My question is: Canadian-specific QUESTION: Hi David We are currently building a new house in Manitoba and was wondering about a GST rebate. We heard that we can apply for a GST rebate when building a new house. Have you ever heard of this before? If not, any ideas of whom we could forward our question. Thanks so much. The Zilli's ----------------------------------------------------------------- ---------- david ingram replies: There sure is a GST New Housing Rebate. Read the following which i clipped off the CRA site athttp://www.cra-arc.gc.ca/E/pub/gi/notice179/notice179-e.html In fact you can read it better at the site. ----------------------------------- What's new Media room Electronic mailing lists Electronic services Forms and publications Home Site map Forms and publications > GST/HST Notices > Forms and publications GST/HST NoticesNOTICE179 - Substantial Renovations and the GST/HST New Housing RebateOther formats GST/HST Notice 179FOR DISCUSSION PURPOSES ONLY Substantial Renovations and the GST/HST New Housing Rebate The purpose of this publication is to clarify the meaning of the expressions "substantial renovation" and "major addition" for purposes of the GST/HST new housing rebate. It is being released by the CCRA in draft form for comments. Comments should be sent by March 15, 2004 to: Director Financial Institutions and Real Property Division Excise and GST/HST Rulings Directorate 14th Floor, Place de Ville, Tower A Canada Customs and Revenue Agency 320 Queen Street Ottawa ON K1A 0L5 Telephone: (613) 952-9248 Fax: (613) 990-3602 E-mail: ivan.bastasic at ccra-adrc.gc.ca DRAFT FOR DISCUSSION PURPOSES ONLY Substantial Renovations and the GST/HST New Housing Rebate Table of Contents Introduction 1. Substantial renovation 1.1 General 1.2 Determining whether the building has been substantially renovated 1.3 Examples 2. Multiple Unit and Mixed-Use Buildings 2.1 Multiple Unit Buildings 2.2 Mixed-Use Buildings 2.3 Examples 3. Condominium Units 4. Guest and Granny Suites 4.1 Examples 5. Conversions 5.1 Examples 6. Major Additions 6.1 Examples 7. Time Frames and Extended Renovation Projects 7.1 Example Introduction This publication focuses on the meaning of "substantial renovation" and "major addition" as these terms relate to the eligibility of homeowners for the GST/HST new housing rebate. Even though the rebate is called the "new" housing rebate, individuals who substantially renovate their existing homes may be eligible for this rebate, in addition to individuals who construct new homes or purchase them from builders. The new housing rebate applies to the purchase, construction or substantial renovation of a residential complex. A "residential complex" is a building or part of a building that includes one or more residential units. Examples include a detached or semi-detached house, a multi-unit apartment building, or a residential condominium unit. A residential complex does not include a hotel or motel room, a boarding house, an inn or any similar premises if all or substantially all (90% or more) of the rentals are for fewer than sixty days. A residential complex that has been substantially renovated is generally afforded the same treatment for GST/HST purposes as a newly constructed residential complex, including eligibility for the new housing rebate. Accordingly, extensive modifications must be made to a house in order to meet the definition of substantial renovation. Where substantial renovations are concerned, it is the individual (the homeowner) that is eligible to claim the new housing rebate, whether that individual carries out the renovations him/herself, or hires someone else, such as a renovation contractor, to do the work. For further information on who qualifies for the new housing rebate, how to calculate the rebate amount, and how to apply for it, please refer to CCRA guide, GST/HST New Housing Rebate (RC4028). While this publication deals with homeowners who substantially renovate or add a major addition to their home, or convert a non-residential property into a personal residence, the meaning of the terms "substantial renovation" or "major addition" is also significant to others who are involved in house construction and renovation, such as builders and landlords. For further information concerning builders and landlords, please refer to Memorandum 19.2: Residential Real Property, 19.3: Real Property Rebates and the Guide GST/HST New Residential Rental Property Rebate (RC 4231). In this publication, we will first deal with the meaning of substantial renovation and how it relates to the new housing rebate. We will then examine how this concept applies to various types of residential complexes, how we view a building that is converted to a residential complex, and how to treat a major addition to a residential complex. The publication concludes with a discussion of the time limitations for new housing rebate claims. 1. Substantial renovation 1.1 General "Substantial renovation" is defined in subsection 123(1) of the Excise Tax Act as follows: "substantial renovation" of a residential complex means the renovation or alteration of a building to such an extent that all or substantially all of the building that existed immediately before the renovation or alteration was begun, other than the foundation, external walls, interior supporting walls, floors, roof and staircases, has been removed or replaced where, after completion of the renovation or alteration, the building is, or forms part of, a residential complex. In summary, a substantial renovation is generally considered to have taken place where all or substantially all of the interior of a building, with the exception of certain structural components (the foundation, external walls, interior supporting walls, roof, floors and staircases), has been removed or replaced. Only certain renovations are taken into account in determining whether a building has been substantially renovated. However, once this determination is made, certain other costs may be included in the rebate claim. In order to qualify for the rebate, such expenditures: (a) must relate to the renovation project that resulted in the substantial renovation of the building; and (b) must relate to an improvement to the building. An "improvement" to a residential complex is generally anything that is affixed to the land or the building. An improvement would include, for example, a door, shelving or an attached deck, but would not include furniture, freestanding appliances or throw rugs. 1.2 Determining whether the building has been substantially renovated The definition of substantial renovation sets out the following requirements to be met before a residential complex will be considered substantially renovated: (i) all or substantially all (ii) of the existing building (iii) must be removed or replaced. The definition also enumerates certain structural elements (foundation, external walls etc), which are not required to be removed or replaced. These are discussed under heading (iv) "excluded elements" below. While the requirements and methods discussed below apply to a typical house, we recognize that there may be structures that do not fit the mould of a typical house, so that some of the following guidelines may not apply. In such cases, we would accept any reasonable method of determining "all or substantially all" or of determining what must be removed or replaced in order to meet the definition of substantial renovation. (i) "all or substantially all" This requirement addresses how much of the building has to be renovated. The definition describes this as "all or substantially all of the building that existed immediately before the renovation or alteration was begun." Generally, "all or substantially all" is interpreted as meaning 90% or more. Accordingly, in order to meet this requirement, at least 90% of the building that existed before the renovations began must be renovated to some minimum degree. This determination applies to the interior area of the building. Any fair and reasonable method is acceptable for determining whether all or substantially all of the building has been renovated. The following are typical methods that may be used for this purpose: Square footage of floor space of the areas renovated compared to the total floor space of the building Suppose a house has 2000 square feet of floor space, and renovations took place in all areas except for one 200 square foot room. Since the renovated area of 1800 square feet is 90% of the total area, the "all or substantially all" requirement has been met. Square footage of floor and wall space of the areas renovated compared to the total floor and wall space of the building Suppose a house has 2000 square feet of floor space and 5000 square feet of interior wall space, for a total of 7000 square feet. Renovations took place throughout the building except for one room that has 300 square feet of floor space and 800 square feet of wall space for a total of 1100 square feet. Therefore, 5900 square feet (7000 - 1100), or 84% of the 7000 square foot house, was renovated. This does not meet the "all or substantially all" (90%) requirement. Number of rooms renovated compared to the total number of rooms in the building Suppose a house has 10 rooms, and nine of them are renovated. Since nine of the 10 rooms, or 90%, were renovated, the "all or substantially all" requirement has been met. The method used must be fair and reasonable in the circumstances. For example, if one room represented half the area of the building and it was not renovated, it would not be fair and reasonable to use number of rooms as a method. This does not mean that the rooms have to be the same size, but the size of any one room should not distort the result. Please note that neither the cost of the renovations nor the fair market value of the improvements made is an acceptable basis for determining whether the "all or substantially all" requirement is met. This requirement is based on the actual physical renovations to the building rather than the cost or value of such renovations. (ii) "of the existing building" As the definition stipulates, it is the "building that existed before the renovation or alteration was begun" that must be substantially renovated. This means that additions to the existing building are not taken into account in determining whether there is substantial renovation. Suppose that a 2000 square foot bungalow is being renovated, and part of the project is to add an attached 300 square foot bedroom. In determining whether all or substantially all of the building has been renovated, the addition is ignored. The test is whether 90% of the existing 2000 square foot bungalow has been renovated. However, if it is determined that the existing building has been substantially renovated, any tax related to the costs of the addition is eligible for the new housing rebate, assuming that the other requirements for the rebate are met. Only habitable areas of the building should be taken into account in determining whether the building has been substantially renovated. In addition to the main floor(s) living areas, habitable areas include finished basements and finished attics. A guest bedroom over a detached garage, as an appurtenance Footnote 1 to the residence, would also be an example of a habitable area of the building. Habitable areas do not include garages, parking areas, crawl spaces, and any areas set aside for the placement of equipment for the heating of, or the supply of water, gas, or electricity to the complex. Again, such areas are ignored in determining whether the minimal requirements of the definition of substantial renovation are met. We would not consider a partially completed basement that has, for example, roughed-in plumbing and partially completed walls, to be habitable. While it may be used for some purposes, we would consider such an area as inhabitable so that it would not be included in determining whether the building has been substantially renovated. While a basement would not necessarily require the same standard of comfort and amenities as the main floor of a house, to be considered habitable it should at least have finished walls, a ceiling, flooring and electrical wiring. Similarly, to be considered habitable, an attic should have a permanent means of access, such as a staircase or ramp, as well as finished walls, a ceiling, flooring, and electrical wiring. Work done in the above-noted areas so that they are partially complete (but not yet habitable) should be ignored in determining whether the minimum requirements of the definition of substantial renovation are met. For example, suppose that the main floor of a house is 1000 square feet, and 90% of that space was sufficiently renovated, and the house also has a 1000 square foot partially finished basement. We would accept, in this situation, that all or substantially all of the building has been renovated. The 1000 square foot basement may be ignored since it is not yet habitable. If, as part of a renovation project, a section of an unfinished basement were enclosed with finished walls and used, for example, as a family room, that area could be treated as a habitable area and taken into account in determining whether a sufficient area of the house has been substantially renovated. Example The area of the main floor of a house is 1000 square feet, as is its unfinished basement. In a renovation project, 850 square feet of the main floor is completely replaced. As well, 700 square feet of the basement is completely renovated (finished walls, ceiling, flooring, electrical outlets) for use as a family room. In this situation, the finished part of the basement may be used in determining whether all or substantially all of the house has been renovated, i.e., Area renovated : 850 + 700 = 1550 sq. ft Total area considered : 1000 + 700 = 1700 sq. ft Percentage renovated : 1550/1700 = 91% The example illustrates that, whereas only 85% of the main floor was renovated, substantially all of the house has been renovated by taking the finished area of the basement into account. (iii) must be "removed or replaced" This requirement addresses the type or nature of renovations required in order to satisfy the definition of substantial renovation. Under the definition, 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 below as the "excluded elements"). Although the excluded elements may be ignored in determining whether there is a substantial renovation, under some circumstances removing or replacing excluded elements may be used to support a finding that substantial renovation has taken place. For example, it is not necessary to replace the floors, since the floors are an excluded element. However, if the floors are replaced, this may be taken into account in finding that the building has been substantially renovated. A major renovation project would result in the interior of the building being essentially gutted. In this type of renovation, the interior walls (other than supporting walls) would be completely removed and the ceilings and floors would be replaced. The heating, electrical and plumbing systems would be replaced, including the ductwork, wiring and plumbing connections. All fixtures, including plumbing and lighting fixtures and fixed appliances, would be replaced, as would kitchen counters and cabinets. There is no doubt that the project described above would constitute a substantial renovation. The following addresses what, at a minimum, must be removed or replaced in order to meet the requirements of the definition of substantial renovation. Generally, all interior walls (e.g. drywall) throughout the subject area (at least 90% of the building) would have to be removed or replaced. In other words, the walls would have to be stripped to the studs and refinished. Furthermore, it would not be sufficient to remove or replace only the walls. However, removal or replacement of the walls together with removal or replacement of either the ceiling or floors throughout the subject area would be sufficient in order to meet the minimal requirement. It would not be necessary to replace the entire heating, electrical or plumbing systems, in order to meet the requirements for a substantial renovation. "Removing or replacing" does not include repairing. For instance, patching drywall, painting surface areas, or sanding a hardwood floor would not qualify as removing or replacing for purposes of the definition of substantial renovation. Repairs are not taken into consideration in determining whether a substantial renovation has taken place and may not be included in a new housing rebate claim. The renovations required to meet the minimum requirements may vary according to the type of room being renovated. As noted above, removing or replacing the walls together with either the ceilings or floors would qualify, regardless of the room being considered. For particular rooms, however, other possibilities may lead to a finding that the room has been substantially renovated, for example: In a typical kitchen, a large part of the wall area may be covered by cupboards and cabinets (i.e. "cabinetry"). If so, removal or replacement of the cabinetry (without removing the walls behind it) as well as the ceiling or floor and remaining wall area would generally be sufficient. In a typical bathroom, removing or replacing the walls and the fixtures (toilet, tub, vanity) would be sufficient. Since the requirement is to remove or replace it may be sufficient to remove and then reinstall the same fixtures in the bathroom, in addition to removing or replacing the walls. In a typical bedroom or hallway, removing or replacing the drywall and either the floor or the ceiling would usually be sufficient. In determining whether substantially all of the building has been removed or replaced, much may depend on the method used in making the "all or substantially all" determination described above. Example A house has 10 rooms. Eight of the rooms are completely gutted and rebuilt. Of the remaining two rooms, the only renovation to Bedroom A is to replace the flooring, and the only renovation to Bedroom B is to replace the flooring and one wall. Including these two bedrooms, over 90% of the total wall and floor space in the house is removed or replaced. If the method used in determining "all or substantially all" is based on the number of rooms renovated, neither bedroom would have met the "removed or replaced" requirement. That is, only eight of 10 rooms would have met this requirement, short of the 90% requirement. However, if the method used were based on the percentage of the total floor and wall area of the house that is removed or replaced, the renovations to the floors in both bedrooms, and the one wall in Bedroom B, would be included in the area that is removed or replaced. Taking these areas into account, over 90% of the total wall plus floor space in the house is removed and replaced, so that it is reasonable to find that the house has been substantially renovated. If the amount of work done in a particular area is less than the minimal requirement described above, then that particular area may be treated as falling outside of the "all or substantially all" subject area described above. Again, a building may be substantially renovated even though up to 10% of the building may incur very little renovation, or indeed, none at all. Example A 5000 square foot house is undergoing renovations. In one room of 250 square feet, there are no renovations, and in another room of 200 square feet, the renovations carried out do not meet the "removed or replaced" test. The remaining 4550 square feet of the house meet this test. The house in this example is substantially renovated since at least 90% of the house (i.e., at least 4500 square feet) is removed or replaced. This illustrates that little or no renovation is required in the two rooms described above since they make up 10% or less of the area of the house. (iv) excluded elements Substantial renovation is defined to mean the renovation of a building to such an extent that all or substantially all of the building is removed or replaced "other than the foundation, external walls, interior supporting walls, floors, roof and staircases". We refer to these parts of the building as the "excluded elements". The excluded elements include the basic structural elements of the building. Since they are excluded from the definition, it is possible to substantially renovate a building without modifying these elements. That is, the parts or areas of the building that must be removed or replaced do not include these elements. Although the excluded elements may be ignored when determining whether there is substantial renovation, the removal or replacement of these excluded elements may sometimes support a finding that substantial renovation has taken place. For instance, although the floors are an excluded element, replacing the floors may be taken into account in finding that the building has been substantially renovated. For example, if the walls and floors of a room are removed or replaced, this would be sufficient to consider that area to have met the minimum requirement. Similarly, removal or replacement of supporting walls and interior staircase areas may be taken into account. 1.3 Examples Gordon T. Mr. T.'s bungalow has a 2000 square foot main floor together with a 2000 square foot unfinished basement. Recently Mr. T carried out the following renovations. He completely gutted and replaced three of the five rooms on the main floor, as well as the hallways. The hallways are about the area of an average room. This area totals 1400 square feet. The main floor had total wall space of 5500 square feet of which 3600 square feet was replaced. He also constructed a 900 square foot finished addition to the main floor, which included a 400 square foot dining room, and a 500 square foot attached garage. In the basement, he installed studs and drywall along the exterior walls, and added wiring and roughed-in plumbing. He framed in one 600 square foot room that had 800 square feet of wall area, and in it he finished the walls and ceiling and added carpet, so that it could be used as a family room. The rest of the basement is unfinished. Is the work done by Gordon T. a substantial renovation of his home? Gordon T. may use any fair and reasonable method in determining whether all or substantially all of the building that existed at the time the renovations began was removed or replaced. Generally, it would not be necessary to use more than one method. However, for illustrative purposes, we will demonstrate the determination using the three following methods. 1. Square footage of floor space of the areas renovated compared to the total floor space of the building Area renovated: Main floor + basement: 1400 sq. ft. + 600 sq. ft. = 2000 sq. ft Total floor space: Main floor + basement: 2000 sq. ft. + 600 sq. ft = 2600 sq. ft. % of the building removed or replaced : 2000/2600, which equals 77 % 2. Square footage of floor and wall space of the areas renovated compared to the total floor and wall space of the building Area renovated: Main floor: floor area 1400 sq. ft wall area 3600 Basement: floor area 600 wall area 800 Total 6400 sq. ft Total floor + wall area: Main floor: floor area 2000 sq. ft. wall area 5500 Basement: floor area 600 wall area 800 Total: 8900 sq. ft % of the building removed or replaced: 6400/8900, which equals 72 % 3. Number of rooms renovated compared to the total number of rooms in the building Rooms renovated: Main floor 3 Hallways 1 Basement 1 Total 5 Total rooms: Main floor 5 Hallways 1 Basement 1 Total 7 % of building removed or replaced: 5/7 = 71% It should be noted that, in each of the methods, the 900 square foot addition is ignored for purposes of the determination. Also, where the basement is concerned, it is only the finished family room that is taken into account. An individual may use any fair and reasonable method in making this determination. However, all of the methods described above indicate that all or substantially all of the building has not been removed or replaced. On this basis, the work done by Gordon T. does not meet the definition of substantial renovation. Shirley K. Shirley K. has a six-room bungalow consisting of a kitchen/dining room, living room, two bedrooms, a den and a bathroom. The den makes up about 10% of the floor area. The basement remains unfinished. She hires a renovator who carries out the following renovations: Bedrooms and living room: replaces the drywall and flooring. Kitchen/dining room: replaces the cupboards and cabinets, exposed drywall, and flooring. Bathroom: removes plumbing fixtures, upgrades the plumbing connections (and removes drywall in the process), replaces the drywall, installs new fixtures. Den: patches cracks in the drywall and replaces the flooring. Is the work done by Shirley K a substantial renovation of her house? All of the building has been renovated to some extent (the unfinished basement may be ignored) so that the "all or substantially all" requirement has been met. All areas of the building, except the den, have been sufficiently removed or replaced. The walls in the den have been repaired, but the repairs are not sufficient to be considered as removal or replacement. However, since the den is only 10% of the building's area, it may be treated as falling outside the 90% area that requires removing or replacing. That is, at least 90% of the building was removed or replaced, resulting in a substantial renovation. Ira G. Ira G. acquires an old Victorian mansion. She intends to carry out significant renovations in 2002 and 2003. The ground floor consists of a large kitchen, a living room, library and bathroom. There are four bedrooms and a bathroom on the second floor (which has the same area as the ground floor). In 2002, she employs a renovator to undertake the following: A new furnace is installed and changes are made to the ductwork throughout the house. New plumbing and fixtures are added to the kitchen and bathrooms. In the kitchen, new cupboards are added, along with new counters. The walls and ceiling are repainted and new linoleum is added to replace the existing floor. A bathroom off the kitchen is removed and a new bathroom is constructed in one of the upstairs bedrooms. No other changes were made to the upstairs other than adding new ductwork for the heating system and new plumbing and fixtures in the new bathroom. The wall between the kitchen and the old bathroom is removed and a dining area is created. A new entrance and window is added to the back of the house. The floorboards, joists and beams in all of the ground floor rooms are replaced. 90% of the ceiling on the ground floor is replaced. Is the work done by Ira G. a "substantial renovation" of her home? Although the renovation work done in 2002 is significant, we would not consider that it constitutes a substantial renovation, since less than all or substantially all of the building has been removed or replaced. The upstairs has the same area as the ground floor, and while some renovations were carried out in the upstairs, they would not, except for the bathroom, be considered removal or replacement of that area. At this point, the work done by Ira G. would not be considered to be a substantial renovation. In 2003 Ira G. continues the renovation project as follows: She creates a larger living room by removing a wall between the existing room and the library. She modernizes all of the upstairs bedrooms by replacing the existing plaster on the walls and ceilings with drywall, repainting, replacing old carpets with parquet flooring, and installing new shelving in all closets. She also has skylights installed in three of the bedrooms. She also has the existing roof replaced with one that is of higher quality, and has a new interlocking brick sidewalk laid. Is the work completed in 2003 a substantial renovation of her home? The work done in 2003 combined with the work carried out the previous year would be considered to be a substantial renovation since all or substantially all of the interior of the house has been removed or replaced. While the roof and sidewalk are not taken into account in determining whether there has been substantial renovation, the tax paid on these projects would also be eligible for the new housing rebate on the basis that they are improvements to the residential complex. The same is true of other improvements such as the new furnace, and the plumbing fixtures. Bob S. Bob S. lives in a three-bedroom bungalow. There is also a kitchen, bathroom, living room and family room. In 2001, he embarks on a renovation project, and accomplishes the following: He patches some wall area in two of the bedrooms with drywall compound. He repaints the whole house, inside and out. He completely renovates the kitchen, replacing the counters, cupboards, floors and appliances. He replaces the roof and the exterior siding of the house. Is the work done by Bob S. a substantial renovation? The work done by Bob S. is not a substantial renovation, since the interior of the house has not been sufficiently removed or replaced. It is true that some work has been done to all or substantially all of the building. However, the nature of the work done to the areas other than the kitchen cannot be said to be removal or replacement of that part of the building. Douglas J. Douglas J.'s house consists of a living room, kitchen, family room, four bedrooms and an unfinished basement. Mr. J. replaces the drywall throughout the house, installs laminate flooring in the kitchen and bathroom, lays new carpet over the old tile flooring in the other rooms, and replaces the kitchen counters and cabinets. Is the work done by Douglas J. a substantial renovation of his home? Since the entire habitable area of the house has been renovated to some extent, Douglas J. has met the "all or substantially" all test. Furthermore, since he has replaced all of the interior walls, including the kitchen counters and cabinets, and replaced the old flooring with carpets and laminate, he has met the requirement that all or substantially all of the building has been removed or replaced. It is not necessary to replace the floors, since they are among the elements excluded in determining whether there has been a substantial renovation. However, if they are removed or replaced, as in this situation, such work may be taken into account in determining that the building has been sufficiently renovated. In this example, Douglas J. has substantially renovated his home. 2. Multiple Unit and Mixed-Use Buildings 2.1 Multiple Unit Buildings This chapter addresses rebate eligibility for the renovation of a single residential unit that is located in a multiple unit building. A multiple unit building is a building that contains two or more residential units. Common examples are apartment buildings and condominium complexes. A "single unit residential complex", for purposes of the rebate, is defined as a residential complex containing no more than two residential units under a single title. It includes a detached house or a duplex held under a single title, but does not include a triplex held under a single title. The new housing rebate applies only to the purchase, construction or substantial renovation of a single unit residential complex (including a duplex held under one title) or a residential condominium unit. As well, substantial renovation of a residential complex requires that all or substantially all of the building be removed or replaced (other than the excluded elements). Therefore, where a single unit residential complex consists of two units under a single title, it is the building containing the two units that must be substantially renovated in order to qualify for the rebate. There would be no new housing rebate eligibility if just one of the units were renovated (unless that one unit was 90% or more of the building). The substantial renovation of a building containing more than two residential units would not qualify for the rebate (since such a building would not be a single unit residential complex). However, the substantial renovation of a particular unit in such a building would qualify for the rebate if that unit is owned under its own separate title. That is, where each residential unit in a multiple unit building is owned under separate title, there may be rebate eligibility for a particular unit that is substantially renovated. It would not be necessary for the entire building to be substantially renovated. Rebate eligibility is determined on a unit-by-unit basis, depending on whether the particular unit being held under separate title is substantially renovated. 2.2 Mixed-Use Buildings A mixed-use building is a building that is used for both residential and non-residential (commercial, for example) purposes. Where a mixed-use building contains a number of residential units, the provisions described above for multiple unit buildings apply. That is, if a particular residential unit is owned under its own separate title, there may be rebate eligibility with respect to that unit if that unit is substantially renovated. If the building contains more than two residential units and the units are all held under one single title, the new housing rebate is not available since the building would not be a single unit residential complex. In a mixed-use building, it would be necessary to substantially renovate only that part of the building containing the residential unit(s) in order to qualify for the rebate; it would not be necessary to substantially renovate the whole building (the non-residential part). However, the new housing rebate would be available only in respect of the residential portion of the building. 2.3 Examples Robert V. Robert V. lives with his family in a large heritage house that he owns. The top level of the house has a separate entrance and is used by his daughter as a self-contained apartment. This apartment takes up about 30% of the area of the house. In 2001, Robert completely renovates the apartment. He also makes some renovations to the rest of the house, but these are minor. Is Robert V. entitled to the new housing rebate for the tax paid on renovating the apartment and the rest of the house? In this example, it is not sufficient that all or substantially all of the apartment was renovated. Since the entire building is one residential complex, it is the entire building that must be substantially renovated. Accordingly, Robert V. will not be entitled to the new housing rebate. William R. and Walter K. William R. and Walter K. live in a building that consists of two residential units, and each of them owns one unit. Each unit is held under separate legal title. In a renovation project, Walter replaces substantially all of the interior of his unit (other than the excluded elements). William does not renovate his unit. Is Walter K. entitled to the new housing rebate for the tax paid on renovating his residential unit? Since the units are each owned under separate title, each unit is a residential complex. Accordingly, it is possible to substantially renovate one unit and qualify for the new housing rebate without substantially renovating the all of the units in building. Walter K. may qualify for the rebate on the basis that he has substantially renovated his residential unit. Doctor Sandra T. Doctor Sandra T. has a dental practice that she operates out of her house. The area of the dental office is about 60% of the area of the house, and her residence about 40%. Doctor T. carries out substantial renovations to the residential portion: the interior of the residential portion is completely gutted and replaced. She also makes minor improvements to the dental office portion. Is Doctor Sandra T. entitled to the new housing rebate for the tax paid on renovating her residence and her dental office? The requirement for the rebate is that all or substantially all of the interior of the building, or that part of the building that forms part of a residential complex be removed or replaced. Only part of the building in this situation is a residential complex, and so it is just that part that must be substantially renovated. Therefore, assuming that the other requirements for the new housing rebate are met, Doctor Sandra T. will be entitled to the rebate with respect to costs incurred in substantially renovating the residential portion of the building. She will not be entitled to a rebate with respect to the renovations to the office portion. This would be the case even if the changes made to that portion were substantial renovations. The reason for this is that only tax that is paid on improvements to a residential complex, or that part of a building that is a residential complex qualifies for the rebate. 3. Condominium Units A "residential condominium unit" is, in summary, a residential complex that is a bounded space described as a separate unit on a provincially registered condominium or strata lot plan, including any interest in land pertaining to the ownership of the unit. Where a residential unit is owned Footnote 2 under separate title from the rest of the units in a complex, it is itself viewed as a separate residential complex as referred to in the definition of "substantial renovation." As such, it is capable of being substantially renovated. That is, if the interior (i.e., the "bounded space" referred to above) of a residential condominium unit is substantially renovated, the tax paid on the costs of doing so is eligible for the new housing rebate, assuming the other requirements for the rebate are met. The determination of whether a residential condominium unit has been substantially renovated (i.e., whether the 90% threshold has been met) does not have to take into account the areas (hallways, reception area, etc.) that are owned in common by all of the residents. 4. Guest and Granny Suites Sometimes homeowners modify the interior of their homes, or construct an addition, in order to create a self-contained suite to serve as accommodation for their friends or relatives. Examples include a guest suite over a garage or in the basement, or an ensuite or detached suite for a relative (e.g., a "granny suite"). The modification on an existing area of a house in order to construct a self-contained suite (e.g., part of the house is partitioned off as a suite) will not be viewed as substantial renovation of the house or the suite, unless all or substantially all of the interior of the house, other than the excluded elements, is removed or replaced. There is an exception if the suite is, or is intended to be, owned under separate title from the rest of the house. In this situation, the suite itself would be considered to be a residential complex and, if all or substantially all of the area of the suite were removed or replaced, the suite would be viewed as being substantially renovated. In some situations, the guest or granny suite is constructed as an addition to the existing residence. Since substantial renovation requires removal or replacement of all or substantially all of the existing building, an addition to the existing building will not qualify as substantial renovation. However, the construction of a guest or granny suite may lead to eligibility for the new housing rebate in the following circumstances: where the suite is constructed as an addition to the existing building and the existing building is substantially renovated; where the suite is constructed as an addition to the existing building and the addition is or is intended to be owned under separate title; or where a self-contained suite is detached from the house, so that it is its own building. In this situation, the rebate would be based on the fact that there is a newly constructed residential complex, rather than a substantial renovation of an existing one. 4.1 Examples Bill M. Bill M. decides to construct a building that will be a self-contained granny suite for his mother. He is also constructing a five-foot enclosed walkway between the suite and his house. The suite will be used as her primary place of residence, but will not be held under separate title. The walkway provides access from one structure to the other - it is not utilized for any other purpose. Will Bill M. be entitled to a new housing rebate for the tax paid on the costs of the suite? Bill M. has essentially constructed a new residential complex, i.e., he has constructed a single unit residential complex, since it is in a separate building. Since it is intended to be the primary place of residence for a relation (his mother), he will qualify for the new housing rebate, assuming the remaining eligibility requirements are met. Wanda B. Wanda B.'s residence has a detached garage. In 2002, Wanda has a second level added to the garage. The addition is used as a guest suite for visits by friends and relatives. It consists of a bedroom and a bathroom but is not a self-contained suite since it does not have any kitchen facilities. Will Wanda be entitled to a new housing rebate for the tax paid on the costs of the suite? Wanda will not be entitled to the new housing rebate since she has not constructed a separate residential complex. The definition of "residential complex" states that a residential complex includes "common areas and other appurtenances" that are "reasonably necessary for the use and enjoyment of the building as a place of residence.". In this situation, the guest suite would be viewed as an "appurtenance" to Wanda's residential complex as opposed to being a residential complex in and of itself. 5. Conversions Where a building is converted from non-residential to residential use, the residential complex is deemed Footnote 3 to have been substantially renovated, regardless of how much work, if any, is actually done. Therefore, if an individual converts a building that was used for a purpose other than as a residential complex into a residential complex (i.e., it is intended to be used as a place of residence), the individual will qualify for the new housing rebate, assuming that the other requirements for the rebate are met. This deeming provision applies where an individual begins to use real property as a residential complex and immediately before that time it was not held or used as a residential complex. For example, it may have been used, or held for use, as capital property in a business or commercial activity of the individual and then been converted to residential use. The deeming provision may also apply where a building that was used by another person for non-residential purposes is sold to an individual for use as a personal residence. In this situation, we would view the individual as purchasing a non-residential property and converting it to residential use. The purchaser would then be deemed to have substantially renovated the building, and would be entitled to the new housing rebate with respect to any tax paid on the acquisition, assuming that the various requirements for rebate eligibility are met. 5.1 Examples John and Melissa H. After their children had grown and left home, John and Melissa H. decide to convert their large house from a single home to two side-by-side residential units. That is, they had the house partitioned, after receiving the appropriate right of subdivision from the local authority. They remained in one half and they sold the other half, including the subjacent and contiguous land, to a young couple. Some modifications were made, but there was no actual substantial renovation of the premises. Was the work done by John and Melissa H. a conversion resulting in a deemed substantial renovation, thus entitling them to a new housing rebate with respect to the unit they occupy? This is not a conversion resulting in a deemed substantial renovation, since there was no non-residential use of the property. John and Melissa would not be entitled to a new housing rebate in respect of the tax paid on their renovations. Doctor Rex X. Doctor Rex X. operates his dental practice on the ground level of a two-storey building that he owns. That level makes up 60% of the building's area. He uses the second level, consisting of 40% of the building, as his personal residence. In 2003, Dr. X. retires. He carries out some modifications (but not substantial) to the ground level, converting the entire building into his personal residence. Was the work done by Doctor X. a conversion resulting in a deemed substantial renovation, thus entitling him to a new housing rebate? Since the building was used as a residential complex both before and after the modifications, there was no conversion of the building from non-residential to residential use. Accordingly, there is no deemed substantial renovation. Since there is no deemed or actual substantial renovation, there is no eligibility for the new housing rebate. Zeona Z. In July 2001, the owners of Mary Doe Florists went out of business, and on October 1 they sold the building that housed their flower shop to Zeona Z. The building stood vacant between July and October. Zeona purchased the building with the intent of using it as her personal residence. Zeona hired a contractor to renovate the building during the months of October and November so that it would be suitable as a personal residence. She moved in on December 1, 2001. The work done is not enough to qualify as substantial renovation unless it is deemed to be such as a result of the conversion. Is this a conversion resulting in a deemed substantial renovation? On the basis that Zeona began to use the building in question as a residential complex and immediately prior to that it was not used as a residential complex, Zeona is deemed to have substantially renovated the complex. Accordingly, assuming the other eligibility requirements are met, she will be eligible for the new housing rebate in respect of the tax paid on the acquisition and renovations. Nora L. Nora L. owns a duplex and rents both units. Last year, after both tenants moved out, she decided to convert the duplex into a single unit residential complex for her own use as a residence. She had to make some renovations, but they were not substantial. Was the work done by Nora a conversion resulting in a deemed substantial renovation, thus entitling her to a new housing rebate? In this situation, the property remains a residential complex before and after the renovation. Therefore, this is not a conversion to which the deeming provision applies. Since the renovations made were not substantial renovations, and are not deemed to be substantial renovations, there is no entitlement to the new housing rebate. 6. Major Additions There are circumstances under which an addition to an existing residential complex together with renovation of that complex will result in eligibility for a new housing rebate. An addition will not qualify for the rebate on the basis that it is, or is part of, the substantial renovation of a residential complex. This is because the definition of substantial renovation stipulates that it is the existing structure that must be substantially renovated. If the existing structure is substantially renovated, then the new housing rebate is available for any additions made to it. However, since the focus is entirely on the existing structure, additions to an existing residence are generally not taken into account in determining whether the residential complex has been substantially renovated. However, a new housing rebate is available for a newly constructed residential complex, provided that the other eligibility conditions have been met. Accordingly, there may be rebate eligibility if it is determined that the renovations and addition to an existing residence are so significant that the resulting structure may be viewed as a newly constructed residential complex. This is a test of more than just size. That is, even if the addition is as large or larger than the existing residence, it would not be viewed as creating a newly constructed residential complex if the existing residence remains largely intact. Rather, the existing residence must become a minor part of, and be incorporated into, the newly constructed residential complex. The following are guidelines that may be used to determine whether a major addition to an existing residential complex results in a newly constructed residential complex: 1. The addition should at least double the size (in square feet of floor space, for example) of the habitable areas of the existing residence in order to be considered a newly constructed residential complex. However, the relative size of the addition alone is not sufficient to make this determination. 2. The existing residence must cease to exist both physically and in the manner in which it had functioned as a residential unit, and must become integrated, along with the addition, into what is essentially a new residential complex. This will require, at a minimum, the following physical and functional changes to the existing residence: (a) Physical Changes Required Where a particular room or area is concerned, the physical changes required would include adding and/or removing the interior wall(s) of the existing structure and the removal of at least some of the adjoining wall(s), where applicable Footnote 4, between the existing residence and the addition. In kitchen and bathroom areas, removing or replacing plumbing fixtures, cabinetry, or kitchen counters would suffice. Physical changes of this nature would be required in at least 50% of the area (or a majority of the rooms) of the existing residence. On the basis of the above, it is evident that merely adding or rearranging the furniture in a room or area, or making minor renovations, would not be viewed as a sufficient physical change. (b) Functional Changes Required Functional changes refer to changes in how the rooms of the existing residence are used as a result of constructing the major addition. In order to view the existing residence as ceasing to exist as a residential complex, there must be a fundamental change in how the majority of the rooms or floor space in the existing residence is used. Furthermore, the fundamental changes in how the existing residence is used must be a result of its integration with the addition in forming a new residential complex. Accordingly, it would not be sufficient just to reconfigure the interior of the existing residence if it could continue to be used by its residents as a self-contained residential unit. There must be interdependency between the existing residence and the addition in order to view the resulting structure as functioning as a new residential complex. While functional changes are distinct from physical changes, a fundamental change in how a room or area is used would require material physical changes. That is, it would be necessary to do more than change how an area of the pre-existing residence is used without making physical changes to it and, as described under (a) above, the physical changes must be significant. These requirements do not necessarily mean that a room such as a kitchen, for example, must cease to be used as a kitchen. However, to meet these requirements, there would have to be material modifications to the existing kitchen in its integration into the new complex. As in the case of substantial renovation, the cost or fair market value of addition is not to be used in determining whether a new residential complex has been constructed. 6.1 Examples Lynn M. Lynn M. hires a contractor to renovate her 2000 square foot home, which contains a kitchen, living room, two bedrooms and a bathroom. The contractor also adds a 2100 square foot addition that contains two extra bedrooms, a bathroom and a large recreation room. About 70% of the interior of the existing home is completely gutted and redone. The exterior wall between the existing home and the new addition is removed with the result that the area of the two existing bedrooms is significantly expanded. While significant modifications are made to the other rooms in the existing 2000 square foot space, their function remains unchanged (i.e., there is still a kitchen, living room, two bedrooms and a bathroom). Is Lynn M. entitled to the new housing rebate? Since only 70% of the existing area is removed or replaced, this falls short of the all or substantially all requirement in the definition of substantial renovation. Accordingly, since the existing residential complex has not been substantially renovated, Lynn M. is not entitled to the rebate on that basis. The question then arises as to whether the addition to the existing residence is so significant that the integration of the addition with the existing residence would be viewed as a new residential complex. While the addition in this example is significant in size, and while it is apparent that significant physical changes have been made to the interior of the existing residence, it cannot be said that the existing residence has ceased to function as a residential unit. It is apparent that there is not a fundamental change in how the majority of the rooms or floor space in the existing residence are used. Furthermore, there is insufficient integration or interdependency between the existing residence and the addition. The original residential unit continues to have all of its pre-existing components and the addition only enhances that unit. The original premises have remained largely intact and continue to form a significant part of the post-construction premises. Accordingly, Lynn M. is not entitled to a new housing rebate since she has neither substantially renovated the existing residence nor constructed a new residential complex. Mary K. Mary K. owns a 1500 square foot house consisting of a kitchen, living room, bathroom and two bedrooms. Recently, she constructed a 1600 square foot addition to the house. The following generally describes the modifications made: The addition was made to the rear of the house and the rear wall of the original house was removed. A new kitchen area was created and more than doubled the size of the original one. Most of the expanded area is in the new addition. The original kitchen area was maintained and is incorporated into the new kitchen. The old cupboards and counters were replaced in the expanded kitchen. An "L" shaped family and dining room was created in the addition and it incorporates much of the original living room. As well, a partition was constructed in the original living room, creating a "breakfast nook" annexed to the new kitchen. One of the two bedrooms and the bathroom in the original structure were maintained. The other bedroom was converted to an office/library with built-in shelves. Two bedrooms were constructed in the addition. An additional bathroom was also added. Would the work done by Mary K. qualify as construction of a new residential complex, resulting in entitlement to the new housing rebate? In order to be considered a new residential complex, the addition must at least equal the size of the existing premises. This condition has been met. It is also necessary to determine whether, in terms of design and function, the original premises have ceased to exist and are incorporated into a newly constructed residence. The addition and the modifications made in this example meet the above test. It could be said that most of the rooms in the old residence have been significantly modified in terms of their function and design, and are now incorporated into a new residence. While the work done by Mary K. may not qualify as substantial renovation of the pre-existing premises, the construction of the addition and the changes made to the original premises have changed the function and design of the existing premises to such a fundamental extent that the resulting structure is essentially a new residential complex. On this basis, Mary K. would be entitled to the new housing rebate, assuming that the remaining requirements for the rebate are met. Eric L. Eric L. owns a 1000 square foot bungalow consisting of a kitchen, living room, bathroom and two bedrooms. Recently, he constructed an attached 350 square foot garage and another 900 square foot addition containing two bedrooms and a recreational room. In other words, the premises more than doubled in size. The following modifications were made to the pre-existing structure: The original front door, steps and porch were removed and because of this change the entry from the dining room to the living room was enlarged to accommodate the change in traffic flow. About 10% of the pre-existing floor space was recarpeted. The former back bedroom was integrated into the kitchen by removing a wall and doorway. Thus the kitchen was extended and new cupboards and cabinetry added. The kitchen fan ducting was re-routed. Concerning the side of the house where the addition was added, the stucco, buffalo board and insulation was removed, new drywall was installed, a double doorway was added, and access holes were drilled into the foundation to provide for electrical, plumbing, heating and other systems. A new gas heating system was installed, along with a gas line and chimney. Some new wiring was added to the old house as well as a new sub-panel and wiring leading to the addition. A new central vacuum was installed. Landscaping changes were made to accommodate the new entrance. Exterior roofing modifications were made. New siding was installed on the front of the original house. Other than the above, no other changes were made to the rooms of the existing premises. Can the work done by Mr. L. be viewed as construction of a new residential complex, resulting in entitlement to the new housing rebate? In order to be considered the construction of a new residential complex, the addition(s) must at least double the size of the habitable area of the existing residence. The new garage is not considered as habitable area. Accordingly, this requirement has not been met (the existing premises are 1000 sq. ft. and the additional habitable area is 900 sq. ft). Furthermore, the physical changes to the existing residence, and the level of integration with the addition, are insufficient for a conclusion that a new residential complex is created. Most of the former rooms have not been materially altered, and even with those that have been, there is little integration with the addition. For example, while the kitchen has been significantly renovated, it has not been integrated with the addition. Rather than the existing residence being incorporated into a new residential complex, the additions made by Mr L. are incorporated as an "add on" to the pre-existing residence. The work done by Mr. L. is neither substantial renovation of the existing home nor the construction of a new home. Thus there is no entitlement to the new housing rebate. Marty B. Marty B. owns a 1200 square foot bungalow consisting of a kitchen, living room, three bedrooms and a bathroom. Recently, he began work on adding a second storey to the bungalow. The addition will also be 1200 square feet. He will carry out the following renovations: He will remove the wall between the present living room and two of the bedrooms, creating one large room, which will be used as a "family room." This will involve some other renovations (removing soffits, adding new windows). The living room will now be in the second storey addition. There will be only one bedroom left on the main floor. However, three bedrooms will be included in the second storey addition. The present bathroom will be partitioned to create a half-bath (sink and toilet) off the remaining bedroom and a linen closet. The main bathroom will be in the second storey addition. The kitchen will remain unchanged. The renovations to the existing house do not constitute a "substantial renovation." The areas affected by renovations (the present living room, two bedrooms and bathroom) constitute about 60% of the present floor space. Will Marty B. have constructed a new residential complex? Marty B. will be viewed as constructing a new residential complex. The addition will double the size of the present residence, which will cease to exist as a result of its integration with the new addition. The physical changes to the existing building involve removal of the living room wall and adding a wall in the bathroom, removal of the bathroom tub/shower, and other renovations required to set up the family room (removing soffits, adding windows). These changes affect at least 50% of the existing area. The present structure will no longer function in the same manner as it had. There will be a change in how a majority of the existing rooms or floor space are used, e.g., there will be only one bedroom on the first level instead of three, the living room will be moved to the second level, and the bathroom will become a "half bath". Accordingly, Marty B. will have constructed a new residential complex. 7. Time Frames and Extended Renovation Projects This chapter will briefly explain the time frames allowed in applying for the new housing rebate. Further information concerning time frames is set out in the guide GST/HST New Housing Rebate (RC4028E). If a homeowner begins a substantial renovation of his/her house while living in the house, the homeowner will have two years from the date the renovations are begun to substantially complete the renovations and another two years after that date to claim the rebate. If the homeowner does not occupy the house when the renovations are begun, but then begins to occupy it before the renovations are substantially completed, he or she will have two years after the date of occupancy to substantially complete the renovations, and another two years after that date to claim the rebate for the tax paid on these renovations. If the house is not substantially renovated within two years after occupancy, the time limit for filing a rebate application is still a maximum of four years from the date of occupation, but only tax that has been paid and which became payable up to two years after the date of occupancy may be included in the rebate application. If the homeowner does not live in the house until after the renovations are completed, the rebate claim must be made within two years after the substantial renovation is completed. 7.1 Example Cathy G. Cathy G. has lived in her home for over thirty years. In February 1999 she hired a contractor to renovate the house. The contractor began work on March 1, 1999 and continued off and on over the next two years. The work constituted substantial renovation and was completed on July 1, 2001. Cathy moved back into the house on August 1, 2001. What is her deadline for filing a new housing rebate claim, and what purchases may be included on the claim? Cathy can file a claim for rebate once the house has been substantially renovated. She has two years after the earliest of the following dates to file the claim: the day that is two years after she occupies the house; that is, two years after August 1, 2001, and the day substantial renovation is sComments (0)
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