Some people buy new condos as an investment, and others find themselves “accidental landlords” for any number of reasons. For newbies, it is often a shock they will have to repay HST to their builder on the closing date. I received a letter today from a reader on this very topic.
“I read an article at your website and I got your contact information from there. I am writing to you today to get advice about my new condo. I bought a brand new condo and as soon as I got the occupancy last May, I rented it out. I had no idea that I had to pay HST to the builder at closing in case I rent my condo. Now the closing date is coming up in 3 to 4 weeks.
The real estate agent didn’t inform me about the tax issues if I rent my place, and I am not sure if I could break the contract with the tenant since they moved in last June. And if I have to pay this HST at closing, it means that the real estate agent put my financial situation at risk. I really appreciate it if you could give me advice what I could do at this point.” E.D. Toronto
There is in fact a federal government program New Residential Rental Property Rebate (“NRRP Rebate”) which gives landlords of new properties some relief from the HST on a purchase by making an application. But you will have to pay the builder on closing date and wait some time to get your own refund back.
Historically, some people have tried to hide their intentions from the builder in an attempt to avoid repaying the HST, but perhaps if they were aware of the NRRP Rebate, they might be more forthcoming.
Did you disclose to the builder your intention to rent right from the outset? They would have alerted you to having to repay the HST, and may also have brought your attention to the New Residential Rental Property Rebate.
Now, anytime you have concerns about your real estate agent’s conduct, you can contact his or her branch manager to air your concerns. And if a situation warrants it, there is a complaint process with The Real Estate Council of Ontario (RECO).
In your case though, I am not sure your real estate agent should be liable for the tax consequences of your purchase – it feels to me this is your responsibility. But for sure the branch manager or RECO will know exactly what your realtor’s responsibilities are, and I recommend you ask them.
Incidentally, you probably had a real estate lawyer assist you with this transaction. Do you feel s/he should have informed you? How about your mortgage agent or bank where you arranged your mortgage? Did you clearly state you planned to buy in order to rent out the property, and did you also ask if there were any adverse tax consequences? None of these people are tax advisers, and if they did answer such questions, would most likely have pointed that out.
For what it’s worth, had you been my mortgage client, and had you told me your intent, I would have told you upfront what you have now discovered, but I am not aware my imparting that information is an FSCO requirement of my registration.
Regardless, your first priority is to close on time, apply for the above rebate, and last, if at all, figure out where to point the finger of blame.
Related Article: New condo investors losing thousands in HST
Related Article: How to choose an investment (rental) property