# Understanding Tax Implications of Renovating and Selling Your Home
## Article Content
Vera inquired about the tax implications of tearing down and rebuilding her principal residence of 32 years, and selling it without moving in. To understand how this transaction may be taxed, we need to consider several factors, particularly the principal residence exemption (PRE).
### Qualifying for the PRE
To qualify for the principal residence exemption in Canada, the property must meet specific criteria:
1. It must be a housing unit, leasehold interest, or capital stock of a co-operative corporation suitable for inhabitation.
2. Ownership must be individual or joint.
3. The property must have been lived in by the owner, their spouse, or children.
4. The property must be designated as the principal residence.
Furthermore, the property’s size should generally not exceed half a hectare, or a portion of the sale proceeds may become taxable.
### Renovation Considerations
If the renovation involves a substantial change where at least 90% of the interior is removed, the property may qualify as newly built. This requirement does not include structural components like the foundation or exterior walls.
### Sales Tax Implications
If the renovation surpasses the 90% threshold, the owner may be considered a “builder” by the CRA. This classification could trigger the remittance of HST or GST on the fair market value or sale price of the property.
### Tax Treatment upon Sale
For properties designated as a principal residence for a significant period, capital gains tax may not apply. However, selling the renovated property without moving in could lead to full taxation of any profit as business income rather than capital gains.
## FAQ Section
### Will I have to pay capital gains tax if I rebuild and sell my principal residence without moving in?
If the property was your principal residence for the entire ownership period and you did not own another property with a PRE claim, you may not be liable for capital gains tax.
### Are there potential sales tax implications when renovating and selling a property?
Yes, if the renovation qualifies as substantial and you are classified as a “builder,” you may have to remit HST or GST on the property’s fair market value.
## Conclusion
In complex tax situations like renovating and selling a property, consulting a qualified tax professional is essential to understand your tax exposure fully. It is crucial to consider all factors to ensure compliance with tax laws and minimize financial liabilities.
By Andrew Dobson, a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM at Objective Financial Partners Inc. in London, Ontario.
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For further information, you can contact Andrew Dobson at [email protected].
*(Published Dec 27, 2024 • Last updated 3 hours ago)*