Rebate for a portion of the GST paid on the purchase price or cost of building a home.
Maroney on Money for November 16, 1997
When I think back to the period leading up to the 1991 introduction of the GST, it is the promise to “keep it simple” that sticks most in my mind. Whether or not that promise has been kept is a matter of opinion but I know where I stand on the issue.
Take for example, the GST “new housing rebate” that enables an individual to claim a rebate for a portion of the GST paid on the purchase price or cost of building a home. More specifically, let’s look at the GST rebate as it applies to owner-built homes.
As the phrase implies, this rebate is available to an individual who builds a home with the intent of inhabiting it on a regular basis. Not so obvious, however, is the fact that making a substantial renovation to your existing home may also enable you to make a claim for the “new housing rebate”. Revenue Canada considers a substantial renovation to entail the removal or replacement of 90% or more of the interior of an existing house.
And not only does a home qualifying for the “new housing rebate” not have to be new but you don’t actually have to pound nails yourself in order for the home to qualify as owner built; hiring someone to do it for you also puts you in the running.
The government is not interested in subsidizing new housing for the rich and famous so limits are placed on the amount of GST that can be claimed as a rebate.
If the fair market value of the home (including land) is $350,000 or less then the rebate is simply 36% of the GST paid or $8,750 whichever is less. If the fair market value is between $350,000 and $450,000 there is a formula to apply that reduces the amount of the rebate. There is no rebate available for homes with a fair market value of $450,000 or more.
It is interesting to note that these threshold amounts apply across Canada. While $350,000 will buy a pretty nice pad in St. John New Brunswick, it won’t buy much more than a lot in Vancouver.
Qualifying costs for purposes of this rebate include your standard bricks and mortar type expenses. Perhaps less obvious, qualifying costs also include construction of an access road, built-in appliances, drilling of a well, installation of an in-ground swimming pool and construction of an outdoor patio and deck.
Before going all out, you should note that non-qualifying costs include furnishings, free-standing appliances, tools purchased for construction and services related to maintaining the home.
There are different cut-off points in determining what expenses to include in the calculation. For example, if the home is occupied after the construction or substantial renovation is completed, you have two years from the completion date to file your application. You may include in your rebate calculation, GST paid from the beginning of construction or substantial renovation to the date you file your application.
Different dates apply where the property is occupied before construction or substantial renovation is completed or in situations where the property is sold before it is occupied. These dates are important and could, for example, change the date on which you intend to add that shiny new in-ground swimming pool surrounded by the fancy decking.
Recognizing the government penchant for paperwork, you would expect that there would be a need to complete and file a form. Sure enough this is absolutely true. The correct form for owner built homes and homes substantially renovated by the owner is Form GST 190 E Application Type 4. A second form is also required to detail the construction costs incurred.
Jim Maroney is a chartered accountant with Andrews, Brown, Maroney in Maple Ridge.
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