April 9, 2014
When you are looking to purchase or sell a house in Ontario that is not new, there is a possibility that the deal may attract Harmonized Sales Tax (H.S.T.).
Generally, there is no H.S.T. on the price of a resale of a residential home. However, where the house being purchased has been substantially renovated, the house will be treated as though it is new and H.S.T. will be added to the purchase price.
A substantial renovation will have occurred if all or substantially all of the existing house has been removed or replaced. The renovation must be an improvement to the home.
- What is a “substantial renovation”Generally a “substantial renovation” means that at least 90% of the house has been renovated to some degree. This applies only to the interior of the house. For instance, say a house is 1,274 square feet. In order for there to be a substantial renovation, at least 1,147 square feet of the interior of the house would have to be removed or replaced.
- Only habitable areas are considered
Only habitable areas of a house are taken into account when determining whether the house has been substantially renovated. Any additions to the existing house are generally not taken into account in determining whether there has been a substantial renovation.Habitable areas include:
- the main floor(s) living areas;
- finished basements;
- finished attics; and
- a guest bedroom over a detached garage.
Habitable areas do not include:
- parking areas;
- crawl spaces; or
- any areas set aside for the placement of equipment for the heating of, or the supply of water, gas, or electricity to the house.
- A substantial renovation applies only to the interior of the home
A substantial renovation does not typically include any renovations made to the foundation of the home, external walls and the roof.Floors are also generally excluded from the definition of a substantial renovation. However, if the floors are replaced, they may be considered when determining if a substantial renovation has taken place. For example, if only the walls and floors are removed or replaced, this would likely be sufficient to meet the 90% requirement.As well, the removal or replacement of supporting walls and interior staircases are generally excluded from the definition of a substantial renovation; but, as with floors, they may be taken into consideration in some situations.
- Repairs are not considered
Renovations include “removing” or “replacing” parts of the inside of the house. Renovations do not include “repairing.” In other words, repairs are not considered when determining whether a substantial renovation has taken place.
If you are considering purchasing or selling a house in Thunder Bay, Ontario that has been renovated and are unsure if H.S.T. will be added to the price, you may wish to consult a real estate lawyer in Thunder Bay to assist you in determining whether a substantial renovation has taken place.