HST and GST on Construction Projects

Sales tax rarely gets top billing in a conversation about construction costs, right up until it shows up as an unexpected six-figure line item on a large project, or a missed rebate that would have saved a homeowner thousands of dollars. Understanding how GST and HST actually apply to construction work, and what relief exists for new housing, is a basic piece of financial literacy for anyone building, buying newly built property, or running a contracting business in Canada.

GST vs. HST: The Basics

Canada applies sales tax on construction through one of two systems depending on the province. The Goods and Services Tax (GST) is a federal tax of 5%, applied on its own in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, and the three territories (Quebec also layers its own provincial sales tax on top through a separate system). The Harmonized Sales Tax (HST) combines the federal GST with a provincial component into a single tax, applied at 13% in Ontario and 15% in Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador.

For a contractor or homeowner, the practical difference is largely administrative, since HST is collected and remitted as a single combined tax rather than two separate ones. The rate itself, however, has a real impact on total project cost, and it needs to be accounted for at the budgeting stage, not discovered at invoicing.

How Tax Applies to a Construction Contract

A common misconception is that sales tax applies only to materials, with labour somehow exempt. In reality, GST and HST generally apply to the full value of a construction contract, materials and labour together, when work is performed by a GST/HST-registered contractor. This applies to new construction, renovations, and most repair work.

There are limited exceptions and special rules, including certain exports, some services provided to specific exempt entities, and the specific rebate and self-supply rules that apply to new residential construction, covered below. For the large majority of residential, commercial, and industrial construction contracts, though, the full contract value is taxable.

The GST/HST New Housing Rebate

To soften the impact of sales tax on new home purchases, the federal government offers the GST/HST New Housing Rebate, which returns a portion of the GST, or the federal portion of HST, paid on a new or substantially renovated home used as a primary residence.

The rebate applies on a sliding scale and phases out as the home's fair market value increases, with no rebate available once a new home's value reaches $450,000 federally (note that some provinces layer additional relief on top, discussed below). This threshold has drawn criticism for not keeping pace with home prices in many Canadian markets, but it remains the federal benchmark as of this writing.

Individual buyers purchasing from a builder can claim it, and so can people who build or substantially renovate their own home. Corporations and partnerships generally can't, which matters for anyone structuring a development through a corporate entity.

Ontario's Additional Provincial Rebate

Because Ontario's HST includes a provincial component, Ontario also runs its own new housing rebate covering part of that provincial portion, administered alongside the federal rebate. Ontario's provincial rebate has historically applied more broadly than the federal threshold, meaning some buyers of homes priced above the federal cutoff can still recover a portion of the provincial tax even when the federal rebate has fully phased out.

Provincial rebate rules shift more often than most buyers expect, so treat any number in this article as a starting point rather than a final figure. Before a purchase agreement gets signed or a claim gets filed, a quick check with the Canada Revenue Agency or an accountant familiar with real estate transactions can confirm what actually applies today.

Input Tax Credits for Contractors

Separate from the homebuyer rebate, GST/HST-registered contractors can generally claim input tax credits (ITCs) to recover the GST/HST they pay on legitimate business purchases: materials, equipment, subcontractor invoices, and other taxable business expenses. This is a standard part of running a registered construction business and is distinct from any rebate available to an end buyer.

Contractors need to be registered for GST/HST once they exceed the small supplier threshold (currently $30,000 in revenue over four consecutive calendar quarters), and proper ITC tracking is one of the more consistently overlooked bookkeeping tasks in smaller contracting operations, often leaving real money unclaimed at year end.

Common Mistakes

A handful of errors show up repeatedly around construction sales tax. Contractors sometimes quote a price without clearly stating whether tax is included, creating disputes at invoicing. Homeowners occasionally assume a rebate applies automatically without filing the correct paperwork, when in most cases a rebate must be actively claimed, either directly or assigned to the builder as part of the purchase agreement. Some smaller contractors fail to register for GST/HST once they cross the small supplier threshold, creating compliance exposure. And some estimates simply omit sales tax from an early budget entirely, leading to an unpleasant surprise once a final invoice or closing statement arrives.

None of this is a substitute for professional tax advice specific to a given project or purchase. Rebate thresholds, provincial rules, and registration requirements change periodically, and anyone with a specific transaction on the table should confirm current rules with the Canada Revenue Agency or a qualified accountant before relying on any general figure.