All new homes built in Ontario are subject to HST. But don’t assume that the price of the new home includes HST. You have to read the Agreement of Purchase and Sale to determine whether HST is included or not.

Even assuming that the purchase price includes HST, that is not the end of the matter. Unless you or a relative will live in the property as your primary residence, you are going to have a nasty surprise. If you buy a house for speculative purposes – perhaps to rent it out – you are going to have an extra cost on closing. Why? Because, effectively, there are different rates of HST charged on the purchase of new homes.

When the builder calculates all the components making up the purchase price (including HST), he calculates the HST at a specific rate assuming that the purchaser is buying the house as a residence for himself or a relative. In fact the purchase agreement will contain the purchaser’s warranty to this effect. Why does the builder make this assumption? Because the rate of HST chargeable on a new home purchased as a residence for use by a purchaser is lower than the rate of HST chargeable on a investor purchaser who will not be living in the same home.

When the builder remits the HST to the CRA, the builder will have to pay the higher amount if a purchaser is not going to be living in the home as his or her residence. If the builder set the HST at the lower amount (based on the purchaser’s warranty in the Purchase Agreement that the purchaser would be living in the house and thereby qualifying for the lower rate of HST) and has to pay the higher rate of HST to CRA, guess who has to pay the difference? That’s right – the purchaser. Why? Because the Purchase Agreement will say so.

This amount can be significant. The extra portion that would have to be payable on closing by an “investor purchaser” would be up to 36% of the federal component (GST) of the HST and up to 75% of the provincial component (PST) of the HST depending on the price of the home.