Introduction: Claim to New Housing Rebate Denied
Osman v The King, 2025 TCC 65 [Osman] involves the New Housing Rebate (the "Rebate") found in section 254 of the Excise Tax Act. This case involves an appeal from a reassessment from the Minister of National Revenue, which denied Fathia Ali Osman, the Appellant, her claim to the Rebate.
In March 2016, the Appellant moved into a home in Scarborough (the "Scarborough Property") with her mother and her son to live in. Five months later, she entered into an agreement to purchase a pre-construction home in Bowmansville, Ontario (the "Rebate Property") that closed in 2019.
Upon closing, she signed the rebate application, confirming that she was purchasing the property as her primary place of residence and received a credit of $24,000. Subsequent to closing, the Appellant claimed that she lived in one of the three bedrooms of the home and commenced renovations in the basement while tenants lived in the other bedrooms.
For an individual to be eligible for the Rebate, he or she must satisfy all the requirements in subsection 254(2) of the Excise Tax Act. This provision applies to single-unit residential complexes ("complex") and residential condominium units ("unit"). A single-unit residential complex is defined in subsection 254(1) and includes duplexes and residential complexes with only one residential unit. A residential condominium unit is defined in subsection 123(1) and includes apartment units or townhouses. The requirements for the rebate are as follows:
- The builder must be making a taxable supply by way of sale of a complex or unit to a particular individual,
- The particular individual must be acquiring the complex or unit for use as the primary place of residence of the particular individual or a relation,
- The total consideration given for the complex or unit must be less than $450,000,
- The particular individual must have paid all the GST/HST for the complex or unit,
- Ownership of the complex or unit must be transferred to the particular individual after the construction or substantial renovation is completed,
- After construction and before possession of the complex or unit is given to the particular individual, the complex or unit must not have been occupied by any individual as a place of residence, unless, in the case of a residential condominium unit, the purchaser or a relation occupied the unit,
- The first occupant of the complex must be the particular individual or a relation, and the first occupant of a unit must be the purchaser or a relation to the purchaser.
On appeal, the issues were:
- Whether the Appellant intended to occupy the property as her primary place of residence when the Agreement of Purchase and Sale was signed; and
- Whether the Appellant was the first person to occupy the property.
Specifically, in question was whether the requirements in paragraphs 254(2)(b) and (g) of the Excise Tax Act were met in order for the Appellant to be eligible for the Rebate.
Excise Tax Act Rules: Interpretation of the Primary Place of Residence and Occupancy Requirements
In a previous Tax Court of Canada ruling, Kniazev v The Queen, 2019 TCC 58 [Kniazev], the Court stated that there must be a clear and settled intention to occupy the property as a primary place of residence with consideration of the individual's personal, family and work circumstances. Moreover, the use of the word "primary" in the legislation indicates that the individual must have the intention to arrange his or her personal and family affairs around the property that is subject to the rebate.
In regard to the issue of intention to occupy the Rebate Property as her primary residence, the Court reiterated how intention is to be ascertained. In Symes v Canada, [1993] 4 SCR 695, the Supreme Court of Canada stated that the courts should look for objective manifestations of purpose, which is a question of fact that is answered by considering the totality of the circumstances.
The Court in this case emphasized that the statements of the individual on their subjective purposes and intentions are not the most reliable source for answering the question of the individual's intentions. Thus, whether intention to occupy the Rebate Property as her primary residence existed is an objective question that cannot simply be answered by the Appellant.
In addition, for the requirement in paragraph 254(2)(g) to be met, the individual, who is the purchaser, or a relation to that individual must be the first to occupy the new property. Subsection 254(1) defines a relation of a particular individual as someone who is related or who is a former spouse or common-law partner of the particular individual.
The Excise Tax Act imports the meaning of "related" from subsections 251(2) to (6) of the Income Tax Act for the purposes of Part IX tax. Generally, people are related if they are married or connected by a blood relationship (i.e. siblings, parents, or children). People will also be considered to be related to a blood relationship of the person to whom they are married. Thus, for the new property to qualify for the rebate, the individual or a related person, such as a family member, must be the first occupants.
The term "occupy" was also interpreted in Kniazev to mean occupation of the premises that has an element of permanence. Purchasing the property, taking possession and moving some of the furniture into the home does not meet this requirement.
A specific example where the Tax Court found that the occupation of the premises did not meet the requirement for the eligibility of the rebate was in Kandiah v The Queen, 2014 TCC 276. In summary, moving some belongings to the new property while leaving most of the family's belongings in the family home did not constitute "occupation" for the purposes of the rebate. Therefore, the actions of the individual must reflect an intention to reside in the new house, rather than to sporadically occupy the property.
Inconsistent and Uncorroborated Facts:
Ultimately, the Court ruled that the Appellant failed to meet the onus of demolishing the Minister's assumptions of facts. In regard to the first issue, the Court was not satisfied that there was an intention to reside in the Rebate Property as the Appellant's primary place of residence because she had moved into the Scarborough Property and subsequently purchased the Rebate Property in the same year. Relatedly, the Court concluded the renovations done to the basement were indications of her actual intention to resell the Rebate Property.
The Court was also not satisfied that there was an intention for the Rebate Property to be her primary place of residence as her seven-year-old son and mother still lived in the Scarborough Property. To this point, the Appellant stated that her brother had helped with the financing of the Rebate Property prior to closing and would be moving from Montreal to the Scarborough Property. However, her testimony was uncorroborated and her brother was not called as a witness.
On the second issue, the Court found that there was insufficient evidence to support that the Appellant occupied the property. The Court noted that, at best, her occupancy was temporary. Specifically, the Appellant admitted that she only moved a few items of clothing and slept on an air mattress.
Pro Tax Tip: Retain Documentation of Subjective Intentions
In Osman, the Court was suspicious of the Appellant's testimony, which led to her appeal being dismissed. Specifically, her actions did not align with the objective intention required for the eligibility of the New Housing Rebate.
This case acts as a reminder that the subjective intentions of an individual have little weight, and the Court will rely on the evidence and the surrounding circumstances to determine the objective intentions of the individual.
In this specific case, an understanding of how a "primary place of residence" is defined for the purposes of the Rebate and what constitutes occupancy of the new home would have been helpful to the Appellant for how she argued her case and how she organized her affairs. Consultation with a knowledgeable Canadian tax lawyer prior to entering into transactions with tax benefits can save a lot of tax grief.
FAQ
What is the New Housing Rebate?
The New Housing Rebate is one of the ways in which the Canadian government has made housing more affordable for Canadians. Essentially, if an individual and the transaction are eligible for the Rebate, then the individual will be able to recover the GST paid for a new or substantially renovated house that is used as the individual's, or a relation's, primary place of residence. In Ontario, part of the provincial portion of the HST can be claimed through the New Housing Rebate.
There is a different rebate available for new residential rental units for landlords and real estate investors as well. This rebate is called the New Residential Rental Property Rebate. There will be different eligibility requirements for this rebate compared to the New Housing Rebate.
How do I apply for the New Housing Rebate?
To apply for the New Housing Rebate, subsection 254(3) requires the individual to file an application for the rebate within two years after the day ownership of the complex or unit is transferred to the individual. An application form must be filled out and submitted to the CRA to receive the rebate. Alternatively, the builder of the new home may pay or credit the amount of the rebate for the individual under subsection 254(4) of the Excise Tax Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
