Understanding the HST Rebate When Buying Pre-Construction Homes in Ontario
Purchasing a pre-construction (or “pre-con”) home in Ontario involves several financial considerations that are often misunderstood by buyers. One of the most common points of confusion relates to the Harmonized Sales Tax (HST) rebate.
1. What is the HST Rebate?
When a buyer purchases a newly built home or condo, the price typically includes the HST but assumes that the buyer qualifies for the federal and Ontario New Housing Rebate (under Section 254 of the Excise Tax Act). This rebate can reduce the effective purchase price by up to $24,000 or more, depending on the price of the property.
2. Who Qualifies for the New Housing Rebate?
To qualify for the HST New Housing Rebate (for owner-occupied homes) directly through the builder:
The buyer must be an individual (not a corporation or trust), and
The home must be intended as the primary place of residence of either:
The buyer,
The buyer’s spouse/common-law partner, or
A close relative, which includes:
Children (including adopted),
Parents,
Grandparents,
Siblings,
And spouses/common-law partners of the above.
⚠️ Note: Aunts, uncles, cousins, friends, roommates, and employees do not qualify as close relatives for rebate purposes.
In addition to intent, actual occupancy as a primary residence is key. The CRA may deny the rebate if it determines the buyer never genuinely intended to reside in the property.
3. What If You Don’t Qualify for the Owner-Occupied Rebate?
If you do not meet the criteria (e.g., if the property is for rental or investment), you must pay the full HST at closing. You may then be eligible to apply directly to the CRA for the:
New Residential Rental Property Rebate (NRRPR) under Section 256.2 of the Excise Tax Act.
To qualify:
You must own the property as an individual or corporation,
You must rent it to a tenant who will use it as their primary place of residence, and
The lease must be for a minimum term of one year.
The rebate is calculated based on the fair market value (FMV) at the time of closing, not the purchase price. This often results in a different rebate amount than what was initially included in the agreement with the builder.
4. Builder’s Role and Rebate Conditions
Most builders build the HST rebate into the advertised purchase price, assuming that you qualify. If you do not qualify, the builder is entitled to collect the rebate portion back from you—typically around $24,000, depending on the home's value.
Because the builder is the one claiming the rebate on your behalf, they often include a clause in the Agreement of Purchase and Sale (APS) that allows them to:
Unilaterally determine your eligibility, and
Withhold the rebate and adjust the closing price upward if they have concerns.
If a buyer misrepresents their intent to occupy the property and the CRA denies the rebate, the builder is on the hook and will usually pursue the buyer to recover the funds.
5. Financing Considerations
It's also important to coordinate with your lender. Some mortgage lenders have conditions about:
Owner-occupancy, or
Mandatory leasing of the unit for investment purposes.
These requirements may conflict with your HST rebate eligibility. For example:
If your lender requires you to lease the unit, you may lose eligibility for the owner-occupied rebate, and
You’ll need to pay the full HST at closing and later apply for the rental rebate.
Buyers should therefore prepare to have extra funds ready at closing to cover the rebate amount if they do not qualify for the upfront deduction.
Key Takeaways
Verify your HST rebate eligibility early, and consult a tax professional or lawyer familiar with CRA policies.
Disclose your true intentions regarding occupancy to your lawyer and builder to avoid post-closing liabilities.
Plan financially for the possibility of needing to pay the full HST at closing.
If you intend to rent, prepare to apply for the NRRPR rebate directly with CRA post-closing.
Disclaimer:
This blog is for reference only and does not constitute legal advice. For specific issues, please consult your lawyer.
The copyright of this blog belongs to Zeng Law Professional Corporation, Ontario, Canada. Without authorization, reproduction, reprinting, excerpting, or other means of copying, publishing, or distributing is prohibited.
