HST on New Build Rental Properties: One of the Most Confusing and Commonly Misunderstood Topics in Real Estate
Based on my experience, HST is one of those topics where the answer often depends on who you ask. Your accountant, lawyer, mortgage broker, real estate agent, and fellow investors could each give you a different explanation or interpretation. Like many tax rules in Canada, HST is complex—and misunderstandings can be costly.
In this article, I outline the HST implications of purchasing a new-build property and the key differences depending on whether you plan to move into the home or rent it out. One of the most important steps is to be clear about your intention from the start and communicate it to both your builder and your real estate lawyer. Failing to do so can easily cost you $25,000 or more in interest and penalties.
The Two GST/HST Rebates
There are two separate rebates to understand.
- GST/HST New Housing Rebate (for owner-occupiers)
This is the simpler scenario.
Example: You buy a $500,000 home that you plan to live in. You inform the builder, who provides paperwork allowing them to apply for the HST rebate on your behalf after closing. Most builders handle this automatically.
The result?
You pay your down payment, secure your mortgage for the remaining amount, close on the property, and move in. No additional HST paperwork or upfront cash is required.
- GST/HST New Residential Rental Property Rebate (for investors)
If you intend to rent out the property from day one, the process is different. The builder cannot apply for this rebate on your behalf.
You still finance the $500,000 purchase as usual, but at closing, you must pay the HST portion, typically around $25,000, directly at your lawyer’s office. The builder receives this amount through your lawyer and ends up in the same financial position as if CRA had paid them the rebate.
To receive your refund from the CRA (usually within 2–6 months), you must submit:
- The rebate application
- A signed one-year lease
- Statement of Adjustments
- Additional supporting documents listed on the CRA website
Alternatively, you can hire an HST rebate company for $400–$600 to handle the entire process.
The core difference between the two scenarios is simply the temporary cash outlay of roughly $25,000 for investors, solely because the property is being rented rather than owner-occupied.
Where Investors Often Get Into Trouble
Some investors dislike the idea of paying an extra $25,000 at closing—or cannot afford to—so they attempt to sidestep the rules by claiming they intend to move into the property, while actually renting it out.
The CRA has become extremely vigilant about this, especially in the GTA condo market. They use data-driven analytics to identify questionable claims. Importantly, the CRA often waits until the deadline to apply for the correct rebate has passed. By the time they reassess you and deny the owner-occupied rebate, you can no longer apply for the rental rebate—leaving you on the hook for the full amount, plus potential penalties.
Useful Resources
To estimate your potential HST payable (and rebate) on a new-build purchase, I highly recommend Andrew Lafleur’s HST Rebate calculator on truecondos.com—it’s the best one I’ve found.
Disclaimer
This article is for informational purposes only and should not be taken as legal or accounting advice. Always consult a professional to ensure this information applies to your specific situation.
