Published on: June 12, 2012
Article number: 121304

Application of GST and QST to the Sale of a Building Used for Residential and Commercial Purposes

Source : Me Paul Cabana, Fasken Martineau DuMoulin L.L.P.

Generally, the sale of a residential complex that is not newly constructed and has not undergone substantial renovations is exempt from GST and QST.(1)

For the purposes of the tax legislation governing the GST and the QST, the concept of a residential complex includes the whole of the building, including the contiguous land, appurtenances and common areas, if the building belongs to an individual and is used primarily (i.e. more than 50% according to the tax authorities) as a place of residence of the owner, an individual related to the owner, or the owner’s former spouse.

Thus, the whole of a building belonging to an individual may be considered to be a residential complex even if part of that building is used for commercial purposes, provided that the property is used primarily (more than 50%) as a place of residence of the owner, an individual related to the owner, or the owner’s former spouse.

As an example, an accountant owns a building of which 40% of the floor space is used for her office and 60% for her residence. As the whole of the building constitutes a residential complex, the eventual sale of the building would be exempt from GST and QST, even though part of the building was used for commercial activities.(2)

In the case of the sale of a building that does not meet the above conditions (i.e. is not used primarily as a place of residence of the owner, an individual related to the owner, or the owner’s former spouse), but which does include a residential part (residential complex) and a part used for commercial purposes, the sale is deemed to be a sale of two separate properties: the part that constitutes the residential complex and the commercial part. Thus, the sale of the part of the building that constitutes the residential complex may be exempt from GST and QST, provided that the conditions for exemption are satisfied. The sale of the commercial part of the building is, however, taxable for GST and QST purposes. It is therefore necessary to divide the sale price in a reasonable manner between the two parts sold.

For example, an individual lives in an apartment (30% of the building) on the second floor of a house that was purchased for his personal use. One year after the purchase of the house, he converted the main floor (70% of the building) into a restaurant and office and registered for GST/QST purposes. Since that time, he has been operating a restaurant from the main floor. One day, he decides to sell the house.(3)

Since the individual does not use the house primarily as his place of residence, the sale of the house would be treated as the sale of two separate properties. GST and QST would not apply to the part in which the individual lives, but tax would apply to the remaining part. The price attributable to each part may be determined by using comparable sales of similar properties in the local real estate market.
In short, when a building in which the owner, an individual related to the owner, or the owner’s former spouse resides is used partly for commercial purposes, it is important to determine what percentage of the building is used for such purposes. If the percentage used for commercial purposes is less than 50%, the sale of the entire building may be exempt from GST and QST.

For any question regarding the application of GST and QST to a real estate transaction and the proportion in which it may be subject to taxes, the broker and his client should consult a tax expert..


(1) Provided, however, that the vendor has not claimed an input tax credit (“ITC”) or input tax refund (“ITR”) in respect of the acquisition of or improvements made to the building.

(2) Provided that the accountant had not claimed an ITC or ITR in respect of improvements made to the building. This example is taken from the initial section of Memorandum 19.2, Residential Real Property from the GST/HST Memoranda Series published by the Canada Revenue Agency (“CRA”).

(3) This example is taken from CRA, GST/HST Info Sheet GI-004 (August 2004).