1. The Background Story
Jonus Contracting Ltd, a GST-registered building company, has just completed a new residential home.
They’ve claimed input tax credits (ITCs) for all the GST paid to tradespeople, suppliers, and other costs associated with building the property.
Their plan was to sell the home — and since the sale of a new residential property is a taxable supply, claiming those ITCs was completely correct.
But then Jonus changed their mind. The market was soft, so they decided to rent the property for six months before selling it.
At first glance, this seems harmless. But in the eyes of the CRA, this change has a GST consequence.
2. The Self-Supply Adjustment Explained
CRA requires Jonus to declare GST on the current value of the property when it is first rented out.
This is called “self-supply of new residential premises.”or a “change in use adjustment”
In simple terms:
Jonus is treated as if they sold the house to themselves at market value.
That means Jonus must:
- Work out the GST-inclusive market value of the property on the day it is first rented; and
- Declare 5/105 of that amount as GST on their next GST return. (Rate applicable to Alberta.
3. What Happens When the Property Is Eventually Sold
After renting it out for six months, the house becomes a “used residential premise.”
That means its sale will be GST-free — Jonus won’t charge GST on the sale price.
However, because they’ve already declared GST on the change to rental use, they’ve properly adjusted their GST obligations.
This ensures the system is fair:
- When you build for sale (taxable) — you get ITCs.
- When you rent (input-taxed) — it becomes a ‘notional’ sale
- When you sell as a used house — no GST applies.
Diamond K Adatia, CPA, CA