As we have blogged about here and here, the CRA is after a whole swath of residential homeowners who are finding themselves being taxed on the sale of their new or used residential properties, after substantially renovating them.

A recent decision of the Tax Court of Canada (“TCC”) in Bryan v. The King, 2024 TCC 108 highlights the problems that homeowners face when going into these ventures with possible “dual motivations”. 

Background

The Excise Tax Act (“ETA”) includes some very complicated provisions aimed at turning a home purchaser who renovates and sells real property into a “builder”, liable to collect tax on the newly renovated property as if it was “new housing”.  The provisions are intricate, nested and complicated, but can in the right situation, actually make home renovators liable to charge and collect GST/HST on the full selling price of the property.  As most properties will be sold on an “exempt” basis under standard form Real Estate contracts, this really leaves the home renovator liable for the GST/HST on a “tax-included” basis.

And CRA has caught on to this, assessing many Canadians on this very issue!

Bryan v. The King

Bryan v. The King involved a home buyer (the “Appellant”) who purchased a home with the intention of living there with his wife and their children after some substantial renovations, but who ultimately reconsidered and decided to sell (apparently his wife had lost her job and things changed).  Problematically, the Appellant appears to have given inconsistent evidence as to when his furniture was moved into the house, as well as other illogical testimony.

The TCC considered the matter as well as the complicated rules noted-above, and ultimately confirmed that the Appellant was liable to collect GST/HST on the sale of his home – noting its view that the Appellant really had “dual operating motivations” when constructing the house (namely the possibility of living in it and treating it as a profit opportunity).

Takeaways  

The Bryan case adds to the developing jurisprudence in this area, affecting residential homeowners and renovators being caught up in CRA Audits in this area.

Only in instances where individuals have been able to show compelling reasons for the sales of their houses, has the TCC been willing to find the absence of the motivation of an adventure in the nature of trade.

Canadians being contacted by CRA for audit on these issues, or receiving Notices of Assessment, really need professional advice.

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