How does GST/HST work when purchasing a Rental Home Property?

If you’re considering jumping into the rental home property business and becoming a new landlord, there will be implications when it comes to paying Goods and Services/Harmonized Tax (GST/HST).

Like many things, when a person buys a home directly from a builder, there will be the typical GST/HST added to the purchase. There is, however, a new residential rental property rebate (NRRP), you may qualify for, which can offset the GST/HST paid during the purchase.

Purchases that qualify for the NRRP Rebate include;

  • A newly constructed or renovated home purchased from a builder;
  • Employing someone to build or renovate a rental home;
  • Changing any non-residential property into a property meant for residential purposes;
  • Land that can be leased to another individual.

As a residential landlord, you are not eligible to claim for an input tax credit (ITC) to offset the GST/HST paid on the purchase of a residential complex, therefore you can be eligible for the NRRP rebate for some of the GST or the federal part of the HST if you:

  • paid the GST/HST on the purchase of a newly constructed or substantially renovated residential complex or an interest in the complex and you lease the complex or units in the complex to another person for residential use by an individual;
  • are a builder and you paid or accounted for the GST/HST on the self-supply of a residential complex or an addition to a multiple unit residential complex that you lease to another person for residential use by an individual(s);
  • are a builder and you paid or accounted for the GST/HST on the self-supply of a residential complex or an addition to a multiple unit residential complex and you made an exempt sale of the building and an exempt long-term lease of the land under a single written agreement;
  • are a co-operative housing corporation (co-op) and you paid the GST/HST on the purchase of a newly constructed or substantially renovated residential complex or an interest in the complex from a builder and you lease units in the complex for long-term residential use;
  • are a co-op and you paid or accounted for the GST/HST on the self-supply of a residential complex or an addition to a multiple unit residential complex and you lease units in the complex for long-term residential use; or
  • paid or accounted for the GST/HST on the self-supply of land that you lease to another person for long-term residential use by an individual(s).

Restrictions When Purchasing a Rental Home Property

There are a few situations where an individual won’t be eligible for the NRRP rebate.

If you’re entitled to claim GST/HST new housing rebate, even if the credit applies to the builder instead of you. If you’re entitled to claim a rebate on landed leases, and that land is then sub-leased for residential purposes, and finally, if you claim the public service bodies’ rebate, you cannot claim the NRRP.

If you’re considered a builder, you won’t be eligible for the NRRP rebate, either. The term ‘builder’ has a very specific meaning and it’s not limited to people who are physically constructing housing residences.

You’re considered a builder of a residential complex, or an addition to a multiple unit residential complex if you:

  • Build or renovate a residential property, even if you personally do not build the house. If you intend to only purchase the house/property you are not a builder.
  • Purchase a property that is under construction, unless you are only interested in purchasing the house from a builder
  • Purchase a house that no one has lived in with the intention to sell
  • Purchase a condo before anyone lives in it or the condo is registered with the purpose of selling the unit
  • Convert a commercial building into residential units, even if you do not complete the renovations your self

The NRRP rebate can be a little intricate, especially if you’re getting into the landlord industry for the first time. Investing in this market, while it’s considered safer and calm compared to something like the stocks market, requires some level of education.

At JMH, we can help you guide you through the process to determine if you’re eligible for the claim. We know how the Canada Revenue Agency (CRA) makes their conclusions. We’ll work with you and provide you with a Qualifying Residential Unit Test, which you can quickly do before applying for the rebate.