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The benefits of bridge financing, plus a look at rental property rebates

It’s easier not to sell and buy on the same day

We are selling our old home and downsizing into a condo next month, all on the same day. Aside from the usual problem of getting rid of furniture and items we have collected over the years, we wanted to know how the process works on that day so we can organize, as best possible, a busy day. What would your advice be?

If asked in advance by clients, I always suggest that they buy their new place first using bridge financing and then sell their old home a couple of days later. This is a more expensive process but it is vastly less stressful.

If you sell and buy the same day, more often than not you are using the funds from your sale to buy your condo. What people don’t realize is that they could be in a buy-and-sell chain that will result in a stressful day and late closings. For example, if your purchasers are selling their condo to buy up to your old home, they have to wait for their purchasers to get their funding (assuming they have a mortgage) the morning of the transactions before they have the money to buy your house. This could very easily move your sale into the afternoon and then your lawyer has to jockey money from your sale to your purchase. All of this on top of moving and trying to time movers so that they aren’t sitting around waiting for keys to get into your new place.

Moving is difficult and traumatic enough without having to worry about new homes and old ones, money moving from one transaction to the other and all of the outside variables that you and your lawyer have no control over.

Believe me, a day or two of bridge financing is well worth the cost.

The HST rebate and condominiums

I have bought a new condo that is currently in interim occupancy and I am living in the unit. The purchase price is $399,000. If I were to lease it out on a 1-month rental contract before final closing, will I be able to claim the full HST when I file my income tax return? Alternatively, if the rental lease is entered into after the final closing, will this create any tax implications?

The idea behind the government providing an HST New Housing Rebate to purchasers of new homes and condos is to encourage housing industry growth for people buying new homes. It is not meant as a subsidy for those who purchase property as an investment; either to rent out or sell at a profit.

So, if you rent the property before the final closing, you are not eligible for the HST rebate and you will have to pay this to the builder on closing.

There is, however, a New Residential Rental Property Rebate that is available if the first occupant of a new home is a tenant. This takes the place of the New Housing Rebate. You should check with the Canada Revenue Agency for further information.

In your case, because you have already occupied the property, you are not eligible for the Residential Rental Property Rebate. Furthermore, if you were to rent the condo shortly after the final closing, you may be caught up by Canada Revenue Agency because you need to claim the property as your principal residence and live in it for a period of time to qualify for the New Housing Rebate. Again, check with C.R.A. with respect to their requirements.

Follow Jeff Cowan on Twitter @Cowan_Law or on the website cowanlaw.ca, or email  him at jeff@cowanlaw.ca.

Information contained herein is based on Ontario law and should not be construed as advice.

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