Change in the Use of an Immovable

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Conversion of an immovable into a residential complex

If you convert an immovable into a residential complex without engaging in new construction or substantial renovations, you may be considered to be the builder and to have made substantial renovations to the immovable.

If the immovable 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 immovable as his or her primary place of residence, the individual may be entitled to 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, the self-supply rules may apply and you may have to remit the GST and the QST 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.

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.

Example

In 2012, Phyllis, a physician not registered for the GST or the QST, purchases an immovable for $100,000 (tax not included), in order to supply tax-exempt medical services. Phyllis paid the GST and the QST at the time of the purchase, but she cannot claim an ITC or ITR.

In 2013, Phyllis converted the immovable into a residential complex to use it as her primary place of residence. The FMV of the immovable is $200,000 (see the tables below for the calculation of the GST and the QST).

In this example, Phyllis 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 (more specifically, the section entitled New housing rebates).

Calculation of the GST
GST payable=$5,000
FMV at the time of the conversion$200,000
×5%
GST to remit at the time of the conversion of the immovable=$10,000
Prix d'achat$100,000
×5%
Rebate for the GST paid on the purchase of the immovable=($5,000)
GST to remit at the time of the conversion of the immovable$10,000
Rebate for the GST paid on the purchase of the immovable$5,000
Calculation of the QST
QST payable=$9,975
FMV at the time of the conversion$200,000
×9.975%
QST to remit at the time of the conversion of the immovable=$19,950
Purchase price$105,000
×9.5%1
Rebate for the QST paid on the purchase of the immovable=($9,975)
QST to remit at the time of the conversion of the immovable$19,950
Rebate for the QST paid on the purchase of the immovable$9,975
  1. The QST rate was 9.5% in 2012 and the QST was calculated on the price including the GST.

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
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.

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