Scenarios

CHBA has asked FINTRAC to provide information on how requirements would affect builders in different situations. Here is what they told us.

New home sales handled by in-house staff

A new home sales agent who is not a licensed real estate agent works on site and carries out all aspects of the sales process from first contact with the buyer to closing. The sales agent is either on salary or commission, or some combination of the two, and is directly employed by the developer or new home builder.

Because the sales agent is directly employed by the developer or new home builder, the builder or developer has the responsibility for information gathering and reporting.

Builder retains new home sales agency for on-site sales

The agency is retained to handle all aspects of the sales from first contact with the buyer to final closing. The sales agents are employed by the new home sales agency, but are not licensed real estate agents.

If the contract makes the sales agency the  builder’s agent, the builder remains responsible for the obligations.

NB: It is strongly recommended that builders ensure that any New Home Sales Agency retained by your firm understands its responsibility for ensuring that your company fully complies with FINTRAC requirements for any sales it makes of your homes. This acknowledgement should be clearly stated in your service contract with the agency and further specify what measures the employees of the Sales Agency must carry out in relation to FINTRAC requirements when representing your firm.  You must also ensure that all sales staff assigned to service your company by the Sales Agency have received proper training in FINTRAC procedures.

Builder retains independent outside licensed real estate agent or brokerage to carry out the sales function 

The contract transfers sales representation, so that the builder functions as the selling party. The agent/broker is paid a commission on all sales, and its agents are not employees of the developer.

When a sale is conducted by a licensed real estate sales agent or broker on behalf of a builder (i.e., the builder is the client of the agent/broker), the builder is not subject to the requirements under the legislation. The agent/broker would have to keep records on the builder, as its client, and any unrepresented buyers, and file reports.

NB:  It is strongly recommended that builders make sure the outside licensed Real Estate Agents/Brokers’ responsibility for FINTRAC compliance for any sales it makes of your homes is clearly stated in your agency agreement or service contract. All such agreements should also state that the agent/broker will hold your firm harmless in any actions taken by FINTRAC as a result of sales it makes of your homes.

Mixed sales processes 

The builder uses more than one process for sales; e.g., sales at local sites may be handled in house, while outside licensed real estate agents/brokers are retained to perform the sales function for those in another location.

Responsibilities follow the contract arrangements. Sales handled by in-house staff are the responsibility of the builder while those handled by the outside real estate agent are recorded and reported by the agent or their broker.

Custom home builders, where the client already owns the lot

A home building company is contracted by a consumer to provide design, construction and project management services related to the construction of a new home on land owned by the consumer. The contract lays out a schedule of payments. These may be based on a fixed fee, or cost plus (actual cost for materials, labour and taxes plus a percentage).

As the consumer is at all times the legal owner of the home being constructed, there is no sale of a home, and the FINTRAC requirements would not apply.

Land and lot sales v. home sales

A developer brings land to market and builds homes on some of the lots, while selling other lots to other new home builders who will use them for their own new home construction/sales. 

Information and reporting requirements arise only on the final sale of a home. The legislation refers to the sale of houses, condominium units, and buildings, not bare land or lots.

‘Tied’ sales of lots

A developer sells lots in its development to consumers, who are required to have a builder agreement in place at the time of the lot sale covering the construction of their home.  Consumers are not permitted to buy a lot and construct the home themselves, they must use the services of a builder for this. The home building contracts are design-build.

Although the consumers already own the lot when the home is built, CHBA believes these sales would be considered linked. So, there would be a sale of a new house to the consumer. The Canada Revenue Agency disregards this type of split sale in determining GST, and it seems likely this legislation will disregard them as well. ?

‘Substantial renovations’

A renovator provides building services to a couple for major renovation of their existing home. The project would be classified as a “substantial renovation” under the provisions of the federal New Home Buyer GST Rebate, and be eligible for a partial rebate of GST paid for labour and materials.

The legislation is clearly aimed at the sale of homes. As in the custom home builder scenario, the renovator is providing building services to the homeowner – there is no sale so data gathering or reporting requirements do not apply.

Manufactured housing - direct sales

A housing manufacturer sells homes directly to consumers, using in-house sales staff who are employees. The homes may be located on land developed by the manufacturer, by a separate development company, or on land owned by the consumer.
This system is parall to builders selling through in-house sales staff. The manufacturer would be responsible for compliance.

Manufactured housing - sales through retailer

A manufactured housing retailer, which is a separate and fully independent business, enters into an Agreement of Purchase and Sale with the consumer. The retailer subsequently places an order for the home with the housing manufacturer. Upon closing, the customer pays the retailer for the installed home.

In essence, the retailer is functioning as a wholesale buyer and reselling to the consumer. As such, it is the one that takes on the responsibility for information and reporting. 

Manufactured housing - to be installed in a land-lease community

The home buyer will own the home itself, but lease the land it is located on. The buyer may purchase the home from the landlease community operator, the housing manufacturer, or an independent retailer.

As FINTRAC requirements apply to the sale of new homes, rather than to land, the party that would be responsible for data gathering and reporting would be the party from whom the consumer purchased the home. Ownership of the land is not relevant.