Home renovations carried out by individual homeowners are generally permissible for GST/HST and income tax purposes without triggering negative tax consequences. In most cases, homeowners are expected to enjoy the benefits of their renovations without incurring additional GST/HST or income tax liabilities, aside from paying the applicable GST/HST on the materials and labour used.
However, if a substantial renovation or the construction of a new home is undertaken as part of a business or an “adventure or concern in the nature of trade,” there is typically a profit-seeking intention involved. In such cases, the homeowner must self-assess and collect GST/HST on the sale of the property, which must then be remitted to the Canada Revenue Agency (CRA). It's important to note, though, that renovations or new home builds can be carried out for personal reasons without any business or profit motive.
Section 191 of the Excise Tax Act (ETA) establishes specific rules that may impose self-assessment or tax collection requirements on homeowners who substantially renovate or newly construct a residential property. However, exceptions apply when the individual genuinely intends to occupy the property as a residence, allowing the entire transaction to be treated as a non-taxable event, similar to the sale of used residential properties in Canada.
The issue arises when circumstances change, and the homeowner opts to sell the property shortly after completing renovations or constructing a new home. In such instances, the CRA may interpret this as evidence of a business or trade intention. According to the GST/HST provisions in the ETA, the CRA may classify the homeowner as a “builder,” thereby obligating them to charge, collect and remit the applicable GST/HST on the sale (which, for Ontario, stands at 13%). This requirement can even be enforced several years after the property’s sale.
Homeowners facing these situations should seek legal advice, particularly if there is a recurring pattern of purchasing, renovating, and reselling properties. There is no one-size-fits-all solution in these cases, and it is crucial to examine the specific facts of each situation to determine the appropriate response to any review by the CRA.
At SRF Lawyers, we specialize in navigating the complexities of GST/HST tax law, offering expert guidance to businesses and individuals facing challenges with the CRA. Whether you are dealing with a reassessment, audit, or need advice on compliance, our experienced team is here to provide tailored solutions and ensure your interests are protected. With a deep understanding of the nuances of GST/HST regulations, we work diligently to resolve any issues with the CRA, helping you avoid costly penalties and stay on the right side of the law. If you're facing any GST/HST concerns, reach out to us for the expertise and support you need to navigate the process with confidence.