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Mortgage Closing Costs

When property is purchased in Canada, there are other costs related to the transaction beyond the purchase price.  Not all costs may apply in all circumstances, but are listed here for information and to help you plan for these costs.  The mortgage experts at Gibbard Group Financial and your legal advisor can help you figure out which apply to your situation.

BC Property Transfer Tax:

This is a provincial tax charged every time a property changes hands. The cost is 1% on the 1st $500,000 of value, and 2% thereafter. If you are a first time home-buyer, there is a program to provide full or partial relief from this tax on properties up to $500,000 under specific conditions.  We can help you find out if you qualify.  BC Property Transfer Tax

GST:

How does G.S.T. apply to used residential housing?

It does not. Used residential housing is not subject to G.S.T.

How does G.S.T. apply to new residential housing?

G.S.T. is payable on the purchase price of newly constructed or substantially renovated residential homes. Substantially renovated is defined in the legislation as the removal or replacement of most of the house construction components except for the foundation, external walls, interior supporting walls, floor, roof and staircase.

What is the tax rate for G.S.T.?

5%, subject to any rebates, discussed below.

Are there any rebates if the new home is to be the primary place of residence?

First, let us define primary place of residence. This means a home that you own, jointly or otherwise, that you intend to live in on a permanent basis. To be eligible, the intent to use the home as the primary place of residence must be evident at the outset of buying the home. A recreational cottage, an investment property or a property you might retire to in the distant future do not qualify.

If the Purchaser (or a certain related family member) is planning to reside in the new home as their primary place of residence, they may be eligible for a G.S.T. New Housing Rebate. This rebate equals 36% of the G.S.T., but only applies for homes under a certain price point.

Assume the purchase price of a new home is $350,000 excluding G.S.T. The gross G.S.T. is $17,500 (5% of $350,000).  The G.S.T. New Housing Rebate is 36% of $17,500, which is $6,300. Thus, the applicable G.S.T. is $17,500 less $6,300, which equals $11,200.

The full G.S.T. New Housing Rebate is available for new homes priced up to $350,000. There is no G.S.T. New Housing Rebate on homes valued at over $450,000.00 so the full 5% will be paid.

For homes valued between $350,000.00 and $450,000.00, the rebate is gradually reduced and is calculated by using the following formula (get ready to brush up on your high school math):

$6,300 x [$450,000 - the purchase price] / $100,000

For example, assume the purchase price of a new home is $400,000 excluding G.S.T. The G.S.T. New Housing  Rebate is

$6,300 x [$450,000 - $400,000.00] / $100,000

which equals $3,150. The gross G.S.T. would be 5% of $400,000.00, which equals $20,000.00, less the partial G.S.T. New Housing Rebate of $3,150.00, for a net tax of $16,850.00.

Please note that the Developer may agree in the Contract to credit the Purchaser on completion for the rebate, but not all Developers allow this. If they do not, the Purchaser will have to pay the full 5% G.S.T. on completion and will then have to apply directly to C.R.A. for the G.S.T. New Housing Rebate after closing. This means the Purchaser will have to ensure that they have additional funds to cover the 5% G.S.T. on completion. Note the G.S.T. New Housing Rebate is not available to a corporation or a partnership.

Are there any rental rebates?

If a Purchaser is planning to rent out the new home, they may be eligible for a G.S.T. New Residential Rental Rebate (“G.S.T. NRR Rebate”).

Like the G.S.T. New Housing Rebate, the full G.S.T. NRR Rebate is only available on new homes priced up to $350,000. A partial G.S.T. NRR Rebate is available for homes priced between $350,000 and $450,000. The actual rebate calculations are identical to rebate calculations for the G.S.T. New Housing Rebate.

To be eligible for the G.S.T. NRR Rebate, the Purchaser must meet certain conditions which include:

  1. the Purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the rental unit.
  2. the rental unit must be a “qualifying residential unit” which means the person applying for the rebate must be the owner of the unit and the unit must be a self contained residence as defined in the Excise Tax Act;
  3. the unit must be held by the owner for the purpose of making exempt supplies  (for example, a residential tenancy);
  4. the unit must be used as a primary place of residence by the tenants and must be so used for at least one year and the Purchaser will have to provide a copy of the tenancy agreement showing a term of at least one year.

Please note that the Developer is not allowed to credit the Purchaser on completion with the G.S.T. NRR Rebate. This means the Purchaser will have to pay the full 5% G.S.T. on completion and then claim the G.S.T. NRR Rebate  afterwards directly from C.R.A.. The Purchaser will have to ensure that they have the necessary funds to cover the 5% G.S.T. on completion.

Does G.S.T. apply to new mobile homes and floating homes?

Yes, for a purchase of a newly constructed or substantially renovated mobile home or floating home, 5% G.S.T. will apply on the purchase price of the mobile home or floating home. The Purchaser will be able to claim the various rebates, as applicable.

Does G.S.T. apply to the sale of vacant land by an individual?

Maybe (how is that for a definitive answer!!). Examples of when G.S.T. would be applicable include: 1) the sale of land that is capital property that had been used primarily in a business; 2) the sale of land in the course of a business; and 3) the sale of a parcel of land created by subdividing another parcel into more than two parts. The sale of land by an individual that had been kept for personal use would be exempt from G.S.T.

Where can I obtain more G.S.T. information?

For more information on G.S.T. see www.rev.gov.B.C..ca and/or phone Ministry of Finance at 1-877-388-4440 and see www.cra-arc.gc.ca/gncy/hrmnztn and/or phone the C.C.R.A. line 1-800-959 5525 or 1-800-959 8287 specifically for questions about G.S.T. rebates.

Source: Spagnuolo & Co. http://www.bcrealestatelawyers.com/basic-info-for-residential-real-estate/

Appraisal:

Most lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties or more complex purchases. Commercial appraisals are significantly more expensive and more time consuming to prepare given the complexity of the appraisal required.

Property Inspection:

An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. The inspection is usually performed a day or two before the market value is determined by the property appraisal. An inspection can cost anywhere between $300-$500 but the cost is well worth identifying any major cost repairs required.

Title Insurance:

To protect the lender's interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.

Survey:

Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighboring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighborhood lots have a survey cost of about $270.

Mortgage Insurance:

The term Mortgage Insurance is used in two different ways, and each have different and specific purposes:

Life/Disability Insurance:

This insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.

Default Insurance:

Default insurance is usually required on loans where the borrower is borrowing more than 80% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value. There is a $165 application fee for these programs.

Realtor Commissions:

If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 6 or 7% on the 1st $100,000 and 3 or 4% thereafter. There are a number of lower commission Realtors, and their fees will vary. GST at 6% of the commission payable is also charged to the seller.

Legal fees:

If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.

Interest Adjustments:

This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.

Property Tax Adjustments:

Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.

Rental Deposit Adjustments:

If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.

Property Insurance:

If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”

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