How I helped my client save $24,000 in taxes with her pre-construction condo purchase

I wanted to share a success story about a client and at the same time highlight the importance of seeking advice and planning ahead. A client of mines bought a pre-construction condo several years ago and the closing date is coming up in year 2020. She came to my office the other day and wanted some guidance as it relates to taxes associated with the condo purchase. She mentioned that her friend owns 50% of the condo. She also advised me that she intends to move into the condo with her parents for 6 months and then rent it out afterwards.

After hearing the facts of her situation I immediately told her that she could facing an unplanned HST tax bill. You see, when you purchase a newly constructed home or condo in Ontario, HST is included in the price. A portion of the HST can be claimed as a rebate under certain conditions. If you plan on moving into the new condo and treat it as your primary residence, the builder essentially reduces your purchase price by the HST rebate amount. Now in order to qualify you must live in the condo for at least 1 year and the joint owner of the condo also needs to live in the building or cannot be a someone other than an immediate family member. In my client's case, if she were to proceed based on her initial plan of moving in for 6 months only then she would not qualify for the HST rebate and need to pay $24,000 at the time of closing.

My advice to her was to not move into the condo but rather treat it as an investment property and rent it out for at least 1 year. The HST rebate also applies to rental properties with a 1 year lease agreement. Under this scenario my client would first need to pay $24,000 on closing however she can apply to get 100% of this money back within 2 to 4 months. Had she not planned ahead should would have been out $24,000.

If you have real estate related tax questions please feel free to contact me.