Refund of GST for a first new or substantially renovated home

TPS Refund for a New or Majorly Renovated Primary Residence

Comprehensive guide for first-time buyers in Quebec

buying a first home that is new (or heavily renovated) is already a huge project. But leaving thousands of dollars in taxes on the table due to a lack of information? Unfortunately, this is very common. The Home TPS Refund is one of the tools too often overlooked by Quebec first-time buyers.

This guide explains, in simple terms, how the TPS refund works for a first home that is new or majorly renovated, how it combines with your mortgage, the First-Time Home Buyer’s Mortgage, and other government home buying programs.

1. What is the Home TPS Refund?

When you buy:

• a new home (new construction, new condo, duplex, single-family, etc.);
• or a majorly renovated home (heavy renovation akin to a new build);

the invoice includes the TPS (5%). In some cases, you can recover part of this tax through the TPS Refund for New Homes.

This refund aims to reduce the net cost of federal property taxes (the TPS on construction), especially for households purchasing a first home.

To not confuse with :

• the municipal property taxes (annual property taxes);
• the habitation tax credit or municipal tax credits, which concern exactly these property taxes, not the TPS on purchase.

2. Who can apply for the TPS refund?

The core of the program is the eligible dwelling, not just being a first-time buyer. In practice, first-time buyers are often eligible, as they purchase new properties at a “reasonable” price to live in as their principal residence.

Generally, you could be entitled to the Home TPS Refund if:

1. The dwelling is new or majorly renovated

• New construction by a contractor;
• Self-construction;
• Major renovation essentially equivalent to a reconstruction.

1. The dwelling is intended to be principal residence

• You (or an eligible relative) must live there as your primary home;
• Strictly rental or speculative purchases have different rules.

1. The purchase price meets the government thresholds

• The TPS refund decreases as the price increases;
• Beyond a certain price, there is no refund possible.

1. You are the owner of the property

• Registered in your name (or held in joint ownership with others).

The first-time buyer status becomes especially important because it also opens up other programs (RRSP, TFSA, etc.) which, when combined with the TPS refund, substantially lightens the total cost of your project.

3. New dwelling vs a “majorly renovated” dwelling

The refund is possible not only for a 100% new property, but also for a dwelling:

• whose interior has been demolished or emptied on a larger scale;
• where the work is practically equivalent to a reconstruction.

This type of major renovation can, in some cases, be recognized as a “new” dwelling for the purposes of the TPS. The impact:

• You pay the TPS on the value of the renovations / rebuilt dwelling;
• You could claim part of this TPS through the Home TPS Refund program.

If you are planning such a project, discuss it with a tax professional or your mortgage professional before work begins to validate eligibility.

4. Link with the mortgage and the First-Time Home Buyer’s Mortgage

4.1. How does the TPS affect your down payment and your mortgage?

When purchasing a new dwelling, the TPS is included in the price paid to the builder. Without the refund, this tax:

• increases the total amount financed by your Mortgage;
• can make qualification harder if your debt ratio is tight.

The TPS Refund therefore has an indirect effect on your First-Time Home Buyer’s Mortgage:

• it reduces the net acquisition cost;
• it can free up part of your down payment (or be used to reduce the mortgage balance later).

4.2. Coordinating TPS refund with mortgage programs

In Quebec, a first-time buyer often combines:

• First-Time Home Buyer’s Mortgage insured (CMHC, Sagen, etc.), with a minimal down payment;
• government home buying programs such as :
• the TFSA/FHSA (CELIAPP) to save tax-free;
• the RRSP (Home Buyers’ Plan) to withdraw funds from your RRSP;
• And the partial TPS refund if the dwelling is new.

The objective is to :

• maximize non-taxable amounts (TFSAAPP),
• optimize your RRSP withdrawals (HBP),
• recover a portion of the Taxes paid (Home TPS Refund),
• while minimizing the required mortgage amount.

5. And municipal property taxes in all this?

Municipal property taxes (property taxes) are completely different from TPS:

• They are calculated on the land value of your Home;
• They are paid annually to the municipality;
• They may qualify for a habitation tax credit or tax credit in some towns (e.g., tax credit program for young families, for new construction, neighborhood revitalization, etc.).

These municipal credits :

• reduce your property tax bill for several years;
• have no direct impact on the TPS paid at purchase;
• however, they lighten your overall ownership budget, especially if your Mortgage is already tight.

A good plan for a first-time buyer:

1. Check eligibility for the TPS refund;
2. Learn about your city’s habitation tax credit programs (for young families, first-time buyers, new construction, etc.);
3. Optimize your First-Time Home Buyer’s Mortgage arrangement based on these savings.

6. Practical steps to obtain the TPS refund

The major steps for a buyer of a first dwelling new or heavily renovated:

6.1. At the signing of the contract / deed of sale

• Confirm with the contractor or promoter
• whether the TPS is included in the announced price;
• whether they already apply the portion of the Home TPS Refund to the sale price (some promoters collect the refund on your behalf and reflect it in the price).
• Confirm with your mortgage advisor:
• the price before and after the TPS refund;
• the impact on your down payment and your Mortgage.

6.2. After possession

Depending on the project type (turnkey home, self-construction, major renovation), you will need to:

• Complete federal forms to apply for the TPS refund for new homes;
• Attach:
• contracts, invoices, proof of payment;
• documents from the financial institution (proof of mortgage);
• municipal documents if required.

The program is not automatic: a majority of first-time buyers do not claim it simply due to lack of knowledge of the steps.

7. How to maximize your overall savings (TPS + Mortgage + Taxes)

For a first project of a Home new or majorly renovated, the best strategy is integrated:

1. Before purchase

• Assess your purchase budget including the TPS, future municipal property taxes, notary and inspection fees;
• Open a TFSA/FFSA and use the RRSP if relevant;
• Plan the setup of your First-Time Home Buyer’s Mortgage with a professional.

1. During the purchase

• Clearly verify eligibility for the Home TPS Refund;
• Confirm whether the refund is already deducted from the price by the promoter or will need to be claimed separately.

1. After the purchase

• Submit your TPS refund application within the prescribed deadlines;
• Check with your municipality about habitation tax credit / tax credit programs;
• Reevaluate your budget based on the amount recovered and your Mortgage payments.

Conclusion: don’t let your TPS and tax refunds slip away

The TPS Refund on a first home new or substantially renovated can amount to several thousand dollars. Coupled with a good setup of a First-Time Home Buyer’s Mortgage, municipal habitation tax credit programs, and tools like the TFSA/FFSA and the RRSP, it makes a real difference in the feasibility and security of your project.

If you are considering purchasing a home new or majorly renovated, take the time to :

• check your eligibility for the Home TPS Refund;
• align your Mortgage and your other government home buying programs;
• also consider the impact of municipal taxes and tax credits.

Good tax and mortgage planning from the start helps you become a homeowner while fully leveraging all refunds and credits to which you are entitled.