GST/HST NEW HOUSING REBATE: Meeting the Conditions

In a December 18, 2018 Tax Court of Canada case, the Court considered whether the new housing rebate was available where the taxpayer sold a newly developed property shortly after taking possession. The taxpayer entered into an agreement to purchase the land in 2012, took possession of it two years later when the building was completed, and then sold it three months later.

To qualify for the rebate, the purchaser, or a person related to the purchaser, must, at the time they become liable for the purchase, intend to use the property as their primary place of residence. Also, the taxpayer or a related person must either be the first individual to occupy it, or sell the property as an exempt supply before it was occupied by any person (normally meaning that it is simply sold before anyone moves in).

Condition 1: Initial Intention
The Court noted the following as a non-exhaustive list of factors to evaluate when considering original intention:

1. a) demarcation of primary place of residence by change of address;
2. b) the relocation of sufficient personal effects to the rebate property;
3. c) if the buyer never moved in, was there cogent evidence that the original plan to live in the property was frustrated?;
4. d) permanent occupant insurance versus seasonal or rental coverage;
5. e) disposition of previous primary residence; and
6. f) if dual occupancy continues, then the rebate property must be more frequently occupied, more convenient to third party locations such as work, have more convenient amenities, and be more suitable to the needs of the taxpayer.

   The taxpayer argued that there was a frustration of original intent as listed in c) above. In particular, the taxpayer noted that the purchase occurred as a result of a divorce. The ex-spouse did not want his children to live in the same house as the taxpayer’s new partner. Therefore, a new residence was required. However, this requirement was later waived, which frustrated the taxpayer’s original intent.

   The Court found conflicting testimony and insufficient proof of this separation requirement (and subsequent removal of the condition) and, therefore, was not able to find that the original intent was to live in the location.

   Condition 2: Occupy or Eligible Sale (exempt supply)
   Although it was argued that the taxpayer originally occupied the home, there were no receipts for moving expenses, the property sale listing described it as “unoccupied and never used”, and it was listed for short-term rental on Airbnb two months after possession. Further, the Court noted that the taxpayer was living at the new spouse’s residence at the time of acquisition and that there was insufficient evidence that a move had been made. As such, the Court determined that it was not first occupied by the taxpayer.

   The Court also found that the property was not sold as an exempt supply before it was occupied by any person but did not give any specific reasons. While the Court did not specifically list it as a reason for not meeting the exempt sale possibility in condition 2, it did mention that there was at least one rental of the property on Airbnb prior to sale. It is uncertain whether this offended the exempt supply possibility.
   
   Action Item:
   In order to make the claim, ensure that both conditions are, or will be, met. If one will not be met, consider whether the GST/HST new residential rental rebate will be available instead.