With the relatively recent legislation allowing laneway suites and garden suites in various municipalities across Ontario, it is very important to ·understand the HST implications of building these accessory dwelling units (ADUs) and the rebates that are available to the owners of these structures.
There are 3 main reasons for building an ADU:
1) Some homeowners build an ADU that will be used as their primary residence or as the primary residence of an immediate adult family member. Immediate family members are defined as parents, siblings, children and ex-spouses. It is important to keep invoices related to construction. There is a rebate administered by the Business Department of the CRA available to the homeowner. The maximum rebate in this situation is $16,080. There is a 2-year limit to apply from substantial completion or the move in date.
2) Another common reason for building an ADU is for the purpose of long-term rental. This type of construction -is very misunderstood in terms of the HST implications and the rebates that are avaiable. in both circumstances described below, it is important to keep all invoices and receipts related to construction.
- The rental of the ADU is to an immediate family member, then the homeowner can apply for the GST/HST Rebate described in point (1), above.
- If the homeowner builds the ADU for the purpose of rental to someone outside their immediate family, then once occupied, the homeowner must determine-the fair market value {FMV) of the ADU. HST is then owed on the FMV. It is best to use a professional appraiser or an experienced real estate professional to the determine the FMV, as it is not a simple exercise. The owner can claim a rebate for the HST paid on all costs associated with construction, which will offset the HST owed on the FMV assessment. Finally, the homeowner can also apply for an HST New Housing Rental Rebate. Depending on the FMV assessment and cost of construction, the rebate in this situation can very substantial. It is very important not to ignore this issue as there a time limits to claiming the rebate for HST paid for construction and the rental rebate. Ignoring the issue can mean owing thousands of dollars, as opposed to receiving a very significant rebate!
3) If the homeowner builds the ADU for short term rental (eg. Airbnb) it is considered a commercial activity. The homeowner can claim a refund for the HST paid on construction. All future rents are subject to HST.
If you sign up with Laneway Homes not only do we handle all the permit paperwork, but we also handle the paperwork for the HST rebate. Call 519-946-0363 for more information today!
