Do You Pay GST/HST When Building or Renovating a House?

When you buy new residential real estate—such as a newly built house or condominium—you will generally pay sales tax. Depending on where you live in Canada, this may be the federal goods and services tax (GST), the harmonized sales tax (HST), or a provincial sales tax (PST). In contrast, most resale homes are exempt from sales tax, although exceptions can apply, for example when a property was used for commercial purposes before the sale, including short-term rental operations.

Building a new home or carrying out a major renovation raises unique tax considerations that buyers, owners and renovators should understand. In some cases, rebates are available that can recover some or all of the sales tax paid on construction materials, labour or purchase prices.

Is it a substantial renovation?

The definition of a “substantial renovation” is central to sales tax treatment for residential properties. The Canada Revenue Agency (CRA) treats a building as substantially renovated when 90% or more of the area of the building that existed before work began has been renovated to some degree. The 90% test is based on interior area.

The CRA provides practical examples to illustrate what meets the substantial renovation threshold:

• In a 10-room house, eight rooms are completely gutted and rebuilt. In the remaining two rooms, the flooring in one is replaced and the flooring plus one wall are replaced in the other. Counting all wall and floor space changed, more than 90% of the interior area has been removed or replaced.
• In a 5,000-square-foot house, renovations leave one 250-square-foot room untouched and another 200-square-foot room altered in ways that do not meet the “removed or replaced” test. The remaining 4,550 square feet do meet the test, so the renovation is substantial.
• A renovation that replaces drywall throughout the house, installs new kitchen counters and cabinets and updates flooring in most rooms can qualify as a substantial renovation even if some existing flooring is left in place in limited areas.

It matters how you use the property

How you intend to use the property affects whether sales tax applies beyond the taxes paid for materials and labour. If you build or substantially renovate a home to use as your primary place of residence, sales tax implications are typically limited to those construction costs. However, if the project is undertaken with the purpose of making a profit, the CRA may regard the transaction as an “adventure or concern in the nature of trade.”

When the CRA determines the owner or renovator acted with a profit-making intention, they may be treated as a “builder” for GST/HST purposes. That treatment can mean the later sale of the property is subject to GST/HST, which must be remitted from the sale proceeds. Owners should be cautious about short-term occupancy followed by a sale—moving into a newly built or renovated home for only a brief period before selling can leave the owner vulnerable to CRA scrutiny, which may lead to sales tax and income tax consequences if the principal residence exemption does not apply.

It’s also important to note that buyers do not pay more for the property simply because the sale is subject to GST/HST. In most markets, a buyer will pay the market price for a comparable home; the seller is responsible for remitting any GST/HST that applies to the transaction out of those proceeds.

Available rebates

In a number of situations, GST/HST rebates can recover some or all of the sales tax you paid on building, substantially renovating, converting or buying a home. Common scenarios that may qualify for rebates include:

• Building or substantially renovating a house on land you already own or lease, for use as your primary place of residence—some of the sales tax paid on materials and labour may be recoverable.
• Converting a non‑residential property (for example, a commercial building) into your home—some of the sales tax on conversion costs may be recoverable.
• Buying a new home from a builder for use as your primary place of residence—some of the sales tax included in the purchase price may be recoverable.
• Building, substantially renovating, or buying housing to rent to tenants as long-term residential accommodation—some of the sales tax paid on construction or purchase costs may qualify for rebates.
• Qualifying first-time home buyers may be eligible for a rebate of the GST on homes valued up to $1.5 million under a rule introduced in May 2025.

Rebate rules are complex and often depend on the value of the home and the province or territory where the property is located. For example, an owner-built home in Ontario may not qualify for the federal portion of the HST rebate if the fair market value when the work is substantially complete exceeds $450,000. That same home, however, may qualify for a provincial portion rebate capped at specified amounts—up to $24,000 if HST was paid when the land was purchased, or up to $16,080 if HST was not paid on the land purchase. These thresholds and amounts are specific to certain jurisdictions and can change.

What to do if you are building or renovating a home

Because the GST/HST rules for new builds, substantial renovations and conversions are intricate, consult a tax professional or legal adviser before starting a major project. The Canada Revenue Agency has increased its audit focus on these types of transactions, and errors in classification or reporting can lead to significant reassessments, interest and penalties. Provincial or territorial rules can also affect eligibility for rebates and exemptions.

Seek professional advice early—ideally during planning or before signing contracts—so you can structure the project and document intentions in a way that supports your tax position and preserves any available rebates.

Read more about real estate:

• Where to find a home under $1 million in Canada
• Home appraisal vs. tax assessment: What every Canadian property owner needs to know
• Five smart strategies for renewing your mortgage
• The smart seller’s approach to reducing capital gains tax in Canada