Introduction to Building or Renovating a House
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When building or renovating a house, there are unique considerations that everyone should be aware of. These considerations can affect the amount of sales tax you pay and may even qualify you for discounts that can put money back in your pocket.
What is an Essential Renovation?
The Canada Revenue Agency (CRA) considers a house to be significantly renovated when 90% or more of the building’s interior surface is renovated. This percentage is based on the interior surface of the building. The CRA provides several examples of essential renovation work, including:
- A house with 10 rooms, where 8 rooms are completely gutted and converted, and the remaining 2 rooms have their floors and walls replaced or removed.
- A 5,000 square meter house, where 4,550 square meters of the house meet the test of being "removed or replaced".
- A house where the drywall is replaced throughout, new flooring is installed, and the kitchen is renovated.
Importance of Property Use
If you build or essentially renovate a house that is your primary residence, you generally do not have to pay sales tax on the materials and labor. However, if you intend to make a profit from the construction or renovation, you may be subject to additional sales tax. The CRA focuses on whether the transaction is completed in the course of a business or adventure, and if the builder or renovator intends to make a profit, they may be treated as a "builder" for sales tax purposes.
Available Discounts
There are several circumstances under which GST/HST discounts may be available, including:
- If you build or essentially renovate a house on land you already own or use as your primary residence, you may be able to recover some of the sales tax paid on your costs.
- If you convert a non-residential property into your home, you may be able to recover some of the sales tax paid on your costs.
- If you buy a new home from a builder to use as your primary residence, you may be able to recover some of the sales tax paid on the purchase.
- If you build, essentially renovate, or buy living space to rent to individuals as their primary residence for long-term residential buildings, you may be able to recover some of the sales tax paid on your costs or purchase.
- If you qualify for the new first-time home buyer discount of the GST on houses worth up to $1.5 million.
What to Do If You Build or Renovate a House
Given the complexity of the rules, it is advisable to consult a specialist before starting a large building or renovation project. The CRA closely examines these transactions and conducts GST/HST audits. An error can result in a large tax bill, as well as interest and penalties.
Conclusion
In conclusion, building or renovating a house can be a complex process, and it is essential to understand the unique considerations and potential discounts available. By consulting a specialist and ensuring compliance with the rules, you can avoid costly errors and take advantage of available discounts. Remember to keep accurate records and seek professional advice to ensure a smooth and successful building or renovation project.