Wednesday, January 19, 2011

Formulas for Calculating HST Payable and HST Rebates on Investment Properties.

For Ottawa real estate be sure to contact Bennett Property Shop Realty Brokerage

Unlike purchasing a property for personal use, where the builder applies for the HST rebates, in the case of purchases of new construction condo or residential units as investments, the Investor is responsible for paying the full HST amount payable on new construction condo or residence at the time of closing and then applying for the HST rebates provided certain conditions are met.

To understand how HST and HST rebates are calculated, one first needs to review the Canada Revenue Agency terminology for the builder’s list price, being the price that the buyer set’s which includes all HST and HST rebates and the builder’s base price, which is the price used to calculate the total HST payable before any rebate calculations are undertaken.

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In CRA terms, the List price or “stated price net of rebates (SPNR)” means the stated price for the housing net of any GST/HST new housing rebate and the Ontario new housing rebate credited by the builder.

As well, the Base Price or the "consideration" payable for the purchase of the housing is the amount to be paid for the housing before any calculation of the tax payable and housing rebate entitlements for the purchaser.

Where a stated price net of rebates is used, a calculation must first be made to determine the value of the consideration payable for the housing. The value of the consideration must be calculated before the tax payable can be determined. Similarly, the tax payable must be calculated before the amount of the rebates can be determined.

An additional consideration is that although the Provincial component of the HST rebate is fixed at 6% to a maximum of $24,000, the Federal component of the HST rebate is on a sliding scale, reducing to zero once the builder’s base price or “consideration” exceeds $450,000.

Using the Builder’s List Prices as a starting point, and specific CRA formula’s for each of the four value bands (being <$368,200, $368,200 to $424,850, $424,850 to $484,500, and >$484,500) it is possible to calculate how much HST is already included in the purchase price and what the federal and provincial HST rebate components will be.

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However, these formulas can only be used if all of the following conditions are met:
• the purchaser is buying a newly constructed or substantially renovated single unit residential complex or residential condominium unit from a builder, together with the related land;
• the housing is situated in Ontario;
• HST at 13% applies to the sale;
• the purchaser meets the conditions for claiming the Ontario new housing rebate; the builder pays or credits the Ontario new housing rebate and, where applicable, the GST/HST new housing rebate in respect of the federal part of the HST to the purchaser; and
• the builder and the purchaser have agreed to a stated price net of the Ontario new housing rebate and, where applicable, the GST/HST new housing rebate in respect of the federal part of the HST.

To calculate the additional HST payable upon close for an investment property, refer to the formulas and examples below.


Formula #1 for Properties Priced Under $368,200
Provided the Builder’s List Price or “Stated Price Net of Rebates (SPNR)” is not more that $368,200 (meaning that the consideration (i.e. builder’s purchase price) is not more than $350,000):

Base Price / Consideration = SPNR ÷ 1.052

Example 1
The stated builder’s list price net of rebates is $325,000 and all of the above conditions are satisfied. The “consideration” or builder’s base price would be calculated as:

Builder’s base price
= builder’s list price ÷ 1.052
= $325,000 ÷ 1.052
= $308,935.36 (indicating that $16,064.64 in HST is already included in the builder’s list price)

Once the Builder’s base price is determined the tax payable and the new housing rebates may be calculated.

Total HST payable
= builder’s base price x 13%
= $308,935.36 × 13%
= $40,161.60

Less GST/HST new housing rebate in respect of the federal part of the HST
= (builder’s base price x 5%) x 36%
= ($308,935.36 × 5%) x 36%
= $5,560.84

Less Ontario new housing rebate in respect of the provincial part of the HST
= (builder’s base price x 8%) x 75%
= ($308,935.36 × 8%) × 75%
= $18,536.12

For an investor, on closing they would be required to remit the $24,096.96 in additional HST and then apply for the rebate of that HST amount, a process which typically takes about 6 to 8 weeks and requires that the property be leased to a tenant for a minimum of one year.


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Formula #2 for Properties Priced Between $368,200 and $424,850
If the Builder’s list price is more than $368,200 but not more than $424,850 (meaning that the base price is more than $350,000 but not more than $400,000), then:

The base price = (List price + $28,350) ÷ 1.133

Example 2

The stated price net of rebates is $410,000 and all of the above conditions are satisfied. The builder’s base price would be calculated as:

Builder’s base price
= ($410,000 + $28,350) ÷ 1.133
= $386,893.20 (indicating that $23,106.80 in HST is already included in the builder’s list price)

Once the consideration is determined the tax payable and the new housing rebates may be calculated.

Total HST payable
= $386,893.20 × 13%
= $50,296.12

GST/HST new housing rebate in respect of the federal part of the HST
= $6,300 × [($450,000 - $386,893.20)] ÷ $100,000
= $3,975.73

Ontario new housing rebate in respect of the provincial part of the HST
= ($386,893.20 × 8%) × 75%
= $23,213.59

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Formula #3 for Properties Priced Between $424,850 and $484,500
If the Builder’s list price is more than is more than $424,850 and not more than $484,500 (meaning that the base price is more than $400,000 but not more than $450,000):

The base price = (Builder’s List price + $52,350) ÷ 1.193

Example 3

The stated price net of rebates is $460,000 and all of the above conditions are satisfied. The builder’s base price would be calculated as:

Builder’s base price
= ($460,000 + $52,350) ÷ 1.193
= $429,463.54 (indicating that $30,536.46 in HST is already included in the builder’s list price)

Once the consideration is determined the tax payable and the new housing rebates may be calculated.

Total HST payable
= $429,463.54 × 13%
= $55,830.26

GST/HST new housing rebate in respect of the federal part of the HST
= $6,300 × [($450,000 - $429,463.54)] ÷ $100,000
= $1,293.80

Ontario new housing rebate in respect of the provincial part of the HST
= ($429,463.54 × 8%) × 75%
= $24,000 (maximum provincial rebate)

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Formula #4 for Properties Priced Over $484,500
If the Builder’s list price is more than is more than $484,500 (meaning that the base price is more than $450,000):

Builder’s base price = (Builder’s List price + $24,000) ÷ 1.13

Note: there is no rebate of the Federal proportion of the HST for houses, priced above $484,500.

Example 4

The stated price net of rebates is $700,000 and all of the above conditions are satisfied. . The builder’s base price would be calculated as:

Builder’s base price
= ($700,000 + $24,000) ÷ 1.13
= $640,707.96 (indicating that $59,292.04 in HST is already included in the builder’s list price)

Once the consideration is determined the tax payable and the new housing rebates may be calculated.

Total HST payable
= $640,707.96 × 13%
= $83,292.03

GST/HST new housing rebate in respect of the federal part of the HST
= $6,300 × [($450,000 - $640,707.96)] ÷ $100,000
= $0

Ontario new housing rebate
= ($640,707.96 × 8%) × 75%
= $24,000 (maximum provincial rebate)

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For Ottawa real estate be sure to contact Bennett Property Shop Realty Brokerage


See government forms here

26 comments:

  1. THE RESIDENTIAL RENTAL PROPERTY REBATE REVISTED UNDER THE HST

    In our December, 2009 issue of Law Bulletin (Issue #5) we discussed the Residential Rental Property Rebate which applies to new residential construction. We promised to revisit this issue once the Ontario Harmonized Sales Tax (HST) came into effect.

    Under the Ontario HST regime which came into effect on July 1, 2010, the buyer of a new home that he intends to rent must not only pay the full 5% GST on closing but also the full 8% portion of the old Ontario provincial sales tax. Under the new HST regime, home builders typically include in the purchase price:

    • 64% of the 5% GST (an effective rate of 3.2% built into the purchase price), and

    • 25% of the 8% Ontario portion of the HST (an effective rate of 2% built
    into the purchase price.

    This means that a buyer who is not an owner-occupant of the new home, must pay, as an adjustment on closing, the following:

    • 1.8% of the purchase price thereby paying the full 5% GST, plus

    • 6% of the purchase price (75% of the 8% Ontario portion of the HST) thereby paying
    the full 8% Ontario portion of the HST.

    For example, on a purchase of a brand new $300,000 home, (that is $300,000 net of any tax), the additional 7.8% of the purchase price payable on the closing of the purchase by the buyer is an additional $23,400!

    This excess tax payable by the buyer on closing is fully recoverable by the completion and filing of the Residential Rental Property Rebate Application (Form GST524) and the GST524 Ontario Rebate Schedule together with a copy of the residential lease and the Statement of Adjustments provided by the builder’s lawyer on the closing of the transaction.

    ReplyDelete
    Replies
    1. What if the buyer claimed as owner-occupied on the closing,
      and one years later rented out, when the CRA called for the rebat, how can we say to CRA? If CRA consided this unit not a owner-coccupied, can we apply Residential Rental Property Rebate?

      Delete
  2. Hi Greg,

    Could you please clarify where the total hst payable figure comes in? From example 1:

    Total HST payable
    = builder’s base price x 13%
    = $308,935.36 × 13%
    = $40,161.60

    If I am reading your instructions correct, in example 1, on closing, $24,096.96 will be required to be paid in addition to the purchase price. However, this will be re-imbursed to the purchaser by the 2 rental rebates. Where does the $40,161.60 in total hst payable fit in to the equation?

    Thanks in advance

    ReplyDelete
  3. The total HST is $40,161.60 is included in the purchase price. If the unit is bought as a owner occupied, the builder is entitled to a rebate of $24,096.96.

    As an investor, you have rendered the builder no longer eligible, so you have to pay the builder the $24k and apply to the government to get this rebate back to you. Hope this clarifies!

    ReplyDelete
  4. Thanks Greg. This clarifies everything. The total HST payable is equal to the portion of HST already in the selling price($16,064.64) + the portion you must pay in addition on closing because you are an investor ($24,096.96) which equals : $40,161.60.

    Thanks again!

    ReplyDelete
  5. Hi Greg

    I have been to 2 accountants for help, but they could not explain the details, as you did.

    Bought a new house in Brampton Ontario (second property, first property sold after the purchase of this one).

    Agreed Sale Price = 489,900.00, based on the agreement this price included the GST and NOT the HST as the agreement was done Sep 2009.
    Bought Upgrades for $22679. Builder gave APS credit/discount for $7000 (worth free upgrades) + 840.65 Volume Discount.


    House Upgrades Total
    Base Price (Excl. GST) $466,571.43 $22,679.00 $489,250.43
    HST (federal portion - 5%) $23,328.57 $1,133.95 $24,462.52
    HST (ontario portion - 8%) $37,325.71 $1,814.32 $39,140.03
    Discount -$7,840.65 -$7,840.65
    SUM $545,012.34
    Adjustments as per statement $5,228.65 $5,228.65
    Total $532,454.37 $17,786.62 $550,240.99




    So which is the correct calculation out of these:

    Incl. HST - Builder Rebate Incl. HST only Base + Upgrades only
    Net Purchase Price $545,012.34 $552,852.99 $489,250.43

    Consideration $503,550.74 $510,489.37 $454,203.92
    HST $65,461.60 $66,363.62 $59,046.51
    REBATE -$24,000.00 -$24,000.00 -$24,000.00
    Adjustments $5,228.65 $5,228.65 $5,228.65
    SUM $550,240.99 $558,081.64 $494,479.08


    Thanks
    Gary (Toronto ON)

    ReplyDelete
  6. In other words seems like the govt is not giving any rebate - they added 24K before and then subtracted the same. Plus HST was included in the price to calculated the consideration and then HST was calculted on top of that.

    ReplyDelete
  7. Hi Greg

    What would be the SPNR for calculating HST (starting price for calculation of HST), if I paid:

    Price on agreement $489,900 (incl. GST)
    Base Price $466,571.43
    Upgrades $22,679 (excl. Taxes)
    Builder APS $credit $7,000 (free upgrades)

    Thanks
    Gary

    ReplyDelete
  8. Thank you so much for posting these formulas here. They were incredibly helpful! Figuring out how to calculate prices excluding HST from prices that included the net HST after rebates had already been deducted was proving very challenging. This saved me a lot of time.

    ReplyDelete
  9. Thank you for posting this!! Great information - wish this information were more readily available.

    ReplyDelete
  10. Hi Greg:

    By using Formula #1 as an example, on closing I have to pay $24,096.96 in additional HST to the builder. Does that mean after I paid $24,096.96 to the builder on closing day, I will receive the same amount of rebate from government, is that correct?

    ReplyDelete
  11. Ontario new housing rebate in respect of the provincial part of the HST
    = ($386,893.20 × 8%) × 75%
    = $23,213.59

    Should we use 2% rather than 8% in here because the condo price is under $400,000?
    = ($386,893.20 × 2%) × 75%
    = $5803.40

    ?????????????

    ReplyDelete
  12. Hello
    For details of your personal calculations, I would follow the form or contact an accountant that specializes in real estate. Three that I can think of are:
    Hugh Falloon - hf@ggfl.ca
    Yousef Jaber - yjaber@bellnet.ca
    George Dube - info@dubeaccountants.com

    ReplyDelete
  13. I can't seem to find this answer anywhere. Even my lawyer is a bit confused. I own a Triplex that I'm trying to resell. Does HST apply to the new potential investors if they use the building strictly for investment and are not residing there themselves?

    ReplyDelete
  14. Hello,
    My suggestion is to speak to an accountant. For HST related questions on calculations, please contact Mona Tessier at

    mtessier@welchllp.com

    She is an HST expert.

    ReplyDelete
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  19. Thanks for tis insightful post, but I have a question regarding roughly the amount of HST rebate I should expect to get back. I'm an investor and the unit is currently rented out.

    SPNR = $351,700
    SPNR / 1.052 = $334,315.59

    HST Paid to Builder upon closing: $26,076.62

    GST524 & Rebate Schedule Calculations:
    $12,035.36 (ONT Portion) + $6300 (FED Portion) = $18,335.36

    I'm effectively losing out on $7,741.26, does this sound about right or do I have mistakes in my calculations somewhere?

    ReplyDelete
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    Partner
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    Direct: 613-694-4489 | Phone: 613-728-5831
    cjs@ggfl.ca | www.ggfl.ca | www.dfk.ca

    ReplyDelete
  21. Thank you for the very useful and helpful information.

    Could you tell me what exact supporting documents that I need to file the NRRP HST rebate to CRA?
    Probably I know the following items for supporting documents
    I1) RC7524 for Ontario and GST524 NRRP
    2) One year rental agreement
    3) Purchase order
    4) Financial Statement of Adjustments from the lawyer.
    But the documents of items 3 & 4 are so thick, which part CRCA are very interested. Do they accept photo copy?

    ReplyDelete
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