Condo Builders Leasing Units Triggers HST Self-Supply

This article is not intended to provide any accounting or tax advice, but merely to illustrate to condo builders some serious consequences of leasing their inventory condo units (note that same applies to freehold subdivisions and the like).

The rule of thumb is that if “possession” is given for “occupancy” before or after registration of a condo development where the FIRST occupant is the purchaser or is not the purchaser, but a Tenant of either the purchaser or builder, and where it is occupied by the purchaser or the purchaser’s tenant, and the purchaser does not close and the unit is terminated before entering into a new purchase agreement (i.e. the builder takes back the unit) or the builder leased it out directly to a tenant, then its deemed a “self-supply”, and HST is assessed on the fair market value (FMV) of the unit at the earlier of the time the purchase agreement is terminated when the unit was already rented to a tenant by the former purchaser or the time the builder leased the unit directly to a tenant.  The next purchaser of that unit is purchasing a “resale” and HST should not apply.  One exception to the self-supply is if the builder is a individual and occupies the home itself and did not claim any input tax credits (ITCs) from the construction.  If a builder intends to lease their unsold condo units there will be a self-supply (deemed as if sold and repurchased at FMV), and where there is more than one unit in a complex, the self-supply would be triggered at the time the first unit is rented and therefore HST will be assessed on and for all the units intended for lease (even if those condo units were not rented yet). However, condominium complexes with many units, originally intended for sale, means its not certain which units will be rented or sold and if there is no separate component, condo corporation, condo plan or complex for just those condo units intended for lease,  the builder could argue that the self-supply happens individually as and when such condo units, which ever they end up being, are rented.

Now, the self-supply of HST assessed on the FMV of the residential units cannot be claimed as an ITC because residential leases that are long-term are exempt from HST.  However, even though builders cannot claim the HST New Housing Rebate for obvious reasons (they are not occupying as their primary residence), they may be able to claim the GST/HST New Rental Rebate for some of the GST or federal part of the HST if the FMV is less than $450k. If a builder qualifies for the GST/HST New Rental Rebate for the GST or federal part of the HST, the builder can then apply for the provincial part of the GST/HST New Rental Rebate in Ontario as well.  You can read CRA’s explanation here: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4231/gst-hst-new-residential-rental-property-rebate.html