Without details on Ontario’s new-homes tax rebate, some developers are including the HST reduction in their final price, while others are showing the full price as well as the price after the rebate.Sean Kilpatrick/The Canadian Press
Ontario buyers still have to qualify for mortgages on newly built homes at the full purchase price plus sales tax as they await information about how a new HST rebate will be applied.
Around a month ago, Ontario and the federal government proposed cutting the price of preconstruction homes in order to attract buyers and reverse the downturn in home construction.
Under the plan, buyers are eligible for a tax rebate of up to 13 per cent if they either plan to live in the newly built home or rent it out.
Ontario to extend full HST rebate to new homes under $1-million
The HST measure took effect April 1. But detailed legislation has not been enacted nor has guidance been provided by the provincial or federal governments. That has left the industry uncertain about whether buyers will have to pay the HST upfront and wait for a rebate after they close, or whether they can avoid paying the HST altogether.
Because of the ambiguity, many lenders may have no choice but to qualify buyers on the full unrebated price.
The federal Finance Department on Monday reiterated a comment made earlier in April, saying the two levels of government are currently discussing implementation details. “As a result, we cannot speculate on potential timelines at this time,” said department spokesperson Marie-France Faucher.
True North Mortgage Inc. said it is providing loans based on the purchase price plus HST. The Calgary-based lender does about 40 per cent of its business in Ontario.
“Even though the client may apply for an HST rebate afterward, that process remains independent of the mortgage funding,” said chief executive Dan Eisner.
Lawyers, developers and other industry experts are also advising buyers to be prepared to pay the full price.
“I tell clients to be prepared to not be credited the HST on closing,” said Alexandra Raszewska, a lawyer with Legalclosing.ca, a residential real estate law firm.
Because there is no legislation, she said it is confusing as to how the rebate will be applied. “What forms are available? What documents do we need? It is unclear,” she said.
Ms. Raszewska said she has reviewed about 10 preconstruction home purchase agreements with buyers to ensure they understand the contract before they commit to buying the property.
“A lot of clients want the reassurance before they close,” she said. “We are having to say ‘It will have to be an after-closing consideration.’ ”
Buyers have a year from between April 1 and March 31, 2027, to take advantage of the tax break. The maximum rebate is $130,000 on a newly built home priced up to $1.5-million.
Riz Dhanji has been working in condo development for three decades. He said he advises buyers to be prepared to pay the full amount initially, and shows them what the price will be with the rebate.
His firm, Rad Marketing, is actively selling units in four recently completed condo buildings as well as three under construction and one that has not yet started construction. Mr. Dhanji said Rad Marketing has done more sales in April than in the months prior to the HST rebate announcement.
He said lenders want to qualify people on the non-rebated price and then when it comes to closing, they will adjust the mortgage amount based on if they get the rebate or not.
“As an industry, we’re all waiting for the final legislation,” he said.
Some developers are including the HST reduction in their final price. Some are showing the full price as well as the price after the rebate. Meanwhile others, such as Solmar Development Corp., are amending their purchase agreements to include the rebate on- and post-closing.
Solmar encourages buyers to make their purchase now, and has their buyers sign an amendment saying Solmar will support any rebate application to the Canada Revenue Agency after closing. The amendment also says Solmar will provide the rebate on closing if the CRA agrees to this option.
“We are trying to be as transparent to the buyers as we possibly can and avoiding any misunderstandings as many marketing campaigns right now are quite confusing to the buyers,” said Angela Marotta, Solmar’s executive vice-president.
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The developer recently had to turn one of its large condo projects into a rental-only building complex because there was not enough demand from condo buyers. Developers typically have to sell a minimum of 70 per cent of their condo building’s units to get construction financing.
Because it is not clear whether a buyer will get the rebate, Ms. Marotta said buyers still need to qualify for a mortgage on the full price.
Rajan Mehta, a mortgage agent with True North, has worked on mortgages for three preconstruction home purchases this month. Two of the purchases will close in May and the third next year. Mr. Mehta said all the buyers qualified at the non-rebated price.
Mr. Mehta said buyers can use the rebated money for closing costs or to pay down their mortgage, as many lenders allow borrowers to make lump sum payments up to a certain amount without a fee.
Once the legislation becomes available, it may give would-be buyers more confidence to make a purchase. So far, some developers have seen sales increase significantly.