Change in Use of an Immovable
Conversion of an immovable into a residential complex
If you convert a commercial complex into a residential complex without engaging in new construction or substantial renovation work, you may be considered to be the builder of the residential complex and to have made substantial renovations.
If the complex is converted for purposes of sale, the recipient may have to pay GST and QST. However, if the recipient is an individual who intends to use the complex as his or her primary place of residence, the individual may be entitled to a rebate of the taxes paid if all of the prescribed conditions are met.
If the residential complex or a residential unit in the complex is leased for residential purposes, you may be considered to be both the seller and recipient of the complex and therefore be required to remit the tax deemed collected, which are calculated on the fair market value (FMV) of the complex. In this case, you may be entitled to a rebate of the taxes paid for a new residential rental property if certain conditions are met.
Refunds of taxes paid
If you are a registrant, and the immovable is used or supplied in the course of commercial activities, the tax paid on the renovations carried out during the conversion of the immovable, as well as the tax paid on the last acquisition of the immovable can be recovered as an input tax credit (ITC) and an input tax refund (ITR). If you are not a registrant, you can claim GST and QST rebates.
Click Refunds of Taxes Paid to learn more.
Immovables used for residential or personal purposes
If you begin to use an immovable as a residence or for personal purposes, you must remit the GST and the QST calculated on its FMV if all of the following conditions are met:
- You are an individual and you appropriate the immovable for your own personal use or that of your former spouse or former de facto spouse, or a person related to you.
- The immovable was held for sale or lease in the course of your business or commercial activity, or was capital property used or held for such a purpose immediately before it began to be used for residential or personal purposes.
- The immovable was not a residential complex.
If the residential complex becomes your primary place of residence, you may be entitled to a new housing rebate.
If you are a registrant, you can claim an ITC and an ITR respecting the tax paid on the renovations carried out during the conversion of the immovable, as well as the tax not recovered on the acquisition of the immovable. If you are not a registrant, you can claim GST and QST rebates.
Click Refunds of Taxes Paid to learn more.
Example tax calculation – Use of an immovable for residential or personal purposes
In 2019, a physician not registered for the GST or the QST, purchases an immovable for $150,000 (tax not included), in order to supply tax-exempt medical services. She paid the GST and the QST at the time of the purchase, but she could not claim an ITC or ITR.
In 2020, the physician converted the immovable into a residential complex to use it as her primary place of residence. The FMV of the immovable is $225,000.
In this example, the physician can claim a GST and QST new housing rebate respecting the GST and QST paid at the time of the conversion, provided she meets the requirements. For more information, see Refunds of Taxes Paid.
| GST payable | = | $3,750 |
|---|---|---|
| FMV at the time of the conversion | $225,000 | |
| × | 5% | |
| GST to remit at the time of the conversion of the immovable | = | $11,250 |
| Purchase price | $150,000 | |
| × | 5% | |
| Rebate of the GST paid on the purchase of the immovable | = | ($7,500) |
| GST to remit at the time of the conversion of the immovable | $11,250 | |
| Rebate of the GST paid on the purchase of the immovable | − | $7,500 |
The GST payable is calculated as follows:
- Multiply the FMV at the time of the conversion ($225,000) by the GST rate in effect (5%) to determine the GST to remit ($11,250).
- Multiply the purchase price ($150,000) by the GST rate in effect (5%) to determine the rebate of the GST paid on the purchase ($7,500).
- Subtract the rebate ($7,500) from the GST to remit ($11,250) to determine the amount of GST to remit ($3,750).
| QST to remit | = | $7,481.25 |
|---|---|---|
| FMV at the time of the conversion | $225,000 | |
| × | 9.975% | |
| QST to remit at the time of the conversion of the immovable | = | $22,443.75 |
| Purchase price | $150,000 | |
| × | 9.9795% | |
| Rebate for the QST paid on the purchase of the immovable | = | ($14,962.50) |
| QST to remit at the time of the conversion of the immovable | $22,443.75 | |
| Rebate for the QST paid on the purchase of the immovable | − | $14,962.50 |
The QST payable is calculated as follows:
- Multiply the FMV at the time of the conversion ($225,000) by the QST rate in effect (9.975%) to determine the QST to remit ($22,443.75).
- Multiply the purchase price ($150,000) by the QST rate in effect (9.975%) to determine the rebate of the GST paid on the purchase ($14,962.50).
- Subtract the rebate ($14,962.50) from the QST to remit ($22,443.75) to determine the amount of QST to remit ($7,481.25).
Lease of land for residential use
If you lease or sublease land to the owner, lessee, occupant or person in possession of a residential unit located on the land in question, you may have to pay GST and QST on the FMV of the land when possession of it is transferred.
Example tax calculation – Lease of land for residential use
A non-registrant corporation leases a particular piece of land for the first time. The lessee builds a residential unit on the land. The corporation will have to remit the GST and the QST calculated on the FMV of the land at that time, but will be able to claim a rebate with respect to the GST and the QST paid on the land, provided it meets the eligibility requirements.
For more information, contact us.