Canadian Builder GST/HST and Audit FAQ
Canadian Builder GST/HST and Audit FAQ
This comprehensive FAQ addresses common questions about “builder” audits by the CRA and the GST/HST obligations of Canadian home builders. It covers topics from who is considered a “builder”, to when GST/HST applies on home sales, to what rebates are available, and how to handle a CRA audit.
Table of Contents
Builder Definition and Registration
What is a “builder” for GST/HST purposes?
Under the Excise Tax Act (Canada), a builder is anyone engaged in constructing or substantially renovating real property for sale or lease. This broad definition can include even small one-time projects, not just professional developers.
Does a one-time house sale or flip make me a builder?
Potentially, yes. If you build or renovate a home with the intention to sell (even one time), the CRA could consider you a “builder” for GST/HST purposes.
Do builders need to register for GST/HST?
Generally, yes. If you’re in the business of selling new homes, you must register and charge GST/HST.
I built a home for myself to live in – do I owe any GST/HST?
If you built the home for personal use (not as a business), no GST/HST is payable. You’re not considered a “builder” in that scenario, so living in your own new home doesn’t trigger tax.
GST/HST on New Home Sales and Construction
Must I charge GST/HST when selling a newly built home?
Yes. If you’re a builder selling a new (or substantially renovated) home, you must add GST/HST to the sale price and remit it to the CRA.
Do I charge GST/HST when I sell a major renovation project?
If the renovation is substantial, the sale is treated as a new home sale and is taxable. Minor renovations that don’t meet that threshold are not subject to GST/HST.
What counts as a “substantial renovation” for GST/HST purposes?
Generally, a renovation is substantial if about 90% or more of the existing interior is removed or replaced. Such a house is considered “new” for HST purposes.
What is the GST/HST self-supply rule for builders?
If a builder keeps or uses a new home instead of selling it, they must self-assess (pay) GST/HST on the home’s fair market value. Essentially, the builder is treated as both the seller and buyer of the home.
If I live in a new build and then sell it, is HST still due?
Usually, yes. A builder who occupies a new house before selling must still pay HST via the self-supply rule. Only a genuine long-term primary residence use (not a short flip) might avoid the tax.
If I rent out a new house I built, do I have to pay HST?
Yes. When a builder first rents out a new home, they are deemed to have sold it to themselves at fair market value and must pay GST/HST on that value.
Do I charge HST when selling a new home to a GST/HST-registered buyer (e.g. a company)?
Not in certain cases. If the buyer is a GST/HST-registered business (and not an individual end-user), they can self-assess the tax instead of you charging it.
Can builders recover GST/HST paid on construction costs?
Yes. If registered for GST/HST, builders can claim input tax credits (ITCs) for the GST/HST paid on building materials, contractor services, etc. These credits offset the tax you owe.
CRA “Builder” Audits and Compliance
What triggers a CRA “builder” audit?
Red flags include selling a newly built or substantially renovated home shortly after completion, living in a new build only briefly before selling (quick flip), repeatedly flipping houses, or frequently listing new builds for sale.
How will I know if the CRA is auditing me as a builder?
The CRA will send you a notice or letter stating that they consider you a “builder” and may owe HST on a sale. The letter typically requests documents for review.
What does a CRA builder audit involve?
The auditor will review your records (e.g. building permits, purchase/sale agreements, construction invoices, mortgage documents, proof of occupancy) to determine if you correctly charged and remitted GST/HST.
What happens if I didn’t charge HST on a taxable house sale?
The CRA will assess the uncollected GST/HST and require you to pay it, plus interest and possibly penalties. Essentially, you’ll owe the tax you should have charged, with charges added on top.
What penalties can I face for unreported builder HST?
You’ll owe interest on late GST/HST and may face penalties. If CRA finds gross negligence (willful neglect), they can levy a significant penalty (up to 25% of the unpaid tax) in addition to the tax owed.
Is the CRA cracking down on house flippers and unreported sales?
Yes. The CRA has a major real estate audit initiative. House flippers are at high risk of audit.
How can I reduce my chances of a “builder” audit?
The best way is full compliance. Charge and remit HST on any new home sales, and keep thorough records. If everything is above-board, you’re less likely to be targeted.
What should I do if I get a CRA builder audit letter?
Respond promptly and completely. Gather and submit the requested documents. It’s wise to consult a tax professional before replying, to ensure you provide proper context. Cooperate fully, but be accurate and careful in your responses.
Can I dispute the CRA’s determination that I’m a “builder”?
Yes. You can file a formal objection to challenge a builder assessment. Common arguments are that you were not actually a “builder” as defined (so the sale was exempt), or that even if you were, you qualify for a personal-use exception. Professional advice is recommended.
How does the CRA decide if a home sale was personal or business?
They look at factors like your intention (to sell for profit or not), how long you owned the property, your history of similar sales, improvements made, and your occupation. These factors indicate whether it was a business venture (builder) or a personal sale.
Do house flippers get audited often by the CRA?
Yes. Frequent real estate sellers are very likely to be audited. The CRA actively analyzes property sales records to identify flips. If you repeatedly buy and sell homes in short periods, expect scrutiny.
Other Common Questions
I sold a newly built house without charging HST, not realizing I should have – what now?
Consider a Voluntary Disclosure to the CRA before they contact you. Through the CRA’s Voluntary Disclosures Program, you can report the sale and pay the HST (plus interest) owed, and the CRA may waive penalties.
If I live in a house for a short time and claim it as my residence, can I avoid HST on the sale?
Likely, no. A brief occupancy will not likely exempt a flip from HST if your main intent was to sell for profit. However, the context of your individual case is important.
Can the CRA go back and assess me for flips I did in the past?
Yes. If you didn’t report GST/HST on past house flips or builder sales, the CRA can reassess those transactions once they discover them – potentially even beyond the normal 4-year period. We have seen cases where the CRA audits more than 10 years back.
How can I appeal a builder-related HST assessment if I disagree?
You can file a Notice of Objection within 90 days of the assessment, explaining why you believe it’s wrong. If the CRA doesn’t reverse it, you can appeal to the Tax Court of Canada. It’s best to get a tax lawyer’s help for such appeals.
How can a tax lawyer help with builder audits or GST/HST issues?
A tax lawyer can guide you through the audit or appeal process, ensure your case is presented properly, and negotiate with CRA on your behalf. They help identify any applicable exemptions or defenses and handle the technicalities.
How do I get help from Taxpayer Law with my builder issue?
Just contact us to schedule a consultation. Our experienced tax lawyers (in Toronto, Ottawa, and serving all of Canada) can assist with CRA builder audits, GST/HST assessments, and appeals. We’re here to help resolve your tax issues.