If you’re considering purchasing a brand new home from a builder it would be beneficial for you to consult with an experienced real estate lawyer before signing on the dotted line. There are many contractual provisions in a new home contract which can be complex and confusing. An example of such a provision is the Goods and Services Tax (GST). This column explains how the GST plays a role in the purchase of a new home.

The contract that is signed during the purchase of a new home typically contains a clause stating that the purchase price includes GST. If no such schedule exists, beware, as the purchaser may inadvertently be responsible for paying the GST, in addition to the purchase price stated in the contract.

Under the Excise Tax Act, the sale of a newly constructed home is subject to GST. However, the Government of Canada provides a 36 per cent rebate for the GST that is payable when a newly constructed home is purchased. In order to qualify for the GST rebate, a purchaser must satisfy various government criteria. First, they must be purchasing a newly constructed home in which no one has previously resided. Second, the purchaser or one of their relatives must use the property as their primary place of residence. If they satisfy these requirements, they qualify for the GST rebate.

In a builder’s typical Agreement of Purchase and Sale, the contract stipulates whether or not the GST is included in the purchase price, or whether it is payable in addition to the purchase price. Assuming that the GST is included in the purchase price, the Agreement deals with the GST by stating that the rebate has already been applied for in favour of the purchaser. Also included in the Agreement, is a clause stating that the purchaser must execute any documents required to apply for the rebate, and must assign that rebate over to the builder of the property. Most importantly, there is a clause stating that in the event that the purchaser does not qualify for the rebate, he or she must pay to the builder an amount equal to the rebate.

In effect, the purchaser never receives the GST rebate directly. As stated in the Agreement, the builder credits the purchaser with the GST rebate before arriving at the final purchase price. On closing, the purchaser assigns the rebate over to the builder. Following closing, the builder applies for and collects the GST rebate directly from the government.

If, after an application for the rebate is made, the Government of Canada determines that the purchaser was not entitled to the rebate, the builder will seek reimbursement of the rebate from the purchaser.

To save time and aggravation, it is important that purchasers have a lawyer verify the manner in which the GST rebate is being dealt with in their Agreement.