HST New Housing Rebate – Importance of Evidence
The HST New Housing Rebate in Ontario has been a very active audit project for the Canada Revenue Agency (“CRA”). Many purchasers of newly constructed residential homes have been notified by the CRA that they do not qualify for the HST New Housing Rebate. In most cases, the reason provided by the CRA is that the home was not purchased as their primary place of residence pursuant to s. 254(2) of the Excise Tax Act (the “Act”). The CRA will issue a Notice of Reassessment in the mail disallowing the HST New Housing Rebate.
Often times, the HST New Housing Rebate has been assigned by the purchaser to the builder and, subsequently, credited to their account. The rebate is set-off against the cost of the purchase and is never really in the hands of the purchaser. This can be quite a surprise to the purchaser in Ontario especially when the CRA is demanding payment of $24,000 plus interest for the disallowed rebate.
Importance of Intention
In a previous post on our Tax News page, we discussed the decision of the Tax Court of Canada in Wong v. The Queen and highlighted the importance of intention when reviewing s. 254(2)(b) of the Act.
Primary place of residence to rental property
We have also discussed the scenario where a new home is first purchased as the purchaser’s home but is subsequently leased or rented in Napoli v. The Queen. That decision is discussed here.
Importance of Evidence
The Tax Court of Canada more recently delivered its decision in Sivakumar v. The Queen where, in our view, the focus of the decision was on the importance of evidence to substantiate the purchaser’s intent.
The CRA disallowed the taxpayer’s Ontario HST New Housing Rebate claim on the basis that the home was not acquired as her primarily place of residence. The taxpayer appealed to the Tax Court of Canada.
The taxpayer had admittedly purchased a number of residential properties in a short period of time. However, for the property that was under appeal, the taxpayer’s intention to move into the home was frustrated by health concerns they discovered with certain features in the home. Despite those concerns, the taxpayer moved into the home briefly or “partially” before placing the home for sale shortly thereafter. The taxpayer also claimed that curtains were installed and a bed was placed at the property.
Campbell, J. disallowed the taxpayer’s appeal. The judge held that the taxpayer provided little by way of evidence to support her claim. While health concerns were noted, among other issues in the home, the taxpayer did not provide sufficient evidence to satisfy her burden of proof. The Court noted that the taxpayer could have provided a copy of her note to the builder regarding the defects, her husband could have provided evidence at the hearing to collaborate her testimony, and even her parents could have assisted with their testimony in determining her subject purpose and intent in respect of the Property.
While the taxpayer may have lost the case in any event due to a determination that they were “home flippers”, there was helpful guidance on the weight evidence carries in such appeals and how that may have swung the case in the taxpayer’s favour.
For purchasers of a new residential home that have had their HST New Housing Rebate disallowed by the CRA, there is a dispute resolution process even before having to go to the Tax Court of Canada. Tax disputes can often be resolved prior to a trial.
TaxChambers LLP is collaborating with Andersen Global in Canada.