Closing an Investment Property
Many investors who are in the
process of purchasing a new home from a builder for income property purposes
are not aware of all the closing costs that will be incurred. This can lead to
significant financing issues when additional costs are discovered and need to
be paid – usually within a week of closing. Most people understand the costs of
the home itself and the legal fees associated with closing the sale, but many
are not aware of the HST amount that must be paid in full by the date of the
final closing when the title is transferred. The amount due on closing for HST
typically ranges from $19,000 – 31,000.
New homes are typically eligible
for an HST New Housing Rebate
which will reimburse the HST amount that is due on the unit. This rebate can
typically cover the amount paid for the HST, but it is a relatively new program
and many people are not fully aware of it and the rules governing it.
If you plan to live in the new
property and use it as a primary residence, the builder will typically pay the
HST and claim the corresponding HST New Housing
. In the event that you are purchasing the investment property with
plans to have it non-owner occupied, you will be responsible for paying the HST
in full on the closing date and for claiming the HST New Housing Rebate.
Finding Help Closing Your Investment Property
As you can see, the process of
closing an investment property can get confusing with additional costs
potentially leading to financial issues. If you are responsible for paying the
HST and there is failure to pay the amount due on the final closing, it can
result in a loss of deposit and potential legal action from the builder.
Banks and many financial
institutions typically do not arrange loans for HST-related tax purposes, but
there is professional financial help available to allow investors to secure the
funds necessary to pay the HST due at final closing. HST relief companies allow
investors to secure a short-term loan to pay for the HST. This may be done by
taking an unsecured loan or with a second mortgage against the first mortgage
on the investment property for the amount needed for HST (up to $31,000). The
company will then take the steps to coordinate and file the HST New Housing Rebate
to the Canadian Revenue Agency (CRA) on your behalf.
Qualifying for the HST Rebate
In order to qualify for the HST
New Housing Rebate, there are a few requirements that must be met. These
- Only investment properties that have been
purchased from a builder in Ontario will be eligible for the rebate.
- The property cannot be a primary residence for
the owner. Only non-owner occupied properties are eligible.
- There must be a 1 year (or longer) lease agreement
in place with a renter.
- The rebate must be requested within a period of
2 years of title transfer of the property. This means that investors who have
previously closed an investment property can retroactively apply for the HST
rebate within the 2 year limitation.
Take advantage of the financial help available to pay your
HST amount for successfully closing an investment property today.