Citation: 2026TCC161
Date: 20260901
Docket: 2023-11(GST)G
BETWEEN:
2520356 ONTARIO CORP.,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on March 31st, 2026
at Toronto, Ontario
Before: The Honourable Justice Randall S. Bocock
Appearances:
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Counsel for the Appellant:
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Michael Pettle
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Counsel for the Respondent:
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D’ette Bourchier
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REASONS FOR JUDGMENT
Bocock J.
I. Facts and HST Assessment
The “simple”
Facts
[1] The corporate Appellant purchased 1059 Briar Hill Avenue in Toronto (the “property”
) on October 22, 2018. It fully intended to completely renovate and resell it. To wit, two days later, the Appellant engaged under contract a general contactor, Open Concepts, to fully renovate the property. Over the next two years, Open Concepts completed most of the demolition, but almost none of the reconstruction. In short, Open Concepts, abandoned the jobsite after demolition and before the rebuild. On September 21, 2020, the Appellant sold the gutted, but unrenovated property at a substantial loss. On July 21, 2021, the Minister assessed the Appellant for HST for the annual period ending December 31, 2020, under the Excise Tax Act, RSC 1985, c. E-15, as amended (the “Act”
), on the property’s aggregate purchase price of $970,000.
Certain ITCs claimed
[2] During the almost three years it owned the property, the Appellant claimed input tax credits (“ITCs”
) in the following amounts for the stated years:
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Reporting Period Ending
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Aggregate ITCs claimed
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$23,700.84
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$16,775.07
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$891.59
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Respondent says of renovation: “enough is enough”
[3] The foregoing facts, without much further explanation, provide the basis for the Minister of National Revenue’s (the “Minister”
) reassessment, save for the concession below. In fact, a direct lift from the reply succinctly summarizes the high-level case theory of the Minister in this appeal:
13. The Property meets the definition of a “residential complex” pursuant to paragraph 123(1)(a) of the Act. The Appellant acquired an interest in the Property and subsequently engaged Open Concepts to carry on a substantial renovation to the Property with the intention of making a profit. The Appellant was therefore a “builder” within the meaning of subsection 123(1) of the Act.
14. The Appellant claimed input tax credits in its GST/HST return for the Period in relation to renovation expenses associated with the Property.
15. In accordance with the definitions of “taxable supply”, “commercial activity” and “exempt supply” under subsection 123(1) of the Act, the supply of real property is a taxable supply, unless it is an exempt supply under Part I, Schedule V of the Act.
Respondent’s concession regarding “all inclusive”
purchase price
[4] The Minister calculated HST (13%) on $126,199, the September 21, 2020 purchase price of $970,000. Presumably because the agreement of purchase and sale (the “APS”
) mentioned no exigible HST, the Minister now more logically concludes and infers such tax was included in the purchase price. Therefore, the Minister concedes the HST ought to be $111,592.92. Given this concession, the Court reduces the assessed HST by $14,606.08, and the appeal is allowed to that extent. In its notice of appeal, the Appellant put in contest the HST calculation inputs.
The PASF, book of documents and vive voce evidence fill in the facts
[5] Other uncontroverted facts existed. Counsel provided a partial agreed statement of facts (“PASF”
) and joint book of documents before trial. In addition, the Appellant’s bookkeeper, one Ms. Guerriero, testified as to certain additional facts. Nothing of any importance is factually in dispute.
[6] At the outset, in October 2018, there is no question that the Appellant intended to engage Open Concepts to fully demolish the property down to the studs and cement foundation. This occurred. What did not by any measure occur was the reconstruction or rebuilding of almost every or any identifiable internal structure, system, enclosure, fixture and convenience which would have made this residential complex fit for habitation. When it was abandoned by Open Concepts, it was an exo-skeletal husk of a building; describing the property as “gutted”
is complimentary.
[7] Corroborating this characterization is the Appellant’s successful lawsuit against Open Concepts in Ontario Superior Court for breach of contract and various damages. Further, the photographs entered show a totally excoriated interior of all four levels of the property when abandoned, and the “as is/where is”
, unwarrantable sale condition of the, as sold, property in September 2020.
Appellant says no substantial renovations were “carried on”
[8] Simply, the Appellant asserts nothing beyond demolition occurred at the property and certainty nothing occurred on-site amounting to anything approaching substantial renovation. Therefore, the Appellant does not fit the definition of builder and HST is not exigible upon the sale because the supply of a “substantially renovated”
residential did not occur under the Act.
II. The Law
Certain provisions not in dispute
[9] Subsection 165(1) makes every recipient of a taxable supply pay GST or HST on the value of goods or services supplied. Under subsection 221(1), the “supplier”
, as agent, must collect the GST or HST and remit it to the Minister.
Certain supplies are exempt
[10] Exempt supplies for purposes of the GST Act are set out in Schedule V of the Act. Part I of Schedule V, referable to subsection 123(1), exempts various supplies of real property. Section 2 of Part I of Schedule V contains the relevant provision. The relevant portion of the section reads as follows:
2. A particular supply by way of sale of a residential complex or an interest in a residential complex made by a particular person who is not a builder of the complex or, if the complex is a multiple unit residential complex, an addition to the complex[….].
What is a builder?
[11] A “builder”
is defined under 123(1) to be… a person who…
a) carries on or engages another… to carry on…
(iii) the construction or substantial renovation of the residential complex.
[12] The excerpted definition of “substantial renovation”
in subsection. 123(1) is:
“substantial renovation” of a residential complex means the renovation or alteration of the whole, or that part of a building, […] to such an extent that all or substantially all of the building […] other than the foundation, external walls, interior supporting walls, floors, roof, staircases […] that existed immediately before the renovation or alteration was begun has been removed or replaced…
[13] As noted above, subsection 123(2) provides that the sale of a residential complex – it is agreed the property is one – is exempt provided the supplier is not a builder, unless;
a) The particular person claimed an input tax credit… in respect of an improvement to the residential complex…
[14] Justice Russell in 2437299 Ontario Inc. v. HMK, 2023 TCC 165, relevantly described the symmetry between the two sections defining “builder”
and “substantial renovation”
when he observed in paragraphs 5 and 6 the following [insertions in square brackets added for clarity and brevity]:
[5] Notably a key aspect of this definition [“substantial renovation”] is that the renovation or alteration be, “to such an extent that all or substantially all of the building was…removed or replaced”.
[6] The respondent pleads that for each property that the appellant had substantially renovated, the appellant accordingly met the Act’s subsection 123(1) definition of “builder”. The respondent further pleads that this caused each sale of the two properties by the appellant to not be exempted from application of section 2 of Part V of the Act. The respondent thus pleads that each property sale constituted a taxable supply in the course of the appellant’s commercial activities and accordingly was subject to GST/HST, as reflected by each of the two appealed reassessments for GST/HST collectible.
III. The Issues
The fork in the road: initial intention vs. subsequent reality
[15] There is common ground that the Appellant initially intended to substantially renovate the property and would have been, upon sale, a builder making a taxable supply if it had substantially renovated the property. Had that occurred the Appellant agrees that HST would have otherwise been due, collectible, payable and calculable on the purchase price.
[16] It is also otherwise agreed, or at least not contested in the reply, that in 2018 and most likely 2019, ITCs were reasonably supportable to be claimed because of the then current and operable intention to substantially renovate the property.
[17] The common ground ends for the reporting period ending in 2020. Hence the dispute. Although the Respondent originally asserted that the ITCs claimed for the property were much higher in 2020, the evidence reliably shows that $891.59 of ITCs were claimed in relation to the property during the 2020 reporting period (the “2020 ITCs”
). The Appellant says the 2020 ITCs were claimed in error. The Respondent says they were indicative, predictive and conclusive of the Appellant’s activities as a “builder”
and the proper designation of same by the Minister at the time of sale.
[18] Therefore, the issues before the Court are:
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(i)does the frustration, abruption and abandonment of the substantial renovations beyond the demolition phase of the property recharacterize the Appellant’s “builder”
designation and make the subsequent supply of the property by sale an exempt supply of a residential property?; and,
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(ii)do the claimed ITCs in 2020 provide further evidence of the Appellant’s “builder”
status or otherwise preclude the Appellant’s supply of the property as exempt from HST?
IV. Analysis and Conclusion
Some awkward observations beyond the usual cases of this type
[19] The Appellant’s contractor completed the teardown or removal of all dilapidated existing walls, fixtures, stairwells, wiring and plumbing under the contract; Open Concept also abandoned the job site before completion of any identifiable reconstruction, remediation or rebuilding of the property. Therefore, on one hand, at the outset there is no question that the Appellant engaged another person to “carry on”
substantial renovation which would otherwise make the Appellant a builder. However, Open Concept completely and unilaterally halted its engagement to carry on substantial renovation before the property was “supplied” through sale by the Appellant
in later summer of 2020. At the time of supply, the property was a used residential premise.
“Renovation”
has two components
[20] The Appellant completed only a teardown of the property with no evidence of any rebuild. Can this one-half initial act alone logically be a “renovation”
. To assist, the Oxford English Dictionary provides two relevant definitions of “renovation”
:
a) The action of renovating something, or the condition of having been renovated; renewal; restoration; (now esp.) the restoration or development of a building which is old or in a poor condition;
b) A restoration or renewal of this kind; a change effected in this way; (now esp.) (in plural) work undertaken to restore, repair, or develop a building which is old or in a poor condition.
The ebb and flow of renovation; out with the old, in with the new
[21] Any one of “demolition”
, “tear-out”
or “gutting”
approaches in meaning only one-half of the context and goal embedded in the word “renovation”
, never mind the superlatively modified meaning of “substantial renovation”, the term
used to describe the requisite actions deeming a “builder”
within the Act. Renovation has two elements temporally and consecutively sequenced in two parts: demolition and reconstruction. In scouring all the cases presented by Respondent’s counsel in this appeal, the Court cannot find a case which holds that factual demolition or gutting without subsequent replacement or reconstruction, express or implied, constitutes a renovation. The measure more frequently is whether the completed renovations involving both sequenced elements were substantial enough, or not. The Court recognizes that many cases, mostly concerning the claiming of ITCs and/or the new home HST/GST rebate, assert the threshold achievement of substantial renovation of residential units. These are the cases which have been judicially determined. They are distinguishable from this appeal where the concept of “renovation”
, as first step, is disputed.
A rule of thumb should not be a stick in the mud
[22] The basis by which the Appellant engaged Open Concepts to carry on the substantial renovation ended before substantial renovations, or any renovations for that matter, occurred. Before any rebuild, reconstruction or remodelling happened, the Appellant, as seller, (supplier under the Act) supplied the property by way of sale to the purchaser (recipient under the Act). Hence, in September 2020, there was no supply of a residential unit in respect of which a builder had engaged in or carried on substantial renovation. One night ask reflectively of the existing case law, what of measuring the degree of “gutting”
a residential unit to determine whether it has been substantially renovated? Gauging the “removal”
, “gutting”
or “demolition”
is a proxy for substantial renovation. It is the rule of thumb which embodies and does not leapfrog the two staged process. The rule works by measuring the essential removal, implying the occurrence of restorative reconstruction, and using the difference to yield the result. The difference yields the degree of “renovation”
. Again, from 2437299 Ontario Ltd., Justice Russell may have telegraphed this very oddity when he said [emphasis added]:
[29] In the jurisprudence, there is often reference to whether or not the particular property had been “gutted” in the course of renovation having occurred. The implication is that a property would have to have been gutted to have been 90% renovated. As stated above, that percentage appears in the CRA Bulletin B-092 as the minimum percentage for a property to be considered as having been “substantially renovated”.
Balanced outcome preserves integrity of the new housing provision in Act
[23] The Court observed, during submissions, that there was no substantially renovated or new residential unit introduced into the national housing stock, in this circumstance because:
a) the property was not factually substantially renovated or new;
b) the Appellant was not a builder;
c) because of a) and b), the Appellant did not made an exempt supply.
[24] Moreover, this is consistent with cases where a taxpayer asks the Court to conclude it is a builder because the taxpayer seeks to establish that substantial renovation occurred and/or input tax credits should be allowed. However, could the Minister reconcile such an appeal where the value, scope and/or goal of the substantial renovations are never completed, or even half completed, purposively within the Act. The Court can easily imagine Respondent’s counsel, in such a case, comfortably and assuredly arguing that the taxpayer is not a builder engaged in the substantial renovation of a property and the Court should deny input tax credits.
[25] All the cases cited by the Respondent are distinguishable from the circumstances in this appeal because:
a) cases assumed without variance that the enumerated renovations were completed aside from whether they were substantial; and,
b) no case references the completion of only one-half the planned renovations, or more appropriately phrased, the failure to complete the final half, namely the rebuild portion, of the intended substantial renovations.
c) Paragraph 123(1): exemption unless…ITCs claimed on improvements.
Confusion around ITCs owed to nature of appellant’s main business
[26] The ITCs claimed by the Appellant during the 2020 relevant reporting period were confusing for two reasons. The first concerns ITCs claim for the purchase of other taxable supplies relating to the Appellant’s primary undertaking: a strip mall operator/landlord in Orillia, Ontario. The Minister and Respondent’s counsel believed certain real estate agent fees and other consumed supplies related to Briar Hill, the property. Although both confusingly involved real estate generally, the strip mall was a core business operation and Briar Hill was a “one-off”
departure from that main line of business. This confusion was clarified during cross-examination at trial.
Intended claim of 2020 ITCs for property would likely have been much larger
[27] The second confusion concerns the asserted error of the ITCs claimed in the amount of $891.59. Miss Guerrero was clear that these ITC amounts were related to architect fees concerning the property. From the evidence, the Appellant claimed no other amounts for procured taxable supplies concerning the property as ITCs in 2020. To be clear, such amounts existed: the HST on the Real Estate Commission, selling legal fees and possibly litigation legal fees commenced to collect judgement against the defaulting Open Concepts. The ITC journal for the Appellant was produced as evidence of this disparity and was unchallenged.
ITCs more likely than not claimed in error
[28] For the following reasons, the Court is prepared to accept that the relatively small ITCs otherwise claimed in 2020 concerning the property were in error. The late submission and rendering of invoices for architectural fees within months of the 2020 closing, and long after any further work, more likely than not were attributable to the irrevocable end contract by Open Concepts after the interceding litigation. Further, the Appellant claimed no other potentially available larger ITCs on real estate and legal fees, as noted above. Finally, the erroneously claimed amounts all related to the same supply, architect fees, were relatively small and more properly were allocable, if rendered in the normal course, to the previous reporting period.
[29] For these reasons, the Court is prepared to accept that these outlier ITCs were inadvertent, untended and are not determinative of the subsisting builder status of the Appellant.
V. Summary and Costs
[30] As identified by Respondent’s counsel during submissions, there is no case law which provides direction to the Court in this situation. No authority sustains, in such particular and unique facts, a builder designation for a single project, non-realtor taxpayer who initially seeks to acquire, renovate and sell a residential unit but is irrevocably stymied from completing any meaningful reconstruction to the property beyond the demolition phase. An objective fact which eases the decision of this Court when allowing this appeal are the words in the listing agreement used to sell the un-renovated property in September 2020:
“Investors, Builders, Renovators…. Opportunity for a great investment!!
“Sold in “as is” condition”
A rebuilt or renovated residential unit needs no builder or renovator
[31] Had the Appellant been a “builder”
because it had substantially renovated the property there is no rational basis to conclude a subsequent builder or renovator would be required or remotely interested. Common sense regarding these facts intercedes to lend further logic to the Act, section and the unique facts surrounding this appeal.
[32] Accordingly, the Appellant, when it sold the property in September of 2020, was not a builder within the meaning of the Act because it had not carried on the substantial renovation of a residential unit during the course of an adventure in the nature of trade. The Appellant aspired to do so and was stopped in its tracks from achieving anything approaching substantial renovation, or even renovation for that matter. When sold by the Appellant, the residential unit was not substantially renovated, but a residential unit of used, but oddly not habitable, housing stock. It was not a taxable supply because it was exempt, and no HST was assessable on it in the reporting period. As for the erroneously claimed ITCs, judgment will reflect that they ought to be reconciled in the calculation of net HST for the 2020 reporting period.
[33] The oddity of the facts extractible from the Appellant only at trial, the erroneously claimed ITCs, the less than clear notice of appeal and the Respondent’s concession at the outset of trial speak to limited costs. The Court will fix and limit costs to $300.
Signed at Ottawa Ontario, this 1st day of September, 2026.
“R.S. Bocock”
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