Section 195.1

On January 1, 2019, NewCo acquired a building with 30 residential rental units and one commercial unit (rented to a convenience store) and then, a year later, terminated the commercial unit lease, and hired a construction company to convert the unit into four residential units, with first occupancy in December 2020.

If such conversion of the commercial unit constituted a conversion to residential use per ETA s. 190, this would have resulted in there being deemed to be a self-supply of the converted property under s. 191 for its FMV with a correlative GST/HST remittance obligation. On the other hand, if s. 190 did not apply, then the change-in-use rule in s. 206(4) would merely trigger GST/HST equal to the converted property’s “basic tax content” (simplistically, the GST/HST, if any, that had been payable on the acquisition of the commercial unit, assuming no decline in FMV since then).

In finding that s. 190(1) would not apply, CRA noted that the s. 190(1) preamble requires that a person begins to hold or use real property as a residential complex – whereas here, the person (NewCo) held a single residential complex both before and after the transaction (merely expanding the size of its residential complex). Similarly, the requirement in s. 190(1)(b) that the person (NewCo) begin to hold or use real property as a residential complex was not satisfied.

Since NewCo thus is not considered to have constructed or substantially renovated the residential complex, it is not a “builder” under paras. (a) nor (b) of the definition - nor is it under (d)(ii) since the former part of the residential complex was previously occupied – so that s. 195.1(1) could not apply to prevent the application of the s. 206 rules.

Thus, the more favourable rule in s. 206(4) applied.