Accounting for Renovation Contractors in Ontario: The 90% Rule and the New Rebates

Last reviewed: July 2026

If a renovation removes or replaces 90% or more of the interior of an existing home, it is a substantial renovation, and for GST/HST purposes the house is generally treated the same as a newly constructed one. That changes your client's rebate entitlement, and in 2026 it changes it by a lot: Ontario introduced a temporary enhanced new housing rebate worth up to $80,000 of the provincial portion of HST, and a new federal first-time home buyers' rebate worth up to $50,000. Both apply to substantially renovated homes.

You are not the one claiming those rebates. But your scope documentation, your dates and your invoices are the evidence your client needs to claim them, and a renovation contractor who understands this is worth more to a homeowner than one who does not.

The three things a renovation contractor needs to know

Topic	The rule
Substantial renovation	90% or more of the existing building removed or replaced, ignoring foundation, external walls, interior supporting walls, floors, roof and staircases
Are you the builder?	Generally no. A contractor working on land owned by someone else, with no interest in the land, is not a builder
Deposits	A deposit is not consideration for HST until you apply it to the price, refundable or not

The 90% test, precisely

The statutory definition asks whether all or substantially all of the building, other than the foundation, external walls, interior supporting walls, floors, roof and staircases, has been removed or replaced. The CRA interprets "all or substantially all" as 90% or more.

Four details that decide real cases:

Those six components are excluded from the test. You do not have to touch the foundation, exterior walls, interior supporting walls, floors, roof or staircases. They are generally ignored in the calculation. But replacing them can still be taken into account in your favour, so replaced floors may help demonstrate that a substantial renovation occurred.

Repair is not replacement. Patching drywall, painting, sanding a hardwood floor or adding varnish does not count toward the 90%. Removing and rebuilding does.

Livable area only. Included: main floor living areas, finished basements, finished attics, a guest bedroom over a detached garage. Excluded: garages, parking areas, crawl spaces, and areas set aside for heating, water, gas or electrical equipment. An unfinished basement is ignored in the calculation.

Additions do not qualify on their own. The definition requires the existing structure to be substantially renovated. An addition is not a substantial renovation, and cannot make one on its own.

Measurement can be by floor space, floor and wall space combined, or number of rooms, as long as the method is fair and reasonable. CRA's own worked examples include 1,800 of 2,000 square feet renovated, and nine of ten rooms.

You are almost certainly not the builder, and that is good news

This is the point that removes most of the anxiety.

A person hired to provide construction services on land that is leased or owned by someone else, and who has no interest in that land, is generally not considered a builder. A contractor hired by an owner to substantially renovate an existing house on that owner's land is not a builder of the house.

So your position as a renovation contractor is straightforward: charge and remit 13% HST on the labour and materials you supply. The self-supply rules that catch builders when a newly built or substantially renovated home gets rented out instead of sold do not land on you. They land on the homeowner or developer who owns the land.

Where you take on an interest in the land, buy, renovate and resell, or build on your own account, the analysis changes completely and you need advice before you start, not after.

Ontario's temporary enhanced new housing rebate

This is new, it is enacted, and it is time limited.

Ontario introduced a temporary enhanced new housing rebate by regulation made June 12, 2026. It applies where the agreement of purchase and sale is entered into with a builder on or after April 1, 2026 and on or before March 31, 2027, for a new or substantially renovated home:

• Full rebate of the 8% provincial part of the HST on a home valued up to $1 million

• A flat $80,000 for a home valued between $1 million and $1.5 million

• A partial rebate between $1.5 million and $1.85 million

• At $1.85 million and above, the existing Ontario rebate at a flat $24,000

• The total rebate for the provincial part cannot exceed the lesser of $80,000 and the 8% provincial part actually payable

There is also a separate provincial top-up equivalent to up to 5% of the federal part of the HST. Builders cannot claim a deduction on their GST/HST return for that top-up, and receive a separate payment from the province after the Ontario rebate is assessed.

Treatment of owner-built homes under this rebate is still being finalised. CRA has said more information is coming. Do not assume it applies to an owner-built project without checking the current guidance.

The federal first-time home buyers' rebate

Separately, and it stacks: the first-time home buyers' GST/HST rebate was enacted by Bill C-4, which received Royal Assent on March 12, 2026.

• Up to $50,000, recovering up to 100% of the GST or federal part of the HST

• Full up to $1 million, phasing down to nil at $1.5 million

• Purchase agreement entered into with the builder on or after March 20, 2025 and before 2031

• Construction or substantial renovation beginning before 2031 and substantially complete before 2036

• The buyer must not have lived in a home they or their spouse owned as a principal residence in the calendar year or the previous four calendar years

It applies where someone "constructed or substantially renovated a home or hired someone else to" do so, for use as their primary residence. So a homeowner hiring out a substantial renovation can be eligible.

For you, the practical consequence is documentation. Your scope of work, your start and completion dates, and your invoices are what supports a claim potentially worth $50,000 federally plus up to $80,000 provincially. That is a reason for a homeowner to choose a contractor who keeps proper records.

The deposit rule, and the trap underneath it

Under the Excise Tax Act, a deposit, whether refundable or not, is not treated as consideration for a supply unless and until the supplier applies it against the consideration for the supply.

That is a real cash flow advantage. A deposit taken in November for a March project is outside the HST net until you apply it to an invoice.

Two cautions.

Keep it a deposit. Document it as a deposit, hold it as one, and apply it explicitly. A "deposit" that is really the first progress payment is the first progress payment, and tax applies on the earlier of payment and the day it becomes due.

Substantial completion pulls the tax in regardless. Where consideration has not been paid or become due by the last day of the calendar month following the month in which the work is substantially completed, tax becomes payable on that day whatever the contract says. You cannot defer HST by deferring your own invoicing at the end of a job.

Progress billings are taxed as they go, each on the earlier of payment and the day it becomes due, rather than the whole contract up front. Holdbacks are different again: HST on a holdback is payable on the earlier of the day the holdback is paid and the day the holdback period expires.

Accessibility work is still taxable

Worth knowing because clients ask, and the intuitive answer is wrong.

There is no HST relief for the service of renovating a home to accommodate a disability. Building a permanent ramp, a curbless shower or a widened doorway is a taxable improvement to real property at 13%. What is zero-rated is specific devices, such as a portable wheelchair ramp or a specially designed bath or shower seat, and the service of installing those devices.

Relief for accessibility renovations comes through income tax, via the Home Accessibility Tax Credit, not through HST. Confirm the current credit limits with the homeowner's own tax preparer.

Frequently asked questions

What is a substantial renovation for GST/HST purposes?

A renovation where 90% or more of the existing building has been removed or replaced, excluding the foundation, external walls, interior supporting walls, floors, roof and staircases. A substantially renovated home is generally given the same GST/HST treatment as a newly constructed one.

Does replacing the floors count toward the 90%?

Floors are one of the six excluded components, so they are generally ignored in the calculation. However, replacing an excluded component can still be taken into account in demonstrating that a substantial renovation has taken place.

Does an addition count as a substantial renovation?

No. The definition requires the existing structure to be substantially renovated, so an addition does not qualify on its own and cannot create a substantial renovation by itself.

Am I a builder if I substantially renovate someone's house?

Generally no. A contractor working on land owned or leased by someone else, with no interest in that land, is not considered a builder. Your obligation is to charge and remit 13% HST on your labour and materials.

What is Ontario's enhanced new housing rebate worth?

For agreements entered into with a builder between April 1, 2026 and March 31, 2027, it gives a full rebate of the 8% provincial part of HST on homes up to $1 million, a flat $80,000 between $1 million and $1.5 million, a partial rebate to $1.85 million, and $24,000 above that. Substantially renovated homes are included.

Is HST payable on a deposit for a renovation?

Not when received. Under the Excise Tax Act a deposit, refundable or not, is not consideration for the supply until the supplier applies it to the price. It must be a genuine deposit rather than a progress payment relabelled.

Can I defer HST by invoicing late at the end of a job?

No. Where consideration has not been paid or become due by the last day of the month following the month in which the work is substantially completed, HST becomes payable on that day regardless of the contract terms.

Is renovation work to accommodate a disability HST exempt?

No. Constructing a permanent ramp, curbless shower or widened doorway is a taxable improvement to real property at 13%. Only specific devices and the service of installing them are zero-rated. Relief comes through the income tax Home Accessibility Tax Credit instead.

Key takeaways

• 90% or more of the interior removed or replaced makes it a substantial renovation, treated like a new build for HST

• The foundation, external walls, interior supporting walls, floors, roof and staircases are excluded from the test, though replacing them can help support it

• A contractor working on someone else's land is generally not a builder, so self-supply does not apply to you

• Ontario's enhanced rebate runs on agreements from April 1, 2026 to March 31, 2027 and is worth up to $80,000 provincially

• The federal first-time home buyers' rebate, enacted March 12, 2026, adds up to $50,000 and covers substantial renovations

• Deposits sit outside HST until applied, but substantial completion pulls the tax in whether you have invoiced or not

Talk to an accountant who works with renovation contractors

SKG Financial handles corporate tax, bookkeeping, HST and payroll for renovation and construction corporations across Mississauga, Oakville, Vaughan, Markham, King City, Caledon and Burlington. HST timing, deposits, holdbacks and T5018 slips for your subcontractors are routine work here. The 90% test is one of several rules that only bite in construction, which is why we run a separate service line for Ontario contractors.

Fixed fees quoted up front. Year-round support, not one rushed conversation at year end.

Book a free 20-minute call

References: CRA B-092, Substantial Renovations and the GST/HST New Housing Rebate, RC4052, Notice 346 Ontario Enhanced New Housing Rebate, first-time home buyers' GST/HST rebate and Excise Tax Act section 168. General information, not advice on a specific project.