A developer purchases land for $1,000,000, builds a home for $800,000, and sells it for $2,200,000. If GST/HST of $286,000 was collected from the buyer, what is the developer's taxable income from this transaction?
Correct Answer
B) $400,000 as business income
A developer who builds and sells as part of its business earns business income, not a capital gain. The profit is $2,200,000 - ($1,000,000 + $800,000) = $400,000 business income, fully included in income. The $286,000 of GST/HST collected belongs to the government and is remitted, so it is not part of the developer's income.
Why This Is the Correct Answer
Building and selling homes is the developer's business, so the profit is business income. Profit = $2,200,000 - $1,000,000 land - $800,000 construction = $400,000. The GST/HST collected is remitted to the government and does not change the income figure.
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Previous Question
A developer purchases a property for $2,000,000 in Alberta, subdivides it, and sells individual lots. The total sales revenue is $3,500,000, with development costs of $800,000. How will this transaction likely be taxed?
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A buyer who is not a first-time home buyer signed an agreement in June 2025 to buy a new condominium unit in Ontario from a builder for $500,000 before tax, as a primary residence. What is the HST, and what new housing rebate is available?