Kitchen & bath renovator tax: HST is on everything, and timing is the trap

Every kitchen and bath job is a taxable supply

There is no exempt or zero-rated corner of this trade. The full contract price — design, cabinets, countertops, plumbing, electrical, tile, and the labour to put it together — carries 13 percent HST, and you recover the HST paid on materials and on registered subcontractors' invoices as input tax credits. The input tax credit rules matter more to a renovator than to most service businesses because materials are such a large share of cost, which is also why the quick method rarely wins here even when you qualify for it.

The phrase that confuses clients is substantial renovation. CRA reserves it for projects where all or substantially all of the interior of an existing house — the 90 percent test — is removed or replaced. A kitchen and two bathrooms do not come close, so your client is not entitled to the GST/HST new housing rebate and your firm is not a builder for HST purposes. If you also take on whole-house gut renovations, that job set is different, and we treat it that way.

When the HST on a deposit is actually due

The Excise Tax Act distinguishes a true deposit from an instalment. A deposit held as security for the contract does not attract HST until you apply it against the price. A payment that is really the first instalment of the contract price attracts HST on the earlier of the date you invoice it and the date the client pays. Most renovation contracts intend the second, and most contracts are written as if it were the first; we make the paperwork match the practice so the HST return is right either way.

Cancellations have their own rule. When a client walks away and your contract lets you keep the deposit, the amount you keep is treated as HST-included: you remit 13/113 of it, and you do not charge 13 percent on top. Holdbacks retained by a builder client under the Construction Act follow a third timeline — HST becomes payable when the holdback is paid or becomes payable — so we keep holdback receivables out of the regular sales tax calculation until then.

Year-end cut-off when jobs are half done

A renovator's fiscal year-end lands in the middle of several jobs, and the T2 has to reflect that honestly. Deposits on jobs not yet started are liabilities, not income. Jobs partway through are recognized to the extent of work performed, with costs incurred to date sitting against that revenue rather than dumped into the year as expenses. Cabinets you have paid a manufacturer for but not received are a vendor deposit asset, not a deduction.

Getting the cut-off right is also the cheapest tax planning available: a year-end chosen for a quiet month, when few jobs are open, keeps the whole exercise small.

Warranty reserves, vans, tools, and the showroom

A sensible renovator books a provision for callbacks, and the Income Tax Act refuses to deduct it. Paragraph 18(1)(e) denies contingent reserves, so the provision on your statements is added back and the actual re-grout, door adjustment, or replaced faucet is deducted when the cost is incurred. The exception is a warranty you have paid an insurer to stand behind, where a reserve for that premium is allowed.

Vehicles split the same way your staff do. A cargo van or pickup used to haul tools and materials is generally a motor vehicle in Class 10 at 30 percent with no cost cap. A designer's SUV that mostly carries samples is a passenger vehicle in Class 10.1, capped at the prescribed amount — $38,000 before tax for vehicles bought in 2025 as at the time of writing — and the corporate vehicle rules apply to any personal use. Hand tools under $500 go to Class 12 at 100 percent; compressors, table saws, and tile saws above that go to Class 8. Display kitchens are fixtures, depreciated as leasehold improvements or Class 8 assets, never counted as inventory.

Your invoices are your clients' tax credits and CRA's audit trail

Two federal credits run through renovator invoices. The Home Accessibility Tax Credit gives seniors and people eligible for the disability tax credit 15 percent of up to $20,000 in eligible expenses — walk-in tubs, roll-in showers, grab bars, widened doorways. The Multigenerational Home Renovation Tax Credit gives 15 percent of up to $50,000 for building a secondary unit for a senior or an eligible adult. Both require itemized invoices showing your HST number, business address, the work performed, and the dates. A renovator who issues them properly wins the accessible-bathroom market by default.

CRA also names home renovation in its underground-economy work, so the same invoices are what an auditor asks for when deposits in the bank exceed reported sales. If your cabinets and fixtures are bought in US dollars, the renovator cross-border guide covers duty, GST at the border, and exchange, and our tax services page sets out the annual T2 and HST cycle we run for incorporated trades.

Source: CRA — Line 31285, Home accessibility expenses.