Overview: A GST/HST “Builder” Case That Skipped the First Question
On September 1, 2026, the Tax Court of Canada released its reasons in 2520356 Ontario Corp. v. The King, 2026 TCC 161, allowing a corporate taxpayer’s appeal from a GST/HST assessment of $126,100 on the sale of a Toronto property that had been gutted down to its foundation and studs, then abandoned mid-renovation, and sold “as is” at a substantial loss. Justice Bocock held that because the taxpayer’s contractor never got past demolition, the taxpayer never carried on a “substantial renovation” and therefore never became a “builder” within the meaning of subsection 123(1) of the Excise Tax Act; the sale was accordingly an exempt supply of a residential complex, and no HST was payable.
With respect, we think the Court asked the wrong first question. A decades-old, and largely overlooked, line of Tax Court authority, Leowski (A.D.) v. Canada, Balicki v. R., Ko v. R., and Yakabuski v. The Queen, 2008 TCC 27, holds that a structure which has been demolished, gutted, burned, or otherwise left uninhabitable is simply not a “residential complex” at all, regardless of how the “builder”/“substantial renovation” analysis comes out. On the facts as the Court itself found them, that older line of authority points to the opposite result on the merits: HST payable, not exempt. This article walks through the facts of 2520356 Ontario Corp., the Court’s reasoning, and why we think the antecedent “residential complex” question, not the “builder” question, should have been decisive.
Background
Facts: A Renovation That Stalled After Demolition
The taxpayer, 2520356 Ontario Corp., purchased 1059 Briar Hill Avenue in Toronto on October 22, 2018, intending to fully renovate and resell it for profit. Two days later, it engaged a general contractor, Open Concepts, under contract to carry out that renovation. Over the following two years, Open Concepts completed most of the demolition but almost none of the reconstruction, then abandoned the jobsite entirely after the teardown, before any rebuild. The Court described what was left as an “exo-skeletal husk of a building,” adding that “describing the property as ‘gutted’ is complimentary”. The taxpayer successfully sued Open Concepts in the Ontario Superior Court of Justice for breach of contract, and photographs in evidence showed “a totally excoriated interior of all four levels”.
On September 21, 2020, the taxpayer sold the gutted, unrenovated property “as is/where is” at a substantial loss. The listing agreement described it as an opportunity for “Investors, Builders, Renovators… Opportunity for a great investment!!” “Sold in ‘as is’ condition”.
The Assessment, the CRA’s Concession, and the Live Issues
On July 21, 2021, the CRA assessed HST on the aggregate $970,000 purchase price for the reporting period ending December 31, 2020, on the theory that the taxpayer had engaged Open Concepts to carry on substantial renovation with the intention of making a profit, making the taxpayer a “builder” under subsection 123(1), so that the sale was a taxable supply and not exempt under section 2, Part I, Schedule V of the Act. During the almost three years it owned the property, the taxpayer also claimed input tax credits (“ITCs”) of $23,700.84 (2018), $16,775.07 (2019), and $891.59 (2020). Before trial, the CRA conceded a calculation error: the HST had been computed on top of the $970,000 price rather than as included in it, reducing the assessed amount by $14,606.08 to $111,592.92; this concession alone accounted for part of the relief the taxpayer obtained, and is not affected by anything discussed below.
That left two contested issues: whether the abandonment of the renovation project part-way through recharacterized the taxpayer’s “builder” status so that the sale of the property was an exempt supply of a residential complex, and whether the small ITCs claimed in 2020 were further evidence that the taxpayer remained a “builder” at the time of sale.
Key Issues and Findings
How the Court Framed the Question: Two Halves of a “Renovation”
Justice Bocock reasoned that “renovation” has two sequenced components, demolition and reconstruction, and that “the implication is that a property would have to have been gutted to have been 90% renovated”. Because Open Concepts stopped after demolition and before any rebuild, the Court held that no “renovation,” let alone a “substantial” one, had occurred, so the taxpayer never carried on or engaged another person to carry on substantial renovation and never met the “builder” definition.
The Court further found the small 2020 ITCs, tied to late-arriving architect invoices, to be an inadvertent claiming error unconnected to the taxpayer’s core strip-mall business, and not determinative of builder status. Justice Bocock candidly noted that neither party could point him to a case addressing this precise fact pattern (a taxpayer “irrevocably stymied from completing any meaningful reconstruction to the property beyond the demolition phase”) and treated the result as something of a legal “oddity”.
The Question We Say Comes First: Was There a “Residential Complex” to Exempt at All?
The exemption the taxpayer needed, section 2 of Part I of Schedule V, only exempts the sale of “a residential complex or an interest therein.” Under paragraph 123(1)(c), the making of any supply of real property that is not an exempt supply is itself “commercial activity,” and a taxable supply of real property attracts HST under subsection 165(1). Put another way, a corporation that sells real property in the course of an adventure in the nature of trade, which the taxpayer candidly was, per paragraph 1 of the reasons, is taxable by default unless the specific real-property exemptions in Schedule V, Part I apply.
Whether the taxpayer was a “builder” only matters if the property being sold was, in fact, a “residential complex” in the first place: the “builder” carve-out in section 2 is an exception to an exemption that presupposes its own subject matter. If 1059 Briar Hill Avenue was not a “residential complex” when it was sold (regardless of why not), section 2 has nothing to exempt, and the “builder” question never needs to be reached.
That antecedent question, what physical state must a structure be in to qualify as a “residential complex” or “residential unit” under subsection 123(1), is not novel. It has been litigated, and answered consistently, since at least 1996.
Four Decisions That Answer the Antecedent Question
In Leowski (A.D.) v. Canada, [1996] G.S.T.C. 55 (T.C.C.), Bowman J. held that vacant land, on which a previous home had been demolished and which had merely been preloaded with sand for future construction, was not a “residential complex” or “residential unit,” because the definitions require a “building,” and “the plain meaning of ‘building’ does not include a plot of vacant land,” even one earmarked for construction. The sale was accordingly a taxable, non-exempt supply.
In Balicki v. R., [1997] G.S.T.C. 57 (T.C.C.), Beaubier J. held that the taxpayer’s uninsulated, unheated basement, lived in for over four years while the family waited for the rest of the house to be built, did not become a “residential complex” until the furnace and ductwork were installed: “any passer-by would have said that they were living in a basement or, perhaps, in a hole in the ground.” A residential complex, the Court held, must be “a building with a foundation, external walls, interior supporting walls, floors, a roof and staircases” and must also be “qualified for human residence, since that is intrinsic in the word ‘residential’ under the Excise Tax Act.”
In Ko v. R., [2003] G.S.T.C. 3 (T.C.C.), Little J. held that a partially built home, not yet finished and not approved for occupancy at the time of transfer, was not a “residential complex” because “the above definition does not include partly finished buildings”, with the consequence, in that case, that the transfer was a fully taxable supply rather than an exempt one.
And in Yakabuski v. The Queen, 2008 TCC 27, Margeson J. reviewed all three of the above decisions and distilled from them “a commonality… the requirement that whatever is transferred be inhabitable or be capable of being used as a place of residence”. On facts closely analogous to those in 2520356 Ontario Corp., a single-family home that had been seriously damaged by fire, leaving only “partially destroyed remnants,” and whose ruins were sold as-is, the Court held those remnants were not a “residential complex” and that the sale was accordingly not exempt as the sale of a used residential complex.
Not All Four Cases Fit the Same Fact Pattern
It is worth being precise about what these four decisions actually involve, since they are not all the same kind of case. Balicki and Ko are new-construction cases: a home was being built for the first time and had simply not yet reached a habitable state. Leowski and Yakabuski are different: both involve a structure that already existed as a home and was later lost, demolished to vacant land in Leowski, damaged by fire in Yakabuski. Neither is a stalled renovation in the way this case is, but both share the trajectory that matters here: an existing residential complex that stopped being one. That makes Leowski and Yakabuski the closer factual analogues to 1059 Briar Hill Avenue, and Yakabuski in particular, the only one of the four decided under the General Procedure, carries the same precedential weight as 2520356 Ontario Corp. itself.
The fact that two of the four run toward habitability and two run away from it does not change the outcome. The test that Yakabuski distills from all three earlier decisions, that a structure must be inhabitable or capable of being used as a place of residence, is framed as a physical characteristic of the property at the relevant time, not as a test that depends on which direction the property was travelling. Subsection 123(1) contains no language suggesting that a structure which was once a residential complex retains that status after it stops being habitable, or that a structure under construction is closer to qualifying than one that has been stripped back to the same physical state. A gutted shell is a gutted shell under the statutory definition regardless of whether a wrecking crew got there by tearing a finished house down or by never finishing building it up.
Applying That Line of Authority to 1059 Briar Hill Avenue
The Court’s own findings of fact in 2520356 Ontario Corp. map directly onto the Leowski/Balicki/Ko/Yakabuski line. The property, at the time of sale, had been demolished down to its foundation and studs; the Court itself called it an “exo-skeletal husk of a building” and found, in its own words, that the property “was not substantially renovated, but a residential unit of used, but oddly not habitable, housing stock”. “Not habitable” is precisely the language Balicki, Ko, and Yakabuski use to place a structure outside the definitions of “residential complex” and “residential unit” altogether (not because of who built it, when, or why, but because of what it physically was on closing day. Once that finding is made, the section 2 exemption for the sale of a “residential complex” has no work to do, and there is no need for the elaborate builder/substantial-renovation inquiry that occupies most of the Court’s reasons: an uninhabitable structure is not a residential complex whether or not anyone ever “renovated,” “substantially renovated,” or merely demolished it.
Justice Bocock observed that no case law directed the Court on “this situation”. That is true of the narrow “builder”/“substantial renovation” question the Court chose to ask. It is not true of the broader, logically prior question of whether the property was a “residential complex” at all, a question on which Leowski, Balicki, Ko, and Yakabuski speak with unusual consistency across more than a decade. It is also worth noting, for completeness, that Leowski, Balicki, and Ko were all decided under the Tax Court’s informal procedure and are, by statute, not binding precedent for other cases; only Yakabuski, decided under general procedure, and 2520356 Ontario Corp. itself carry full precedential weight. But Yakabuski expressly treated the reasoning in the other three as persuasive and adopted it in a general-procedure judgment, and nothing in 2520356 Ontario Corp. addresses, distinguishes, or even cites any of the four.
On the physical facts the Court found, a gutted, uninhabitable structure sold “as is”, that line of authority points toward a taxable supply of real property under paragraph 123(1)(c), with HST collectible on the purchase price (subject to the CRA’s calculation concession), rather than an exempt sale of a residential complex.
Practical Implications for Canadian Taxpayers
2520356 Ontario Corp. is a General Procedure decision and, unlike the three informal-procedure cases discussed above, is available to be cited as precedent. Corporations engaged in renovate-and-flip projects, and their advisors, may be tempted to read it as authority that a stalled renovation) demolition without rebuild automatically preserves an exemption for the eventual sale. We think that reading is unsafe, both because it rests on an analytical shortcut that a reviewing court could reject, and because the CRA remains free to appeal, to seek a different result on similar facts in a future case, or simply to decline to apply 2520356 Ontario Corp. outside its own unusual fact pattern. Taxpayers in the middle of a stalled or abandoned renovation project should not assume that walking away from the rebuild automatically converts a taxable sale into an exempt one.
The physical condition of the property at the time of sale, and whether it remains capable of being used as a place of residence, is likely to remain the more defensible starting point for a GST/HST analysis, consistent with our overview of GST/HST zero-rated and exempt supplies and with the reasoning the Tax Court itself has applied in the new housing rebate context, where similar questions about the state of a structure (including whether a home was a taxpayer’s primary place of residence) regularly determine the outcome.
The same principle runs through the CRA and Tax Court’s treatment of the self-supply rules for builders of residential property, and taxpayers who are unsure whether their own fact pattern makes them a builder should review our guidance on how the CRA approaches a GST/HST tax audit of a builder of residential real property.
Takeaway
2520356 Ontario Corp. allowed the taxpayer’s appeal by asking whether the taxpayer had completed a “substantial renovation” and become a “builder.” We think the more fundamental, and better-settled, question was whether the gutted, uninhabitable structure the taxpayer sold was still a “residential complex” at all. Leowski, Balicki, Ko, and Yakabuski all say that an uninhabitable structure, whether demolished, unfinished, fire-damaged, or gutted, falls outside that definition, which would have made the section 2 exemption unavailable regardless of the taxpayer’s builder status, and the sale a taxable supply. Practitioners handling a similar fact pattern, on either side of the assessment, should be prepared to argue both the “builder” question the Court decided and the antecedent “residential complex” question it did not reach.
Pro Tax Tips
Document the physical condition of a renovation property at every stage, and especially at the point of sale. Whether a structure is or is not a “residential complex” turns on habitability and physical completeness at the relevant time, not on the seller’s original intentions, so photographs, inspection reports, and the listing description itself can become the central evidence in a later GST/HST dispute.
Do not assume that an abandoned or stalled renovation automatically preserves an exemption. If a project stalls after demolition and before rebuilding, get advice on the GST/HST position, including whether HST should be collected and remitted protectively, including through a voluntary disclosure, before listing the property for sale, rather than after a reassessment arrives.
According to David Rotfleisch, Law Society of Ontario (LSO) Certified Specialist in Taxation, CPA, founder of Rotfleisch & Samulovitch PC (Taxpage), “this decision is a reminder that the GST/HST real-property exemptions in Schedule V are built around specific, defined terms, ‘residential complex,’ ‘builder,’ ‘substantial renovation’, and a court that answers only one of those questions can end up with the wrong result even while applying each individual test correctly. Anyone selling a stalled renovation project should get advice on both the builder analysis and the more basic habitability question before closing, not after CRA reassesses.”
FAQs
What makes a property a “residential complex” for GST/HST purposes?
Subsection 123(1) of the Excise Tax Act defines a “residential complex” as, broadly, that part of a building in which one or more residential units are located, together with related common areas and land. Case law going back to Leowski (1996) has consistently required that the structure be a “building” in the ordinary sense, with a foundation, walls, floors, a roof, and staircases, and that it be capable of being used or occupied as a place of residence. A vacant lot, an unfinished basement, a partially built home, a fire-damaged shell, or a gutted structure stripped to the studs has each been held, on its own facts, to fall outside the definition.
What is a “builder,” and why did it matter in 2520356 Ontario Corp.?
A “builder” of a residential complex includes a person who, while holding an interest in the property, carries on or engages another person to carry on the construction or substantial renovation of the complex. The sale of a residential complex by a builder is generally a taxable supply, while the same sale by a non-builder is generally exempt. In 2520356 Ontario Corp., the Court held that because the contractor never completed any rebuilding, no “substantial renovation” occurred and the taxpayer never became a “builder,” so the exemption applied.
How does 2520356 Ontario Corp. depart from Leowski, Balicki, Ko, and Yakabuski?
Those four decisions ask whether the structure being sold was, physically, a “residential complex” or “residential unit” at all, a threshold question that does not depend on who renovated it or why. 2520356 Ontario Corp. instead assumed the property was a residential complex and asked only whether the taxpayer met the “builder” definition. Because the Court’s own findings describe the property as an uninhabitable, gutted shell, the older cases suggest the threshold question should have been asked, and answered, first, and answered against exemption.
Is 2520356 Ontario Corp. binding precedent?
Yes. It was decided under the Tax Court’s General Procedure, unlike Leowski, Balicki, and Ko, which were decided under the Informal Procedure and are not to be treated as precedent for other cases. Yakabuski was itself a General Procedure decision, and it expressly adopted the reasoning of the three informal-procedure cases as persuasive. 2520356 Ontario Corp. does not address, distinguish, or cite any of the four.
What should a corporation do if a renovation project stalls before resale?
Get advice before listing the property. Document the physical state of the property at every stage, keep the listing description consistent with that state, and consider whether HST should be collected and remitted on the eventual sale rather than assuming an exemption applies because the renovation was never finished.
Can the CRA appeal 2520356 Ontario Corp.?
The CRA may appeal a Tax Court General Procedure decision to the Federal Court of Appeal within the statutory time limit. Whether an appeal is taken, and on what grounds, will depend on the CRA’s own view of the decision and of the arguments, including the “residential complex” line of authority discussed above, that were not raised or addressed at trial.
What happened to the small input tax credits the taxpayer claimed in 2020?
The taxpayer claimed $891.59 in input tax credits (ITCs) in 2020, tied to late-arriving architect invoices. The CRA argued these claims showed the taxpayer still considered itself a builder at the time of sale. The Court found the claim to be an inadvertent error unconnected to the taxpayer’s core strip-mall business and gave it no weight in the builder analysis.
Does the CRA have to follow 2520356 Ontario Corp. in future cases with similar facts?
No. A single Tax Court General Procedure decision does not bind a differently constituted panel of the same court, and the CRA can advance a different argument, including the residential complex line of authority discussed above, in a future case with different facts or a different record. Taxpayers should not treat 2520356 Ontario Corp. as a guarantee of the same result on similar but not identical facts.
Does listing a property “as is/where is” affect whether it is a “residential complex” for GST/HST purposes?
The listing language itself is not decisive, but it can be important evidence of the property’s physical condition at the time of sale. In 2520356 Ontario Corp., the listing described the property as “Sold in ‘as is’ condition” and marketed it to investors and renovators, which supported the Court’s finding that no habitable structure existed at closing. Sellers should expect a listing description that emphasizes a property’s unfinished or gutted state to be used as evidence in a later GST/HST dispute.
How does this GST/HST analysis relate to Canada’s residential property flipping tax rules?
They are separate regimes. The federal residential property flipping rules under the Income Tax Act deem profit on the sale of a property owned for less than 365 days to be business income rather than a capital gain, regardless of GST/HST treatment. A corporation like the taxpayer could face a flipping-tax analysis on the income tax side even where, as here, the GST/HST treatment of the sale turns on separate “builder” and “residential complex” definitions in the Excise Tax Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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