Am I a “Builder”?

The term “builder” has a specific meaning under the Excise Tax Act (Canada) (ETA). It is defined in subsection 123(1) of the ETA and generally refers to a person engaged in the construction or substantial renovation of real property for sale or lease.

Who Will Be Considered a “Builder” Under the ETA?

According to subsection 123(1) of the ETA, a “builder” includes:

A. A Person Who Builds or Substantially Renovates Housing for Sale or Lease.

• Includes individuals, corporations, and partnerships that construct or substantially renovate residential or commercial buildings.
• Applies to new homes, condos, rental buildings, and commercial properties.
• Includes subcontractors or developers who build on behalf of others but hold an interest in the property.

B. A Person Who Buys a New or Substantially Renovated Home Before Anyone Has Lived in It

• If a person buys a new or substantially renovated home before it is occupied and intends to sell or lease it, they will considered a builder by the CRA
• This applies even if the buyer did not do the actual construction.

Relevant Legal Framework on “Builders”

The Tax Court of Canada (TCC) in Swift v. R, 2020 TCC 115 (“Swift”) provides a helpful summary of the relevant law on “builders”:

By way of general overview, if an individual who is not a builder (as defined in subsection 123(1) of the ETA) builds a house for personal use (i.e., not in the course of a business or an adventure in the nature of trade), no GST is exigible. If a builder builds a house for sale to a buyer, the builder is required to collect GST from the buyer in respect of the consideration paid by the buyer for the house. If the builder is an individual and if the builder occupies the house before selling it to a buyer, the self-supply rule in subsection 191(1) of the ETA may require the builder to self-assess and pay GST/HST in respect of the fair market value of the house. However, if the builder builds the house and uses it primarily as a place of residence for himself or herself, and not primarily for some other purpose, the personal-use exception in subsection 191(5) of the ETA precludes the application of the self-supply rule.

As such, the relevant Excise Tax Act (ETA) framework is as follows:

1. If a taxpayer is not a “builder” as defined in subsection 123(1) and builds a house for personal use (or not in the course of a business or an adventure in the nature of trade), then no GST/HST is exigible
2. If a taxpayer is a “builder”, they are required to collect GST/HST from the buyer;
3. If a taxpayer is a “builder” and occupied the house before selling, the self-supply rule in subsection 191(1) may require the taxpayer to self-assess and pay GST/HST;
4. However, if the “builder” constructs the house and uses it primarily as a place of residence for themselves, and not primarily for some other purpose, the personal-use exception in subsection 191(5) prevents the application of the self-supply rule.

Arguments Against the Minister’s Determination That The Client Is A “Builder”

If the CRA determines that the taxpayer is a a “builder”, the two most common arguments that taxpayer can make are as follows:

1. The taxpayer is not a builder as defined by section 123(1), and the supply of a sale of a residential complex made by a person who is not a builder is an exempt supply under Schedule V, Part I, section 2 of the ETA.
2. Even if the client were a builder, he or she is exempt from the self-supply rule under the personal-use exception in section 191(5) of the ETA. Audit.