal property does not fit it.
• The new residential rental property rebate is for units leased or held for lease as residences, and it is not paid where the individual qualifies for the new housing rebate on the same housing.
• An investor who will not live in the unit cannot claim the owner rebate.

For a rental, the unit must be self-contained, held for exempt residential rental, and have a first use as a primary residence for at least one year. A short-term seasonal cottage may not meet this, so check before assuming it applies.

The rental rebate is not paid where the individual qualifies for the new housing rebate on the same housing. It is also not paid for units that are not self-contained or not held for exempt residential leases. 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.

A buyer who fails the first-time buyer test may still qualify for the regular new housing rebate, and the first-time buyer rebate can be claimed in addition to it as a top-up. Both still depend on the primary residence requirement discussed above.

Risks of claiming when you should not

An individual who receives a rebate they were not entitled to must repay it. If a builder pays or credits a rebate it knew or ought to have known the individual was not entitled to, the builder and the individual are jointly and severally liable to repay it.

This is why the builder's willingness to credit the rebate on closing does not settle whether you are eligible. The builder may pay the rebate to you or credit it against the price, but eligibility is still tested against the rules. How this applies to your cottage depends on your situation, so it is worth confirming with a lawyer or accountant.

What to do next

• Decide honestly whether the property will be anyone's primary residence from the outset.
• Keep your agreement of purchase and sale and statement of adjustments.
• Do not claim the rebate for a seasonal property without confirming eligibility.
• Ask a lawyer or accountant whether a rental route or another approach fits your plan.

If you do qualify and the builder does not pay or credit the rebate, you generally have up to two years from the date ownership was transferred to claim it on Form GST190. A missed two-year deadline on a builder purchase generally means the rebate is lost.

For a builder purchase, you send the form, Form RC7190-ON if you are claiming an Ontario rebate, and a copy of the statement of adjustments. Keep the worksheet RC7190-WS and your supporting records for six years, and do not send the worksheet.

Frequently asked questions