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What Is the HST Loan for Pre-Construction Real Estate?

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What Is an HST Loan for Pre-Construction Real Estate?

 
An HST Loan is a specific type of short-term loan and functions as bridge financing would to help an investor close a pre-construction investment property. It is intended to facilitate the payment of the HST that is due upon final closing by investors who are purchasing a new investment property from a builder.  This amount due on closing can range from $16,000 - $29,000. The HST Rebate is a process designed by the Canadian Revenue Agency as a method of recovering the portion of HST that is paid upon final closing of a new property. This applies to all preconstruction purchases of condominiums, townhouses and houses in Ontario.
 
In the event that the purchaser of the property (or an immediate family member as defined by CRA - sibling, child or parent) is going to occupy the property, the builder will pay the portion of HST due on final closing for the purchaser and outline in the Purchase Agreement that the HST rebate will be assigned to the builder to adjust with CRA directly. The final purchase price will reflect the sticker price that the builder advertised and that is outlined in the Purchase Agreement (which also includes the additional portion of the 13% in HST). 
 
The payment of the HST due on the new property and the method of claiming the HST rebate are different for investment properties that will not be owner-occupied as the purchaser's primary residence. The responsibility of paying the portion of HST due on closing for the property falls on the purchaser and it must be paid in full though the closing lawyer's accounts on the closing date. The issue for real estate investors is  that the HST rebate cannot be claimed with CRA through the HST Rebate program until after the final closing date and once the investor has a 1 year lease in place with a tenant.  
 
An HST Rebate Loan is a loan that is intended to effectively bridge the gap between when the HST is due on the final closing of a new investment property and the time it takes to successfully claim the HST rebate and receive it.
 

How Can You Get an HST Rebate Loan?

 
The payment of the HST by the purchaser at the time of final closing is still a relatively new and unknown expense. We often see that investors are only made aware of the HST due on closing (which ranges from $16,000 - $29,000, depending on the purchase price of the preconstruction property), when they receive the builder's Final Statement of Adjustments from their real estate lawyer about a week before final closing.  As a result, many investors are surprised when they are made aware that the responsibility of paying this significant expense falls on them. In many cases, the amount of the HST is not considered in the amount that is budgeted for the final closing. This leaves investors scrambling to come up with additional money for the HST, sometimes just days before the final closing date.
 
Despite the obvious need for HST payment short-term loans, most of the big banks will not provide HST Loans (the major banks in Canada are mandated not to lend for tax related purposes). There are other financial options available for securing an HST Rebate Loan; HST Relief: Rebates & Loans specializse in providing these specific loans to investors to ensure that they are able to successfully meet the requirements of the final closing. HST Rebate Loans can be secured for up to $29,000 in the form of a second mortgage or a line of credit as long as the investor's credit bureau is in good standing.
 

Additional Benefits of Securing an HST Rebate Loan

 
An HST Rebate Loan will allow for the final closing to go smoothly despite any surprising HST costs that are incurred. This will protect the investor from losing the deposit and prevent any possible litigation action that could potentially be taken by the builder in the case of a failed closing.
 
In most cases, the HST relief company will also take care of coordinating and filing all of the paperwork for claiming the New Housing HST Rebate on the client’s behalf.
 
Ensure a smooth final closing despite any HST surprises; discover the professional financial assistance and convenience available with an HST Rebate Loan from one of the top HST lending companies today. 

First Canadian Place • 100 King Street West • Suite 5700 • Toronto, ON • M5X 1C7

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