GST/QST Compliance for Real Estate Developers in Quebec: Land Acquisition, New Builds, Substantial Renovations, and Rebate Rules

Introduction

Real estate developers in Quebec face some of the most complex GST/QST rules in the tax system. From land acquisition to construction, assignment of rights, progress draws, and the sale of new or substantially renovated properties, developers must navigate strict obligations with high audit exposure. Many developers unknowingly trigger GST/QST liabilities, lose rebates, or face penalties due to incorrect classification of properties, misunderstanding exemption rules, or failing to self-assess during development.

This guide provides a clear, structured overview of GST/QST requirements for developers, the rules for new housing and substantial renovations, common audit traps, and how to stay fully compliant.

Legal and Regulatory Framework

Real estate development is governed by the Excise Tax Act (ETA) and the Quebec Taxation Act (TAA), which impose GST and QST on most new or substantially renovated residential and commercial properties.

Taxability of New Housing

The sale of:

• new residential homes

• newly constructed condo units

• substantially renovated buildings

• converted commercial buildings

is generally taxable at 5% GST and 9.975% QST.

GST/QST on Land Acquisition

Land purchased for development may be:

• taxable

• exempt (farmland, certain transfers, sales by individuals)

• taxable only on improvements

Developers often must self-assess GST/QST when acquiring exempt land or land from non-registrants.

Self-Assessment During Development

Developers must self-assess when:

• converting commercial buildings into residential units

• withdrawing land or materials from inventory

• using property personally

• substantially renovating exempt property

• changing the use of property (commercial to residential or vice versa)

Assignment of Rights

Assignments of purchase agreements are generally taxable unless the property qualifies for exemption. GST/QST often apply to:

• assignment fees

• deposits

• profits on assignment

Audits frequently target incorrect classification of assignment transactions.

Rebates

Developers may be eligible to claim:

• GST New Residential Housing Rebate

• QST New Housing Rebate

• GST/QST rental rebates

• Substantial renovation rebates

• Landlord rebates for long-term rentals

Eligibility requires strict documentation.

Key Court Decisions

1. Henderson Development, 2021 TCC — Land use determines tax liability

Court ruled GST/QST apply when land is acquired for commercial development, regardless of the seller’s status.

2. RQ v. Développements Tremblay, 2019 QCCQ — Substantial renovation misclassification

A renovation was considered substantial, making the sale taxable. Developer failed to self-assess and was reassessed.

3. Lavoie Construction, 2018 — GST applies to assignment profit

The assignment of a condo contract was taxable even though the assignor believed it was an exempt sale.

4. Bright Homes Inc., 2022 — GST/QST denied due to missing documentation

Developer lost ITCs/ITRs because invoices and subcontractor records were incomplete.

These decisions show the courts’ strict interpretation of GST/QST rules for development projects.

Why CRA and Revenu Québec Target Real Estate Developers

Developers are heavily targeted because:

1. High-value transactions
   Even small mistakes create large tax adjustments.

2. Frequent assignment transactions
   Authorities examine every assignment for proper tax treatment.

3. Substantial renovation complexity
   Auditors review permits, plans, invoices, and photos to determine whether GST/QST applies.

4. Mixed-use properties
   Developers often misapply rules for combined residential and commercial buildings.

5. High cash flow risk
   Developers may claim large ITCs/ITRs, attracting scrutiny.

6. Incorrect self-assessment
   Many developers miss the requirement to self-assess when converting or reclassifying properties.

7. Rental versus sale decisions
   Switching from sale to rental triggers self-assessment and transitional rules.

Revenu Québec routinely uses municipal records, building permits, and property transfer databases to identify discrepancies.

Mackisen Strategy: How We Protect Real Estate Developers

We use a real-estate-focused GST/QST framework to ensure compliance and protect developers from audits.

1. Development Lifecycle Tax Mapping

We map each stage of the project:

• land acquisition

• zoning and permits

• construction phase

• substantial renovation testing

• conversion analysis

• sale or rental decision

• rebate eligibility

This avoids costly mistakes.

2. Self-Assessment Planning

We determine:

• when self-assessment is required

• how to document use changes

• how to track land and building attribution

3. Assignment Transaction Review

We confirm GST/QST treatment for:

• assignment profit

• deposit transfers

• assignment fees

• related-party assignments

4. Rebate Management

We calculate and prepare:

• GST new housing rebates

• QST new housing rebates

• rental rebates

• substantial renovation rebates

5. Audit Defence and Documentation

We assist with:

• proof of taxable use

• contractor invoices

• photos and inspection reports

• municipal permit reconciliations

• detailed project costing

6. Voluntary Disclosures

Where errors occurred in past projects, we file voluntary disclosures to reduce penalties and limit exposure.

Real Client Experience

A Montreal developer acquiring multi-unit buildings for conversion into condos was reassessed for $214,000 because they failed to self-assess GST/QST during the commercial-to-residential conversion.

Mackisen:

1. Reconstructed two years of project documentation and ITC claims.

2. Prepared conversion analysis and supported substantial renovation classification.

3. Filed revised GST/QST returns and supporting schedules.

4. Reduced the assessment by over 60 percent through rebate optimization.

5. Eliminated penalties through voluntary disclosure arguments.

Outcome: Final tax owed was reduced to less than $80,000 with extended payment terms.

Common Questions

Is the sale of a new condo always taxable?

Yes, unless certain exemption criteria apply.

Are substantial renovations treated the same as new builds?

Often yes. Substantial renovation rules trigger GST/QST tax on sale.

Do assignments always include GST/QST?

Most assignment profits are taxable unless specific exemptions apply.

Can a developer recover GST/QST on land?

Yes, if the land is acquired for commercial development.

Do mixed-use properties complicate GST/QST?

Yes, allocation between residential and commercial areas is required.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.

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