When is a Residential Unit not a Residential Unit?

GST-HST on residential properties

Imagine a scenario where a business owner purchases a used residential complex and begins running his business in it and for no other purpose. Is the subsequent sale for GST/HST purposes an exempt sale of a residential complex or a taxable sale of commercial property?

For a used house to be exempt it has to meet the definition of a residential complex,  and to meet the definition of a residential complex it has to meet the definition of a residential unit. The definition of a residential unit reads as follows:

  • (a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

  • (b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

  • (c) any other similar premises,


or that part thereof that

  • (d) is occupied by an individual as a place of residence or lodging,

  • (e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

  • (f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or

  • (g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals; (habitation)


Where a building or part has been used in a commercial activity (not exempt like a long term residential rental), even if it was zoned residential, the building or part will generally not meet the conditions of the definition or a residential complex because it will not meet any of paragraphs (d) through (g) and therefore cannot qualify as a residential complex unless it is substantially renovated either physically or deemed to be. Where it has been substantially renovated it can return to its status as a residential complex but the subsequent sale will be taxable, whether to another person or as a deemed sale. In other words, be careful to determine the tax status of a building before selling it, or you might receive an unfavourable assessment from the CRA and have to account for the tax.