Birthday Celebration & 2 recent court cases on New Residential Housing Rebate

I passed another birthday during our week at the cottage.

When we got back, Erwin, being a wonderful husband, took me to Blacktree Restaurant in Burlington to celebrate.  

It was a fantastic dinner, I enjoyed every single bit of it.  

Erwin and I were never foodies.  I didn’t even hear about this restaurant until he mentioned it.  

We were both blown away by the details and efforts put into making the wonderful 8 course meals.  Blacktree changes their menu every other month.  I enjoyed the Foie Gras, the octopus and salmon the most.

The food was great.  But being an entrepreneur myself, their business model inspires me even more.

They have their menu posted on their website.  $80 per person.  The menu allows a couple of choices, but for the most part, everyone gets the same thing.

They are in the back corner of a plaza (not a AAA plaza), having no visibility in the parking lot or main street whatsoever.  I personally went to that plaza a couple of times and never noticed the restaurant before.  

To top this off, they open 4 days a week, dinner only.

That’s truly living Your Life on Your Terms. 😊

I am sure, like most entrepreneurs, the owner would need to put in a lot more than just 4 nights a week of work to prep for these four nights of operation.  

I truly admire the owner having the guts to operate only 4 nights a week in a back corner of a strip mall and somehow still making a living.

As entrepreneurs, we always try to bend ourselves backward to accommodate our clients’ need.  Sometimes it works, most of the time it doesn’t.  

Earlier on, I would accommodate a prospect consultation working late hours in the evening and weekend.  I left myself burnt out and frustrated at my own life.  Husband is not happy, kids are upset as they don’t see their mom often.  

Blacktree served as a great reminder the importance of setting the boundary earlier on and yet you can still be successful.  

For those entrepreneurs who are struggling like me 2 years ago, rethink what your ideal clients are and make your decision from there.  Just like the Blacktree owners, you too can live your life on your terms too!

Now onto this week’s topic – a couple of court cases about New Residential Housing Rebate.

New residential housing rebate does not depend on residency status at the time of purchase

As purchasers of a new house, you are required to pay HST on the purchase of a new home.

CRA does provide a Federal and Provincial rebate if the purchasers or their families intend to move into the property.  

In the court case Parthiban v. The Queen, Mr. Parthiban purchased a preconstruction home in December 2011.  He and his wife are both U.K. citizens and passport holders who moved to Canada in 2011.  

At the time, they already sold their place in the U.K. and had no other places of residence of their own.

The house closed December 2012 and has been the only residence of the family since then.  They continued to have a business in the U.K. and travelled there once in a while, but not over 2 months in a year.

When they signed the initial agreement of purchase and sale in December 2011, they were not considered Canadian tax resident at the time.  They were considered as “visitors” when they signed the paper.

CRA disallowed the rebate application (roughly $24K), given that they only had “visitors” status at the time of purchase.  

Mr. Parthiban fought the assessment and went on to file an objection.  At both levels, he lost.

He appealed to the Tax Court of Canada.  

This time, judge sided with him.

If you take a step back, it is quite unreasonable that CRA disallowed such an application given that this new house in Markham had been the ONLY place of residence for the family.  The house was never rented or listed for sale at all.

Mr. Parthiban intended to move his family here. The family resides in the property.  Yet, CRA disallowed the claim because of the legal status of Mr. Parthiban at the time when he signed the agreement of purchase and sale.  (He had since become a resident of Canada.)

When you apply for the New Residential Rental Rebate either by yourself or your client, intention matters.  Gather all the facts and keep all the evidence, you never know when you will need them to present in court!

Lack of evidence to show intent as primary residence, no new housing rebate allowed

In Safar-Zadeh v. The Queen (TCC, March 2, 2017), the taxpayer applied for the New Residential Housing Rebate but got denied.  The taxpayer purchased a new construction home a block down the road from their then residence.  

The new construction home was closed and the taxpayer sold it within 6 months.

The main criteria to qualify for the New Residential Housing Rebate was that the purchaser or his family members must move into the property.  

CRA’s position was that the taxpayer never moved into the property.

The taxpayer claimed that they moved out from their old residence into the new place, and rented the old place to their brother-in-law, who’s also the buying real estate agent for the new build.

The taxpayer claimed that because of the noise in the area and he worried about the safety of his children, he decided to move back to his old house after a few months.

Based on the taxpayer’s reported income, the Judge concluded that the taxpayer and his wife’s income ($34K in one year and $16K in another year) would not be sufficient enough to support a new mortgage of $500,000.  

The fact that they never changed their driver license and credit card statement addresses to the new home was also not helping.

Indeed, the Court even looked at whether the brother-in-law had actually changed his driver license and credit card statement address to the taxpayer’s old residence as evidence to make the appropriate conclusion.

Judge sided with CRA, agreeing with their position that they never intended to move in and hence no New Residential Rental Rebate allowed.

You may also wonder what’s next for this couple.  Chances are, if they claimed that the property was their primary residence and did not report the sale on their tax returns, CRA would probably catch up onto them.

If they did report the sale as capital gain, CRA may challenge that because such a transaction is considered more of a flip or business transaction, and hence 100% taxable, rather than 50% taxable.

Lessons learned: documentation and intention matter.  Keep everything.  Change addresses and do it in a timely manner, keep all the paper work.  They can take up space, but you will thank yourself if you get in any trouble a few years down the road.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

6 replies
  1. AJ
    AJ says:

    Hi Cherry,
    Great report! I enjoyed reading it.
    Here’s my situation – purchased a new build and my brother & his fam will be moving in. I am the only one on title. Do I get the hst credit, since he’s immediate family, or do I pay the $24k, draw up a lease, and then request it back?

    Thanks!

    Reply
  2. Andrew
    Andrew says:

    Hi Cherry,
    In January 2014 my wife and I bought a new build (condo) for our primary residence. The completion date at purchase was April 2015…Long story short, in April 2015 our unit was not even a hole in the ground. We love the area, therefore in September 2015 we bought another new build, but learning our lesson the development was almost 50% complete. Our original intent was never to have the first purchase as a investment property, but now we want to keep it for investment purposes. Do you think we have a case and will receive the credit?

    Reply
    • Cherry Chan, Real Estate Accountant
      Cherry Chan, Real Estate Accountant says:

      Hi Andrew, to be on the safe side, even though your intent is what it matters the most, it is hard to prove your intent if you immediately rent it out.
      I would definitely pay the difference at closing, sign a lease agreement, apply for New Residential Rental Rebate to get back the amount in 3 months. You still get the $$$ back and you can sleep at night.

      Cherry

      Reply

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