The sale of a residential building can be taxable

Contrary to popular belief, the basic principle of the law is that all real estate sales are taxable unless an exception is provided. In this sense, the sale of a residential building is not automatically non-taxable under the law.

The most common exception concerns the sale of a non-new residential building, which is not taxable because it benefits from an exemption under the Excise Tax Act (GST) and the Act respecting the Québec sales tax (QST).

It is important to be vigilant, as tax laws are complex. As an indication, here are a few non-exhaustive examples of situations where the sale of a building would be taxable:

New residential building

Many may think that the sale of a new residential building, meaning a building used for residential purposes that is less than five years old, is non-taxable, i.e., exempt from GST/QST, especially since it is, by definition, a residential building.

However, think again! Most of the time, new residential buildings are sold by the developer or builder as part of operating a commercial business. Under the law, such a sale is therefore taxable.

Building that has undergone major renovations

Additionally, the sale of a residential building that has undergone major renovations or transformations, where 90% or more of the entire building or a portion of it has been removed or replaced, excluding the foundations, exterior walls, supporting interior walls, floors, roof, and stairs, is also taxable under the law.

Mixed-use building

In cases where a building includes both residential and commercial spaces, only the portion used for residential purposes is non-taxable. The portion used for commercial purposes will be taxable.

Since tax laws are complex and each situation is unique, we strongly recommend consulting a tax specialist before committing to the purchase of a building.

This article was written in collaboration with Mtre Émie Talbot, notary at Blanchard Lupien Notaires S.E.N.C.R.L.