Can You Claim the HST Rebate on a Renovated Rental in Ontario?

You have put serious money into a rental building, and the invoices carry HST. It is natural to ask whether a substantial renovation lets you claim a new residential rental property rebate and get some of that tax back.

Whether a particular project qualifies depends on the details of the work, the building and how it will be used, and the rebate itself is a federal tax matter. This article does not set out the rebate thresholds. It explains what to confirm, and the Ontario rules around a renovated rental that often matter just as much.

What a rebate question usually turns on

A rebate of this kind is not automatic. How it applies depends on the details of your project, the building and how it will be used, so it is worth confirming with an accountant. Keeping clear records of what was done, when, and by whom will make that conversation much easier.

Because each of those facts can change the result, an accountant should review your project before you file. Deadlines for claims also exist, so do not wait until after you sell or refinance to ask.

Gather the paperwork first

• Contracts, invoices and proof of payment for every part of the work
• Before-and-after descriptions or photos of the building
• Building permits and inspection records
• Dates the work started and finished, and when tenants first moved in
• Any lease agreements for the renovated units

Good records help with an HST claim, but they also support your income tax reporting and any later sale.

If the renovation creates or changes a unit

Adding a second unit in a house requires a building permit from the local building department, and the electrical work needs a separate permit and an inspection by the Electrical Safety Authority. The Building Code requires a 30-minute fire separation between units and between units and common areas, which can drop to 15 minutes if the whole house has interconnected smoke alarms.

Smoke alarms must meet CAN/ULC S531, and carbon monoxide alarms are required where the house has a fuel-burning furnace or an attached garage. A basement second unit may have a ceiling height of 1.95 m over the required floor area. A Fire Code amendment, O. Reg. 87/25, adds new smoke alarm requirements for existing two-unit residential occupancies and takes effect January 1, 2026, with a few exceptions.

Municipalities must adopt official plan policies that allow additional residential units, both in the main home and in another building on the same property. Local zoning may still differ, and whether a rental unit needs a licence or registration depends on the municipality's own by-law. Ask your municipality directly.

How renovation costs show up on your income tax

An HST rebate is only one part of the picture. Adjusted cost base is usually the cost of the property plus the costs of buying it, such as commissions and legal fees. A capital gain is the amount by which the proceeds exceed that base plus the costs of selling. Which renovation costs are added to the base, and which are treated as current expenses, is a question for your accountant.

• Capital cost allowance cannot be used to create or increase a rental loss.
• If the CCA you claimed in earlier years is more than the undepreciated balance left in the class when you sell, the excess is a recapture, added to income in full rather than at the capital gains inclusion rate.
• Selling depreciable property such as a rental building cannot produce a capital loss, although a terminal loss may be deductible if no property is left in the class but undeducted CCA remains.
• For 2025, the capital gains inclusion rate is generally one-half, and the proposed increase to two-thirds was cancelled.

Sales of rental property are reported on Schedule 3, Capital Gains or Losses. Legal fees paid on the sale are deducted from the proceeds of disposition, not claimed as a rental expense.

Tenants and next steps

If tenants live in the building, the Residential Tenancies Act, 2006 generally applies despite any agreement or waiver to the contrary, and any lease term that conflicts with it is void. There is an exception where the occupant must share a bathroom or kitchen with the owner, or with the owner's spouse, child or parent, who lives in the same building, and a self-contained basement apartment does not fall under that exemption. A notice to end a tenancy does not end it by itself. If the tenant stays, the landlord must apply to the LTB, and only the Sheriff can enforce an eviction order. A landlord cannot remove the tenant or change the locks.

• Ask an accountant whether your project fits the rebate rules before you file anything
• Confirm permits and the local licensing by-law for any new or changed unit
• Keep all renovation records together for tax reporting and a future sale
• Speak with a lawyer before ending or changing a tenancy because of the work

Frequently asked questions