Substantial renovation and HST, a different set of rules

If a renovation removes or replaces 90% or more of an existing house, ignoring the foundation, external walls, interior supporting walls, floors, roof and staircases, it is a substantial renovation and the finished house is treated for GST/HST purposes much as a newly built one would be. That changes who can claim a rebate, it can bring the self-supply rules into play for whoever owns the land, and the paperwork your customer needs from you is different.

Two things to be clear about before anything else. This is a separate regime from the ordinary timing rules on a construction contract. When HST becomes payable on your progress draws, and what substantial completion of a contract triggers, is a different question with a different answer, and it is set out in HST on progress billings and substantial completion. Do not read across from one to the other. The word "substantial" appears in both and means something different in each.

Second, as the contractor you are usually not the one claiming anything. Your scope documents, your dates and your invoices are the evidence somebody else's claim is built on, which is why this is worth understanding even though the rebate is not yours. It comes up constantly in HST work for contractors.

The 90% test, precisely

The Excise Tax Act defines a substantial renovation as "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."

CRA's technical bulletin B-092 reads "all or substantially all" as 90% or more. Four points decide most real cases.

The six components come out of the test. Foundation, external walls, interior supporting walls, floors, roof and staircases are excluded from the requirement to be removed or replaced. You do not have to touch them. Where they have in fact been removed or replaced, CRA says they may sometimes be taken into account in determining that a substantial renovation has taken place, so replaced floors can support the conclusion even though they are not part of the base calculation.

Repair is not replacement. Patching drywall, painting, refinishing a hardwood floor or replacing a countertop does not count toward the 90%. Removing and rebuilding does.

Habitable area only. Finished basements and finished attics count. Garages, parking areas, crawl spaces and rooms set aside for heating, water or electrical equipment do not. A partially finished basement is disregarded in working out whether the threshold is met.

An addition cannot create one. The test looks at the building that existed before the work started. Building onto a house, however large the addition, does not on its own make the renovation substantial.

On method, CRA accepts three fair and reasonable approaches: square footage of floor space renovated against total floor space, combined floor and wall space, or number of rooms renovated against total rooms. It specifically rejects cost of the renovation and fair market value of the improvements as a basis. A contractor who bids a $400,000 gut on a $900,000 house has proved nothing about the 90%, and a homeowner who fails on measurement after assuming the cost settled it is a very unhappy customer.

Where self-supply bites, and why it usually is not you

A person who builds or substantially renovates housing is a builder for GST/HST purposes. The self-supply rules treat a builder as having sold the property at fair market value and immediately bought it back, and they apply whether or not the builder is registered for GST/HST. They are aimed at the situation where housing is built or substantially renovated and then rented out, or occupied by the builder, rather than sold.

A contractor hired to work on land owned or leased by someone else, with no interest in that land, is generally not a builder of that housing. Your position stays simple: charge and remit 13% on the labour and materials you supply, and account for the holdback under its own timing rules.

The analysis changes completely in three situations, and each is worth advice before you sign rather than after:

• you buy a house, substantially renovate it and resell it
• you substantially renovate a property you own and then rent it out instead of selling
• you take an interest in the land as part of the deal, including a share of the eventual sale

An individual who substantially renovates a house purely as their own residence, not as a business or an adventure in the nature of trade, is not a builder. That is the ordinary homeowner case, and it is the one where the rebate below is claimed directly.

The rebates, at the level a contractor needs

Substantially renovated housing generally qualifies for the same rebates as new housing. There are three that matter.

The GST/HST new housing rebate recovers part of the federal component, to a maximum of $6,300, and it is fully phased out where the value is $450,000 or more. In Ontario a purchaser can also claim the Ontario new housing rebate for part of the 8% provincial component, up to $24,000, with no equivalent price ceiling. Both are available on an owner-built basis where the individual hired the work out.

Sitting on top of that for a limited window, Ontario's enhanced new housing rebate is generally available where the agreement of purchase and sale is entered into between the individual and the builder on or after April 1, 2026 and on or before March 31, 2027. Substantially renovated homes are covered. It gives a full rebate of the 8% provincial part up to $1 million of value, a flat $80,000 between $1 million and $1.5 million, a partial rebate to $1.85 million, and the existing $24,000 above that, with a further provincial amount equivalent to at most the 5% federal part. CRA's notice says guidance on how owner-built homes apply for it is still to come, so do not tell a homeowner their gut renovation qualifies for $80,000 on the strength of a summary.

The new residential rental property rebate is the landlord's version. Where someone builds or substantially renovates housing and then leases it long term, the self-supply rules put tax on the fair market value, and this rebate gives back part of it, with an Ontario component again capped at $24,000. The purpose-built rental housing rebate goes further, recovering the full federal part on qualifying projects. If a customer is renovating a duplex to rent rather than to live in, that is the branch they are on, and it is advice work rather than something to settle on a job site.

There is also a federal first-time home buyers' GST/HST rebate, enacted in 2026, recovering up to 100% of the GST or federal part of the HST to a maximum of $50,000, full up to $1 million of value and reduced to nil at $1.5 million. It covers newly built and substantially renovated homes used as a primary residence, so a first-time buyer who hires out a substantial renovation can be in scope. The eligibility conditions are detailed and the buyer's own adviser should confirm them.

What has to be right on your invoice

This is the part that is actually within your control, and getting it wrong can cost a customer more than your whole contract.

A rebate claim on a substantially renovated home is assembled from the construction invoices, and CRA requires the claimant to keep the original invoices and supporting documents for six years. Every invoice you issue should carry:

• your legal business name and your GST/HST registration number
• the invoice date, and the date or period the work was performed
• the address of the property, not just the customer's mailing address
• the customer's name exactly as it appears on title, since an invoice made out to a spouse who is not the claimant, or to a numbered company, creates a problem the homeowner cannot fix later
• the HST shown as a separate line at 13%, or a clear statement that the amount includes HST at 13%
• a scope description that says what was removed and what was replaced, room by room where you can

That last one is the difference between a claim that survives review and one that does not. "Reno work as discussed, $92,000" tells CRA nothing about whether 90% of the building was removed or replaced. "Demolition and rebuild of kitchen, three bedrooms, two bathrooms and main floor living area, including removal of all interior partition walls, ceilings and mechanical" is evidence.

Keep the dates too. When the work began, when the house became at least 90% complete, and when the customer first occupied it all feed the rebate filing deadlines, and you are the only person on the job with a contemporaneous record of them.

Two practical cautions. Do not describe a payment as a deposit on the invoice if you have applied it against the contract, because what it is governs the HST timing, not what you called it. And bill progressively rather than issuing one lump sum at the end, because a single invoice covering a fourteen-month project gives the homeowner nothing to reconstruct the sequence from. Both of those sit on the ordinary timing rules, and how those work through a job is the other post.

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General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.