Rules of Real Estate


Are you a corporation or an individual and you are constructing a building to be rented for a residential purpose? Be aware that you may be subject to the rules of section 191 of the Excise Tax Act. 


Section 191 of the Excise Tax Act (ETA) – Self-supply

This rule was introduced in order to put on the same footing a builder who would construct a new residential building and a developer or an individual who would purchase a new building from the builder. Without this rule, the builder would have a competitive advantage since he would benefit from a lower cost since he would not have had to pay taxes on the market value of the building as shown in the example below.


Cost for the builder
• Cost of the land: $ 100,000
• Total construction costs: $ 225,000
• Total cost = $ 325,000


Cost for the promoter and / or the individual
• Cost of purchase of a new building (taxable) = $ 325,000 + taxes = $ 373,669


We therefore see that, without this rule, the builder would be able to offer a lower rent to its tenants since his building cost don’t take into account the sales taxes that the developer and / or the individual must absorb when buying a new construction from the builder.

In order to overcome this deficiency, section 191 specifies that the builder is deemed to have made and received a taxable supply by way of sale of the building, on the later of:

• The day or the building is purchased for the most part (90%);
• The day or the building is transferred by lease to a tenant.


Application of section 191

In order to comply with these requirements, the builder must remit taxes on the fair market value of the property at the time of the deemed sale. Subsequently, upon the deemed immediate repurchase of the property, the builder may be eligible for the new housing rebate if it meets the criteria.

The builder must also be able to provide documentary evidence supporting the fair market value of the property at the time of the self-supply in the event that the value is disputed by the tax authorities. A specific evaluation report for this purpose is recommended.