SUBSTANTIALLY RENOVATED HOMES
In the Lower Mainland, it is common for older homes to be completely renovated so as to bring all of the conveniences of a modern home into a house in a desirable location. However, some of these homes qualify as “substantially renovated” homes under the Canada Revenue Agency’s interpretation, and therefore bring with them the same tax treatment as new houses.
One of the ways that a substantially renovated property is treated as a new residence is in the context of GST. “Substantial Renovation” for the purposes of GST is fully defined in section 123(1) of the Excise Tax Act (Canada). According to CRA Bulletin B-092, the definition of substantial renovation is, “at least 90% of the existing building must be removed or replaced with the exception of the foundation, external walls, interior supporting walls, floors, roof and staircases (referred to as the excluded elements).”
If it is the case that a property falls under the definition of a substantially renovated property, a purchaser will be required to pay GST when buying the property, and a seller will be required to remit that GST to the government. It is therefore important that both parties determine whether or not the home meets the definition of a substantially renovated property!
If, as a purchaser, you are buying a home that has been renovated from a builder or an individual who is “flipping” the home, it would be advisable to get a GST certificate from the seller, stating that the property is GST exempt. You may also wish to get an indemnity, stating that the seller will pay the GST if it is determined that it is payable. If GST is payable, you may qualify for a GST rebate. As a seller, it is important that you are able to confidently determine that GST is not payable before signing any such documents!
Substantially reconstructed homes under the HPA
Another dimension of buying or selling a renovated home is the Homeowner Protection Act (HPA). The HPA protects consumers by requiring standards of construction for new homes, as well as imposing requirement for warranties. However, it should be noted that under the section 1 of the HPA, the definition of a “new home” includes “a home that is or is being substantially reconstructed”.
Although each case has different circumstances, the Homeowner Protection Office has stated on their website in that “a home that has been changed so that 25% or less of the original structure above foundation remains, or 75% or more of the reconstructed home is new, is deemed to be substantially reconstructed and thus, a new home for the purposes of the Act”.
If you are selling or purchasing home that falls under this definition, it should be ensured that the requirements of the HPA are met. For example, although renovations do normally require a HPO New Home Registration Form, the seller must provide proof that they have arranged for home warranty insurance or that an exemption (such as an Owner Builder Authorization) has been obtained.
If you are unsure about whether a home may be considered a new home under the HPA, you may email the Homeowner Protection Office at firstname.lastname@example.org for a determination. The Homeowner Protection Office website sets out the information to include in your email.
If you require assistance regarding a substantially renovated property or any real estate transaction, please contact Ian Burroughs.