When you build or do a substantial renovation of your home, there are some unique considerations for any home that is important to consider. There may even be rebates available that can put the money back in your pocket.
This is a substantial renovation?
The concept of so-called substantial renovation is important for the impact of residential real estate and sales taxes. The Canadian Revenue Agency (CRA) believes that if 90% or more buildings that exist before work begins undergo a certain degree of renovation, a lot of renovation is required. This percentage is based on the internal area of the building.
CRA gives several examples of substantial renovations:
- A house has 10 rooms. Eight rooms were completely ditched and rebuilt. In the remaining two rooms, the floor in bedroom A is replaced and the floor and a wall are replaced with bedroom B. Including these two bedrooms, over 90% of the total wall and floor space in the home is demolished or replaced.
- A 5,000 square foot home is under renovation. In a room with a size of 250 square feet, no renovations. In another room with a size of 200 square feet, the renovation works performed did not meet the “delete or replace” test. However, the remaining 4,550 square feet of house does meet this test.
- Douglas J.’s house includes a living room, kitchen, family room, four bedrooms and an unfinished basement. Renovation work on this home includes replacing drywall throughout the home, installing laminate flooring in the kitchen and bathroom, laying new carpets on the old tile floors in other rooms, and replacing kitchen counters and cabinets.
What’s important is how you use this property
The good news is that if you build or essentially renovate a home in your primary residence, there is usually no sales tax that means and you will pay taxes on materials and labor. However, if your construction or renovation is done to make a profit, it may change and may require additional sales tax.
CRA focuses on trading in the process of so-called risk-taking or focusing on the nature of trade. When the intention of the builder or refurbisher is to make a profit (even if not a home builder), the CRA may consider it as a “builder” for the purposes of the business tax.
In this case, subsequent sales may actually be subject to GST/HST for remittance from the proceeds of sales. Taxpayers should also be cautious about moving into the house for a short period of time after they are sold. The CRA can still argue that the main purpose is to build, sell and make profits rather than treating the property as its primary residence. This may have business tax consequences, as well as income tax implications on profits, which may not be protected using major residential exemptions.
An important consideration is that if the sale is subject to GST/HST, the buyer will not pay more for the property. For example: If you want to sell a home with a 13% HST tax rate for comparable properties in Ontario and the buyer will only pay you $1,000,000 instead of $1,130,000 ($1,000,000, plus 13% HST). This means $884,956 plus 13% HST.
Use our mortgage payment calculator
Our calculator will help you understand what a mortgage will be paid in a real way, taking into account interest rates, amortization periods, fixed or variable terms, etc.
Available rebates
In some cases, there may be a GST/HST discount to return the sales tax refund to your pocket.
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- You have built or done a substantial renovation, or built or renovated with someone else, which is a home on the land you already own or leased to use as your primary residence. Some of the business taxes that pay your fees may be recoupled.
- You convert non-residential properties into your home. Likewise, some of the business taxes you pay for your fees may be recoupled.
- You purchased a new home from the builder to use as your primary residence. Some of the business taxes purchased may be recoupled.
- You build, renovate or purchase a home to rent an individual as the primary residence for their long-term residential purposes. Some business taxes on your expenses or purchases may be recoverable.
- Under the rules proposed in May 2025, you are eligible for new first-time home buyers’ rebates for homes worth up to $1.5 million.
The rules are complex and may depend on the value of the house, the province or region in which the house is located.
For example, if the fair market value at work is over $450,000, the Ontario owner’s home in Ontario may not be eligible for HST rebates on sales tax. However, the home may qualify for a provincial discount on sales tax, up to $24,000 if you paid the HST when you purchased the land and $16,080 if you didn’t buy the land.
What to do if you are building or renovating a home
Given the complexity, it is recommended to consult a professional before starting a major construction or renovation. The rules are complex and the CRA pays great attention to these transactions through a GST/HST review. There may also be province or specific regions considerations.
Mistakes can lead to large tax bills, as well as interest and fines.
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