When a specialty tax practice like our own, focussed on GST/HST and other indirect taxes, sees a plethora of inquiries from homeowners being either assessed by the Canada Revenue Agency (“CRA”) on the sale of their homes, or threatened with such assessments, we know that something is up!

As we have previously written, the CRA continues targeting residential homeowners. Specifically, those who have sold their home in a short period of time after: (1) substantially renovating; or (2) commissioning the construction of a new home for their own use.

 Why is CRA Assessing?

Home renovations by individual homeowners are generally permitted for GST/HST and income tax purposes, with no real expected negative tax effect. Homeowners are expected to pay the applicable GST/HST on materials and labour, but generally are expected to take the benefit of those renovations without further GST/HST or income tax implications.

A major caveat is that renovations or new home commissioning can be done on a non-business or non-profit basis (i.e., what a tax practitioner might describe as for “personal” reasons, and not considered in the course of a business or in an “adventure or concern in the nature of a trade”). The latter concepts would connote an essential “profit motive” and would come with potential GST/HST and/or income tax implications.

CRA often interprets these rules based on a pattern of repeated activity (i.e., buying, renovating, moving in for a little while, and then selling and moving onto another similar project). Even those with a scant history of buying and selling will be caught in this assessment trap.

When the CRA develops the view that a business or trade motive is involved, it uses other GST/HST rules to treat the homeowner as a “builder” and assesses the home sale as a “taxable supply” (on which the “builder”/homeowner is required to charge and collect the applicable federal-provincial GST/HST (i.e., 13% in Ontario). This can even occur many years after the sale of the property (coming as a shock cash drain on the gains that the homeowners were initially expecting).

Recent Budget Changes

Unfortunately, these situations do not appear to be going away, with the recent 2024 Budget announcing a proposed boost to CRA’s funding. This allows the CRA to continue addressing tax non-compliance in real estate transactions, with the Trudeau government pledging $73.1 million over five years, plus potentially another $14.7 million annually thereafter.

Takeaway

When faced with a CRA inquiry or CRA assessments in this area, homeowners need to be vigilant and take a strong defensive position.

GST/HST assessments are subject to immediate collection and deemed to be valid, unless objected to and/or further appealed, which makes trying to avoid the assessment in the first place, the best initial strategy.

Well positioned legal representations can turn the CRA around either at the pre-assessment or Notice of Objection stage, and experienced legal advice cannot hurt!

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