7 April 2022 CBA Roundtable, Q.7

The definition of “builder” in s. 123(1) includes a person who carries on the “construction” of a “residential complex,” which is defined to include that part of a building which is a residential condominium unit, thereby potentially triggering self-assessment under s. 191.

An individual with an interest in a multiple unit residential complex (“MURC”) converts the MURC into condominium units (intended for residential rental), so that the legal ownership of the units is changed and there are physical alterations to the MURC units (but without substantial renovation of the MURC).

a) Does conversion of a MURC into condominium units without substantial renovation constitute “construction” of a residential complex, namely, residential condominium units?

b) Does the answer depend on whether the conversion changes the number of units, e.g., converting a 4-unit MURC into a 5-unit condominium complex?

c) If this constitutes construction of a residential complex, would 5, or only the 1 additional unit, be considered to be constructed?

d) If there is construction of a residential complex, is there an exemption from self-assessment under s. 191(1) upon residential rental?

a) CRA indicated that “construction” is “the creation of something new, and can be distinguished from repair, improvement, recombining or rearranging of something that already exists.”

After indicating that under the definition of the term, “only intention is required for there to be a residential condominium unit,” CRA stated that [w]here there is an intention to create residential condominium units in a building, the CRA would determine separately whether each residential condominium unit was constructed or substantially renovated for purposes of subsection 191(1) of the ETA, rather than whether the MURC as a whole was constructed or substantially renovated for purposes of subsection 191(3) of the ETA.

b) CRA stated:

Whether the conversion of a MURC into residential condominium units constitutes “construction” or a substantial renovation of a residential condominium unit does not depend on whether there is a change in the number of units, but rather on the work performed on a particular residential condominium unit in the condominium complex. … A substantial renovation is generally considered to have taken place where all or substantially all of the interior of a residential condominium unit has been removed or replaced and, upon completion, the renovated or altered unit is, or forms part of, a residential complex.

c) CRA stated:

Where a conversion occurs, the number of units the person is considered to have constructed or substantially renovated is a question of fact that depends on the work performed on each individual unit.

d) CRA indicated that the only exemptions from the self-assessment rule in s. 191(1) were those in ss. 191(5) to (7).

Regarding whether the conversion of a rental apartment building into condo units would be subject to GST/HST in the hands of an owner under the “self-supply” rule in ETA s. 191, CRA noted:

A "residential condominium unit" as defined in subsection 123(1) of the ETA includes a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description. As per the definition, only intention is required for there to be a residential condominium unit.

Partly, on this basis, CRA considered that the relevant self-supply rule was that in s. 19(1) applicable to the substantial renovation (or construction) of a residential condominium unit rather than that applicable under s. 191(3) to the substantial renovation (or construction) of a multiple unit residential complex. Thus, the issue would turn on whether there was substantial renovation of the physical space for each proposed condo unit – with CRA reiterating in this regard its longstanding position that to rise to the level of substantial renovation there would need to be a gutting (or more) of each unit at issue.

Regarding whether the conversion of a rental apartment building into condo units would be subject to GST/HST in the hands of an owner under the “self-supply” rule in ETA s. 191, CRA indicated that the relevant self-supply rule was that in s. 19(1) applicable to the substantial renovation (or construction) of a residential condominium unit rather than that applicable under s. 191(3) to the substantial renovation (or construction) of a multiple unit residential complex. CRA indicated that “construction” is “the creation of something new, and can be distinguished from repair, improvement, recombining or rearranging of something that already exists,” and that:

A substantial renovation is generally considered to have taken place where all or substantially all of the interior of a residential condominium unit has been removed or replaced and, upon completion, the renovated or altered unit is, or forms part of, a residential complex.