A Tax Court of Canada decision last month can help buyers of new homes and condos ensure they qualify for the HST new home rebate.
The court’s finding is also a serious reminder for buyers to complete all details associated with moving.
In 2009, Anthony Montemarano was in a serious relationship with his girlfriend and decided to buy a home for himself and his future wife.
He signed an agreement with Country Wide Homes to buy a four-bedroom house to be built on Fairwood Circle in Brampton. The purchase price was $362,000. Prior to closing, Montemarano and his girlfriend chose $7,507.50 in upgrades
The transaction closed on December 10, 2010 and Montemarano moved into the house with the help of two friends. His parents gave him a few things for the house until the wedding when it was customary for them to give gifts of furniture.
In March, 2011, Montemarano and his girlfriend broke up. He listed it for sale and in September, 2011, sold it for a gain of about $130,000.
At the time of buying the house, Montemarano declared that it would be his principal residence. As a result, the builder credited him with total HST provincial and federal rebates of $27,297.85. Subsequently, the Canada Revenue Agency (CRA) reassessed him, claiming a clawback of the rebates on the basis that he did not qualify for them.
With so many people flipping houses and condos in this market, CRA did not believe Montemarano genuinely intended the house to be his home.
The Excise Tax Act provides that a purchaser is eligible for the HST rebate if, at the time he or she signs a contract with the builder, they genuinely intend it as their primary residence.
Montemarano appealed the government’s attempt to recover the rebates and the matter came before the Tax Court of Canada last month.
Montemarano introduced evidence from two friends who testified they went to the house to play poker. He presented his hydro bills and a letter from his real estate agent.
The Canada Revenue Agency disputed his claim, relying on the fact that he did not change his address on record with the CRA, the Ontario Ministry of Transportation for his driver’s licence, and the Ontario Ministry of Health for his health card.
After hearing evidence from both sides, Justice Valerie Miller concluded that Montemarano met the conditions required to qualify for the HST new housing rebates. He did not have to repay more than $27,000 in rebates back to the government, and presumably is entitled to claim the $130,000 profit as a tax-free capital gain.
For home buyers in similar situations, the test is whether or not they can assemble enough evidence to establish a genuine intention to live in the house as a primary place of residence. Moving in a mattress and toothbrush, as many buyers apparently do, will simply not be enough to convince CRA of a genuine intention to live in the house.
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at email@example.com, phone 416-364-9366 or fax 416-364-3818.
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