To find out if the rules for remitting tax on the construction or renovation of a residential complex apply in respect of a rent-to-own agreement, you must determine whether the agreement is a sale or a lease, as the rules only apply to leases.

Purchase and sale agreement

If a rent-to-own agreement obliges the lessor to sell the residential complex to the lessee during or at the end of the lease period and obliges the lessee to acquire it, and all the terms of the sale are contained in the agreement, the transaction is considered a sale with deferred transfer of ownership.

In such a case, the lessor is generally required to collect GST and QST from the lessee on the selling price and remit the taxes to us when possession of the residential complex is transferred to the lessee. The self-supply rules do not apply.

However, if the parties' intention is to enter first into an agreement to lease the residential complex and then to proceed with its sale, the transaction is considered a lease agreement rather than a sale, in which case the rules set forth in the next paragraph apply.

Lease agreement

If, under a rent-to-own agreement, the lessee can choose whether to exercise the purchase option at any time during the lease period, the transaction is considered a lease, not a sale. The builder is deemed to be both the seller and the recipient of the residential complex, and they must remit the tax deemed collected. For the remittance terms, click Remitting Tax on the Construction or Renovation of a Residential Complex.

When the builder subsequently sells the residential complex, the transaction is tax-exempt. For more information on rent-to-own agreements, contact us.