Q - There seems to be some confusion about how GST applies to residential properties that are bought and resold (flipped). I believe GST does not apply to used residential property unless it is renovated substantially (90 %+).
I am not clear if it applies to properties that are purchased, not lived in, undergo superficial renovation (such as kitchen and bathroom make-overs), and then sold for a profit.
Does it make a difference if this is done as a one time venture or done multiple times as a business?
A - As always, one starts with the premise of the legislation. Namely GST is applicable to all sales of real estate unless exempt. The principal exemption is personal use property. This means in general real estate used for residential purposes only and not business purposes. Flipping property on a regular basis could well be construed by CRA as a "business use" and therefore subject to GST. Flipping a house once would probably not though if the seller specifically set out with a business plan with that in mind it could.
To avoid difficult situations we recommend buyers put in a clause stating:
“GST is not applicable and if later deemed to be applicable will be deemed included.”
If this is not done and the seller determines GST to be applicable they can charge the buyer GST on the completion date.
If you have any questions please feel free to contact us directly.
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