CRA Builder Audits: GST/HST on the Sale of a New or Renovated Home
Have you received a CRA builder audit letter after selling a home you built or renovated? The CRA may allege you’re a “builder” under the Excise Tax Act and that you owe GST/HST on the sale, even if you lived in the property or weren’t operating a business.
In recent years, CRA builder audits have surged, targeting homeowners who construct or substantially renovate homes and then sell. These audits often result in reassessments for hundreds of thousands in tax, penalties, and interest.
At the centre of these disputes is whether you’re considered a builder under the Excise Tax Act, and whether any GST/HST exemptions apply.
A Toronto tax lawyer can help you respond effectively if you’ve been assessed for GST/HST on a home you intended as a personal residence.
What the CRA Looks For
In most real estate audits, the CRA takes one of two positions:
- You were a builder and should have charged GST/HST on the sale; or
- You were a builder and should have self-assessed GST/HST when you moved into the property.
Either way, the CRA usually denies any exemption under Schedule V of the Excise Tax Act.
Step 1: Are You a “Builder”?
The term “builder” is defined under the Excise Tax Act but has been expanded through case law. You may be considered a builder if you:
- Built or substantially renovated the home;
- Completed multiple builds in a short time; or
- Listed the property for sale before or soon after moving in.
Even without an intent to flip, the CRA may argue that you engaged in a business arguing GST/HST applies.
Step 2: Do You Qualify for an Exemption?
Section 2 Exemption – Sales by Non-Builders
You may be exempt from GST/HST if:
- You did not build or substantially renovate the home;
- You did not claim input tax credits (ITCs);
- You used the property as your residence; and
- You are not registered for GST/HST.
Basically, if you don’t meet the definition of builder, GST/HST does not apply. However, if the CRA deems you a builder, this exemption is denied.
Section 3 Exemption – Builders Who Lived in the Home
Even builders may be exempt if:
- The home was their primary residence;
- It wasn’t used for other purposes; and
- No ITCs were claimed.
This often applies to individuals who lived in the property before selling.
Subsection 191(1): Self-Supply Rule
If you’re a builder who moved into the home, CRA may require you to self-assess GST/HST on the fair market value (FMV) at occupancy.
If this occurs, you may be able to lower the potential assessment by arguing with CRA about the FMV of the home.
Section 191(5) – Personal Use Exemption
You may avoid self-assessment if:
- You’re an individual (not a corporation);
- You used the home as a personal residence;
- You did not claim ITCs; and
- The home wasn’t primarily used for other purposes.
This is a factual test, and courts focus on actual use where CRA looks to your intention. A Toronto tax lawyer can help build the strongest possible case by organizing your supporting evidence and applying the latest case law.
How to Defend a CRA Builder Audit
If the CRA claims you built the property for resale, you can defend your position by:
- Proving you used the property as a residence (e.g., license, bills, insurance);
- Showing you did not claim ITCs;
- Citing the appropriate exemption (Section 2, Section 3, or 191(5)); and
- Referring to case law that supports your position.
You may also lower the potential assessment by securing a rebate for the GST/HST you paid.
Kirshen Tax Law Can Help
Based in Toronto, Kirshen Tax Law helps clients across Ontario and Canada respond to CRA builder audits, file objections, dispute reassessments and litigate GST/HST issues before the Tax Court of Canada.
Contact us today for a free consultation with an experienced Toronto tax lawyer if you’re facing a CRA builder audit or reassessment for GST/HST on a property sale.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.