What is considered substantial renovation for the purpose of claiming a GST/HST new housing rebate?
The information in this article does not replace the law found in the Excise Tax Act its Regulations. It is provided for your reference only. As it may not completely address your particular operation, you may wish to contact a tax lawyer for more information.
This article deals with eligibility of individuals who are involved in house construction and renovation such as builders and landlords who extensively modify their existing homes. A residential property that has been substantially renovated can be treated like a newly constructed home for GST/HST treatment.
Pursuant to subsection 123(1) of the Excise Tax Act (the Act), the term substantial renovation of a residential complex means “the renovation or alteration of a building to such an extent that all or substantially all of the building that existed immediately before the renovation or alteration was begun, other than the foundation, external walls, interior supporting walls, floors, roof and staircases, has been removed or replaced where, after completion of the renovation or alteration, the building is, or forms part of, a residential complex.”
The definition of substantial renovation is quite broad and complex. The GST/HST new housing rebate allows individuals to recover some of the goods and services (GST) or the federal part of the harmonized dales tax (HST) paid for a new or substantially renovated house that is for use as the individual’s or their relations’ primary place of residence when all the conditions are met. In fact, to qualify the following elements must be considered:
i) All or substantially all of the building has been renovated. All or substantially all means at least 90 percent or more of the existing building was renovated. For example, for a house that has 1800 square feet of floor space if the renovation take place in all areas except 200 square foot room since the renovated area is 1600 square feet it equals to 90 percent which means substantially all and can meet the requirement under the Act.
ii) Substantial renovation must be for a building that existed immediately before the renovation was begun. Essentially, additions to the existing building cannot be considered as substantial renovation. For example, where a 2000 square foot bungalow is being renovated and part of the project involves adding a 300 square foot bedroom, the bedroom is ignored in determining whether the bungalow was substantially renovated. Only the 90 percent or more of the existing 2000 square foot is relevant in determining the substantial renovation. More importantly, the CRA would only consider liveable areas of a building when determining whether the building has been substantially renovated.
iii) The type and/or nature of the renovation must also comply with the definition of the substantial renovation. At least 90 percent of the existing building must be replaced or removed except the foundation, external walls, interior supporting walls, floors, roof and staircases that are referred to as the exclude elements. Repairs cannot be defined as substantial renovation.
iv) As mentioned above, excluded elements include the basic structural element of the building. Although these excluded elements may sometimes be taken into account in determining that a substantial renovation has taken place. For instance, replacing a floor can be considered in determining a substantial completion of a building where the walls and floors of a room are removed or replaced can be sufficient to consider that this area has met the minimum requirement.
Once these determinations are made, certain other costs may be included in the rebate claim. Such expenditures must relate to the renovation of the building, must relate to the improvement of the building for example a new door can be included but cannot include freestanding appliances.