Haley Chang

A property owner emailed the Real Estate Board and asked, “If someone buys a home and tears it down and builds a new home, do they pay the HST?”

This property owner had read an article, “Real Estate Millionaires double in Richmond,” (Richmond Review, January 6, 2011) which quoted Landcor Data Corporation president Rudy Nielsen as stating, “In South Surrey…there’s a lot of people moving in…they’re buying teardowns and building new houses.”

We decided to ask the Canada Revenue Agency (CRA). This is what they told us.

Yes, the property owner will pay the HST on:

• construction costs, including labour costs if they hire a builder; and

• materials the property owner purchases, except where there are specific rebates, for example, energy-efficient windows that may qualify for a rebate.

Owner-builders

If the buyer of the tear-down home is an owner-builder (they are building the home themselves), they will also pay HST on materials. If the owner-builder decides to sell the new house, the new buyer must pay the HST on the purchase price. The new owner (buying from an owner-builder) may be eligible for the BC New Housing Rebate, which is a maximum of $26,250.

How long must an owner-builder live in their new home before they can sell it so that the new buyer is exempt from paying the HST?

“It depends,” says the CRA. If the home was built as a primary residence, then the subsequent sale is HST exempt.

But CRA looks at the facts of each transaction and if the builder is in the business of buying and selling real estate, or every year, buys a tear-down and builds a new home, then the new home may not qualify as a primary residence.

The Income Tax Act regulations do not provide a specific timeline rule for living in the home. But CRA looks at a range of criteria including the intention of the builder.

Claiming new home rebates

Detached homes: if the new home is in a subdivision, the builder typically rolls the HST into the purchase price and then gives the purchaser credit for the rebate. The builder applies for the rebate directly.

Multi-family projects: developers of multi-family projects typically include the tax in the purchase price of the unit, but the new owner has to claim the rebate themselves.

How to get more information on rebates

If the property owner is an owner-builder, or has hired someone to build the home, CRA advises that the owner-builder complete:

• Form GST191, GST/HST New Housing Rebate Application for Owner-Built Houses; and

• Form RC7191-BC, GST191 British Columbia Rebate Schedule.

If the home buyer is claiming the rebate themselves, CRA advises home buyers to use these forms and guides:

• Guide RC4028, GST/HST New Housing Rebate available at www.cra.gc.ca/gsthst

• Form RC7190-BC available at www.cra.gc.ca and in the search box enter, RC7190-BC.

All forms are available at www.cra.gc.ca, by entering the form number in the search box.

As part of his Legal Update 2011 course, lawyer Mike Mangan advises “A licensee should warn both the seller and buyer that if they have any questions regarding HST liability, exemptions, or the right to apply for a rebate, that they should contact a lawyer, an accountant or the nearest Canada Revenue Agency Office.”

If you have questions, phone the Canada Revenue Agency at 1.800.959.8287.