|February 5, 2003
GOODS AND SERVICES TAX FOR PURCHASERS OF NEW RESIDENTIAL RENTAL PROPERTY
Amendments to the Excise Tax Act have created a new rebate for persons who are purchasing a new residential unit and who intend to rent the unit. The new residential rental property rebate now allows a recovery of the portion of the Goods and Services Tax ("G.S.T.") paid or payable in respect of new residential rental properties that will be rented to tenants.
In order to claim this rebate, certain conditions must be met. These include:
- The purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the property.
- The rental unit must be a "qualifying residential unit" which means the person applying for the rebate must be the owner of the unit and the unit must be a self contained residence as defined in the Excise Tax Act.
- The unit must be held by the owner for the purpose of making exempt supplies (for example, a residential lease).
- The unit must be used as a primary place of residence by the tenants and must be so used for at least one year.
In order to claim the full rebate, the value of the qualifying unit must not exceed $350,000.00 and no rebate is available for rental units valued at $450,000.00 or more. For rental units valued between $350,000.00 and $450,000.00, the rebate is gradually reduced as per the same formula on new homes acquired as a principal residence (see Article on "G.S.T. Rebates January 28, 2003").
Rebates for owner occupied units are usually given on closing which means the purchaser only has to pay the net G.S.T. to the Vendor. The new residential rental property rebate must be applied for after closing so that the Purchaser must pay the full G.S.T. on closing. Supporting documentation will be required, and includes the Statement of Adjustments, the Contract of Purchase and Sale, the lease/rental agreement and the insurance policy that the claimant has on the property.
Please remember that the rules regarding G.S.T. frequently change. While we try to keep our website up to date as much as possible, please do not rely upon the information without talking either to one of our lawyers or your financial advisor. Bell Spagnuolo Legal Offices has a Certified General Accountant as part of its real estate team who would be happy to answer your questions or assist you in completing the necessary G.S.T. forms. Please let us know if you are interested in this service and we will have him contact you.