Are you planning on buying a new condominium or house as a rental property?
If you are planning on renting you may be eligible for a new rental property rebate. The rental property rebate, or the New Residential Rental Property Rebate (NRRP Rebate), can be claimed on the purchase of a new built home or condominium providing that you have signed tenants to a minimum one-year lease.
Rebates for rental residential properties differ vastly then rebates for new homes. For new homes that have been purchased as a primary residence, the builder or developer will typically apply for the HST rebate.
To alleviate some of the financial burden associated with the purchase of your property, we recommend that you submit your new home rebate application as soon as the transaction closes, and a tenant has been signed. Ensuring that all paperwork that is submitted to the Canada Revenue Agency (CRA) is correct and error-free.
How do I apply for the rental property rebate?
It is important that buyers have a plan before buying an investment property. Maximizing your return and minimizing the tax impact of property ownership is key. The upfront decisions, such as tax planning, that need to be made when buying a property that is intended to be a long-term rental are far different than the decisions that need to be made on a residential property that you intend to flip after a year. We recommend that you engage the services of an accountant, lawyer and an HST tax rebate expert to help with the financial decisions surrounding the purchase of the property. Buyers must understand how the New Residential Rental Property Rebate impacts the down payment, mortgage and payment options.
Every real estate investor has a different strategy on how they want to structure their down payments and mortgages. But if that decision is made without considering the legal and financial issues associated with how you plan to maximize the return on your investment, you could potentially be throwing money away. Working with a tax rebate expert who has years of experience will help you maximize your returns.
Investors who are building or substantially renovating an investment property or residential complex fall under what the Canada Revenue Agency (CRA) calls “self-supply rules” which are substantially more complex. As such, understanding CRA guidelines and the various application types can get complicated. In order for landlords to maximize their rebate it vital that they engage the services an experienced tax expert to explore the various options. Simple mistakes or miscalculations can be costly!
What is my Fair Market Value and Why is it Important?
The CRA defines Fair Market Value (FMV) as “the value of both the building and applicable land. It is normally the highest price that can be obtained in the real estate market between unrelated parties and should be comparable to the values of similar housing in the local real estate market. It does not include provincial land transfer taxes or any GST/HST that may be payable on the FMV.”
A residential property with FMV of less than $350,000 qualifies for a maximum Federal rebate of $6,300. A property with a FMV of more than $450,000 does not qualify for a Federal rebate. And properties between $350,000 and $450,000 will receive a prorated amount. Note that Provincial rebates do not use FMV to calculate the rebate amount.
For New Housing GST/HST Rebate’s the rebate calculation is straightforward. How the FMV is used to calculate the New Residential Rental Property Rebate (NRRP Rebate) is a little more complex. At the time of closing the builder’s solicitor will prepare a Statement of Adjustment which will calculate the HST Rebate that the purchaser must remit based upon the purchase price of the new property minus the GST/HST paid. This amount is used by the builder to calculate the HST rebate amount. A disconnect happens when the buyer submits their application. The buyer must use the FMV of the property at closing which could be significantly higher than it was when the original purchase transaction happened. As a result your actual rebate could be lower than what you paid the builder at closing.
If you used the FMV as calculated by the builder, or even the actual price paid for the property, to file your New Residential Rental Property (NRRP Rebate), your application will most likely be reviewed and the FMV amount will be adjusted to reflect a more realistic value. By not providing a sensible estimate of a current FMV you can expect significant delays in receiving a rebate.
Your New Residential Rental Property Rebate Application
Our in-house HST tax rebate experts can help determine whether or not you qualify for the HST rental property rebate and help you quickly and easily navigate the process. Whether you have chosen to invest in a new property or substantially renovate an existing one our tax experts will provide you with professional unbiased advice. Having more than 15 years of experience working closely with CRA our HST rebate tax experts have both the knowledge and experience to tackle the most complex HST rebate cases.
Buying a property in and of itself is a complex and somewhat nerve-wracking process. With the added responsibility of becoming a landlord, buying an investment property adds another level of anxiety to the entire process. During the purchase process, you have engaged the services of professionals to provide you with expertise – realtors, accountants, lawyers – your GST/HST rental rebate is no different. Navigating the GST524 or the RC4231 forms can be daunting, our tax experts will work with you to simplify and expedite the application process to ensure that the necessary paperwork is submitted correctly and on a timely basis in order for you to claim your HST rebate on rental property. Claiming the HST rebate in Ontario requires the buyer to submit an additional form.
If you would like to find out more about the New Residential Rental Property Rebate (NRRP Rebate), please contact our GST/HST tax experts by visiting our company website or by calling 647-281-5399.