Background
2520356 Ontario Corp. bought a Toronto residential property in October 2018 intending to renovate and resell it. The corporation hired a general contractor to demolish the interior and rebuild the property, but the contractor abandoned the project after completing most of the demolition and almost none of the reconstruction. The corporation sold the gutted, uninhabitable property “as is” in September 2020 at a substantial loss.
The Minister reassessed the corporation for HST on the sale, treating it as a “builder” that had engaged another person to carry on a substantial renovation. The corporation argued that demolition without reconstruction did not amount to substantial renovation and that its sale of the used residential complex was therefore exempt. It acknowledged that $891.59 in input tax credits claimed for 2020 architectural fees had been claimed in error.
The Court’s Holding
The Tax Court allowed the appeal, holding that the corporation was not a builder when it sold the property. A renovation entails both demolition and reconstruction; gutting a building without undertaking any meaningful rebuilding does not, by itself, constitute a renovation or substantial renovation under subsection 123(1) of the Excise Tax Act. Although the corporation originally intended to renovate and resell the property, the contractor’s abandonment prevented that plan from progressing beyond demolition.
Because the corporation had not carried on a substantial renovation, its sale of the used residential complex was exempt and it was not required to collect or remit the assessed $126,100 in HST. The Court nevertheless disallowed the $891.59 in input tax credits, finding that they had been claimed inadvertently. It referred the assessment back for reconsideration and reassessment and awarded the corporation fixed costs of $300.
Key Takeaways
- An intention to substantially renovate a residential property does not alone make its owner a “builder” for GST/HST purposes.
- Demolition or gutting without meaningful reconstruction does not constitute a substantial renovation.
- An inadvertent input tax credit claim did not establish continuing builder status, although the improperly claimed credit remained disallowed.
Why It Matters
The decision addresses an unusual situation not resolved by the authorities cited to the Court: a one-off renovation-and-resale project that irreversibly failed after demolition but before rebuilding. It confirms that builder status and the tax treatment of a sale depend on what actually occurred, not merely on the owner’s original commercial plan.
The ruling also cautions taxpayers that input tax credit claims can affect the analysis of a residential sale. On these facts, the small architectural-fee claim did not change the property’s exempt status because the evidence established that it was an isolated accounting error.