Introduction GST/HST New Housing Rebate: Gay-Ann Reeves v The Queen
The GST/HST New Housing Rebate is available only if each purchaser who signed the purchase agreement satisfies the requirements for the rebate. In particular, the purchaser or a relative of the purchaser must occupy the property as a primary residence. If someone co-signs the purchase agreement yet neither that person nor that person’s relative occupies the home, GST/HST New Housing Rebate is unavailable.
In Gay-Ann Reeves v the Queen, 2021 TCC 74, a taxpayer purchased a new property, and her aunt co-signed the purchase agreement to assist with financing. The Tax Court of Canada denied the GST/HST New Housing Rebate because the taxpayer’s aunt didn’t occupy the property, and because an aunt is not a “relative” for the purposes of the GST/HST New Housing Rebate.
This case illustrates the necessity of obtaining tax-law advice from an expert Canadian tax lawyer. Tax legislation is complex and often unintuitive, which can lead to disastrous tax consequences without tax-law advice from a Canadian tax lawyer who is skilled at statutory interpretation and abreast of judicial decisions.
After articulating both the requirements of the GST/HST New Housing Rebate, this article examines the Tax Court of Canada’s decision in Gay-Ann Reeves. We conclude the article by offering pro tax tips and expert Canadian tax-lawyer guidance on qualifying for the GST/HST New Housing Rebate and on disputing a CRA tax reassessment that incorrectly denies your GST/HST New Housing Rebate.
Sections 256.1 & 254(2) of the Excise Tax Act: The GST/HST New Housing Rebate
Section 256.1 of Canada’s Excise Tax Act (along with the relevant provincial regulation) allows qualifying taxpayers to claim the GST/HST New Housing Rebate. The GST/HST New Housing Rebate permits an individual to recover some of the GST/HST paid for a new or substantially renovated house that the individual (or a qualifying relative) will use as a primary residence. In Ontario, the rebate is an amount of up to $24,000 for a residential complex, and the availability of the Ontario rebate doesn’t depend on the value of the home. The federal rebate, however, is available only if the fair market value of the newly built or substantially renovated home is $450,000 or less.
Subsection 254(2) of the Excise Tax Act sets out five conditions that a “particular individual” must satisfy to receive the GST/HST New Housing Rebate:
- The particular individual buys a residential home or condo unit from a “builder.” In other words, the purchaser can’t be a corporation or trust, and the previous owner must have acquired the property for commercial resale, not for personal use.
- Upon entering the agreement of purchase and sale, the particular individual intended to buy the home or condo unit for use as either (a) the particular individual’s own primary residence or (b) the primary residence of the particular individual’s relative. As discussed below, only certain relatives qualify.
- The particular individual paid all GST/HST owing when purchasing the new home or condo unit.
- The particular individual acquires title to the home or condo unit after the construction or rebuild is substantially complete. That is, the property must have been newly built or substantially rebuilt.
- After the construction or rebuild is substantially complete, the particular individual or the particular individual’s qualifying relative is the first to occupy the home or condo unit as a primary residence.
Unless all five above-listed conditions have been satisfied, the GST/HST New Housing Rebate is unavailable.
In addition, under subsection 262(3) of Canada’s Excise Tax Act, if more than one individual enters the agreement of purchase and sale, each of them as a group must meet the requirements placed upon the “particular individual.” For example, after the construction is complete, each signatory (or each signatory’s qualifying relative) must occupy the property as a primary residence. If someone signs the purchase and sale agreement, yet neither that person nor that person’s qualifying relative occupies the property, it negates the entire GST/HST New Housing Rebate.
“A Relation of the Particular Individual”: Excludes Nieces, Nephews, Aunts & Uncles
As mentioned above, the GST/HST New Housing Rebate requires that each purchaser under the purchase and sale agreement intend to buy the property for use as either (a) the purchaser’s own primary residence or (b) the primary residence of “a relation of” the purchaser. Moreover, after the construction is complete, the purchaser or “a relation of” the purchaser must be the first to occupy the property as a primary residence. So, the GST/HST New Housing Rebate is unavailable if someone signs the purchase and sale agreement as a purchaser, yet neither that person nor that person’s qualifying relative occupies the property.
Tax legislation defines who constitutes “a relation of the particular individual.” For the purpose of the GST/HST New Housing Rebate, the Excise Tax Act imports the definition found in Canada’s Income Tax Act. And paragraphs 251(2)(a) and 251(6)(a) of the Income Tax Act state that related individuals are “individuals connected by blood relationship, marriage or common-law partnership or adoption,” and that individuals are “connected by blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other.” In other words, the qualifying relatives for the purposes of the GST/HST New Housing Rebate include only spouses and direct relatives by blood or by adoption (e.g., siblings, parents, children, grandparents, grandchildren, etc.).
Notably, the definition excludes aunts, uncles, nieces, and nephews. The Federal Court of Appeal confirmed this in R v. Yin Yi Ngai, 2019 FCA 181, at para 31:
Subsection 254(1) of the Excise Tax Act provides that an individual will be a relation of another individual if they are related to each other. Subsection 126(2) of the ETA provides that individuals will be related to each other for purposes of the ETA if they are related to each other for the purposes of the Income Tax Act, as provided in subsections 251(2) to (6) thereof. Subsection 251(2) of the Income Tax Act states that “persons related to each other, are (a) individuals connected by blood relationship, marriage or common law partnership or adoption . . .”. Under subsection 251(6) of the Income Tax Act, “persons are connected by (a) blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other . . .”. As a result of these provisions, a nephew is not related to his aunt or uncle . . .”.
Thus, the GST/HST New Housing Rebate cannot be claimed by an individual who purchases a new-build home or condo unit for exclusive use by the individual’s niece, nephew, aunt, or uncle.
Likewise, you won’t qualify for the GST/HST New Housing Rebate if a niece, nephew, aunt, or uncle co-signed the purchase agreement for a home that only you occupied. The taxpayer in Gay-Ann Reeves unfortunately learned this the hard way.
Rebate Denied Because Aunt Is Not a “Relation”: Gay-Ann Reeves v the Queen, 2021 TCC 74
In 2015, Reeves and her husband sought to purchase a newly built residential property in Brampton, Ontario. To ensure that they secured financing, they asked Reeves’s aunt, Ms. Reid, to co-sign the purchase agreement with them. Ms. Reid did so.
On closing, Reeves and her husband acquired an undivided 99% interest in the property as joint tenants; Ms. Reid acquired a 1% interest as tenant in common. When the property’s construction was complete, Reeves and her husband moved in. Ms. Reid never intended to use the property as her residence, and she never occupied the property.
Reeves applied for the GST/HST New Housing Rebate. The application was accepted. The builder received the $24,000 rebate and credited Reeves and her husband. Not long after, however, the Canada Revenue Agency denied the GST/HST New Housing Rebate and assessed Reeves to repay the $24,000 with interest. Reeves objected, and the dispute ultimately reached the Tax Court of Canada.
The court sided with the Canada Revenue Agency. The court reasoned that, because Reeves’s aunt, Ms. Reid, entered the purchase agreement, subsection 254(2) of the Excise Tax Act required that either Ms. Reid occupy the property as her primary residence or Ms. Reid’s qualifying relative occupy the property as a primary residence. Reeves didn’t qualify as a relative. As mentioned above, for the purposes of the GST/HST New Housing Rebate, a qualifying relative excludes an individual’s niece, nephew, aunt, or uncle. Reeves was Ms. Reid’s niece. So, it didn’t matter that Reeves occupied the property.
In addition, it didn’t matter that Ms. Reid signed the agreement and took title in the capacity of an agent or bare trustee. The Federal Court of Appeal had previously killed that form of argument in the Queen v. Cheema, 2018 FCA 45. In Cheema, the taxpayer’s friend entered the purchase agreement and took 1% title in the capacity of a bare trustee. As such, the friend had no beneficial interest in the property. The friend didn’t occupy the property, nor did he intend to occupy the property. The arrangement was solely meant to assist the taxpayer with securing a mortgage. Yet a majority Federal Court of Appeal denied the taxpayer’s GST/HST New Housing Rebate. The appellate court held that a taxpayer cannot qualify for the GST/HST New Housing Rebate unless everyone who signed the purchase agreement satisfies the conditions under section 254 of the Excise Tax Act—even if one of those individuals signed the agreement and acquired title in the capacity of a bare trustee.
As a result, the Tax Court of Canada concluded that Ms. Reid failed to qualify and dismissed Reeves’s appeal, thereby denying her claim for the GST/HST New Housing Rebate.
Pro Tax Tips & Expert Canadian Tax-Lawyer Tax Guidance: Qualifying for the GST/HST New Housing Rebate & Disputing the CRA’s Denial of Your GST/HST New Housing Rebate
Gay-Ann Reeves demonstrates that, if you need a guarantor to qualify for a mortgage on a property otherwise eligible for the GST/HST New Housing Rebate, your guarantor shouldn’t sign the agreement of purchase and sale unless he or she will also satisfy the rebate criteria. If your intended guarantor doesn’t meet the rebate conditions, you should keep the guarantor’s name off title. Instead, your guarantor should only sign the mortgage agreement.
The Gay-Ann Reeves case involved the GST/HST New Housing Rebate that’s available when purchasing a new home from a builder. But you can also receive the GST/HST New Housing Rebate for building a home on land that you own. The new home must serve as your (or a qualifying relative’s) primary place of residence. Similarly, the GST/HST New Housing Rebate is also available if you substantially renovate your primary place of residence. The maximum Ontario new-housing-rebate amount for an owner-built house depends on whether you paid HST when you purchased the land: If you paid HST, the maximum rebate is $24,000; if you didn’t pay HST, the maximum rebate is $16,080.
If the Canada Revenue Agency has incorrectly denied your GST/HST New Housing Rebate, your expert Canadian tax-litigation lawyer may dispute the CRA’s decision by filing a notice of objection. A notice of objection prompts the CRA’s administrative dispute-resolution process, and the Canada Revenue Agency’s Appeals Division will assign an appeals officer to review the merits of your objection. If the CRA’s appeals officer renders an unfavourable decision, you may continue the dispute by filing a notice of appeal to the Tax Court of Canada. (In the alternative, you may effectively bypass the CRA’s Appeals Division and appeal directly to Tax Court if the Appeals Division hasn’t rendered a decision within 90 days from the date that you filed your objection.)
You have only a limited amount of time to object to a reassessment that denies your GST/HST New Housing Rebate. Generally, you must object within 90 days from the date on the reassessment, and you must appeal to the Tax Court of Canada within 90 days from the date of a notice of confirmation from the CRA’s Appeals Division. If you fail to meet the 90-day deadline, you might qualify for a deadline extension, but you must apply for the extension within one year and 90 days from the date on the assessment or confirmation. If you fail to object within these statutory deadlines, you’ll remain liable to repay the amount of the denied GST/HST New Housing Rebate.
So, if the Canada Revenue Agency has denied your GST/HST New Housing Rebate, speak to our Certified Specialist in Taxation Canadian tax lawyer today. Our experienced Canadian tax lawyers thoroughly understand this area of law, and we can ensure that you deliver a forceful, thorough, and cogent objection to the Canada Revenue Agency or appeal to the Tax Court of Canada.