Am I At Risk of Being Targeted For a “Builder” Audit?

An HST Builder Audit is a review conducted by the Canada Revenue Agency (CRA) to ensure that individuals or entities involved in building, renovating, or selling residential properties are properly reporting and remitting Harmonized Sales Tax (HST).

The CRA has specific programs and initiatives aimed at identifying “builders” as defined under the Excise Tax Act (ETA). In short, if you have constructed a new home or substantially renovated an existing one, you may be considered a “builder” under the ETA and could be liable for significant HST obligations.

Below is a breakdown of what might trigger an HST Builder Audit and what it entails:

1. What Triggers an HST Builder Audit?

• New Home Sales: Selling a new or substantially renovated home soon after construction or renovation.
  
• Quick Turnaround: Selling a newly built or renovated home after living in it for only a short period.
  
• Frequent Listings: Repeatedly listing newly built or renovated homes for sale.
  
• House Flipping: Regularly purchasing, renovating, and selling homes.

2. What Does the Audit Involve?

• Review of Documentation: The CRA will request some of the following documents:
  
  • Building permits.
    
  • Purchase and sale agreements.
    
  • Construction contracts and invoices.
    
  • Mortgage terms and loan agreements.
    
  • Proof of occupancy and use of the property.
    

3. The CRA Sent Me a Letter Stating That I Am a “Builder” And Must Pay HST, What Can I Do?

If you’ve been notified of an HST Builder Audit, ensure that you respond promptly and provide the CRA with the requested information. Proactive preparation can help minimize stress and ensure compliance.However, do not provide information to a CRA auditor without its essential context. Clearly presenting your case and ensuring compliance with the technical requirements of the Excise Tax Act (Canada) are crucial when responding to a CRA Builder Audit.