The time for planning is before you start.
Let’s assume that the expenses for the renovation project will be $50,000.00 and you expect to make $100,000.00 on top of that.
If you live in the house, then it may qualify as a “principal residence” and you get to keep the entire $100,000.00 profit yourself. That may be your best option, certainly if this is your first time.
So, don’t do anything that makes it look like you’re “in the business of flipping”.
Here are some risks:
- Securing the contractor’s discount at hardware and supply stores
- Securing an HST number
- Requesting HST refunds
- Securing business insurance
- Arranging for the contractor’s discount with sub-contractors
- Securing financing based on repayment from disposition
- Advertising the property “for lease” too early
- Advertising the property “for sale” too early
One or more of the above may be fine, but too many might very well be fatal to the principal residence exemption. That’s a general comment, not specific. In some cases, certain “big box” hardware retailers will make available contractor’s discounts to just about everybody. All you have to do is apply, and there is no requirement to be a licenced contractor. The discount is simply based on certain minimum purchases over a period of time. My comment is not directed to that situation but rather to representations on the discount application which if presented to the CRA would be troublesome. In some cases, the more projects you might do the higher the discount. This should be at best a “one-off”, if you say that you have 15 projects “on the go”, that’s not going to be helpful.
Effective 2017, taxpayers were required to advise if they disposed of a principal residence within the taxation year. Why? Too many people were doing it on multiple occasions and the Canada Revenue Agency didn’t know anything about it. Going forward, the CRA will have your information “on file”.
So, bottom line is that if you wish to utilize the principal residence exemption, then don’t look like you are in “business”.
Brian Madigan LL.B., Broker