Substantial renovations, conversions, and major additions

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Substantial renovations, conversions, and major additions

Sales of substantially renovated housing, buildings converted from commercial to residential use, or houses with a major addition are treated in the same way as sales of new housing for GST/HST purposes. Generally, the GST/HST applies to the selling price of new housing.

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Substantial renovation

Major changes have to be made to meet the definition of a substantial renovation. In a major renovation project, the interior of a building is essentially gutted. Generally, 90% or more of the interior of the existing housing has to be removed or replaced to qualify as a substantial renovation (90% test).

You do not have to remove or replace the foundation, exterior and interior supporting walls, roof, floors, and staircases to meet the 90% test.

Only livable areas count towards a substantial renovation including finished basements and finished attics. Livable areas do not include garages or crawl spaces. Work done to partially complete a basement but not make it a livable basement does not count toward the 90% test.

Major addition

To be considered a major addition, the work must be so great that the result is viewed as a newly built house. The addition, by itself, would not be considered to result in a newly built house. Significant physical and functional changes also have to be made to the existing house so that the resulting structure would be seen as a newly constructed house.

The addition should at least double the size of the livable areas of your existing house, which is absorbed into the new one. An example would be making significant structural changes to the appearance and layout of an existing bungalow and adding a full second story.

Conversion

When you convert a property from non-residential use into housing, it is considered a substantial renovation, even if the extent of the work, if any, does not meet the requirements for substantial renovation.

An example of a conversion is a building that was used in your business that you move into and begin to use as your primary place of residence.

When you begin to use the building as your residence, you are considered to have sold and repurchased the property and you have to pay the GST/HST to us, calculated on the fair market value of the property.

Substantial renovations by homeowners

Major changes have to be made to be considered a substantial renovation (see above). We do not consider renovations or improvements made by homeowners, such as replacing a kitchen, to be substantial renovations.

You may qualify for the GST/HST new housing rebate when you:

  • substantially renovate or hire someone to substantially renovate your home;
  • build, or hire someone else to build, a major addition to your home as part of a substantial renovation; or
  • convert a property from non-residential use into your home.

For more information about the rebate, see Guide RC4028, GST/HST New Housing Rebate.

If your renovation does not qualify as a substantial renovation, you do not qualify for a new housing rebate.

Builders who sell substantially renovated housing

Generally, the GST/HST applies to the sale of this housing. When you sell substantially renovated housing, the purchaser is eligible to apply for a GST/HST new housing rebate, if all of the conditions for claiming the rebate are met.

Example

You are a GST/HST-registered builder in the renovation business and you buy an older house (generally, the GST/HST does not apply to the sale of previously occupied houses). You completely gut and replace the interior with new walls, ceilings, floors, kitchen, wiring, and plumbing. When you sell this substantially renovated house, you will charge the buyer the GST/HST. Since you are registered for GST/HST, you can claim input tax credits (ITCs) to recover the GST/HST you paid on the goods and services you used in the substantial renovation.

Builders substantially renovating residential property to lease

If you are a builder, and you claimed ITCs for substantially renovated housing (such as a house, a residential condominium unit, or a multiple-unit residential complex), and you rent the property as a place of residence, you are considered to have sold and at once bought back (self-supplied) the housing.

You have to calculate and pay the GST/HST based on the fair market value of the housing at the later of:

You may qualify for a new residential property rebate. The rebate will go to the person who paid the GST/HST (for example, the landlord).

Builders substantially renovating residential property to occupy

If you are a builder, and you claimed ITCs for substantially renovated housing that you occupy as a place of residence, you are considered to have made a self-supply of the residential property. You have to calculate and pay the GST/HST based on the fair market value of the housing using the self-supply rules.

You may qualify for a new residential property rebate.

Forms and publications

Date modified:
2015-04-30