Between appraisals, numerous fees, and the closing paperwork, trying to track how much a real estate transaction costs can be daunting. However, the more you know, the better prepared you’ll be.
One of the important fees you should know about is the Goods and Services Tax (GST) on new homes. In this post, we’ll discuss what qualifies as a “new home” in BC, who pays GST, when it’s due, and how to qualify for a rebate.
Let’s get started.
What is GST?
The GST is a 5% tax you pay on various goods and services you purchase and enjoy. You pay GST on everything from clothes, shoes, cars, and soft drinks. In real estate, you also pay GST on new homes. In other words, if your new home costs $500,000, you’ll need to pay an additional 5%, or $25,000, on top of your purchase price.
What is Considered a New Home?
Here’s the good news: if your home isn’t new, you don’t have to pay GST. This tax only gets paid once, and it’s done so by the first people to live in it. If you’re moving into a newly-constructed condo or townhouse, then you’re responsible for paying GST. However, if you’re the second, third, or fourth person to own it, someone else has already paid GST for the property, so you don’t have to worry about it.
Who Pays GST?
As mentioned above, the first buyer of a brand-new property is the one responsible for paying GST.
The only scenario in which the first buyer isn’t required to pay GST is if there’s an assignment of contract. This contract is commonly used when real estate investors facilitate a sale between the owner and the end buyer. When this happens, the first buyer isn’t the first one actually moving into the home and therefore is not responsible for paying GST. However, they will have to pay capital gains on the profit they make from the sale.
When is GST Due?
GST is due once the real estate transaction is complete. Your real estate attorney or notary will include the tax when preparing the statement of adjustments. Sometimes, the GST is already included in the home purchase price. Double-check just in case your attorney or notary accidentally charges you twice.
How to Qualify for a GST Rebate
If you’re on the hook for paying GST, you might qualify for a rebate. If you don’t want to do the math, we’ve also included a GST calculator to make your life easier. There are three different types of rebates available:
- GST New Housing Rebate – Full
- GST New Housing Rebate – Partial
- GST New Residential Rental Rebate
GST New Housing Rebate – Full Rebate
If the home you bought is going to be your primary residence and the purchase price is $350,000 or less, you qualify for a full rebate. However, the term “full” here is a bit of a misnomer. The “full” rebate is 36% of your 5% GST.
To see how this works, let’s assume the following:
Purchase price: $300,000
GST: 5%, or $15,000
Home cost after GST: $315,000
Full rebate: 36%, or $5,400
GST after full rebate: $9,600
Home cost after GST with full rebate: $309,600
GST New Housing Rebate – Partial Rebate
You’ll qualify for a partial rebate if your home’s purchase price is between $350,000 and $450,000.
The formula is: $6,300 X [$450,000 – Purchase Price] / $100,000
Here’s how this works:
Purchase price: $425,000
GST: 5%, or $21,250
Home cost after GST: $471,250
Partial rebate calculation: $6,300 X [$450,000 – $425,000] / $100,000 = $1,575
Home cost after GST with partial rebate: $471,250 – $1,575 = $469,675
GST New Residential Rental Rebate
Are you planning to rent your new home instead of using it at your primary residence? If so, you qualify for the GST New Residential Rebate. The calculations are identical to the New Housing Rebates—both full and partial.
To qualify, you must also satisfy the following conditions:
- As the buyer, you cannot claim input tax credits for any portion of the tax due on the purchase of the rental unit.
- To be considered a “qualifying residential unit,” you must own the property, and it must fit the Excise Tax Act’s definition of a self-contained residence.
- You must hold the unit with the intention of using it for tax-exempt purposes.
- Your tenants must use the home as their primary residence for at least one year, and you must have a copy of the tenancy agreement to prove this.
What is GST: Our Final Thoughts
No one wants to pay an additional 5% on top of their home’s purchase price. However, you only have to worry about paying GST for a new home. If you do have to pay GST, don’t forget to double-check to make sure it’s not already included in the purchase price.
Also, there are plenty of additional benefits and incentives for home buyers to offset the cost of GST, such as the first-time home buyer incentive program or the home buyers’ plan. If you still have more questions about GST or home buying, please contact Kim Lee, your Greater Vancouver realtor!