HST Rebate on Pre-Construction Houses

2. September 2021 09:13

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Who is entitled to the HST rebate?

Anyone in Ontario who purchases a new home or condo unit from a builder, or who hires a builder to construct a new house is entitled to the HST Rebate program. The program allows new homebuyers to claim a significant portion of the HST in a rebate form in an effort to help them deal with the increased cost of buying a new home. Under certain circumstances, even homeowners who are drastically renovating their property are eligible for the rebate.

If you have done any of the below, you may be eligible for an HST rebate:

  • Purchased a newly constructed residence that’s never been lived in
  • Purchased a pre-construction condo or house, being an end-user or even an investor
  • Renovated your home (only head-to-toe transformations that impact every home in the house are considered eligible, kitchen or basement renovations don’t apply here)
  • Built a new house yourself
  • Contracted someone to build a home
  • Added a major addition to a home
  • Rebuilt a home that was destroyed in a fire
  • Bought shares in a newly constructed cooperative housing project
  • Converted a non-residential building into a home

End-User vs. Investor

The Ontario HST rebate is usually allocated to the builder upon closing when acquiring a new house or condo for yourself or a family member. The builder will utilize this rebate to reduce the project's purchase price by the amount of the rebate. This allows the housebuilder or condo developer to promote a reduced which boosts sales and makes it easier for a buyer to qualify for a mortgage large enough to cover the property's costs. Every pre-construction project sold in the GTA has an HST rebate for the majority of developers.

When purchasing a new home to live in (for yourself or a family member) the HST rebate is frequent. HST rebate differs depending on whether you plan on actually living in the new home yourself (end-user) or if you’re an investor who wants to lease the residence immediately after closing as a rental property. 

End User

If you plan on moving in and living in the new property, you must apply for the New Home Rebate (NHR). Under an NHR, you’ll receive the HST rebate based on the fact that you (or a direct blood relative) will occupy the new property as the principal residence for at least the first year.

People qualified as “direct blood relative” i.e., allowed to receive the new home rebate:

  • Spouses or Common-Law Partners
  • Children
  • Parents
  • Siblings
  • Grandparents

People unqualified as “direct blood relative”:

  • Aunts
  • Uncles
  • Cousins
  • Nephews
  • Nieces
  • Friends
  • Business Associates

In the majority of cases, particularly when buying a pre-construction condo in the Greater Toronto Area (GTA), you’ll receive the HST rebate right away in the form of a discounted purchase price. Most condo and home developers already factor the HST rebate into their price lists.

If the new property is sold before the initial one-year window, the Canada Revenue Agency (CRA) will require you to pay back the HST rebate in full, which can add up to as much as $30,000.

Things to Remember

  • The new homebuyer must occupy the new home as their principal residence for at least the first 12 months after closing.
  • If the property is sold in the first year, the buyer will be required to pay the HST rebate back in full
  • Only the new homebuyer or a direct blood relative can occupy the new property as their principal residence.
  • All co-signers are required to live in the new home as a primary residence in order for the HST rebate to be viable
  • It’s critical to take all the steps in claiming the new home as your principal residence, including changing your driver’s license address
  • You can apply for the HST rebate up to a maximum of two years after closing. After those two years pass, you’re no longer eligible to apply for the rebate
  • Typically, the HST rebate is already factored in pre-construction condo price-lists

Investor 

You’re eligible to receive the HST rebate on a new home, irrespective of whether you’re a Canadian or foreign investor. However, if you are an investor you must apply under the New Residential Rental Property Rebate (NRRPR).

To receive the HST rebate through an NRRPR, you must provide a one-year lease agreement in order to prove that the new home will be rented to a tenant for at least the first 12 months after closing.

The new home must be leased for at least the first year before it’s sold. If the investor flips the property before the one-year window closed, the HST rebate is no longer viable and the taxes must be paid in full. 

Unlike an NH3, investors who file for NRRPR must pay the entire HST upfront and will receive the rebate around two or three months after proof of the lease agreement has been submitted.

Things to Remember:

  • Investors must provide a one-year lease agreement and rent the new home for at least the first 12 months
  • If the new home is flipped within the first 12 months, the HST must be paid in full
  • Under and HRRPR, investors must pay the HST in full at the time of the purchase and only receive the rebate two or three months after the lease agreement is submitted. Therefore, investors must have more cash on hand at the initial time of purchase
  • Investors who plan on leasing the unit can’t apply for the HST rebate through an NHR and must file for an NRRPR
  • You can apply for the HST rebate up to a maximum of two years after closing. After those two years pass, you’re no longer eligible to apply for the rebate
  • Typically, the HST rebate is already factored in pre-construction condo price-lists

How much is the HST REBATE?

The HST rebate amount varies depending on the new home’s price tag. It is crucial to understand that the rebate doesn’t offset all the HST costs on a new home. If the new house or condo is priced using $350,000, you’re eligible to receive a maximum of $30,000 back. Between $350,000 and $450,000 a sliding scale applied. And for properties costing more than $450,000, a maximum rebate of $24,000 can be received. If a pre-construction condo is priced at $500,000 the HST would equal $65,000. After factoring in the rebate, you’d pay a total of only $41,000 – a savings of $24,000.

Possible Risks Involved

If you applied for the HST rebate as a principal residence, it’s critical to take the steps that prove on record that you are actually living/lived in the new home day-in and day-out. Make sure to change your address with the CRA as well as on all government issues IDs, such as your driver’s license and health card.

For investors who plan on leasing the new home, it’s critical not to claim the rebate as a principal residence and instead apply as the landlord through the New Residential Rental Property Rebate (NRRPP).

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REAL ESTATE

Power of Sale

30. June 2021 11:26

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What is the power of sale?

Power of sale is the most common forced sale process used in Ontario when a homeowner fails to repay their mortgage. In a power of sale, a mortgagee (the lender in a mortgage) obtains a legal right to evict residents of a property and sell the property to recover funds owing. After the property is sold, the former homeowner has the right to any profits from the sale after deduction debt repayment and fees. 

 Buying a power of sale property

It is a common misconception that power of sale properties are sold below their value. In fact, lenders are required by law to take reasonable steps to get the market value for the property.

In a regular home sale, you would probably deal with the seller and their representative. In a power of sale, you deal directly with the mortgagee. This opens up the possibility of you being less in power during negotiation in matters of the property price. 

 Possible risks when buying a power of sale

Sometimes when a lender takes over a property in a power of sale situation, the property may not be evaluated by the homeowner. It is also important to know that the property is sold “as-is”. In a power of sale situation, the lender is not aware of any defects or problems in the property. Unlike a typical transaction, you can’t ask the seller about the condition of the property or negotiate with them about the repair. Hence, when you agree to purchase the property, it is yours including the defects, and any costs for repairs and renovations will be your responsibility. To handle this tricky business, you should hire a professional real estate agent and consider the option of home inspection. A home inspection may help identify any underlying problems with the property’s major functioning such as heating and cooling systems, electrical wiring, and foundation. Therefore, it is better to enter into the negotiations knowing everything you can about the property which may even allow your real estate agent to negotiate a better price on your behalf. 

Sometimes a lender may allow for a “Right of Redemption”, which means that while you are negotiating for the purchase of the power of sale property, the current owner can make up all or a portion of the payments owed. Thus, canceling the power of sale transaction. Your real estate agent must tell you if this clause is included in the “Agreement of Purchase and Sale” so that you can be prepared for this possible outcome. 

There are some legal aspects to consider as well. For instance, if the tenant or the owner is still living in the property, you may have to comply with certain provisions of the Residential Tenancies Act, 2006. You must consult with a knowledgeable lawyer who can help you navigate through such situations.

You should make sure that a title search is completed so that you can identify the true owners of the property and any other liens against the property. Power of sale properties often receive multiple offers, so you may be competing against other potential buyers. Therefore, it’s important to do your due diligence to be sure that you are getting the property in a condition and price that is acceptable to you. 

Whether you are an owner or investor, considering purchasing power of sale property, you need to be aware of all the possibilities and situations involved in such a transaction. Hence, you must have a real estate professional by your side that is experienced in such transactions and aims to protect your investment. 

 

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REAL ESTATE

Things You Need to Know About Estate Sale

17. June 2021 11:18

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Selling a family property after the owner dies can be an emotional time for parties involved. Sometimes heirs of the property are in a hurry to get rid of it and move on. There could be a number of reasons behind that, such as no emotional attachment to the property or large numbers on the bills for the property’s maintenance and upkeep. However, it is not necessarily an easy or quick process, and here’s why.

What is an Estate Sale and How does it Work?

An estate sale is the sale of a property of a recently expired owner with the purpose of liquidating the property and all the assets in it. Those who inherit the property will receive the proceeds from the sale. Although the most common reason for an estate sale is the death of the property owner. However, it may also occur because the owner will be moving or has moved to a new residence such as a retirement community or rest home, etc. where they will be incapable of keeping the property. That said, there are a number of reasons for the need of liquidating the owner’s property. For instance, the surviving family members with a stake in the property may have no interest in the personal belongings left behind by the owner, or they may be unable to reach a decision about what to do with the property. In such a case where this dispute may arise, the situation is resolved by the court. The court decides on the estate sale, after which the proceeds from it are divided among the parties involved.

When does an Estate Sale become a Probate Sale?

Many a times, the sale of the property and the assets in it occurs when the owner dies without a will or naming any specific heirs. In such a situation, the estate sale becomes a probate sale wherein the court steps in assuming the responsibility of selling the property and appoints an estate representative who is responsible to handle the property sale.

Why Buyers Seek Out Probate Sales?

Probate Sales are mostly lifted below the market value. This is because the property is being sold in “as is” condition, which means that it likely has not been updated in a while and may need improvements with no guarantees about the condition. It is possible that the family members know nothing about any issues with the property that may reduce the value. This is why a home inspection is required and buyers should hire professional real estate agents to get the job done and get them the best deal.

Process Involved in a Probate Sale

The easiest way to identify probate sale properties is to work with a real estate agent who is familiar with such listings. The estate representative usually hires a real estate brokerage to market the property. If you decide to go look for a property on your own and like the property, you can contact the estate representative to find out the real estate agent handling the listing to get more information.

How long does Probate take?

  • To fill the application It takes some time to prepare the probate application properly, but if you are diligent, the application can usually be prepared and filed within days not weeks. We work with our clients to prepare and file as quickly as possible. Normally, we file within 1-2 weeks of first hearing from you.
  • From application to grant – Once the application has been prepared and filed, it takes time for the Court to process the application. The amount of time required varies widely depending on the court where the application was filed. Applications in Toronto and the GTA usually take several months, with processing times ranging from 4-6 months currently. Applications in Ottawa are usually processed within 2 weeks. Processing times vary for other Courts. The application must be filed in the Court where the deceased resided, so unfortunately you cannot simply choose to file in a faster Court.
  • To administer the estate – Administration of the estate after probate is in the hands of the estate trustee. The rough rule is that the executor has a year to administer the estate (for more, see estates law basics), however as it can take 4-6 months to receive a clearance certificate from Canada Revenue Agency, many estates extend beyond one year even if the estate trustee is very diligent.

When is Probate required?

Probate is not always required, but most estates should be probated. Probate is required when Court approval of the vesting of the assets of the deceased in the estate trustee is required – either to validate the will, or the choice of executor, and with respect to the executor, either because there may be a dispute about who it should be or because some beneficiaries are unable to consent on their own (for instance, people under disability including minors). Many estates of the first spouse to die or, which do not involve real estate or significant financial assets, do not need probate. If the estate includes real estate that does not automatically vest in someone like the spouse of the deceased, then probate will almost always be required.

Probate can sometimes be avoided for real property that has been held by the deceased for longer than 30 years.  Known as the ‘first dealing exemption’ this is only available when the transfer is the first transfer into the land titles system when there is a valid last will, and the last will has not been probated.  When this route is available, the real estate can be transferred directly into the names of the beneficiaries or estate trustees.

You cannot avoid probate just because:

  • The estate is small
  • All beneficiaries agree
  • There is only one beneficiary
  • The only assets are bank accounts or investments

If a financial institution (bank) where funds are held demands probate, then probate is required. Financial institutions are not obliged to waive probate under any circumstances. Some banks occasionally waive probate for small estates when there is no obvious conflict among beneficiaries. This is entirely at the discretion of the financial institution, and if they refuse in your circumstances the solution is not to argue – it is to probate immediately. If the financial institution agrees to waive probate, the beneficiaries will be obliged to sign indemnities, agreeing to indemnify the bank from any claims.

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REAL ESTATE

5 Reasons Why You Need A Real Estate Agent

15. June 2021 12:27

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Better access/More convenience

Real estate agents have easy access to all the properties listed by agents. This is what they do for a living – act as a liaison between buyers and sellers. Therefore, agents representing buyers as well as sellers know exactly what needs to be done to get the deal together. The job comes with a lot of requirements. While representing a buyer, the agent has to track down the perfect home that meets the buyer’s criteria, contact the seller’s agents, make appointments for viewing, etc. Similarly, when the agent is representing the seller, it involves making appointments for the interested buyers, clear inquiries, etc. It is also likely that potential buyers move on if you don’t follow up on them quickly enough. To do all of this on your own becomes exhausting and almost impossible to do when you have your life and job to focus on.

Negotiating on your own is tricky

More often than not people believe that it is better and more transparent to have the buyer and seller negotiate directly. This might be true in an ideal scenario, where the buyer and seller are reasonable people who wouldn’t let their emotion cloud their judgment while making the deal, which is not the case 99.99% of the time. There could be many things that a potential buyer doesn’t like about the house and would like to convey to the seller for any price adjustments. This could potentially hurt the seller’s sentiments and create bad blood between the two, which could kill the deal. Herein steps your real estate agent as your savior. It is an agent’s job to be a messenger between the buyer and seller and do tough conversations without making things get too personal.

Hard to handle contracts

Buying or selling a home involves the offer to purchase contract, which is there to protect you and ensure that you can declare the deal null if the conditions you asked for aren’t met. For whatever reason, failure to set the correct conditions about financing, home inspection, or anything else that you deemed necessary when the contract was being drafted can cause you legal troubles or your money. An experienced real estate agent deals with such contracts on a daily basis. He is well aware of the conditions that should be used, how to safely remove them once they are met and how to use the contract to protect you as a buyer or seller.

Agents can't lie

This doesn’t mean that they don’t have the ability to lie. However, the repercussions they would have to face if they do are far more than for a buyer or seller. A licensed real estate agent under an agency agreement is bound by license law to act in their client’s best interest and not his/her own. This means that if you find that your agent was lying to you, you have the right to go to court with proof that your agent has failed to uphold his fiduciary duties. On the other side, when a buyer or seller work directly, they can seek legal counsel but it isn’t much you can do if you found out that you have been duped about multiple offers or the home’s condition because the buyer and seller are both expected to act in his or best interest. Suppose such a situation happens, then having a lawyer on retainer any time you potentially buy or sell a house could cost you far more than an agent’s commission by the time the deal is completed.

Not everyone can save money

Many people don’t hire real estate agents in hope of saving money. However, it is unlikely that both the seller and buyer will benefit from not having to pay commissions. A seller lists his home on the market at a price that is comparable to similar properties in the area. Many of these properties will be sold with the help of an agent, who will receive his or her commission. This means when the house is sold, the seller gets to keep the percentage of the house’s sale price that otherwise might have been paid to the agent. However, a buyer who could purchase the house would not be saving any money, which he/she thought they would by not having an agent involved. This means that unless buyer and seller agree to split the money saved, they can’t both save the commission.

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REAL ESTATE

What is POTL(Parcel of Tied Land)?

7. June 2021 10:54

 

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What most people believe is that a condominium is a multi-story building with a number of units and common elements or shared amenities, which is true. There are many other different types of condominiums, one of which is condominium ownership called a Common Elements Condominium (“CEC”).  With a CEC, there is an entity attached called a Parcel of Tied Land or POTL.  A POTL is a freehold parcel of land or a standard condominium unit that is tied to a share in a CEC.  The POTL is tied to the share in the CEC which means that the owner of the POTL cannot sell the POTL without also selling its share in the CEC.  The two interests cannot be separated.

POTL could be a detached, semi-detached, or townhome. With a POTL, each homeowner typically owns a piece of land and the building on it and also has part ownership in the common elements of the CEC.  The common elements include things like parking areas, access roads, sidewalks, and parks. As an owner of a POTL and part-owner of the common elements, you will have the right to use the common elements facilities.  This type of ownership is often found where there is shared ownership to a waterfront or beaches and docks. 

As a part-owner of the common elements, you will have rights and obligations.  You will be responsible for paying your share of the expenses related to the operation and maintenance of the condominium’s common elements.  Like a high-rise condominium, there will be monthly common expenses or maintenance payments which will be collected by a property management company that is responsible for the day-to-day operation and administration of the condominium corporation.

As a real estate professional, it is important to note that when making an offer to purchase a POTL, it is prudent to make the offer conditional on a lawyer’s review of the status certificate and related condominium documentation.  The status certificate and condominium documents will provide valuable information about the condominium corporation such as the monthly common expenses, the by-laws, and any rules that are part of the condominium.  By making the offer to purchase conditional, the Buyer will have an opportunity to review the documents with its lawyer to determine if there are any issues with the condominium corporation’s finances if there are any special assessments or other issues that might influence one’s decision to purchase the unit.  Finally, realtors should be aware that there is an OREA/TREB form specifically for a POTL that should be used when your client is purchasing a POTL.

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