One of the most important potential closing fees with new condos is the HST tax. Considering the HST is approximately 7.8% of a new condo’s purchase price (and not the normal 13% charged on retail purchases), you need to determine whether or not you’ll need to pay the HST on a new condo purchase. The HST is payable on top of the $10,000-$15,000 in closing fees you’ll definitely need to pay on a new 1 bedroom condo.
Most developer’s unit pricing sheets tell you that all prices include HST, and many of those developer’s sales reps will echo this, telling you their prices include HST for all buyers.
This is wrong.
The reality is a developer’s prices only include HST if you’re an end user buyer. The end user person actually moving into the unit can be yourself or someone from your immediate family. But if you’re an investor planning on renting the unit out as an income property after closing, you must disclose this fact to your real estate lawyer during closing. This fact will disqualify you for the HST rebate given to end user buyers and you’ll need to pay the 7.8% HST fee to close on your unit.
However, investors planning on using their unit as a rental property can usually get this closing fee back in full. After the developer remits the HST you pay them to the the CRA, you can apply to CRA for an HST rebate. The onus is on you for making this application, but once you do, expect to get all your HST money back quickly, usually within a few weeks.
There are some situations where you will not get your HST 100% refunded and that depends on your unit’s purchase price. In general, the more expensive your unit is, the less likely you’ll receive a full rebate. For further information on HST rebates for high end condos, consult a commercial tax expert.
Finally, there is one last potential fee you may have to pay at closing. It’s not a closing cost per se because it doesn’t happen at all closings, but some developers require you pay it. It’s property taxes. By law, Ontario developers have the right to make you pre-pay upto 2 years of property taxes on final closing. Considering that property taxes are current about 1% of your property’s current market value value, paying 2 years of taxes could double the amount of money you’re paying out of pocket at closing.
Even if you have to pay 2 years of property taxes up front, it’s not the end of the world – you’d have had to pay these taxes in future anyway. Paying them now gets them out of the way and ensures you’ll have one fewer large bill related to your income property landing on your doorstep when you may not be as ready and able to pay it.
And when it comes to investment properties, pay the tax man you will, sooner or later. The Ontario government is very serious about collecting property taxes. Not paying your property taxes for 2 consecutive years means your property is eligible for being auctioned off publicly at an Ontario Property Tax Auction as a means of paying those outstanding taxes.
We hope this information helps better clarify the pre-construction condo buying process for you. We realize buying a new condo (whether for yourself as an end user or as an investment) is one of the important financial decisions you will ever make. Consequently, Lalu Canada believes in full transparency with our clients by providing you with all information on the condo buying process up front. This will help you make informed decisions plus avoid any surprises or pitfalls in future should you choose to buy one of our properties