QUEBEC EDITION PARTNER
Self-assessment in real estate: an essential tax evaluation strategy for developers
Self-assessment in real estate is an approach that subjects the builder, whether building a rental property or entrusting its construction, to the same tax regime as a purchaser of a new residential rental property. In Quebec and Canadian tax law, this system allows the developer to calculate the amount of tax to be paid, or claimed as a refund, based on the fair market value (FMV) of the newly constructed building.
The concept of self-assessment and property valuation
Self-assessment is based on estimating the FMV, i.e. the price an investor would pay to acquire the residential property being built, including the land, building, construction costs, and builder’s profit. This “primary” market synthesizes the value of real estate from actual production costs. The future profitability of the project remains uncertain, however, and will be dictated by market trends.
Current tax rates and rebates
Developers must pay GST and QST on the property’s FMV. GST is 5% of FMV, with a rebate of up to $6,300 per unit when the value is between $350,000 and $450,000. The QST rate is 9.975%, with a maximum rebate of $7,182 per unit for values between $200,000 and $225,000. In addition, on September 14, 2023, the government announced an enhanced GST rebate to encourage rental construction, reducing the self-assessment burden from 10-12% to around 7-8% of total costs for eligible projects.
Payment date and calculation method
Tax payments are due on the last day of the month following the self-assessment date, which corresponds to 90% completion of the work, transfer of possession of the building or arrival of the first tenant. Using the services of an expert and obtaining an appraisal report from a chartered appraiser is highly recommended, as it constitutes objective proof for Revenu Québec. This report, based on recognized valuation methods, provides a solid basis for calculating FMV and optimizes tax compliance.
Conclusion
Mastering self-assessment is an indispensable tool for real estate developers wishing to guarantee tax compliance for their projects, while optimizing GST and QST costs. Collaboration with valuation experts ensures transparency in calculations and promotes better control of the financial costs of real estate investment.
by Sabrina Bilodeau, É.A., C.App.
GDA – Services immobiliers intégrés
and Amélie Picard, É.A., C.App.
GDA – Services immobiliers intégrés
Translated by the authors
