Beware the HST rebate rules

Beware the HST rebate rules

September 10, 2018
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As written for remonline.com  

Are you buying a new home or condominium unit with another person? If so, there is an interesting and probably little-known rule about the HST New Housing Rebate that may surprise you – and more importantly may disqualify you from obtaining the rebate entirely.

The HST New Housing Rebate provides eligible buyers of a qualifying new home or condo with a rebate of a portion of the HST paid on the purchase price. In a nutshell, the rebate works like this:

  • Newly constructed homes are subject to the federal HST (unlike resale homes, which are exempt).
  • New home buyers can apply for a rebate amounting to 36 per cent of the federal portion of the HST that applies to the purchase price of a home costing $350,000 or less, to a maximum of $6,300. That rebate amount on the federal portion of the HST, for homes priced between $350,000 and $450,000, is reduced proportionately, while new homes priced at $450,000 or higher do not qualify at all.
  • As for the provincial portion of the HST levied on the purchase price, new home buyers in Ontario can apply for a rebate amount to 75 per cent of that tax, to a maximum of $24,000.

The HST New Housing Rebate is established under s. 254 of the Excise Tax Act. To qualify, purchasers must meet certain criteria pertaining to the nature of the home purchased, and also must meet eligibility requirements.
The act in section 254(2) refers repeatedly to the “particular individual” who becomes liable for the HST under the agreement of purchase and sale with the builder. That particular individual must be “acquiring the complex or unit for use as the primary place of residence of the particular individual or a relation of the particular individual.” A different provision, in section 262(3) of the act, adds that where a supply of a single-unit residential complex is made to two or more individuals, the reference in section 254 to a “particular individual” is essentially plural and refers to all of these individuals as a group.

The interplay between these definitions and the requirements around the intent to occupy the new home was the focus of the Tax Court of Canada’s analysis in a case called Davidson v. The Queen, 2002 CanLII 872 (TCC).

The case featured a deal involving the purchase of a new duplex containing two residential units by two people, a man and a woman. Although title to the property was taken jointly, the woman was added only to satisfy the lender on a mortgage (she was not a beneficial owner).

When it came time to claim the HST New Housing Rebate on the tax they had paid on the purchase price, the pair were told that they were ineligible.

It was true that the property and the mortgage had been registered as showing joint ownership. It was also true that the man had purchased and occupied the unit as his principal place of residence. But because the rebate provisions in section 254 refer to a “particular individual”, and because section 262(3) says this means all individuals in a group, this means that both the man and the woman had to satisfy the conditions relating to an intention to acquire the home for use as a primary place of residence. The man had done so, but the woman had not, since she was added to the deal for mortgage-related reasons only. She never intended to live in the unit herself.

In light of that missing intention on the woman’s part, the court held that unfortunately the situation was caught by the wording of the act. It was up to the legislature – not the courts – to “patch the holes,” the Tax Court explained.

This is an important stipulation to know about when buying a new home or condominium unit jointly with another. The presence (or absence) of intent by each person to make the home their primary place of residence could be the simple, make-or-break factor on whether they qualify for the HST rebate.