New Housing Rebate

Questions have arisen as to what qualifies and the method of making a successful recovery of Goods and Services Tax (GST) under the Federal Government of Canada GST/HST New Housing Rebate (NHR) regarding renovations.

The GST portion of the cost of demolition and reconstruction for a major homeowner claim, such as a total loss fire claim, where the interior of a building is essentially gutted, may qualify as a substantial renovation and subsequently the NHR.

Canada Revenue Agency (CRA) states, “Generally, 90 per cent or more of the interior of an existing house is the minimum that has to be removed or replaced to qualify as a substantial renovation.”

Considerations

There are two considerations relevant to the NHR regarding renovations. First, whether the renovations qualify for the rebate, and second, the related insurance claim factors.

The degree of restoration1

If a house is virtually gutted, such that all the wiring, plumbing, heating, doors and windows are removed or replaced and 90 per cent or more of the house is totally refurbished, the house has been substantially renovated for purposes of claiming the GST/HST NHR. Renovations to the foundation, external walls, interior supporting walls, floors, roof, staircases and additions are not included in the calculation to determine whether 90 per cent or more of the existing house has been removed or replaced. Only liveable areas count toward a substantial renovation. Liveable areas do not include garages or crawl spaces, which are not considered when meeting the 90 per cent test. The GST/HST Technical Information Bulletin B-092, is an excellent reference when determining whether a building has been substantially renovated for purposes of the NHR.

Related insurance claim factors are:

• The invoices must be in the homeowner’s name. The insurer can pay the invoice, but the invoices must be in the owner’s name. Refer to GST/HST Memoranda Series 17.16 GST/HST Treatment of Insurance Claims regarding invoicing for further clarification.

• The owner must be invoiced for the full cost, not just the GST/HST.

• The rebate must be claimed by and paid to the homeowner.

• The applicant must be an individual, not an estate.

The insurer may pay the claim and then recover the rebate from the homeowner, or the insurer may pay the homeowner a single amount net of the rebate and the homeowner can recover the tax.

Eligibility

Only one person can make the NHR claim, even if there are co-owners. CRA’s GST/HST New Housing Guide states:

To qualify for the rebate, an individual must meet all the following conditions:

• the property is a newly built or substantially renovated house (this includes a condominium unit, a mobile or floating home);

• the house is to be the primary place of residence for the applicant or a relation;

• the fair market value of the house (including the building, land, and other structures such as a detached garage) is less than $450,000. It is the fair market value of the land plus the building when substantially completed, not the cost of construction that must be used for this value;

• the applicant or a relation is the first occupant since the construction or substantial renovation began. An exception is if the house is sold before being occupied; and

• GST/HST is paid on the land or the construction materials and services related to the construction or substantial renovation, or on the mobile home or floating home.

Accountability Documentation2

• GST/HST new housing rebate application for owner-built houses

• Construction summary worksheet

• Direct deposit request for the GST/ HST new housing rebate

• original invoices in the name of the applicant — no photocopies, credit card or debit slips or account statements without the original invoices.

Application Fundamentals

It is always best practice to fully inform the insured at the outset. Importantly, the adjuster must be aware that documentation requisites are mandatory, and the applicant’s cooperation is a necessity.

Begin by referring to all relevant tax guides. There are no short cuts. One should have a working understanding of the qualifications and the accountability process, i. e. the documentation requirements.

Do not delay the submission of the application. The application date and deadline for filing is dependant upon three specific situations: the house is occupied after the construction or substantial renovation is substantially completed, the house is sold before it is occupied and the house is occupied before construction or substantial renovation is substantially completed. The claim can, and should be made at the end date relative to each situation. The proscription date is two years after that date to claim the rebate. ³

Some suggested basic process practices might include:

• Prepare the GST191, GST/HST New Housing Rebate Application for Owner-Built Houses with the insured.

• Provide the insured with the GST191-WS, Construction Summary Worksheet. Retain a copy and replace that copy with progress copies you request from time-to-time from the insured.

• Have the insured execute a direct deposit request for the GST/HST NHR to pay the funds into an account. Possibly the funds could be held in escrow, such as managed by a bank or legal trust.

• Obtain a promissory note and repayment arrangement.

• Claim only the costs invoiced in the name of the homeowner.⁴

• Retain a copy of the completed forms and all the original invoices for six years.

• A copy of the declaration page for the new/current homeowner policy is required to prove occupancy.

• Send the application and summary forms, the declaration page for the new/current homeowner policy, and a copy of all invoices from vendors who did not charge the GST/HST. Do not send CRA the invoices on claimed items. Keep the originals; they may be requested later by CRA.

• Send the claim documentation together to: Summerside Tax Centre , 275 Pope Road Summerside, PE C1N 6A2

As a reference tool, a quick calculation: 1.8 per cent of the costs before HST could be returned in taxes. Therefore, a $200,000 before tax construction cost might net $3,600.

Only one NHR claim can be made per house so wait until all the work is done. Also there is a time limit: 2 years from some date to make a claim. There is a price limit.

Look to the technical bulletin to see what qualifies for a substantial renovation. Not every claim you do will qualify for a new housing rebate. Note parts of the building don’t qualify as defined as a substantial renovation, but once it is confirmed it is a substantial renovation then those costs do get included.

Note: Effective Jan. 1, 2008 the rate of GST is 5 per cent and the rate of HST is 13 per cent. From Jul. 1, 2006 to Dec. 31, 2007 the rate of the GST was 6 per cent and the rate of the HST was 14 per cent. Therefore, any references to GST/HST rates of 7 per cent and 15 per cent in the technical bulletin should be read in accordance with the date of the transaction.

Jim Coolen is an independent with Marsh Adjustment Bureau in Nova Scotia who has been working claims for 30 years including casualty, property, automobile, liability, death and disability, and disaster assistance.

1 Refer to Tax Guide RC4028 GST/HST New Housing Rebate for specific details.

2 Refer to Tax Guide RC4028 GST/HST New Housing Rebate for instructions.

3 Only one claim can be made for each house, therefore it is imperative that all the expenses have been incurred before the application is made.

4 Photocopies, cr
edit card or interact slips, or account statements, without the original invoices, and estimates or quotes are not acceptable.

Note: The Nova Scotia rebate is available for new house construction only and not for a substantial renovation or conversion.