Words and Phrases - "substantial renovation"
Erickson v. The Queen, docket 1999-5065-GST-I (Informal Procedure)
The owner renovated his home such that its square footage was doubled, and a garage and second floor were added. He conceded that he had not substantially renovated the existing premises. In confirming the Minister’s denial of the GST new housing rebate referred to in s. 256(2) (which was made on the basis that owner did not construct a residential complex as defined in s. 123(1)), Hershfield J. found (at para. 15) that the renovations did not qualify as the construction of a new home given that the existing premise were not “essentially reduced to a relatively minor aspect of that new premises.” He went on to state (at paras. 16):
Adding a double garage and doubling your living space in a home does not constitute anything more than a significant renovation. The Act does not permit a rebate on a renovation, significant or otherwise, unless virtually all of the existing premises is gutted.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 256 - Subsection 256(2) - Paragraph 256(2)(a) | renovations merely doubled the floor area and were not so substantial is to constitute the construction of a home for s. 256(2)(a) purposes | 218 |
GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate, January 2005
Recap of s. 123(1) definition
In other words, a substantial renovation is considered to have taken place where all or substantially all of the interior of a building, with the exception of certain structural components (the foundation, external walls, interior supporting walls, roof, floors and staircases), has been removed or replaced.
“Substantially all” of building
Generally, all or substantially all is interpreted as meaning 90% or more. To meet this requirement, at least 90% of the building that existed before the renovations began must be renovated to some minimum degree. This determination applies to the interior area of the building.
Flexible method for measuring substantially all
Any fair and reasonable method is acceptable for determining whether all or substantially all of a building has been renovated.it is the “building that existed immediately before the renovation or alteration was begun” that must be substantially renovated. This means that additions to the existing building are generally not taken into account in determining whether there is substantial renovation.
Excluded elements
According to this definition, at least 90% of the existing building must be removed or replaced with the exception of the foundation, external walls, interior supporting walls, floors, roof and staircases (referred to as the excluded elements).
Although the excluded elements may be ignored in determining whether there is a substantial renovation, under some circumstances removing or replacing excluded elements may be taken into account in determining that a substantial renovation has taken place. For example, it is not necessary to replace the floors since the floors are an excluded element. However, if the floors are replaced, this may be taken into account in determining that a building has been substantially renovated.
2437299 Ontario Inc. v. The King, 2023 TCC 165
Russell J found that the appellant had not substantially renovated two Ontario properties, so that their sale was not made by the appellant as a “builder” and were not subject to HST under Sched. V, Pt. I, s. 2.
One property, the “Craven Road” property, was a basic bungalow with an unfinished basement. There was an extension at the back of the house containing a family room, the kitchen was moved, a plaster wall replaced with drywall, a bedroom was taken out and the main floor hardwood was covered with laminated wood. A whole second storey was added (along with internal staircase) and rooms were added to the basement (and the new rear space was storage space). In determining whether there was substantial renovation of the Craven Road property and of the second property (the “Fourth Street” property) both parties accepted the use of the second of the three methods referred to in GST/HST Technical Information Bulletin B-092 for measuring whether a renovation had been “substantial” (with 90% appearing in B-092 as the minimum percentage for a property to be considered as having been “substantially renovated”). That method was comparing the total area of renovated floor and wall spaces to the building’s total area of floor and wall spaces.
In applying this method, Russell J accepted (at para. 31) that:
“[F]looring” in the definition must mean “sub-flooring” as distinguished from whatever flooring was installed covering over the sub-flooring. … Putting down a new carpet, or new laminate wood flooring … [is not] sufficiently significant to contribute to whether a building might be said to have been “gutted.”
He went on to find that the renovations did not result in the “gutting” of the building, so that it was not substantially renovated.
The Fourth Street property was a two-storey building before and after the work, which entailed putting laminated flooring in the basement, moving the stairs, removing a partition on the main floor and the addition of three bedrooms on the second storey. Russell J found that given that some rooms were largely untouched, the 90% threshold under the chosen methodology (the second method) had not been exceeded.
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).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Residential Condominium Unit | residential condominium unit constituted once there is an intention to have a particular bounded space become a condominium unit | 199 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Builder - Paragraph (a) | meaning of “construction” and “substantial renovation” | 149 |
Whittall v. The Queen, 2017 TCC 212 (Informal Procedure)
The taxpayer appealed a decision of the Minister to reject his claim for a GST new housing rebate on the basis that the building “looked like new”, the CRA’s analysis was flawed, and that drywall should be excluded from consideration. The appellant renovated a one-level ranch style house over 4 and one-half years. The renovated building had new external windows and doors, and the kitchen, dining area and living room had walls removed to create a great-room, with new drywall, flooring, electrical, and kitchen cabinetry. The completely renovated space comprised just under half of the liveable floor space (excluding garage). The remaining rooms had their drywall repaired and painted and fixtures replaced, but did not have most of their drywall replaced.
In finding that the renovation work did not rise to the level of “substantial renovation,” so that the Minister correctly denied the new housing rebate, Bocock J first quoted (at para 8) the statements in B-092 that “In a major renovation project, the interior of a building is essentially gutted" and "Generally, all interior walls (e.g., drywall) throughout the subject area (at least 90% of the building) would have to be removed or replaced,” and then stated (at para 18, 20):
The test is not the appearance of the building after renovation. The test is whether … may one say that the building was renovated sufficiently enough that all or substantially all of the building has been removed or replaced: Camiré v. HMQ, 2008 TCC 82 at paragraph 11.
Even when applying the test in Lair [2003 TCC 929], widely viewed as the most favourable to the granting of rebates, the renovations carried out by Mr. and Mrs. Whittall do not match up. At best, only half the rooms were substantially renovated. Most walls, unless torn down permanently or newly constructed, were “re-smoothed” and not removed, largely due to disposal costs, but nonetheless suggesting replacement was not a necessity.
In rejecting a submission that the failure to remove much of the drywall should not be counted against the appellant because “drywall is integral to ‘interior supporting walls’ or ‘external walls’,” he stated (at para. 23):
[T]he primary purpose of gypsum wallboard is to provide a flat, stable and smooth surface for decoration. Panelling, ceiling tile and tile board are not different. Whatever load bearing strength or fire retardation qualities they contain are collateral to their main purpose.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 256 - Subsection 256(2) - Paragraph 256(2)(a) | renovated house did not qualify as being substantially gutted | 76 |