HST on New Construction and Renovations: What Property Owners Need to Know

For real estate investors, developers, and individuals building their own homes, HST is one of the most complex and financially significant aspects of a project. A misunderstanding can erase the profit margin of a development or flip.

Used vs. new residential housing

The sale of a previously occupied, used residential home is generally exempt from HST. The sale of a newly constructed home, or a home that has been "substantially renovated," is fully subject to HST — in Ontario, 13% on top of the purchase price.

What is a "substantial renovation"?

A critical concept for flippers. The CRA defines a substantial renovation as one where 90% or more of the interior of the existing building is removed or replaced, leaving only the foundation, external walls, interior supporting walls, floors, and roof.

If an investor buys an old bungalow, guts it to the studs, rebuilds the interior, and sells it, the CRA views it as the sale of a substantially renovated home. The investor must register for HST, charge 13% on the sale price, and remit it. (The investor can claim Input Tax Credits for HST paid on construction materials and contractor services.)

The HST New Housing Rebate

Allows purchasers to recover a portion of the HST paid, provided:

• The purchaser buys the home with the primary intention of using it as their primary place of residence (or for a close relation)
• The purchaser actually moves into the home

Investors building or buying a new home with the intention to flip are not eligible. If the rebate is claimed and the CRA later determines the home was a flip, repayment with interest will be demanded.

The New Residential Rental Property Rebate

For investors who buy or build a new home with the intention of long-term rental (at least one year), HST must be paid on the purchase or construction, but the NRRPR rebate recovers a portion. The property must be leased to a tenant who uses it as a primary residence.