Interview

Ontario HST rebate gives developers an ‘edge’ over investors seeking to offload new homes

David A. Taub and Leor Margulies
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As Published in The Globe and Mail

By Erica Alini featuring Leor Margulies and David Taub

Ontario’s promised HST rebate on new housing is creating an uneven playing field between developers, who are offloading unsold homes faster thanks to the tax cut, and preconstruction buyers who would also like to sell but are largely excluded from the government relief, some industry watchers say.

Toward the end of March, the provinces and the federal government said they would temporarily reduce or eliminate sales taxes on newly built homes in order to make them less expensive, attract buyers and stimulate new construction, which has been languishing.

Under the plan, buyers can get a rebate of up to 13 per cent of the home price if they purchase a newly built property they intend to live in or rent out for the long-term. But the rules outlined so far by the Ontario government exclude what are known as assignment sales if the original purchase happened before April 1, 2026, among other restrictions.

In an assignment sale, the buyer of a preconstruction property sells their rights to their home to someone else before closing on the deal.

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The new rebate rules mean developers with unsold units can now promise prospective buyers that they will get a hefty discount off the total price of the home.

But preconstruction homebuyers – most of whom are investors – who are currently struggling to close on units that are nearly ready to be occupies cannot take advantage of that tax cut to entice other buyers to take those properties off their hands, said Leor Margulies, a real estate lawyer with Robins Appleby LLP in Toronto.

The policy has put “a bit of a wedge between individual investors, I guess, with units being completed, and developers who can offload more easily,” he said.

Buyers can’t yet apply for the rebate because, while the government of Premier Doug Ford has passed legislation on the new measure, Ottawa has yet to do so. Ontario will be responsible for rebating the 8 per cent provincial portion of the HST, but the federal government will pitch in for the remaining 5 per cent federal portion of the sales tax.

Buyers of eligible homes could receive a maximum rebate of $130,000 for homes valued at up to $1.5-million.

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While buyers and sellers are still awaiting details from Ottawa, the rules outlined by Ontario state that buyers must purchase a new home from a builder between April 1 of this year and March 31 of next year to be eligible for the tax incentive. Those who buy during that 12-month period can also claim the rebate for homes that have yet to be built or completed, within certain

additional restrictions.

But the rules largely exclude assignment sales. For these deals, the new rebate will be available only if both the original purchase agreement and the assignment sale occur between April 1 and the end of March, 2027, according to information on the Ontario government’s website.

Because of those limits, the measure is of little use to preconstruction buyers who are currently struggling to close on homes approaching completion, Mr. Margulies said.

Many of those buyers signed preconstruction agreements at the top of the market in 2021 and 2022, when home prices and rents were substantially higher and interest rates lower. They are now often struggling to secure financing or no longer want to hold those properties as closing dates approach, said David Taub, a litigation lawyer at Robins Appleby LLP who has been advising individuals facing this conundrum.

While Mr. Margulies has seen a pickup in both inventory and preconstruction sales for his developer clients since the announcement of the new rebate, Mr. Taub said the steady stream of troubled preconstruction buyers who have been seeking his legal counsel ahead of closing hasn’t let up.

“We are still receiving the same kind of flow of overwhelmingly individual, as opposed to corporate, purchasers who are trying to find a way to negotiate out of their closings,” he said.

A buyer who defaults on closing stands to lose their deposit and can also be liable for additional losses suffered by the builder, Mr. Taub said. For example, this can happen if a developer is only able to sell the home to another purchaser for less than the difference between the original prices and the deposit, he added.

The new HST rebate might make it temporarily harder for troubled preconstruction buyers to find someone to purchase their unwanted properties because those homes are now competing with developers’ inventory that is benefitting from the tax incentive, Mr. Margulies said.

Developers now have an “edge” over those buyers, he added.

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