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Buying a Pre-Construction Condo in Downtown Toronto: Do You Have to Pay HST?

Buying a brand new pre-construction condo in downtown Toronto is exciting, but it may also bring up many questions and uncertainties. It can be confusing trying to understand how HST works, for example, and who pays for it. So, let’s break down HST when purchasing a pre-construction condo in Toronto and take a closer look at the HST Rebate.

In 2010, Ontario implemented Harmonized Sales Tax (HST), which raised the tax on new homes to 13% (HST) – a total of 5% GST (federal taxes) and 8% PST (provincial taxes). To help new homeowners cover the growing costs of owning a new home, the government created the HST Rebate Program. This program works in two ways – depending on what kind of buyer you are – to reimburse buyers for a portion of the tax.

The two ways that buyers can qualify for the HST Rebate in Ontario are:

  1. HST New Home Rebate (NHR): When you buy a pre-construction condo that you plan to live in (end user)
  2. New Residential Rental Property Rebate (NRRPR): When you buy a pre-construction condo as an investor with the intent of renting it out after closing (investor)

End Users

When you buy a pre-construction condo in Toronto, you’re assigning the right to the HST rebate to the builder. The builder then uses the rebate to reduce the purchase cost of the property. This portion of the HST is not added to your property’s purchase price, and the builder will apply for the HST rebate for the property, thus reducing the amount due at closing by the amount of the rebate.

In short: you don’t have to pay for HST on your new condo, as it’s already built into the final purchase price of the home, including the cost of the HST NHR. This is provided you’re a Canadian resident and provided that you, or an immediate family member such as a parent or sibling, plan on being the principal resident of the condo.

One thing to keep in mind is that if you sell or lease the property before the one-year mark, the Canada Revenue Agency (CRA) will require you to pay back the HST Rebate in full.

Investors

If you plan on purchasing a pre-construction condo with the intent of renting it out after closing, you need to apply for the New Residential Rental Property Rebate (NRRPR) rather than the NHR.

To receive the HST Rebate, you need to submit a one-year lease agreement and prove that the property will be rented out for one year after closing. Additionally, you must pay the full HST amount upfront and you will receive the rebate a couple of months after sending in the proof of the lease agreement. Similarly to the NHR, if you end up selling or flipping the property before the one-year mark, the CRA will require that you pay back the HST Rebate in full.

How Much Is the HST Rebate?

The amount of the HST Rebate varies depending on the price of the new condo. If the pre-construction condo is priced under $350,000, then you’re eligible to receive a maximum of $30,000 back (36% rebate on the GST portion, and 75% on PST). Between $350,000 and $450,000, there is a sliding scale, and for properties costing more than $450,000, a maximum rebate of $24,000 can be received.

There are many HST Rebate calculators on the internet that you can consult to calculate the exact amount, but keep in mind that if you’re purchasing a pre-construction condo and plan to live in it, the HST in the majority of cases will already be factored into the purchase price, and you don’t need to worry about it.

Do you have any questions about HST when buying a pre-construction condo in Toronto? Connect with BAZIS on social media (Facebook, Twitter or Instagram) and let us know!

Canada’s Changing Mortgage Rules: What You Need to Know

Girl signing the mortgage papers for her new house

The ease with which new home, townhouse or condominium buyers can get a mortgage fluctuates over time depending on borrowing limits, interest rates, insurance rules and more. If you’re thinking of buying real estate, you’ll want to know the latest market news and updates. The Canada Mortgage and Housing Corporation (CMHC) recently announced changes that may affect your ability to get a mortgage. This comprehensive blog will cover all the new rules and everything you need to know if you’re considering applying for a mortgage in the near future.

Canada’s New Mortgage Eligibility Rules 

In response to the COVID-19 pandemic, the CMHC announced changes to the eligibility rules for mortgage insurance in June 2020. The new rules came into effect on July 1, 2020.

As the COVID-19 pandemic has affected millions of Canadians and has heavily impacted the housing industry due to widespread job losses, businesses closing and a temporary drop in immigration, the CMHC responded by changing its underwriting policies for insured mortgages. These rules were designed to protect Canadian home buyers and to reduce risk.

According to the CMHC, the following changes will now apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to its standard requirements of 35/42;
  • Establishing minimum credit score of 680 for at least one borrower; and
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.

In effect, the new mortgage rules lower the amount of debt that you are able to carry (as an applicant for an insured mortgage), require you to have a higher credit score than before in order to qualify for CMHC insurance, and require that you use your own funds for your down payment, rather than borrowed funds.

Here is a more detailed breakdown, as summarized from MoneySense:

Change 1: Less Debt as a Percentage of Gross Income

Old rule: If a buyer had a good credit score and reliable income, they were previously able to spend up to 39% of their gross income on housing (which includes their mortgage, property tax, heating  bill and half of condo fees), and they were allowed to borrow up to 44% of gross income once credit card, car payments and other loans were included.

New rule: Now, all home buyers are limited to spending up to 35% of their gross income on housing, and can only borrow up to 42% of gross income once other loans are included.

Change 2: New Minimum Credit Score Established

Old rule: Previously, in order to qualify for an insured mortgage, at least one borrower (or their guarantor) had to have a minimum credit score of 600 (which is only considered “fair”).

New rule: Now, the minimum has been raised to 680 (which is considered “good”). Not sure what your credit score is? You can check it for free online.

Change 3: No More Borrowed Down Payments

Old rule: Previously, home buyers could use unsecured personal loans, unsecured lines of credit and even credit cards toward their minimum down payment. (The minimum down payment is 5% for houses valued up to $500,000 and 10% of the amount over $500,000, up to $1 million.)

New rule: Now, borrowers must provide the down payment “from their own resources,” CMHC says. Basically this means that home buyers must use their savings, equity from the sale of a property, a non-repayable financial gift from a relative, funds borrowed from other liquid financial assets or against other real property, or a government grant.

The mortgage stress test is staying the same. This test requires borrowers to prove that they can still make their monthly mortgage payment if interest rates rise.

How the New Rules May Impact You

These rules make it safer and more risk-free to hold a mortgage. Homeowners will have fewer worries about being approved for a too-high mortgage that may become stressful to uphold over time. Many Canadians have over-leveraged themselves to afford the home of their dreams, which can cause anxieties and the very real risk of defaulting on your mortgage and foreclosure.

Even before the COVID-19 pandemic hit in March, mortgage delinquency rates (the rate at which homeowners failed to make mortgage payments in accordance with their loan agreement) were at the highest they’d been in nearly a decade. According to Equifax Canada, the percentage of Canadians who were three or more months behind on their debt payments in the final three months of 2019 was 1.2%, an 11% jump compared with the same period in 2018.

The Benefit

With the debt that Canadian households have accumulated rising, getting a mortgage that’s within your means is just the smart thing to do.

“These actions will protect home buyers, reduce government and taxpayer risk, and support the stability of housing markets,” said Evan Siddall, CMHC’s President and CEO.

If you’re not in the high-risk category of new home buyers, these rules may not affect you at all. They’re also beneficial in that they reduce the number of new home buyers who will be able to enter the market, which is expected to slow demand and balance out home prices.

And with today’s historically low interest rates, it’s a great time to jump into the market. You’ll be able to save on interest and have lower monthly mortgage payments, putting more money in your pocket amidst the general financial uncertainty that Canada and the world are currently experiencing due to the COVID-19 crisis.

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