Jun 16, 2023
When purchasing a new home, it’s essential to understand the Goods and Services Tax (GST) implications. Similar to the GST you pay for other goods and services, the purchase of a new home is subject to this 5% tax. In this blog, we will explore the details of GST on new homes and provide valuable information to help you navigate through this aspect of home buying.
GST is charged on top of the purchase price of a new constructed home. This includes pre-sale high-rise condos sold by developers or owner-built homes. However, properties that have been previously lived in and used for residential purposes are exempt from GST, as the tax has already been paid at the first point of purchase.
When purchasing a new home, the GST rate is 5%, subject to any applicable rebates. The tax is calculated as 5% of the purchase price, meaning that the final price of a newly built home includes the purchase price plus 5% GST. However, it’s important to check if your contract of purchase and sale already includes full sales taxes. If taxes are included, GST has already been factored in, and you should inform your lawyer to avoid being charged twice.
The GST on real estate is due at the time of completion, as stated in the contract of purchase and sale. Your lawyer will calculate the GST amount when preparing the statement of adjustments for completion. If you qualify for a rebate, you will need to pay the full 5% GST on completion and then claim the rebate afterward.
In a residential real estate purchase of a new home, the buyer is responsible for paying the GST at the time of completion. The seller or developer does not pay GST on new homes.
In the case of an assignment of a contract purchased from another investor, the assignee is responsible for paying GST on the purchase of the property. The original buyer, known as the assignor, is not responsible for GST on the purchase but may be liable for paying capital gains on the profit made from the sale.
While the definition of a new home is typically straightforward, some situations can be confusing. A newly built or presale home sold directly from the developer or builder is considered a new home. However, some move-in ready homes may still be classified as new homes if they are being sold directly by the developer and have never been lived in. Additionally, GST also applies to substantially renovated homes, typically requiring at least 90% of the existing building to undergo renovation to a minimum degree.
GST New Home Rebates: There are two types of GST rebates for new home purchases:
In most cases, new home builders include the GST in the advertised prices of available homes. This allows buyers to know the final price of the home, including all applicable taxes, making it easier to plan their finances and secure a mortgage. However, for homes that are yet to be built, the advertised prices may vary. Since customization options and additional upgrades can impact the final price, builders often provide a starting price or a price range for such homes. It’s important to note that even in these cases, the GST amount is typically included in the advertised price.
However, it’s advisable to carefully review the purchase agreement to ensure clarity on any potential changes to the final price based on your customization choices. By understanding how builders handle pricing with GST included, you can make more informed decisions when considering new home options and budgeting for your purchase.
Understanding the implications of GST on new home purchases is crucial for prospective buyers. By familiarizing yourself with the key details discussed in this blog, such as the GST rate, when it is due, and who is responsible for paying it, you can navigate the process more confidently. Additionally, being aware of the eligibility criteria for GST rebates and the considerations surrounding the definition of a new home will help you make informed decisions. Whether you’re buying a pre-sale condo or a newly constructed property, knowing how GST factors into the purchase price will ensure a smoother home-buying experience.
Remember to consult with professionals such as lawyers or notaries to guide you through the process and ensure compliance with GST regulations. With this knowledge in hand, you can proceed with confidence and make informed decisions when purchasing a new home.
Hi! I’m Erin Crocker. I’m a real estate lawyer with over 10 years of experience in Alberta and British Columbia real estate law. I love technology and efficiency. I’m on a mission to create a modern, digital closing experience for buyers and sellers through technology, transparency and sharing knowledge.
