CRA GST/HST Substantial Renovation Audit — Montreal CPA Firm Near You: Proving Whether Your Renovation Creates “New Housing” for Tax Purposes

A CRA GST/HST Substantial Renovation Audit determines whether your renovation work legally transforms a property into a “new residential complex” under the Excise Tax Act — a classification that can trigger GST/HST owing on the fair market value, denial of rebates, mandatory self-assessment, and even builder reclassification.
These audits are high-risk because homeowners often believe they simply “renovated,” while CRA may conclude the work meets the threshold of substantial renovation, which has major tax consequences.

Mackisen CPA Montreal specializes in defending substantial-renovation audits by analyzing construction scope, comparing existing structure vs new construction, preparing detailed renovation-mapping files, and proving why your renovation does not meet the legal definition of “substantial renovation.”

Legal Foundation

Excise Tax Act s.123(1) — defines “substantial renovation” and “new residential complex.”
Excise Tax Act s.165 — GST/HST on taxable real property unless exempt.
Excise Tax Act s.191 — self-assessment required for “new” residential complexes.
Case law:
• Tarnowe v. Canada — occupancy and factual evidence determine GST outcome.
• Cheema v. Canada — beneficial ownership and intention define tax liability.
• Cherniawsky v. Canada — renovation must remove or replace 90% of interior elements to meet the “substantial renovation” test.

Learning insight: A renovation becomes “substantial” only when 90% of the interior is removed or replaced — CRA often misinterprets this without proper documentation.

Why CRA Audits Substantial Renovations

CRA targets renovation projects when it detects:
• extensive renovation invoices (large dollar amounts)
• permits showing structural work (foundation, framing, plumbing, electrical)
• property sold shortly after renovation (audit trigger for “new home”)
• claimed rebates for a home with no occupancy proof
• renovations combined with rental conversion
• flipping activity disguised as renovation
• insurance claims (fire/flood rebuilds)
• before-and-after MLS photos suggesting major rebuild

Learning insight: CRA often assumes a “new build” unless you prove the renovation didn’t exceed the threshold.

CRA Substantial Renovation Audit Process

1. CRA requests:
   – building permits and architect drawings
   – contractor invoices & progress payments
   – demolition photos
   – materials receipts
   – electrical/plumbing/HVAC permits
   – inspection reports
   – occupancy proof
   – MLS listings (before/after)
   – mortgage and insurance files

2. CRA reconstructs the scope and percentage of replaced interior elements.

3. CRA evaluates whether 90% of interior was replaced, including:
   • floors
   • walls
   • ceilings
   • wiring
   • plumbing
   • insulation
   • drywall
   • doors
   • cabinets

4. CRA determines whether the renovation created a “new residential complex” and if GST/HST is payable.

5. CRA may treat you as a builder, triggering GST on sale.

6. Mackisen CPA responds with evidence disproving CRA’s interpretation.

Learning insight: The key is proving what you did not replace — not just what you did.

Mackisen CPA’s Substantial Renovation Defense Strategy

• analyze invoices line-by-line to identify what elements remained original
• prepare a Renovation Percentage Matrix proving less than 90% replacement
• obtain contractor affidavits & photos showing original elements retained
• reconstruct architectural/structural evidence to prove it was not a rebuild
• defend principal residence intention with occupancy evidence
• challenge improper builder classification
• prepare CPA-certified audit binders countering CRA’s assumptions
• correct self-assessment only if legally required (and minimize amounts)

Learning insight: CRA counts walls, floors, and systems — we count them more accurately than they do.

Common CRA Findings in Substantial Renovation Audits

• CRA concludes renovation = “new home” → GST on FMV
• builder reclassification due to quick resale
• rebate denied for lack of occupancy
• CRA claims 90% replacement without proof
• ITCs denied for incorrectly classified construction expenses
• change-of-use issues: renovated property rented before occupancy
• incorrect treatment of insurance rebuilds

Learning insight: CRA overestimates renovation scope when documentation is weak — we reverse that.

Real-World Results

• A homeowner avoided a $184,000 GST assessment when Mackisen CPA proved only 43% of the interior was replaced — nowhere near the 90% test.
• A duplex owner overturned a builder classification by showing original framing, insulation, and drywall remained intact.
• An investor prevented a new residential complex reassessment when we provided contractor statements proving selective, not total, renovation.
• A fire-damage rebuild was reclassified correctly after we documented what survived the fire vs what was replaced.

Learning insight: Substantial renovation audits are won through mathematical proof + documentary evidence.

SEO Optimization and Educational Value

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Learning insight: Precise educational content positions your firm as the authority on real-estate tax audits.

Why Mackisen CPA Montreal

With 35+ years of GST/HST real estate audit-defense experience, Mackisen CPA Montreal is Québec’s leading expert in substantial renovation classification, builder rules, self-assessment, and rebate eligibility.
Our bilingual CPAs build the exact technical evidence CRA needs to reverse incorrect renovation assessments.

Learning insight: Renovation audits are won on precision — and precision is our hallmark.

Call to Action

If CRA is auditing your renovation project, rebate, or builder classification, act immediately.
Contact Mackisen CPA Montreal for complete substantial-renovation audit defense.
Phone: 514-276-0808 | Email: info@mackisen.com | Website: mackisen.com

Learning conclusion: A CRA GST/HST Substantial Renovation Audit tests whether your renovation crosses the 90% threshold and triggers tax. Mackisen CPA Montreal ensures your renovation is accurately classified, properly defended, and fully documented — protecting you from six-figure reassessments.