Buying homes, renovating (not substantially) and reselling or renting the home in the course of a business

Special rules apply when a person, such as a contractor or a real estate developer, buys a residential complex that he or she renovates (not substantially) in the course of a business of reselling or leasing the complex or units in the complex.

If the renovation is not considered a substantial renovation, the person has to remit GST/HST on certain untaxed costs (other than financial services), such as employee labour costs involved in renovating a residential complex.

However, this would not apply to other input costs (for example, material or contracted services) on which GST/HST has already been paid. The vendor calculates GST/HST based on the value of the amount paid or payable on such untaxed costs.

The sale or the lease of the property after the non-substantial renovation is generally exempt from GST/HST.

Example
You are in the renovation business. You bought a previously occupied home that you renovated but the renovation falls short of being a substantial renovation. You sell the house.

In this situation:

• you have to remit GST/HST on certain untaxed costs (employee labour costs);
• you are not able to claim input tax credit to recover GST/HST paid on the goods and services used in the renovation of the home;
• the sale of the home is an exempt sale of a residential complex; and
• the buyer cannot claim the GST/HST new housing rebate.

Forms and publications

• GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate
• GST/HST Memoranda Series Chapter 19-0, Special Sectors: Real Property