What taxes are payable on closing?

It is the week before your closing on your newly constructed home. Your lawyer has just reached out to explain the money you need to bring in. All of this is set out in the Statement of Adjustments received from the builder’s lawyer, which clarifies the numbers relating to real estate taxes and HST. Quite likely, it will all seem confusing.

As the buyer, you are responsible for property taxes from the day of closing, and the prior owner (the builder) is responsible for property taxes up to the day before closing. When closing on a new build condominium or freehold property, be aware that at the time of closing, the taxing authority has not yet assessed your property, so there is no tax being billed or collected on your new home. Months will pass before roll numbers are created for each new property.

When they are issued to the local municipality, a tax bill will be sent. These tax bills include property tax charges back to the creation date of the new property, so you will receive what are called omit or supplementary tax bills. These charges can often include 12 to 18 months’ worth of tax obligations. You will also receive a tax bill for the current cycle., At closing, the builder will make an educated guess on the current and future tax situation and adjust accordingly.

Remember, when you later get your assessment and true tax bill, you may be entitled to an adjustment from the builder. The HST situation is confusing from the start. First, if you or a member of your immediate family is going to live in the home, you are entitled to the HST rebate. If you intend to rent it out, you are not entitled to it on closing, but apply to get it back with your tax return.

Then, of course, there is the issue of assignments. If you have assigned your agreement, make sure it is in the assignment agreement that the buyer of your unit understands they will not qualify for the rebate on closing, and they will have to get it back later. Moreover, you will have an obligation to collect HST on the increase in value and possibly on the deposit, from the assignment buyer, and remit to CRA.

Further, in pre-construction condominium assignments with occupancy closings, an assignee must confirm whether the unit has ever been occupied. If it has been, then the assignee may not be eligible for the rebate and must make sure it is handled in the assignment offer. Finally, don’t forget that HST may be levied on all appliances and other chattels that come with the property.

The moral of the story is that you really should retain an experienced lawyer to help you through these issues, whether you’re buying or selling. Realtors are valuable resources, but it’s your lawyer who will take the time to review everything properly, answer any questions and ensure you are protected.