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It is well understood that GST is not payable in the purchase of used residential housing. GST is payable on the purchase of a newly constructed or substantially renovated residential home. The GST tax rate is 5%, subject to rebates. I will talk about the GST rebate in next month’s blog.

A client recently asked me about the definition of “substantial renovation”, so this is my focus this month. From CRA Bulletin B-092, and pursuant to subsection 123(1) of the Excise Tax Act (the Act), the term “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 other words, a substantial renovation is 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”.


“Generally, all or substantially all is interpreted as meaning 90% or more. To meet this requirement, at least 90% of the building that existed before the renovations began must be renovated to some minimum degree”.

“As the definition of substantial renovation stipulates, it is the “building that existed immediately before the renovation or alteration was begun” that must be substantially renovated. This means that additions to the existing building are generally not taken into account in determining whether there is substantial renovation”.

“What, at a minimum, must be removed or replaced 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 (i.e., the walls stripped to the studs and refinished and replaced with drywall). In the case of older homes with plaster walls, covering the walls with new drywall would suffice. However, it would not be sufficient to remove or replace only the walls. The removal or replacement of the walls together with the removal or replacement of either the ceiling or floors throughout the subject area would be sufficient to meet the minimum requirement. It would not be necessary to replace the entire heating, electrical or plumbing systems to meet the minimum requirements for a substantial renovation”.

For further information, please refer to CRA Bulletin B-092contact us, or speak with your accountant.