With the introduction of the Harmonized Sales Tax (the 'HST') in 2010, the amount of tax payable on certain HST qualifying real estate transactions increased substantially. To help offset some of these costs, the Ontario government introduced the New Housing Rebate (the 'Provincial Rebate'), in addition to the already-existing Federal GST/HST New Housing Rebate (the 'Federal Rebate'). The Provincial Rebate and the Federal Rebate both provide an assignable rebate to qualifying purchasers of new or substantially renovated real estate provided that the property is their primary residence.
Recently, in our practice, we have received a growing number calls from people who bought a builder home, received the rebate credit from the builder at the time of the closing, but who were later contacted by the CRA demanding repayment of the credit together with penalties and interest. In some cases, we have been able to successfully retain the rebate by proving that the property was in fact their primary residence.
But, how does one prove primary residence? A recent decision of the Tax Court of Canada clarified the circumstances in which a purchaser might qualify for the Provincial and Federal Rebates.
In Goyer v. The Queen, the appellant Debbie Goyer and two other individuals collectively purchased a vacant lot, entered into a construction mortgage with a lender, and built a new home on the property. As a result, the three purchasers were required to self-assess for GST. At that time, the appellant was living in the new home, but the two other purchasers were not. When self-assessing for HST, the appellant applied to receive the Federal Rebate based on the fact that she was occupying the new home as her primary place of residence, and included the two other owners' names on said application as well. The application was denied by the Canada Revenue Agency, on the grounds that two of the owners and applicants were not occupying the property as their primary place of residence. The Tax Court ultimately upheld this ruling, reasoning that to receive the benefit of the Federal Rebate, all of the applicants were required to occupy the home as their primary place of residence, or be one a class of people defined as a relation of that individual (i.e. spouse, child etc).
Ultimately, whether a home qualifies as a primary residence is a question that the CRA must decide, and they have been given a fair amount of discretion in order to arrive at a decision. However, their rationale must still be in compliance with the law.
As it stands, if a buyer wants to be able to claim the benefit of either of these rebates, or is contractually obligated to assign one of these rebates to the seller, the buyer needs to be certain that they will qualify for the rebates, prior to entering into a contract to purchase the property.