Everyone’s a “Builder”, but what does that mean in terms of HST?
For purposes below referring to a “house” includes a condo as well. Did you know that CRA will consider you a “Builder” if:
1) You are an individual or corporation;
- And you own or co-own with others a house or piece of land without the primary or secondary intention to live in it;
- And you on your own or together with others contribute monies OR materials OR land OR services OR any combination thereof to the building or substantial renovation of a house;
2) OR You are an individual or corporation;
- And you enter into an agreement of purchase and sale to purchase a house while it is under construction and before it can be legally occupied without the primary or secondary intention to live in it; (in this case legally occupied will include circumstances where condos although not yet registered have not yet reached occupancy)
So long as there is no evidence to support an unforeseen event as a reason for selling, or evidence to support a contrary primary intention to live in the house, the intention to not live in it is evidenced by any notion extrapolated from:
1) The fact that you may have obtained construction financing, which is usually based on the premise that your sequential draws are based on the increasing value of the house as you build it out; or
2) Your personal sources of identification or documents such as a driver’s license, health card, school records, cell phone bill do not list the address of the house; or
3) Constructively, based on your personal circumstances and activities, one can infer that the house is not your primary and principle place of residence. Such circumstances or activities include:
- You purchase more than one house or piece of land in the same time period (does not have to be in the same year, CRA looks to see if it is during the same time while you are building or selling a completed house); or
- The nature of your financing arrangements are short-term and usually open, indicative of someone who intends to sell as soon as possible while being pro-active in ensuring that there would be no pre-payment penalties because selling is almost for certain; or
- You live in the house for a short period of time and sell the house for profit or while you are living in the house you take steps to attract buyers (this will be considered more likely if you have done this before); or
- The house is not treated as your principle residence for income tax purposes. Or
4) You assign/sell or try assigning/selling the contract to purchase the house while it is still under construction and before occupancy; or
5) You sell or try selling the house or rent it out.
As a Builder, you may be considered to have made a HST taxable self-supply of a house. This means you would have been DEEMED to have sold and repurchased the house at the time that is the later of the completion of the construction or substantial renovation of the house or for which it can be legally occupied. As a Builder defined above you are liable for this deeming provision, even if you did not sell the house yet, or you in fact rented it out. Therefore, you are considered to have paid and collected the HST on the fair market value of the house at that time and thus must remit that amount to CRA. Obviously, if you are an HST registrant (you have a HST number) you can reduce the remittance amount by applying your Input Tax Credits (ITCs) that you paid during the course of the construction, and to purchase the land or house, or that you have accrued from other sources, so long as they belong to you. However, if you are not in the business of selling houses, you are not required to be an HST registrant for this purpose even though you constructively are a Builder as defined above. To complete this remittance you must fill out the Form GST62 (GST/HST non-personalized return) before the end of the month that follows the month in which the self-supply was triggered. The GST/HST New Housing Rebate apply as well, but a separate form/application is necessary.
The one exception to the self-supply rule is when the Builder is an individual, not a corporation, and a relation of the Builder uses the house as its primary and principle place of residence. This cannot be temporary, and nor can there be any indicators that the relation’s residency in the house is going to be short so that it can be sold soon. Also, as of the time the house was substantially complete, the primary intention of the Builder must have been so that its relation can use it. This means, that the Builder could not have tried to sell the house once it was completed before its relation moved in. Finally, the Builder cannot have claimed any Input Tax Credits (ITCs) for the HST paid during the course of the construction and to purchase the land or house.
The lawyers at Levy Zavet PC are quite versed in Real Estate Closings, Real Estate Financing Arrangements and Real Estate Tax Law, not to mention Construction Law and the like. Contact the lawyers at Levy Zavet PC for all your construction and real estate needs.