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TCC: THE CRA CAN HAVE ITS CAKE AND EAT IT TOO!

TCC CONFIRMS THE CRA CAN TAX HOUSE FLIPS WHILE DENYING OFFSETTING ITCs

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When auditing many isolated residential real estate developments, the Canada Revenue Agency ("CRA") often insists on having its cake and eating it too: it assesses GST on the full selling price of a newly constructed home but denies the vendor every single Input Tax Credit ("ITC") on their selling costs.

A recent Tax Court of Canada decision, Asadi v. His Majesty the King, 2026 TCC 147 (“Asadi”), demonstrates how the strict statutory language in the Excise Tax Act (“ETA”) allows them to do this.

Legal Background to Asadi

Under Section 123(1) of the ETA, “commercial activity” includes any isolated “adventure or concern in the nature of trade.” Consequently, an individual who is NOT in the regular business of residential development, but who builds or flips a single home with a profit-making motive (a “Home Flipper”) is engaged in “commercial activity” and must charge and collect GST/HST on the sale.

However, Section 169 of the ETA strictly limits the right to claim ITCs to “registrants”, which includes those who are required to register. Normally, this inclusive definition acts as a safety net for businesses: because they are legally required to register once their taxable sales exceed $30,000, they automatically qualify as "registrants" entitled to claim ITCs even if they forgot to submit the formal registration paperwork. However for Home Flippers this creates a massive trap, because under section 240(1)(b) individuals selling real property “otherwise than in the course of a business” are expressly excluded from the requirement to register.

The result is that, unless they voluntarily registered before selling the flipped home, a Home Flipper MUST collect and remit GST/HST on that sale but CANNOT collect ITCs for related expenses.

The Asadi Decision

In Asadi, a non-registrant taxpayer bought, demolished, and rebuilt a Toronto home, eventually selling it for $3.845 million without ever moving in. Crucially, the taxpayer paid a broker’s commission of $153,800 for the sale, plus $19,994 in HST.

The CRA assessed HST on the gross sale as an adventure in the nature of trade but denied the taxpayer’s claim for an offsetting ITC for the $19,994 in HST paid on the broker's commission.

The taxpayer appealed, but the Tax Court of Canada (“TCC”) dismissed the appeal and denied the ITCs. The TCC confirmed that because the isolated house flip was not an ongoing "business," the taxpayer was never legally required to register – and hence was NOT a “registrant” for the purposes of collecting ITCs. Lacking formal registrant status when the commission was paid, the taxpayer was completely barred from claiming the ITC.

In the result, the CRA got to have it both ways: It was allowed to charge GST on the gross proceeds of the flip, while the taxpayer was liable for a massive tax bill with NO offsetting ITCs.

Takeaways

The Asadi ruling exposes a severe financial trap for taxpayers engaging in property flips or substantial residential redevelopments. If the CRA successfully establishes a profit-seeking motive, the transaction is taxed on its gross proceeds, but the statutory scheme blocks all input tax relief unless the vendor voluntarily registered before closing.

Taxpayers navigating the pitfalls of real estate audits or seeking proactive GST/HST advice are encouraged to contact Experienced Tax Counsel for assistance.

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