Yes, it can happen. If 90% or more of a home's interior is removed or replaced, essentially a full gut job, the CRA can treat it as a newly built home, and the sale can be subject to 5% GST, just like a brand new house. It mainly catches people who renovate to sell, like flippers and investors. Keep detailed records, and talk to your accountant before you start, not after.
Most people assume resale homes are automatically exempt from GST. Usually they are. But there's a line, and once you cross it, they're not.
The 90% rule
If you renovate 90% or more of a home's interior, essentially a full gut job, the CRA can treat it as a "substantially renovated" home, which for tax purposes is the same as a newly built one. That means when it's sold, the entire sale price can be subject to the 5% GST, much the same way a brand new house is.
Who this usually affects
This mainly catches people who buy, gut and resell: flippers, investors and small builders. If you live in the home as your own primary residence, an exemption may apply. The rules have a lot of detail, so this is a conversation for your accountant, not a blog post.
Where people get burned
If the CRA later disagrees with how much of the home you say was replaced, you'll need a paper trail to prove it:
- Building permits
- Contractor invoices and receipts
- Date-stamped photos, before and during the work
- A clear record of what was actually removed and replaced
No records means no defence.
The takeaway
Talk to your accountant before you start swinging the sledgehammer, not after. And if you're planning a renovation with a sale in mind, I'm happy to talk through what buyers will actually pay for. Thinking about a flip? Read the two flipping taxes you need to know about first.
General information only, not tax advice. Tax rules and exemptions are complex and can change; get advice from a qualified accountant about your situation.