I am very proud to be associated with two Registered builders in Ontario. The first one is our family business (Belsito Homes) and the second is affiliated with my brokerage (Stonemill Developments Inc.). Both builders have zero conciliations and zero claims.
Being licensed and providing a Tarion Warranty isn’t optional. It’s the law! In Oakville, every legally built home has a Tarion enrolment number unless it was built by the homeowner, in which case there should be a Letter of Confirmation from Tarion (a new requirement for a building permit in Oakville). Oakville is one of the following municipalities that is working with Tarion in a pilot project to help prevent illegal building. No Tarion enrolment or Letter of Confirmation = no building permit.
- Greater Sudbury
- Middlesex Centre
- Niagara Falls
There are links to Tarion’s website below.
Builders who fail to register with Tarion can face legal action, resulting in possible convictions, heavy fines, and even jail sentences.
It’s not just the missing warranty that puts home buyers at risk. The Canada Revenue Agency will be looking for HST on a new build and there aren’t many ways to hide from the taxman, especially with easily traced documents on Real Estate Boards and Land Registry. CRA is currently targeting British Columbia’s illegal builders with audits and is hiring 85 extra staff to deal with the problem. It’s only a matter of time before the crackdown happens in Ontario. There’s a link to a CBC story about this below.
So it’s not the builder registration fee ($500) or the enrolment fee ($385 – $1,500) that the illegal builders are trying to save, it’s the underwriting and investigating that Tarion performs as part of the registration process AND it’s the 13% HST that they are trying to avoid paying along with income tax on the profit. Being registered with Tarion would put these illegal Builders on the radar with CRA.
See links for more information below:
Requirements for Building Your Own Home
Building Your Own Home in Ontario FAQ
Letter of Confirmation Application Form
CBC’s story about CRA crackdown in BC
Shadow flipping has been in the news recently with Agreements of Purchase and Sale being assigned to a new buyer two or even three times before closing.
This does happen in the GTA with some new home or condo purchases, but only if the builder’s original Agreement allows for it and several do not. There’s a potential incremental HST cost to each purchaser and the rebate may be forfeited because the original purchaser who signed the builder’s Agreement and agreed that the home would be a principal residence will not be moving into the home. It’s very confusing for buyers and sellers and their Realtors. Pat and I took a course about this topic that was taught by a local Real Estate lawyer and the consensus at the end of the course was that the tax calculations were too complicated and we should all stay away from assignments of new builds.
But, an assignment isn’t always bad. It can be used when something happens and the original buyer cannot close the transaction.
We had a case where the buyers had two dogs. The condo they purchased only allowed one dog. We all missed it. We asked about the pets policy at the concierge desk but not at the management office. The lawyer was the buyer’s lawyer who did their wills and did not have real estate experience so he missed this vital part of the status certificate. So when the buyers asked, after waiving the status certificate review condition and firming up the purchase, how they should register their dogs, they were told they could only move one dog in. They were heartbroken. We suggested that we help them get someone to take over their agreement of purchase and sale.
Rather than list the unit for sale on MLS, which would cost the buyers commission, we helped them write an ad on one of the free sites. We showed the condo during a revisit (with the Seller’s blessing because he knew what had happened), and helped the non-real estate lawyer with the assignment agreement. I actually sent the sample agreement that we used in class. The original purchase didn’t register on title, but the assignment did. This saved the original buyer from having to pay land transfer tax. The purchase price was the same so capital gains tax was not an issue.
The takeaway from this story is that assignments are sometimes necessary and more importantly, be wary of pet restrictions in condos. Disclaimer: The dog in the photo is Jase Belsito and is not the dog from the story.
In Ontario, every new home builder must be registered with Tarion. In order to be registered with Tarion, a builder must complete a net worth statement and demonstrate adequate construction knowledge. He may even have to write a test and be able to show Tarion officials a building plan and an agreement of purchase and sale. The cost to enrol in Tarion is $300 a year, but the approval process can take a little time. And if the builder is new, he’ll have to put a deposit down for each build so that Tarion has some recourse if something goes wrong. And then every year, the builder has to renew with Tarion which means filling out another net worth statement and paying another $300 and waiting for approval. Becoming a registered builder is not expensive and is a simple enough process as long as you know what you’re doing. Why then are so many new homes not under Tarion warranty?
One reason may be that the builder could not possibly become registered because he does not understand the process. You should definitely stay away from any home offered by that builder.
But what if the builder is just trying to avoid the HST? If you’re buying a new home with no Tarion warranty, you can assume that the builder/seller will NOT be paying HST. The seller may have built the home for himself or a family member and may be under the impression that HST is not applicable. This may be true, but if not, it’s a costly mistake and as a buyer, it is vitally important that you protect yourself from any future HST liability. The best way to protect yourself is to surround yourself with knowledgeable professionals. Start with a real estate professional who understands that this is a complex issue and add a real estate lawyer with tax knowledge or a lawyer who knows when to call in a tax lawyer. Sellers of new homes may also want to consider consulting an accounting professional with a tax speciality because both Capital gains and HST may be applicable.
Here’s a link to a Toronto Star article from 2012 which outlines how a buyer became a builder and liable for the tax when she sold the home she purchased.
Heather Belsito, Broker
Stonemill Realty Inc., Brokerage
905-847-5900 (office) firstname.lastname@example.org http://www.patbelsito.com