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Old 2014-02-10, 07:10 PM
S and H S and H is offline
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Default Question about a clause in new home purchase agreement

A family member recently bought a new townhouse and this clause in the purchase agreement is something we have not seen before

Personal use of property

The purchaser represents to the Vendor, upon which representation the Vendor has relied in accepting the Purchaser's offer, that the Purchaser is purchasing the Real Property for the Purchaser's own personal use and not for short-term speculative investment purposes.

We previously built 2 new houses with 2 different builders and I don't recall seeing this clause in past agreements.

We have asked the lawyer to review this and let us know what it means exactly but I am wondering if you guys have seen this before. What if the family member has to sell the property 6 months after taking possession, for whatever reasons (very highly unlikely but we just want to cover our bases).

Thanks.
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Old 2014-02-10, 07:38 PM
Mark & Lynda Mark & Lynda is offline
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I believe the clause is there so the HST New Housing Rebate can be claimed by the builder.

The purchaser signs over the rebate to the builder and in turn the builder prices the home net the rebate.

I recently heard that the CRA contacted someone I know with respect to this, wanting their money back, because the home was immediately turned into a rental property.
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Old 2014-02-10, 07:41 PM
London2Ottawa London2Ottawa is offline
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Yes this is for the HST rebate.
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Old 2014-02-10, 07:49 PM
S and H S and H is offline
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Quote:
Originally Posted by Mark & Lynda View Post
I believe the clause is there so the HST New Housing Rebate can be claimed by the builder.

The purchaser signs over the rebate to the builder and in turn the builder prices the home net the rebate.

I recently heard that the CRA contacted someone I know with respect to this, wanting their money back, because the home was immediately turned into a rental property.
Sorry can you elaborate on this case if you don't mind? Who got in trouble and why? Is there a problem with turning the new home into rental property immediately after taking possession?
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Old 2014-02-10, 08:17 PM
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Quote:
Originally Posted by Mark & Lynda View Post
I believe the clause is there so the HST New Housing Rebate can be claimed by the builder.

The purchaser signs over the rebate to the builder and in turn the builder prices the home net the rebate.

I recently heard that the CRA contacted someone I know with respect to this, wanting their money back, because the home was immediately turned into a rental property.
You sign a document / declaration at the lawyers office saying who is going to live in home.

Tell your friends there is a rebate for rental properties program - they need to send in a different form. Pretty sure the rebates are the same.
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Old 2014-02-10, 08:25 PM
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Quote:
Originally Posted by S and H View Post
Personal use of property

The purchaser represents to the Vendor, upon which representation the Vendor has relied in accepting the Purchaser's offer, that the Purchaser is purchasing the Real Property for the Purchaser's own personal use and not for short-term speculative investment purposes.
Interesting read here>> http://www.taxchambers.ca/hst-new-housing-rebate/

The clause in the agreement would serve to document the intent I think. So a planned quick flip would not qualify. Not sure how a change in circumstances impacts this given long construction lead times and how they tell the difference.

Last edited by good2know; 2014-02-10 at 08:54 PM.
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Old 2014-02-10, 09:52 PM
Mark & Lynda Mark & Lynda is offline
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You sign a document / declaration at the lawyers office saying who is going to live in home.

Tell your friends there is a rebate for rental properties program - they need to send in a different form. Pretty sure the rebates are the same.
Yes, they know that know. Unfortunately the sales agent did not do his/her proper qualification and now their stuck with a large tax bill.
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Old 2014-02-10, 09:55 PM
Mark & Lynda Mark & Lynda is offline
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Sorry can you elaborate on this case if you don't mind? Who got in trouble and why? Is there a problem with turning the new home into rental property immediately after taking possession?
Someone I personally know.

Yes, the problem is, you cannot buy a home net the rebate and turn the property into an investment property. If that is the intent, you must pay the full purchase price, otherwise, Revenue Canada will demand the HST rebate they paid to your builder, back from you. If you don't pay it they will enter a debt against you for taxes owing.

I suspect the same holds true if you live in the home less than 1 year, hence the clause in the P&S
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Old 2014-02-11, 08:06 AM
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Yes, they know that know. Unfortunately the sales agent did not do his/her proper qualification and now their stuck with a large tax bill.
If they filed the correct (rental) document, wouldn't CRA than be satisfied? Well no because its too segmented - is there a penalty plus interest in play here?

Their lawyer should have caught this.
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Old 2014-02-11, 09:19 AM
foxborough foxborough is offline
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The clause denotes that the home is to be used as a personal residence only and not an investment residence. The home cannot be rented out.

If it is your intention to rent out the home, you need to declare this to your home builder. Some builders limit the number of rental properties that are in an area and will not sell a home to you for rental purposes. Builders that may allow the home to be used for rental purposes will present you with a different purchase agreement.

Please note that the inclusion of this clause is to cover off more than just the HST rebate. Builders may find their subdivisions less desirable if there is a large number of investment properties in it.
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Last edited by foxborough; 2014-02-11 at 09:22 AM.
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