GST/HST and home construction

What's new

Under proposed changes, the special reporting requirements of grandparented housing sales for builders have been simplified. For more information, see GST/HST NOTICE294, Questions and Answers on Simplified Reporting of Specified Housing Supplies, and Form RC4617, Election and Schedule to a Return for Simplified Reporting of Specified Housing Supplies.

How does the GST/HST apply to the home construction industry?

Before you begin construction, it is important to become familiar with the GST/HST terms and concepts that apply to the construction industry. The terms house, registrant, residential care facility, supply, self-supply, and builder have very specific meanings for GST/HST purposes.

Generally, if you are a GST/HST registrant and you make a taxable supply (other than a zero-rated supply) of property or a service in Canada, you have to charge the GST/HST to the purchaser. For example, if you are an electrician who is wiring a new house for a builder and you are a registrant, you will charge the GST/HST to the builder for your services. Also, as a general rule, you would be required 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 Charging and collecting the GST/HST.

Examples of taxable goods and services 

Examples of taxable goods and services include:

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


A supply of property or a service means providing 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.

If you make a supply, it is important to establish the nature of what you are supplying (property or service), since the rules for charging and collecting the GST/HST will depend on this determination. For example, the rules for charging and collecting tax on a sale of real property are different than those for charging tax on a supply of a construction service.

What are you supplying – construction services or real property?

The application of the GST/HST depends on whether you are supplying construction services (for example, a service of building a house) or real property (for example, selling the house and land). You are also supplying real property if you lease or license real property to another person, or if you sell or assign an interest in real property.

The following are some of the factors to consider when determining whether you are supplying a 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 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? For example, 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.

For more information on determining the nature of a supply, see GST/HST Memorandum 19.1, Real Property and the GST/HST.

Are you a builder for GST/HST purposes?

For GST/HST purposes, the term builder has a very specific meaning that is not limited to a person who physically constructs or substantially renovates housing.

It is important to determine whether you are a builder of a house for GST/HST purposes since there are many special rules that apply to builders.

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

Building or substantially renovating housing

Generally, you are a builder of housing for GST/HST purposes if you do any of the following (or hire someone else to do it for you):

  • build the housing
  • substantially renovate the housing
  • construct an addition on land you own or have acquired by way of lease

However, you are not a builder if you are an individual and those activities are not carried out in the course of a business or an adventure or concern in the nature of trade.

Example - You are an individual and you are not a builder

You are not a builder if you are an individual who built the house on land that you own and the house is your primary place of residence.

Example - You are an individual and you are a builder 

You purchased 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. 


In addition, you are not a builder if you are supplying construction services only and you do not own, or have an interest in, the land on which the housing or addition is being built.

Acquiring an interest in certain housing

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

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 generally acquired an interest in the house.


You are a builder of housing for GST/HST purposes if you acquire an interest in:

  • the 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
  • the 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
  • the 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 either 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 another landlord)
  • a residential condominium unit either 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 either sell the unit or the interest
  • a residential condominium unit either 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 another landlord)

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

You are not a builder if you are supplying construction services only and you do not own, or have an interest in, the land on which the housing or addition is being built.

Converting commercial property to housing

If you convert a commercial building that you own, or have an interest in, into a house, you are a builder even if you did not complete a substantial renovation.

Do builders have to charge the GST/HST

The GST/HST generally applies to the sale of new housing and substantially renovated housing by a builder.

Builders generally have to charge the GST/HST payable on the taxable sale of housing if the purchaser of the housing is an individual. The GST/HST registration status of the purchaser also helps determine whether the builder collects and remits the GST/HST. For more information, see Who collects and remits the GST/HST - vendor or purchaser?

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

The following are other situations in which the GST/HST applies to builders:

Have you made a self-supply? 

Have you made a self-supply?

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 they are GST/HST registrants or not. Transitional rules may apply for any of the self-supplies of new housing made in British Columbia, Nova Scotia, Ontario, and Prince Edward Island.

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.

Are you building a home for someone? 

Are you building a home for someone?

If you are hired by someone to build a house on land they own or lease, you must charge them GST/HST on the labour and material you provide when building the house.

Your client may qualify for the GST/HST new housing rebate for the GST/HST paid on labour and materials, but they must apply for the rebate. You cannot apply for it on their behalf.

Are you making renovations to a residential complex (other than substantial renovations)? 

Are you making renovations to a residential complex (other than substantial renovations)?

If you are a contractor or a real estate developer and you renovate a residential complex that you bought in the course of your business, special rules apply where 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 would not apply to other input costs (for example, material or contracted services) on which GST/HST has already been paid.

The sale or the lease of the property after the non-substantial renovation is generally exempt from GST/HST. You are not able to claim ITCs to recover GST/HST paid on the goods and services used in the renovation of the housing. The buyer cannot claim the GST/HST new housing rebate on the sale.

Which rate of GST/HST applies to the sale of real property?

In general, the GST/HST rates apply to taxable sales of real property based on:

  • the province in which the real property is situated
  • the rate of the GST/HST that is in effect in that province on the day that tax becomes payable for the sale. The GST/HST for a taxable sale of real property is generally payable on the earlier of:
    • the day ownership of the property is transferred; and
    • the day possession of the property is transferred under the agreement for the sale.

This rule may not apply to certain taxable sales of:

  • new housing in Prince Edward Island, British Columbia, Ontario, New Brunswick, Nova Scotia, or Newfoundland and Labrador
  • residential condominium units
  • certain housing if the sale was made under a written agreement of purchase and sale entered into before October 31, 2007

For information on these rules, including grandparented sales of housing, transitional tax adjustment, and resellers of housing, see Guide RC4052, GST/HST Information for the Home Construction Industry.

Who collects and remits the GST/HST - vendor or purchaser?

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 it is the purchaser who has to remit the tax directly to us instead of paying it to you. This information does not apply if you are considered to have made a self-supply.

Do not collect the GST/HST if one of the following situations occurs:

  • The purchaser is registered for the GST/HST. However, this rule does not apply if you make a taxable sale of housing to an individual, or you make a taxable sale to an individual of a cemetery plot or place of burial, entombment, or deposit of human remains or ashes. You must collect the tax from the individual in these cases.
  • You are a non-resident of Canada. This rule still applies if you are considered a resident for only certain activities you carry on through a permanent establishment in Canada.
  • You and the purchaser have made an election using election type 2 on Form GST22, Real Property - Election to Make Certain Sales Taxable.

If you do not have to collect the tax on your taxable sale of real property because one of these conditions applies, the purchaser has to pay to CRA any tax due on the purchase.

Vendor collects and remits

If you are a vendor who has to collect and remit the GST/HST due on your taxable sale of real property, 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 during which the GST/HST became collectible (in your line 105 calculation if you are filing your return electronically or on line 103 if you are filing 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). You have to file this return by the end of the month following the month in which the tax became collectible and remit the net tax due with that return. Form GST62 is only available in pre-printed format and is not available for download from our website. You can order it at Getting forms and publications.

Purchaser pays tax directly to CRA

If you have to pay the tax on your purchase of real property directly to CRA, you 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, you have to report the tax due on line 205 (GST/HST due on the acquisition of taxable real property) 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, you have to report the tax due on Form GST60, GST/HST Return for Acquisition of Real Property.
  • If you are not a GST/HST registrant, report the tax due on Form GST60.

When using Form GST60, GST/HST Return for Acquisition of Real Property 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.

When does the GST/HST become collectible and when do you have to pay?

Depending on the circumstances, there are different rules for determining when the GST/HST becomes collectible and when to pay.

Sales of real property 

Sales of real property

The GST/HST for a taxable sale of real property (including a new house) becomes collectible on the earlier of:

  • the day you transfer ownership to the purchaser
  • the day you transfer 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 to the purchaser, the GST/HST becomes collectible on the earlier of:

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

Leases of real property

The GST/HST becomes collectible 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 agreement
Deposits 

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 collect a deposit from a purchaser for a taxable supply of property or services you will make, we do not consider it 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 collectible 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, we consider the amount of the deposit to include the GST/HST. You are considered to have collected the amount of the tax included in the deposit on the day that the purchaser forfeits the deposit and you have to report the amount of the tax included in the deposit on your GST/HST return for the reporting period that includes that day.

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

  • 5/105, if the supply is subject to GST at 5%
  • 12/112, if the supply is subject to the HST at 12%
  • 13/113, if the supply is subject to the HST at 13%
  • 14/114, if the supply is subject to the HST at 14%
  • 15/115, if the supply is subject to the HST at 15%

Use this calculation even if the purchaser made the deposit before January 1, 2008.

Purchasers who forfeited the deposit are considered to have paid the GST/HST. As a result, they may be entitled to claim an ITC for the GST/HST included in the forfeited amount if they are a GST/HST registrant.

Construction contracts and progress payments 

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 on the project proceeds. These payments are not deposits and are usually for work completed, but they can also be made in anticipation of work being completed. Payments made in respect of a sale of real property are not progress payments.

Generally, the GST/HST becomes collectible 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 you can request a payment 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, the purchaser has to make the payment within a certain number of days after the consultant, engineer, or architect issues the certificate.

In this situation, your request or application for payment is not considered to be an invoice, since it is only a request that an assessment be made of the work completed and that a certificate for payment be issued according to the contract. Therefore, the GST/HST does not become collectible at the time of the request or application.

The GST/HST becomes collectible 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 collectible 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 collectible on the day you can establish the value of the payment or the remaining part of the payment.

Transitional rules for progress payments in Prince Edward Island

For an explanation of the HST transitional rules for progress payments in Prince Edward Island, see GST/HST Notice279, Harmonized Sales Tax for Prince Edward Island (P.E.I.) - Questions and Answers on Transitional Rules for Housing and Other Real Property Situated in P.E.I.

Holdbacks 

Holdbacks

A holdback occurs when a person purchases goods or services and keeps part of the payment for those goods or services until the person is 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 pending satisfactory completion of the work, the GST/HST on the amount of the holdback becomes collectible 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 for the holdback amount and charged the GST/HST on this amount.

Substantially completed 

Substantially completed

A special rule applies to written contracts for constructing, renovating, altering, or repairing real property when the work is substantially completed. If you substantially complete 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 collectible by the end of the month after the month in which you substantially completed the work. This special rule does not apply to holdbacks described in the previous section. Generally, we consider the construction, renovation, alteration, or repair to be substantially complete when 90% or more of the work is complete.

Combined supplies 

Combined supplies

If you supply any combination of goods, services, and real property for an all-inclusive price (the price of each element is not separately identified), the time at which the GST/HST becomes collectible 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 purposes of determining when tax becomes collectible, we consider the combined supply 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 purposes of determining when the tax becomes collectible.

Situation 2 - In any other case:

  • If real property is an element of the combined supply, we consider the combined supply 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.
  • 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 customer makes a deposit or a progress payment), use the situation that applies for that particular exception.


If you purchase real property that is taxable, you may have to remit the tax directly to CRA instead of paying the tax to the vendor. For more information, see Who collects and remits the GST/HST - vendor or purchaser?

How do you 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 input tax credits (ITCs) to which you are entitled on your GST/HST return.

Builders must use GST/HST NETFILE to file their returns for these reporting periods where they have paid or credited the amount of the rebate to the buyer.

Builders may also be required to electronically file their GST/HST returns for other reasons. For more information, see Which electronic filing method can you use?

Non-registrants

If you are not a GST/HST registrant, you do not file regular GST/HST returns. However, you would 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 on a taxable self-supply, of real property. Although you are not eligible to claim ITCs, you may be eligible to claim a rebate. Non-registrants are not eligible to file electronically.

What are the available GST/HST housing rebates?

Generally, sales of new housing are subject to the GST/HST. You may qualify for the following rebate for some of the tax paid.

What is considered substantial renovations, conversions, and major additions for the purpose of claiming a GST/HST housing rebate?

Depending on the circumstances, there are different rules that you need to consider for the purpose of claiming a GST/HST housing rebate.

 

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