HST Rental Rebate Update with Mark Purdy of RentalRebate.ca
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HST rebates continues to be a very confusing issue for some condo investors – but they don’t have to be! Andrew la Fleur catches up with tax expert Mark Purdy to discuss the the latest on the HST as they continue their conversation from episode #11 of the podcast.
Mark Purdy Interview Highlights
0:11 How You Can Save Thousands by Listening to this Podcast.
3:25 Who Isn’t Having a Problem Getting HST Rebates
4:10 How to Get the HST Back
5:45 HST Loans
8:22 Are More People Figuring HST Rebate Out
10:33 HST Rebates for Renovators
12:11 “Renovation” vs “New Construction”
14:35 Proving Frustrated Intent
18:36 Purchase Prices Over $450K
22:16 Do HST Thresholds Need to Be Changed?
23:45 International Residents
27:10 CRA & Assignments
28:32 How to Reach Mark Purdy
Mark Purdy Interview Transcript
Andrew la Fleur: One of the most popular episodes so far the True Condos Podcast has without a doubt been episode number 11. That was the episode where I interviewed Mark Purdy, the tax expert, and we talked about HST rebates as it pertains to condominium investing. Certainly that’s the episode that the most number of people have commented to me about, emailed me, called me, texted me, asked me, “How do I get in touch with Mark Purdy?” Conservatively I would guess that maybe 100 or $200,000 at least of HST money has been recouped you could say because of people listening to that episode.
At least that I’m aware of so that’s pretty cool to know that the podcast is helping people and it’s making a difference and again that’s what this podcast is all about. So if you haven’t listened to that go ahead and go back to episode number 11 before you listen to this. This is a continuing conversation in this episode with Mark Purdy about the HST and we go a little bit deeper in some of the issues around HST. Before you listen to this one it’s going to make a … you’re going to get more value out of this if you go back and first listen to episode number 11.
You can do that in your iTunes if you go back listen to episode number 11 or if you’re listening online, just get the show notes at TrueCondos.com/rebate. You could also in the search bar just type in HST or type in Mark Purdy and the episode should pop up. For the show notes on today’s episode, this episode you’re listening to right now, just go over to TrueCondos.com/rentalrebate … all one word rentalrebate. And there you can find links and everything, so everything we’re talking about on this episode. You can also figure how to get in touch with Mark Purdy himself if you’re interested in talking more about the HST. Okay so without further ado here is my conversation with Mark Purdy the tax expert.
It’s my pleasure to welcome back to this show …actually this is our first time returning guest to this show, Mark Purdy. Mark Purdy is an HST tax consultant and welcome back to the show Mark.
Mark Purdy: Thank you for having me.
Andrew la Fleur: As I’ve told you before the first episode that we did together is one of the most popular episodes of the podcasts so far. I got a lot of great feedback from that. I’m sure you’ve heard from a lot of people as well who listen to that. Wanted to have you back on this show again just to get an update on what’s happening sort of in the HST world and what you’re seeing, and maybe follow up on a few points from a previous discussion. Yes so maybe we’ll start with … there’s a lot of fear, confusion, misunderstanding about the HST but who is having no trouble like for like who’s getting their HST rebates, no problem like what’s … let’s start there.
Mark Purdy: The people that are getting their HST rebates back no problem are people that are following the rules. If you’re an investor and you’re buying a property and you’re going to lease it out, then you just put a one year lease in place and you’re going to get your money back, typically in 45 days no questions asked. The people that are having the problem are the people that are saying they’re going to live there or not putting in the one year lease. Those are the ones that are having difficulties and huge mess trust me.
Andrew la Fleur: Right, and just let’s maybe refresh everybody’s memory. The rules again so … especially for the first time buyers or people who are closing on properties in the next couple of months or maybe right now, and they’re trying to figure out this HST thing. Remind everybody again what the process is to get that HST rebate back.
Mark Purdy: We’ll assume that it’s an investor. If you’re an investor, you’ve going to follow through the new residential rental program, copy of your purchase sale agreement and copy of your signatures, copy of one year residential lease. And as long as you have those three things you can apply the day you get that lease to the day you close on property. You’re going to get your money back in 45 days.
What we’re seeing a lot of people doing is, on closing they start saying that they’re going to live there, they file a waiver with the builder so they don’t pay the closing to save the cash flow issue, and then they go out and lease the unit. Those people are getting caught 100% of revenue been very, very diligent with it. They’re doing that personal review on rebates and clients are coming out of the woodworks saying, “I’ve just been denied, I’ve been denied, I’ve been denied.” It’s actually an interesting thing. I’ll tell you that I just heard probably three or four times in the last year. And lending institutions are starting to finance HST.
Andrew la Fleur: Yeah. That’s something I wanted to talk to you about because I’ve started to hear about this too. Little cottage industries are sprouting up for HST loans. So tell us what you’re seeing.
Mark Purdy: What I’m seeing is I’ve seen it from a lot of the [Inaudible 0:05:55] banks and a lot of the mortgage brokers are coming to the table and saying to their clients, in the initial stage, you’re buying this new construction property, have you thought about the HST implications? On closing you’re going to have to pay tax in HST which you can get back.
Andrew la Fleur: Right, and a lot of people are shocked when they hear that news as some people won’t be listening right now, yeah.
Mark Purdy: But what’s nice is now they’re getting short term financing for this portion of the HST.
Andrew la Fleur: Right.
Mark Purdy: For a lot of the smarter mortgage brokers and the [Inaudible0:06:27] banks are starting to come to the table and saying, “Hey, look. We realize you’re going to have to pay this, we’d rather you do the right thing which is follow the rules than pretend you’re going to live there and get hit with a fine later.” So they’re coming up and saying we’ll lend you on a short term basis the HST obligation and then you can go back and get the money back and pay us back. So it’s kind of an interesting thing, I’ve started to hear a lot about it over the last say two three months. And that’s great because it takes away that whole cash flow issue that people have on closing.
Andrew la Fleur: Yeah, exactly. Because as you said, the average time to get the return back if you do everything properly, and you file correctly is about how long, takes about how long are you seeing to get the money back in your pocket?
Mark Purdy: Depends on the time of the year. In the summer it takes a little bit longer. But on average it’s somewhere between 45 and 60 days. So it’s really, it’s not that bad, it’s a very quick process and they’re going to pay you an interest on it.
Andrew la Fleur: Right, so, yeah. It’s a great solution. I think it makes a lot of sense. It’s a good thing we’re seeing that bang some mortgage brokers stepping up and saying hey we’ll just … you don’t have the cash it’s okay. We know you you’re going to get the money back with certainty.
Mark Purdy: We’re saying, “You know what? We know you’re going to get the money back. All you have to do is follow the rules, right? So as long as you’re going to lease this unit out, you’re going to get the money back so here’s the money, we’ll lend you.” I don’t know what they’re charging for rates but I don’t think it’s very expensive.
Andrew la Fleur: It can’t be. It’s a short period of time, right? Even if the rates are high its still, you’re hardly paying anything.
Mark Purdy: Yeah, exactly. Even if you’re paying 4 or 5% for this over a span of 45 days what is that? A couple $100?
Andrew la Fleur: Yeah.
Mark Purdy: Hardly a big deal at all so …
Andrew la Fleur: Yeah, good. Are people starting to figure this out you think, I know like a year ago, there was just mass confusion and you were getting calls probably daily with people just no clue what’s going on and the industry was sort of just starting to wake up to the reality of HST even though it’s been in place for a few years. Would you say that more and more people are figuring the HST thing out, it’s becoming less of an issue or is it actually starting to still confuse most people?
Mark Purdy: I would say the opposite. I would say more and more people are getting confused.
Andrew la Fleur: It’s not getting better, it’s getting worse.
Mark Purdy: There some things the more they know, the more confused they are. It’s a very confusing program so I understand. We probably get five phone calls who are a year ago and the phone calls tend to be a little more educated people asking better questions. But they’re still getting, they’ve heard 15 different things from 17 different sources. Whether it’s their realtor, their banker, their lawyer, their accountant. Everybody is telling them part truths if you like because nobody seems to understand all the information.
One of the big ones we’re noticing just kind of edge way into this is in re-sale or substantially renovated properties, we’ve seen a lot of people come to us over the last six months who’ve bought a substantially renovated property. Well, when they bought that, they assumed it was a resale. Essentially, a renovated property is where they take it back to the studs.
Effectively rebuild the entire house. Well if I’m a renovator and I take it back to the studs and then I put it on the market the next day, and I sell it that typically is subject to HST which means the buyer is entitled to an HST rebate. People are just starting to wake up to that idea. Oh, I didn’t realize.
Andrew la Fleur: So, the buyers of those massively renovated homes of which there’s hundreds of them in Toronto, they could in some cases be getting a lot of money back.
Mark Purdy: They could be getting 20, $30,000 back. In fact we had one example just recently where an individual had bought a property, ripped down the house, sub-divided the lot, built two new homes. In his mind, in the lawyer’s mind and in the real estate professional’s mind, they felt it was re-sale property. Now of course the issue there is there’s two houses where there was one and they’re new.
Both properties were sold as re-sale’s which meant HST was included in the transaction. Of course both the purchaser you’re entitled to an HST rebate. In this case they both got $27,000 back and in the renovators/flippers situation they had to pay HST on the sale up to 13%.
Andrew la Fleur: Wow.
Mark Purdy: Those units were like $700,000 so you can imagine this builder/renovator sold these units for $700,000 and owes 13% on those.
Andrew la Fleur: Now, really they should have known like you said, they’re taking one property and subdividing into two. That’s automatically a new home, yeah. I guess the more subtle cases might be like you said where let’s say you see this all the time in Toronto where they rip it all down except they leave one wall and then they start rebuilding it and they call it a renovation as opposed to a new home.
Mark Purdy: That really is truly a rebuild as well. What I’m talking about is a renovation though isn’t leaving one wall. It leaves the entire structure of the house. Get back to the studs you put in new electrical, new heating, new floors, new ceilings, new lights, new kitchen, maybe add a bathroom. Alter the layout of the house. That’s considered new construction.
Andrew la Fleur: Interesting what is the…is there a specific dividing line that defines it as new construction and you wouldn’t get the HST applicable?
Mark Purdy: Yeah.
Andrew la Fleur: Or, is it a bit fuzzy?
Mark Purdy: Well, it’s not clear and this applies whether you’re the person renovating it or it applies if you’re renovating it for yourself. But there’s something called the 90% rule. The 90% is the not clear part. 90% could be that I have a 10 room house and I tear apart nine rooms, I take down the walls to the studs I put new electrical, new plumbing, new flooring, new heating into those nine out of 10 rooms. That’s considered as substantial renovation. If you’re a renovator and you do all of this and you update the house, you put it on the market, that’s subject to HST. The sale is subject to HST.
For the purchaser when you buy that property, you’re entitle to an HST rebate because Revenue Canada now deems that to be the substantially new home, the home that is there now is nothing like the home that was there before. Right? That’s a unique thing.
Andrew la Fleur: Interesting.
Mark Purdy: People hadn’t thought of before. And like you said in Toronto that’s happening all the time in Burlington, in Hamilton as you continue throughout Ontario it’s happening everywhere. We’re rebuilding these homes and for a long time he kind of argued well I had to rip down the house. That’s not the rule. A lot of people will rip down the house like you said to one wall, leaving that one wall up. That’s a building code issue. You pull down the house to one wall you can’t possibly tell me that’s not a new house.
Andrew la Fleur: Yeah, yeah. Absolutely, interesting. Let’s check years back to the condos again. I want to ask you a couple of specific questions following up on our previous podcast. Maybe we’ll talk about the first one intent. How do I think you know what I’m talking about with that, maybe if we explain for the listeners? So let’s say somebody purchased a condo preconstruction they’re intent when they bought it was to live in it, move into it themselves but something happens between when it’s sold and then a few years later when its built and then it no longer works for them they have to make it into a investment property instead. What happens in those situations where the intent comes into play and have you maybe give us a specific example something you’ve dealt with where intent had to be shown or proven or how the CRA looks at that?
Mark Purdy: Intent is an odd one. And intent is hit you in a couple of ways. First of all the example that you gave which is I bought a property which originally was to live in it and things have changed and now I’ve decided to rent it out. Well in that case what you should be doing is applying through the new residential rental program. Now intent is no longer an issue.
You’ve rented it out, you’ve got a one year lease, you applied to the new residential rental program, you’re going to eat all your HST back. The question with intent is more if you want to try and sell the unit. You know I bought this, I’m living there, I’ve changed my mind or it no longer works so I want to sell the unit. Now you’ve got some issues. What you need to be able to do is prove that you have frustrated intent. Frustrated intent would be I bought it with the intention of living in. In time I was single now I’m married with five kids and we can’t live there. That might qualify as frustrated intent.
I bought it and I was working in Toronto but I’ve been since transferred to Detroit. That might qualify as frustrated intent. However I bought it and I’ve changed my mind, that’s not frustrated intent. If you can prove frustrated intent then you can sell the property and you’re not going to have an HST issue.
Andrew la Fleur: Right. But if you can’t you might as well go through the proper procedures and rent it out, yeah.
Mark Purdy: Because if you prove frustrated intent and you sell that property from Revenue Canada’s perspective you become a builder and you have to charge 13% HST on the sale of that property right? So I buy it for 200 I put it on the market for 250 and I can’t prove frustrated intent, I know owe about $30,000 in HST. That’s not a good place to be.
Andrew la Fleur: Not a good place to be, best to avoid it. Just go ahead and rent it out especially now in light of like you said the short term loans that are becoming available. Just go ahead and rent it out and do the right thing.
Mark Purdy: It’s a rental market, so why not, right? But what’s happening is a lot of people get into the situation where they go I got to liquidate the property. I can’t afford to close on it or what have you.
Andrew la Fleur: This mentality, yeah.
Mark Purdy: I’ve heard this, this intent thing. And the promise, how do you prove intent five years ago. Five years ago I intended on living there. Prove it, right?
Andrew la Fleur: Yeah.
Mark Purdy: Difficult to prove what they’re looking for is prove that you can’t close on it. And even things like, “I can’t afford to close on it,” that doesn’t qualify as frustrated.
Andrew la Fleur: No, no.
Mark Purdy: Now one of the challenges as I said, if you had to move or all of a sudden you’ve got five kids that might qualify. The thing is Revenue Canada makes the decision. I have five kids now I can’t live there. You’re really better off to call Revenue Canada and get a ruling in writing that says yes we agree that you have frustrated intent; yes you’re fine to sell this property.
Andrew la Fleur: Good tip. Let’s talk about another thing, purchase prices over 450,000. So anybody should go back and listen to the first episode and we talk about the thresholds where up to 350,000 generally speaking you should get all the HST back between 350 and 450. Correct me if I’m wrong but you start to scale back the federal portion of the rebate which is approximately $6,000 serves to get smaller.
What happens after 450? Let’s say I buy a condo for $500,000 and I rented it out and I paid the HST on closing, I’m renting it out. Now I want to apply and get my money back. What should I be paying and what should I be getting back over 450?
Mark Purdy: Yeah, like I said, that says probably the question I hear a lot, probably the most often. One of the challenges is if you buy a property and it’s over $450,000 you will always get $4,000 back. So if you buy a property for $10 million you’re always going to get $24,000.
Andrew la Fleur: The 24,000 represents the provincial portion of the HST rebate?
Mark Purdy: Correct. The catch that more should get back and there’s no maximum that you can spend. So, you could buy a condo in downtown Hamilton for $45 million and still get $24,000 back. It would probably be a really nice condo. The challenge though is what will you pay on closing? If there’s no succinct answer to that because the builders are kind of breaking that up themselves. If I’m a builder and I’m selling you a condo and the average condo I sell is well over $2 million I’m probably going to build in a clause that says HST is included up to the rebate amount. Supposing you’re going to pay the additional over 450.
Andrew la Fleur: You’re going to be out of pocket that amount.
Mark Purdy: You’re going to be out of pocket that amount. Normal builders are doing that. Some are, some aren’t. So there’s no easy way to answer that.
Andrew la Fleur: Okay. So if the …
Mark Purdy: Examples where someone’s bought a house for $1 million and it paid 13% for everything over 450, right?
Andrew la Fleur: Okay, which is a lot.
Mark Purdy: Which is quite a lot and then they pay their 24,000 on closing as well which they got back. Right. In their minds they were thinking HST was included but the clause clearly said HST up to this amount of value is included from that point on you’re paying 30. So it really depends on what did the builder put into the clause.
Andrew la Fleur: So, I guess, buyer beware. Make sure you review those contracts carefully. Talk to your lawyer, talk to somebody like yourself Mark, get the information before you go ahead with those purchases.
Mark Purdy: Lawyers should be able to tell you when he’s looking at that purchase building in that first cooling off period. He should be able to tell you this is how much you’re going to pay on HST.
Andrew la Fleur: They should be able but you and I know that most lawyers still have no clue.
Mark Purdy: The problem is you’re going to have to ask your lawyer because they may not asking that question at this point or answering that question at this point. At this point they’re just looking at the clauses of your contract.
Andrew la Fleur: Yeah.
Mark Purdy: Right? If you say to them specifically, “Can you tell me what would my HST obligation be?” they’ll find out for you.
Andrew la Fleur: Yeah.
Mark Purdy: Right?
Andrew la Fleur: Good. It’s an opinion question, do you think that HST thresholds need to be increased or looked at, they’ve been the same obviously since 2010 the 350 and 450. In your opinion do you think they need to be looked at, you think they need to be increased because of values have increased so much over the past five years? And then other half of the question is have you heard any rumblings or anything with the CRA that’s on the table as a possibility?
Mark Purdy: I’ll answer the second part first. No, I haven’t heard anybody talking about change again. Do I think that the amounts are reasonable? They are from much of Ontario but they’re not for the GTA and that’s the challenge. If you’re buying a property in downtown Toronto it’s hard to find a property for less than 450.
Andrew la Fleur: Exactly.
Mark Purdy: Right? You’re in this situation where the most you can get is at $24,000 back which is okay if all you paid was 24,000 in HST what do you care, you’re going to get it all back? But, in other parts of the province buying a condo for $150,000 is too plus. I know the margin that they’ll change it as much as I think they probably should, I don’t think they will.
Andrew la Fleur: Interesting. Great let’s talk about international residents. Something we talked about before we started recording here. What do you say with international resident’s, sir? Can international residents, international non-resident buyers get the HST rebate? What’s happening on that front?
Mark Purdy: That’s a great question. Probably one of the most misunderstood as far as I can tell. Very, very few international residents apply for an HST rebate. If they do they file as a new home rebate which is obviously not going to work because they can’t be a primary resident, they’re not living in Canada.
Andrew la Fleur: Yes. That’s a dead giveaway. You’re in Dubai.
Mark Purdy: It’s a dead giveaway so what’s happening for the most part with international buyers is they’re buying the property, they’re paying HST on closing and the ones instructing them say they can get it all back. Because you can be from anywhere in the world and as long as you give the right thing, you’re going to get that HST back. So as long as they rented the unit out they’re going to get the HST back. Oh, what I find interesting is most of that’s happening here, right?
Andrew la Fleur: Meaning?
Mark Purdy: If I’m a foreign investor, so I’m from United States or I’m from India or England or wherever in the world I am, I’m probably looking after the lease and the property management myself, right?
Andrew la Fleur: Right.
Mark Purdy: I’m either hiring a company or I’m hiring my realtor or I’m hiring the builder to lease this unit out for me and to manage the day to day of this building or this unit, all that’s here, it’s happening. But no one realizes that they can finally get it all back.
Andrew la Fleur: It goes to the fact like you said I think previously on our conversation about just the fact that there’s … I don’t know if you have the numbers, there’s like billions of dollars of unclaimed HST money just the CRA is just sitting on.
Mark Purdy: I can’t even figure out what all over the map, right? And you might probably know better than I do, you know what percentage of the buyers in Toronto are international buyers?
Andrew la Fleur: Right, right.
Mark Purdy: Is 20% of all properties being bought by international buyers? I’ve heard as high as 40%?
Andrew la Fleur: Right. Yeah, well, are impossible to know the exact figure … it’s probably not as high as most people say but it’s a lot. And like you said most of those buyers are not going for this rebate which is interesting.
Mark Purdy: Let’s say that’s there’s 10,000 buyers a year that are international buyers that aren’t paying their
HST rebate. That’s a lot of money.
Andrew la Fleur: Yeah, it’s a lot of zeros.
Mark Purdy: If $24,000 times 10,000 that sounds, I think that’s $240,000 million?
Andrew la Fleur: Yeah, right there.
Mark Purdy: A lot of money just sitting there that could be re-invested in more properties.
Andrew la Fleur: Yes, yeah.
Mark Purdy: Money that could be going back to the investors. But currently it’s just no one realizes that they can probably get it back. It takes a little bit longer but it’s no more difficult the pros just takes longer for the check to get to them.
Andrew la Fleur: Great, good to know. Anything else to add Mark today about the HST or anything else that you wanted to bring up to our listeners?
Mark Purdy: Not a lot. Like I said, what I’ve seen is, CRA is focusing a lot more on assignments with HST.
Andrew la Fleur: Assignments.
Mark Purdy: HST assignments they’re focusing 100% of their efforts on new home rebates so everybody who files a new home rebate they’re going back and they’re doing it almost building by building. And it’s kind of interesting we know when they hit a building because all of a sudden we’ll get calls from 10 people in the building saying can you help. But currently they’re just charging interest which I think is interesting. So if you file for the new home rebate when you weren’t eligible they’ll charge you interest on that money until you get it resolved. They have the right to charge you a penalty as well.
Andrew la Fleur: They’re not breaking out the big stick yet.
Mark Purdy: They’re not breaking out the big stick yet, but they do have the right to charge you a penalty as well. I’m surprised that they haven’t started to, but I do anticipate over the next 6-8 months people are going to start getting fined. Not only are you going to pay interest at 3 or 4%, you’re going to get a fine of $1,000. In fact that’s going to start to happen because it’s just, it’s widespread.
Andrew la Fleur: Well, good to know. Interesting to see how it plays out. As always Mark thank you very much for your time, and if people want to get a hold of you directly what’s the best way for people to do that?
Mark Purdy: Well, they can certainly get a hold of me through you Andrew, or they can go to our website www.rentalrebate.ca.
Andrew la Fleur: Great.
Mark Purdy: They can always call me on the phone number 905-544-5464.
Andrew la Fleur: Great. Thank you very much, Mark, and I hope you have a great week and hopefully we can have you again on the show soon.
Mark Purdy: That was great. Thanks, Andrew.
Andrew la Fleur: Bye.
Mark Purdy: Bye-bye.
Andrew la Fleur: There you have it. That was my interview, second interview with Mark Purdy. I think actually that’s a first time I’ve had a guest on twice on the podcast so congratulations to Mark for having that honor of being the first repeat guest on the show.
Once again for all the show notes on today’s episode just sign over to TrueCondos.com/rentalrebate all one word and you find links to everything we talking about here as well more resources on the HST rebates. I even have a video that I created that shows you exactly how to complete the forms if you’re the type of person who wants to do the rental rebate process all by yourself and then start by yourself, which is certainly global if that’s something that you’re interesting in doing.
I hope you found that useful. I know I’ve heard so many comments from people reaching out to me from the last interview with Mark and sure that hundreds of thousands of dollars in HST has been recovered through Mark just from that one episode alone. So that’s great to know that people are benefiting from this podcast and I hope that will continue
Once again, thank you very much for listening. I appreciate your support and if you’d like to leave a review for the show that will be greatly appreciated. Also let me know if you’d like to see this show on the Stitcher Radio network and android platform.
Right now, it is only on iTunes. If you’re an android fan and you’d like to see this show on Stitcher, if that’s how you listen to your podcasts, let me know if there’s enough people who are interest then I’ll certainly look into that but right now you can listen to this show online. Of course the truecondos.com or you can listen in iTunes or on any iPhone, iPod and iPad device. That’s enough from me. Hope you have a great week and thank you very much for listening.
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