Tax liabilities to watch out for when building residential property.
If you are building a residential property or have acquired a residential property with a business purpose, and you subsequently rent the property (as opposed to sell), you may be deemed to have disposed of the property at fair market value and immediately reacquired it at the same price. That is to say, if the fair market value is greater than your initial cost to complete the property, you will have to report a gain on the deemed disposition to yourself. This is what is referred to as the self-supply rules.
The rules aim to level the playing filed with builders that build and subsequently sell the property right away. These builders must report the gain/loss on the sale of the property.
The rules prevent a builder from building a property and subsequently renting it out and deferring the tax liability on the gain until its eventual disposition.
If the residential property is brand new or substantially renovated, there will be a GST tax liability on the sale or self-supply of the property as well. You may be able to claim a new housing rebate or a new residential rental property rebate on the GST that is owed on the sale or self-supply.
An exception to the self-supply rule is if the builder subsequently occupies the single residential property for personal use and has not claimed GST paid (ITC’s) on the initial build.
Book a consultation today to learn more about the GST and self-supply rules for home builders.
Book a consultation with KENNEDY to learn more about the GST and self-supply rules for home builders.
