Canadian Contractor

The Myths of Contracting Part 3: If I build a house and live in it for a year, I can sell it free of HST/GST or capital gains tax.

"In fact, CRA doesn’t require a set time of occupancy to treat a house as your principal residence"

July 10, 2019
By canadiancontractor

By Steve Ryan

It is widely believed that by occupying a home for 12 months you can then sell it as a “resale” to allow enormous tax savings.  As with a lot of conventional wisdom this statement is not flat-out wrong.  But it’s not quite accurate either and that presents a potential hazard.  Sometimes people treat it as hard and fast rule and they base much of their business activity on it.  That can get you in trouble so you should understand the limitations of this rule of thumb.

Selling your principal residence rather than selling the same house as a new-build can save tax at two levels.

  • As a resale, the seller would not need to collect sales tax (HST/GST) and remit to the government.
  • As a principal residence, the gain between your selling price and your cost to build isn’t taxed.

If I truly have built a house for my family to live in then both of the above statements hold true.  However, the Canada Revenue Agency (CRA) has to agree this has been your principle residence.  That CRA decision will be greatly influenced by circumstances and patterns in your recent history. If CRA sees a pattern, or if there are other indications that this was a business activity, the length of time you occupied the house doesn’t put you in the clear. Serial “self-builders” are pretty easy to spot, which is not to say that builders are not entitled to sell their personal home just as everyone else can. Just don’t engage in a business activity under the flawed notion that meeting an occupancy threshold transforms it into a personal transaction.

In fact, CRA doesn’t require a set time of occupancy to treat a house as your principal residence. For instance, if I get transferred and must move, I could sell the house long before living in it for 12 months and still treat it as a resale for tax purposes. People might consider that a very nice thing for the CRA to do, but there is a less forgiving reason they don’t define a time line.

If that looks like a minor risk you are willing to take for big dollar benefits, let’s look at another misconception.  How enormous are those tax savings when selling as your principal residence?  The difference is probably less than you think.  Numbers will obviously differ from province to province and project to project, but let’s look at Ontario for our example.

  • Selling a new build, through your company allows you to recover HST/GST that you paid on your costs (e.g. on materials and sub-trades) as Input Tax Credits. That option is not possible with a self-build.  Except for a modest provincial rebate, the HST/GST paid on your build costs becomes a cost to you.
  • It’s true, a gain on selling your principle residence is tax free, but if your company earned that profit, your business is likely taxed at 12.5% (in Ontario).   That’s not as good as zero, but nor is it the “hundreds of thousands of dollars” some people assume it to be.
  • To try and take this down to dollar amounts, on a $1million house, with typical profit margins for the industry, your “resale” might earn just about $100thousand more after tax than the same house sold as a “New Build” through your company. Certainly not trivial


While we started out by saying CRA doesn’t have a stated threshold for how long you must live there:

  • You would have to move in.
  • You would have to move out.
  • Your capital is tied up in that house and so you have a carrying cost
  • You have to insure the property, provide utilities etc….

The net result is most of what you gain by selling as a resale, you will spend just to establish the place as your principal residence.

None of this is to suggest that there is no benefit to selling your principal residence as a resale.  If that reflects reality then yes you should.  That is the best financial outcome for you.  But as a way of doing business, be aware:

  • There is a risk, and you don’t mitigate it by simply taking up residence for a set period of time
  • The financial benefit is probably less than you think

In other words, what you may have seen as small risk with a big dollar reward, is probably a somewhat greater risk with somewhat smaller reward.


MMI Professional Services is committed to the success of contractors by helping them develop the business and management skills they need .  For information on ways to run a better building business contact the writer at


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1 Comment » for The Myths of Contracting Part 3: If I build a house and live in it for a year, I can sell it free of HST/GST or capital gains tax.
  1. Rob says:

    A homeowner can do his own electrical work as long as you obtain a permit and have it inspected.

    As an electrician I have done my own framing at my rental and had it inspected by the City.

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