GST/HST and home construction

How the GST/HST applies to home construction industry

It is important to become familiar with the GST/HST concepts and terms that apply to the home construction industry.

Generally, you have to charge and collect the GST/HST from a purchaser if you meet both of the following conditions:

  • You are a GST/HST registrant
  • You make taxable supplies (other than zero-rated supplies) of property or services in Canada

For example, if you are an electrician who is wiring a new house for a builder and you are a registrant, you will charge and collect the GST/HST from the builder for your services.

In addition, as a general rule, you have to collect the GST/HST on a taxable sale of real property in Canada, whether or not you are a registrant. For more information, see Determining if the vendor or purchaser collects and remits the GST/HST.

A supply of property or a service means the provision of property or a service in any way, including sale, transfer, barter, exchange, licence, rental, lease, gift, or disposition. Therefore, if you provide property or a service in any way, you are making a supply.

Examples of supplies

Supplies include:

  • construction, plumbing, electrical, and installation services
  • decorating, architectural, and engineering services
  • construction materials, equipment, and tools
  • heating/cooling/ventilation systems
  • flooring, cabinetry, fixtures, and appliances
  • services provided by land surveyors and real estate agents 

Supplies of construction services and real property are taxed differently

Generally, the GST/HST rules for supplies of real property are different from those for supplies of construction services. So, before you can charge and collect the GST/HST, you have to determine if you are supplying construction services (for example, a service of building a house) or real property (for example, selling the house and land). 

The following are some of the factors to consider when determining whether you are supplying a construction service or real property:

  • What does the agreement state that you are providing? If the agreement is a purchase and sale agreement for a new house including the land upon which the house is to be built, you are supplying real property. If the agreement is a contract for construction services only (for example, to build a house on land owned by your customer), you are generally supplying a construction service
  • Who owns the land while the construction of the house is in progress? If you own the land while you are constructing the house, this is an indicator that you are supplying real property
  • Who is liable to pay the property taxes while the construction is in progress? If you are liable to pay the property taxes directly to the taxing authority, this may be an indicator that you are supplying real property
  • Upon completion of the contract, will you transfer the legal title to the real property to the purchaser? If you transfer legal title to the property, you are supplying real property

You are also supplying real property if you lease or licence real property to another person, or if you sell or assign an interest in real property.

For more information on how to determine if you are supplying property or a construction service, see paragraphs 95 to 97 of GST/HST Memorandum 19.1, Real Property and the GST/HST..

Determining if you are a builder for GST/HST purposes

Many GST/HST rules apply only to builders of housing. As a result, it is important to determine whether you are considered a builder of housing for GST/HST purposes.

The term builder has a very specific meaning for the GST/HST and includes more than someone who physically constructs or substantially renovates housing.

Generally, you are a builder of housing or of an addition to multiple-unit housing if you: 

Building or substantially renovating housing

Generally, you are a builder of housing for GST/HST purposes if you own or have an interest in real property and you do any of the following activities (or you hire someone else to do any of the following activities for you) to housing on your real property:

  • build the housing
  • substantially renovate the housing
  • build an addition to multiple-unit housing

However, even if you own or have an interest in real property and you do any of the above activities (or you hire someone else to do any of the above activities for you) to housing on your real property, you are not a builder of housing for GST/HST purposes if both of the following conditions apply:

  • You are an individual 
  • You are not doing the activity (or you are not hiring someone else to do the activity for you) in the course of a business or an adventure or concern in the nature of trade
If you are hired to do any of the above activities to housing and you do not own or have an interest in the real property or the housing, then you are likely supply construction services and you are not a builder of housing for GST/HST purposes.
Example – An individual who is not a builder

You are not a builder if you are an individual who built a house on land that you own and you did not build the house in the course of a business or an adventure or concern in the nature of trade (for example, you built the house for your personal use as a place of residence).

Example – An individual who is a builder 

You are a builder if you bought a house with the intention to substantially renovate and resell it, even if it is only a one‑time event and you have no intention of doing it again.

Acquiring an interest in certain housing

An interest in a house generally means any right to the land that the house is being constructed on.

Examples of an interest in housing

If you receive title to the land, you have acquired an interest in the house.

If you enter into a lease agreement for the land, you have acquired an interest in the house.

Generally, you are a builder of housing for GST/HST purposes if you acquire an interest in any of the following:

  • housing when it is already under construction, except where the interest is only a right to purchase the housing, or an interest in the housing, from a builder
  • housing when it is already being substantially renovated, except where the interest is only a right to purchase the housing, or an interest in the housing, from a builder
  • multiple-unit housing when an addition is already under construction, except where the interest is only a right to purchase the housing, or an interest in the housing, from a builder
  • a house before anyone has lived in it, and your primary purpose in acquiring the interest is to sell the house or the interest
  • a house before anyone has lived in it, and your primary purpose in acquiring the interest is to lease the house to a person who will not use the house for their own personal use (for example, you lease a house to a person who will sub-lease the house)
  • a residential condominium unit before the complex is registered as a condominium or before anyone has lived in it, and your primary purpose in acquiring the interest is to sell the unit or the interest
  • a residential condominium unit before the complex is registered as a condominium or before anyone has lived in it, and your primary purpose in acquiring the interest is to lease the unit to a person who will not use the unit for their own personal use (for example, you lease the unit to a person who will sub-lease the unit)

You may be considered a builder even if construction on the house is completely finished when you acquired an interest in it.

However, even if you have acquired an interest in any of the above, you are not a builder of housing for GST/HST purposes if both of the following conditions apply:

  • You are an individual
  • You have not acquired the interest in the course of a business or an adventure or concern in the nature of trade

Converting commercial property to housing

Generally, if you convert a commercial building that you own, or have an interest in, to housing, you are considered to have substantially renovated the housing, even if the extent of the work, if any, would not normally meet the requirements of a substantial renovation. Generally, you are considered to be a builder of the housing for GST/HST purposes, unless you are an individual and the housing is used exclusively as a place of residence for you or a related individual.

When do builders have to charge the GST/HST

The GST/HST generally applies to the sale of new or substantially renovated housing.

All builders have to charge the GST/HST on their taxable sales of new or substantially renovated housing. Generally, if the purchaser is not an individual, the purchaser's GST/HST registration status may determine whether the builder collects and remits the GST/HST on the taxable sale. For more information on collecting and remitting the tax, see Determining if the vendor or purchaser collects and remits the GST/HST.

Builders who are registrants may be able to claim input tax credits (ITCs) to recover GST/HST they paid on the goods and services used in the construction or substantial renovation of the housing.

Making a self-supply

The GST/HST applies to self-supplies of new or substantially renovated housing. The term self-supply describes a situation where a builder is considered to have both made a supply by way of sale of real property and, at the same time, to have repurchased that property.

Self-supply rules may apply to builders of new or substantially renovated housing, whether or not they are GST/HST registrants.

For more information, see Guide RC4052, GST/HST Information for the Home Construction Industry and GST/HST Memorandum 19.2.3, Residential Real Property – Deemed Supplies.

Building a home for someone

If you (as a GST/HST registrant) are hired by someone to build or substantially renovate housing on land that they own, or have an interest in, you must charge and collect GST/HST from them on the labour and materials you provide when building or substantially renovating the housing.

Owners of new or substantially renovated housing may qualify for a GST/HST new housing rebate for a portion of the GST/HST paid on labour and materials, but they must apply for the rebate. Service contractors cannot pay or credit the GST/HST new housing rebate to home owners, nor can they apply for the GST/HST new housing rebate on behalf of home owners.

Renovating a house (other than substantial renovations)

If you are a contractor or a real estate developer and you renovate a house that you bought in the course of your business, special rules apply if the renovation is not considered to be a substantial renovation.

In this case, you have to remit the GST/HST on certain untaxed costs (other than financial services), such as employee labour costs involved in renovating the housing. You calculate the GST/HST based on the value of the amount paid or payable on such untaxed costs. This rule does not apply to input costs (for example, material or contracted services) on which GST/HST has already been paid.

The sale or lease of a house after a non-substantial renovation is generally exempt from GST/HST. You cannot claim ITCs to recover the GST/HST paid on the goods and services used in the renovation of the house. The purchaser cannot claim a GST/HST new housing rebate on the purchase of the house.

GST/HST rates for the sale of housing

In general, the GST/HST rates for taxable sales of housing are based on:

  • the province where the real property is located
  • the GST/HST rate in effect in that province on the day that the tax becomes payable for the sale, which is generally the earlier of:
    • the day that ownership of the property is transferred
    • the day that possession of the property is transferred under the agreement for the sale

This rule for determining the day that tax becomes payable for the sale may not apply to certain taxable sales of residential condominium units.

For a GST/HST calculator and information about rates, go to GST/HST calculator (and rates).

When the GST/HST becomes payable

Depending on the circumstances, there are different rules for determining when the GST/HST becomes payable by the purchase or collectible by the vendor.

Sales of real property 

The GST/HST for a taxable sale of real property (including a new or substantially renovated) becomes payable on the earlier of:

  • the day the vendor transfers ownership to the purchaser
  • the day the vendor transfers possession to the purchaser under an agreement to transfer ownership

If you sell a new residential condominium unit and the condominium complex in which the unit is located is not registered as a condominium before you transfer possession of the residential condominium unit to the purchaser, the GST/HST is payable on the earlier of:

  • the day you transfer ownership to the purchaser
  • the day that is 60 days after the day the condominium complex is registered as a condominium
Leases of real property 

The GST/HST becomes payable on each lease payment on the earlier of:

  • the day the lessee pays the lease payment
  • the day the lease payment is due according to the written lease agreement
Deposits 

For GST/HST purposes, a deposit is an amount given by a purchaser as security for the performance of a future obligation.

If you are a vendor who collects a deposit from a purchaser for a taxable supply of property or services that you will make, the deposit is not considered to be a payment until you apply it as a payment toward the amount the purchaser owes you for the taxable supply, or until the purchaser forfeits the deposit because of a modification, violation, or cancellation of the agreement. This applies whether the deposit is refundable or not.

Deposit applied as a payment 

The GST/HST is payable on the day you apply the deposit as a payment.

Deposit forfeited by purchaser 

When the purchaser forfeits the deposit because of a breach, modification or termination of the agreement, the deposit amount is considered to include the GST/HST. You have to report the tax collected on your GST/HST return for the reporting period in which the deposited amount was forfeited.

To calculate the amount of GST/HST included in a forfeited deposit, multiply the forfeited deposit by:

  • 5/105 if the supply is subject to GST at 5%
  • 13/113 if the supply is subject to the HST at 13%
  • 15/115 if the supply is subject to the HST at 15%

Purchasers who forfeit their deposits are considered to have paid the GST/HST. As a result, purchasers who are registrants may be eligible to claim input tax credits for the GST/HST included in their forfeited amounts.

Construction contracts and progress payments 

When construction extends over a period of time, the written contract often calls for the purchaser to make progress payments as the work proceeds. These payments are not deposits. They are usually for work completed, but they can also be made in anticipation of work being completed. Payments made for a sale of real property are not progress payments.

Generally, the GST/HST becomes payable on each progress payment on the earlier of:

  • the day the purchaser pays the progress payment
  • the day the progress payment becomes due

Value of work completed

Your contract may state that a supplier (for example, a contractor) can request a payment from you based on the value of work completed. In this case, another person, usually a consultant, an engineer or an architect, has to approve the work and issue a certificate stating the value of the work completed. Generally, you have to make the payment within a certain number of days after the consultant, engineer or architect issues the certificate.

In this situation, the supplier's request or application for payment is not considered to be an invoice, because it is only a request to assess the work completed and issue a certificate for payment according to the contract. The GST/HST does not become payable at the time of the request or application.

The GST/HST becomes payable on the day the purchaser makes the payment or on the day the payment becomes due under the terms of the contract (for example, 10 days after the certificate is issued), whichever day is earlier.

When you cannot establish the value

When it is not possible to establish the value of all or part of a payment that is due on a particular day, the GST/HST is payable on the part of the payment for which the value can be determined on that day.

For all or part of the payment that you cannot establish the value on the particular day, the GST/HST becomes payable on the day you can establish the value of the payment or the remaining part of the payment.

Holdbacks 

A holdback occurs when a person purchases goods or services and keeps part of the payment until they are satisfied with the condition of the goods or the performance of the service.

If, in accordance with federal or provincial law or a written agreement for the construction, renovation, alteration or repair of real property, a purchaser keeps a part of a payment as a holdback until the work is satisfactorily done, the GST/HST on the holdback amount becomes payable on the earlier of:

  • the day the purchaser pays you the amount of the holdback
  • the day the holdback period expires

The GST/HST is collectible by you on the earlier of the above dates, even if you already issued an invoice and charged the GST/HST for the holdback amount.

The general rule on when the GST/HST becomes payable applies if there is no holdback provision in federal or provincial law or a written agreement for the construction, renovation or alteration of, or repair to, real property. The general rule also applies if the purchaser pays the full amount and does not keep a part of the payment as a holdback, even if the written agreement or federal or provincial law allows them to do so.

For more information on the general rule on when the GST/HST becomes payable, go to When the GST/HST becomes payable, or see Guide RC4052, GST/HST Information for the Home Construction Industry.

Substantially completed 

A special rule applies to written contracts for constructing, renovating, altering or repairing real property when the work is substantially completed. If a supplier (for example, a contractor) substantially completes the work specified in the contract, and the purchaser has not paid for the work, or the payment has not yet become due, the GST/HST becomes payable by the end of the month after the month in which the supplier substantially completed the work. This special rule does not apply to holdbacks described in the previous section. Generally, the construction, renovation, alteration or repair is considered to be substantially complete when 90% or more of the work is complete.

Combined supplies 

If a supplier (for example, a contractor) supplies any combination of goods, services and real property for an all-inclusive price (the price of each element is not separately identified), the time that the GST/HST becomes payable depends on the situation.

Situation 1 – If the value of one element can reasonably be seen as exceeding the value of each of the other elements, for the purpose of determining when tax becomes payable, the combined supply is considered to be a supply of that element.

For example, if a sale includes real property and certain goods, and it is reasonable to conclude that the value of the real property exceeds the value of each good, then the entire sale is considered to be a sale of real property for the purpose of determining when the tax becomes payable.

Situation 2 – In any other case:

  • If real property is an element of the combined supply, the combined supply is considered to be a supply of real property only, and you have to use the rules that apply for the sale or lease of real property for the purpose of determining when the tax becomes payable
  • If real property is not an element of the combined supply, the combined supply is considered to be a supply of a service only. However, if one of the exceptions applies (for example, if the purchaser makes a deposit or a progress payment), use the situation that applies for that particular exception

Determining if the vendor or purchaser collects and remits the GST/HST

If you make a taxable sale of real property, you generally have to charge and collect the tax on the sale, even if you are not registered for the GST/HST. However, in some cases, the purchaser has to pay the tax directly to the CRA instead of paying it to you. 

If you are the vendor, do not collect the GST/HST in the following cases:

If you do not have to collect the tax on your taxable sale of real property because one of these cases applies, the purchaser has to report and pay the tax directly to the CRA. 

The information under this heading does not apply if you are considered to have made a self-supply.

Vendor collects and remits the tax

If you are a vendor who has to collect and remit the tax due on your taxable sale of real property, you must account for the tax as follows:

  • If you are a GST/HST registrant, include the GST/HST collectible on your regular GST/HST return for the reporting period when the GST/HST became collectible (in your line 105 calculation if you file electronically or on line 103 if you file a paper GST/HST return)
  • If you are not a GST/HST registrant, report the tax collectible on line 103 of Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non-personalized). File this return by the end of the month following the month the tax became collectible and remit the net tax due with that return. Form GST62 is available only in pre-printed format, which you must order from the CRA. To do this, go to Order remittance vouchers or payment forms

Purchaser pays tax directly to CRA

If you are a purchaser who has to pay the tax on your purchase of real property directly to the CRA, you must account for the tax as follows:

  • if you are a GST/HST registrant and will use or supply the real property: 
    • more than 50% in your commercial activities, report the tax due on line 205 (GST/HST due on the purchase of real property or purchase of emission allowances) of your GST/HST return for the reporting period in which the tax became payable and remit any positive amount of tax due for that return
    • 50% or less in your commercial activities, report the tax due on Form GST60, GST/HST Return for Purchase of Real Property or Carbon Emission Allowances
  • if you are not a GST/HST registrant, report the tax due on Form GST60

When using Form GST60 to report the tax due, you have to file this return by the end of the month following the month in which the tax became payable and pay the tax due with that return.

How to file your GST/HST returns

GST/HST registrants

As a GST/HST registrant, you have to file regular GST/HST returns, according to your reporting period, to report the tax you have to charge and collect on your taxable supplies. You also claim any ITCs for which you are eligible on your GST/HST return.

Builders must use GST/HST NETFILE to file their returns for reporting periods when they paid or credited the amount of the GST/HST new housing rebate to the purchaser.

Builders may also be required to electronically file their GST/HST returns for other reasons. For more information, see Determine if you must file online.

Note

If you are a purchaser who has to pay the tax on your purchase of real property directly to the CRA, and you are a GST/HST registrant who will use or supply the real property 50% or less in your commercial activities, then you have to report the tax due on Form GST60, Return for Purchase of Real Property or Carbon Emission Allowances.

Non-registrants

If you are not a GST/HST registrant, you do not file regular GST/HST returns. However, you have to file Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return (Non Personalized), to report GST/HST collectible by you on a taxable sale or self-supply of real property. Although you are not eligible to claim ITCs, you may be eligible to claim a rebate. Non-registrants cannot file electronically.

Note

If you are a purchaser who has to pay the tax on your purchase of real property directly to the CRA (that is, you purchased taxable real property from a person who is not resident in Canada), and you are not a GST/HST registrant, then you have to report the tax due on Form GST60, Return for Purchase of Real Property or Carbon Emission Allowances.

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