HST New Housing Rebate—the Importance of Intention
By: Bobby B. Solhi, J.D. and Jonathan Crangle
In a recent decision of the Tax Court of Canada in Wong v The Queen the Court ruled on whether the Appellant, Ms. Wong, was eligible for the HST New Housing Rebate.
Ms. Wong claimed the HST New Housing Rebate (the “Rebate”) on her purchase of a newly constructed residential property. The CRA disallowed her claimed for the GST/HST New Housing Rebate on the basis that the property was not purchased with the intention to make it her home or a home for a qualifying relation.
Ms. Wong appealed to the Tax Court of Canada where she was self-represented. Her claim was dismissed. While the Appellant was not successful in this particular case, Wong was a noteworthy decision because the Court held that a purchaser’s intention for purposes of claiming the HST New Housing Rebate is determined at the time the Agreement of Purchase and Sale was signed.
The HST New Housing Rebate offsets a portion of the GST/HST that is paid on the purchase price of a new or substantially renovated home. To qualify for the rebate, there are numerous conditions. A fundamental condition to claim the HST New Housing Rebate is that the property was purchased with the intention for the purchaser, or his relative, to make it their primary place of residence.
Please note that a new housing rebate is also available for new residential rental properties and owner-built homes, which are, however, not discussed in any detail in this post.
Section 254 of the ETA provides for a partial rebate of the federal taxes paid to purchase a new home. There is a maximum rebate of $6,300 that is available on the federal portion of the GST (5%). The rebate amount is clawed back where the purchase price exceeds $350,000 and disappears entirely where the purchase price is $450,000 or more.
There is also a New Housing Rebate for the Ontario portion of HST (8%) under the New Harmonized Value-added Tax System Regulations, No. 2. In general, an individual who qualifies for the federal New Housing Rebate also qualifies for the provincial rebate. The Ontario HST New Housing Rebate is available regardless of the purchase price and a maximum rebate of $24,000 is available with no claw-back.
Paragraph 254(2)(b) of the Excise Tax Act requires that the purchaser intend to use the unit as a primary residence or for a relative at the time they become liable or assume liability under an agreement for purchase and sale of the unit. The CRA has been actively reviewing Rebate claims to ensure that claimants purchased the home with intent to use it as their primary place of residence, or that of a relative.
What happened in Wong ?
Mr. and Mrs. Wong purchased a pre-construction condominium in Vancouver. At the time of purchase, they owned and occupied another property that they intended to continue occupying as their primary residence. The condo took several years to be completed and for the transaction to close. When it was finally completed the taxpayer’s son occupied the property briefly, for about a month, while visiting before moving back to the United States for school.
Mrs. Wong claimed the Rebate on the basis that it was purchased with the intention to reside as a primary place of residence for her son. The Minister of National Revenue denied her claim on the basis that the property was not purchased with the intent that she or a relative would reside there as a primary place of residence. Unfortunately, it was only at this point, when the CRA was in contact regarding her Rebate claim, did Mrs. Wong try to create the impression that she was residing at the property by changing the address on her driver’s licence to that of the property and sent a copy to the CRA. The CRA did not accept her claim and sent a notice of reassessment denying the Rebate.
At the Tax Court, Paris, J. dismissed Mrs. Wong’s appeal on the basis that she did not intend to use the property as a primary residence at the time she signed the agreement of purchase and sale. Therefore, the conditions to qualify for the rebate were not met. The taxpayer argued that she purchased the property for her son so that he could reside there as his primary place of residence but the Court found that to be highly implausible since he was attending school full time in the United States.
It is important for a purchaser to properly document their intent when purchasing a property as best they can. It is up to a purchaser to sufficiently document their actions and take steps that indicate they were carrying out an intent to occupy the property as a primary residence. A non-exhaustive list of steps would include documenting the purpose behind the acquisition, receiving mail at the property (bank statements/credit card statements), paying taxes from the property, taking out homeowner’s insurance, paying utilities, or selling another residential property, among others. Supporting documentation will assist the CRA in determining whether the requirements to claim the Rebate were met. If the CRA still does not accept the claim, then the next option is for the taxpayer to consider a Notice of Objection.
Audits of HST New Housing Rebates are an active area of concern for the CRA and it would be advisable to seek assistance from a tax professional.
For a case that looked at the importance of evidence to claim the Ontario HST New Housing Rebate, see HST New Housing Rebate – Importance of Evidence.
TaxChambers LLP is collaborating with Andersen Global® in Canada.