3 Tips For Flipping Homes in This Economy

Flipping HomesYou will qualify for a GST rebate if you construct your own home (or hire somebody to build it for you) provided:

  • You have paid the amounts of GST tax payable on the materials used for construction and/or the contracting services; and,
  • The building is your principal residence; and,
  • You (or your relatives) are the initial occupants of the building; or,
  • You complete the sale of the home before it is occupied as a residential property.

For properties under the threshold of $450,000 the rebate amount will depend on an evaluation of the fair market value (FMV) of the property (which includes the values of the home and the land), provided that GST was paid on the purchase of the land. FMV is determined by comparison with similar local properties, or by independent appraisal. Formal appraisal may be needed on properties with values lying between $350 000 and $450 000.

If you bought the land on which you construct your new home, and you paid the requisite GST for that transaction, the amount of rebate you can claim is calculated in the same manner as discussed above (under the heading “Purchasing a newly constructed home”).

In the event that no GST was paid on the land purchase, the rebates will be smaller. On homes valued up to $350,000 the maximum amount of rebate allowed is the lesser of $1,720 or 10% of the GST paid. On homes with values higher than $350,000 but less than $450,000 the amount of rebate goes down gradually (in the manner described above but using the base amount of $1,720). Homes worth $450,000 or more do not attract any rebate.

Renovated Property
By definition, only “used” property can be renovated and used property does not attract GST. However, Revenue Canada treats “substantially” renovated homes in the same way as new homes and GST is levied.

To be considered as “substantially renovated” at least 90% of the items listed on Revenue Canada’s guidelines must have been replaced. The term implies that all of the fixtures, fittings, wiring and plumbing will have been replaced; only the original foundations, external and load-bearing walls, floor, roof and staircases will remain.

It is clearly advantageous to the purchaser if the building has not been substantially renovated (in legal terms) as no GST would be payable. This means the effective cost of the property is less since there is no GST on a resale home.

If the renovator has owned and lived in a substantially renovated property, even for a short while, the property will be considered as a resale home and GST will not be applicable. This is a significant point: if you buy such a property, you avoid the cost of GST; if you sell such a property, you can set a higher resale price since the buyer does not have to worry about GST.

The sale of recreational property (e.g. a hobby farm), raw land, and farmland (subject to certain qualifications) is exempt from GST. But when you construct a building on the land and sell the property, GST will be payable (as discussed under the heading “Constructing your own home”).

In case you had to pay GST upon purchasing the land, for the reason that the previous manner of use made it subject to the tax, you can claim rebate on it (as discussed under the heading “Purchasing a newly constructed home”).

Randy Bett is an Author, Investment Realtor and a Professional Real Estate Investor (along with his Wife and Family) with a Passion for Showing and Teaching Others How to Get Involved in the Real Estate Investing. He has a Special FREE Offer for Newbie and Veteran Investors Alike- 57 Real Estate Investing Video Tips, including What Your Financial Planner is Not Telling You about Investing in Real Estate, Why Most Real Estate Investors Fail, and When to Invest in Real Estate and The Strategies to Use, among many others. Go here to sign up for your free videos now.

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