BUYING A NEW HOME?

HST does apply to the purchase of a new home in Dufferin County and area.  The Ontario Government offers the assurance that 93% of new houses sold in Ontario will pay no more in taxes than in the past when only the GST was applicable.

A buyer of a new home from Sunvale Homes for example, who intends to occupy the home, should receive a rebate of the HST charged on the purchase price of the home, up to $24,000.

There is a fairly complicated formula to calculate the rebate to be credited to the buyer when purchasing a new home in the Shelburne or Orangeville area.  These rebates only apply to buyers who are purchasing a new house from a builder who has agreed to sell the house to the buyer with the tax rebate included.  In other words, the builder will take the tax rebate off the price of the home and the buyer will assign the rebate to the builder who will wait for Ontario to send the tax rebate to him. 

Before HST, if purchasing a house from a builder for $325,000, the GST portion of the house was $10,077.52.  ($314,922.48 + $10,077.52 = $325,000).

Under HST the $325,000 house would have a full 13% tax component of $37,389.38, making the net price of the house $287,610.62 ($287,610.62 + 13% or $37,389.38 = $325,000).  The rebate of tax to the buyer is now $24,096.96 and the tax component is $13,292.42, which works out to 5%.  The buyer still pays $325,000 and the builder waits for the rebate.

Before HST, if purchasing a house from a builder for $410,000, the GST portion of the house was $16,054.54.  ($393,945.46 + $16,054.54 = $410,000)

Under HST the $410,000 property would have a net (before tax) price of $386,893.20.  HST would then be $50,296.12, making the purchase price $447,189.32.  (The net price is different as rebates decrease as the house reaches the cut-off price for rebates set by the province).   The tax rebate in this case is $27,189.32.  The house is valued at $386,893.20 + taxes of $23,106.80 for a purchase price of $410,000.  The tax rate is 6%.

But with a $700,000 purchase, before HST, the GST portion was $33,333.33, making the net price $666,666.67.  The rate is 5%

Under HST, the net price is $640,707.96, because no matter the price everyone gets at least $24,000 ($700,000 + $24,000)/1.13 = $640,707.96.  HST is $83,292.03 for a purchase price of $723,999.99.  The only rebate available at this level is the promised $24,000 so the home price is $640,707.96 + tax of $59,292.03 ($83,292.03 less $24,000.00) for a purchase price of $700,000.  The tax rate is now 9.3%.

Please note that the rules are different for people who purchase a building lot and hire a builder or contractor to construct the home.  See my article "How to Buy Vacant Land" for tax information on owner built homes.

For the more expensive new homes sold in Ontario, taxes have increased under the Harmonized Sales Tax system.

For those who need to know, the formulas for tax calculation are found at http://www.cra-arc.gc.ca/E/pub/gi/gi-085/gi-085-e.pdf