Taxpayer Challenges Denial of New Housing Rebate

written on behalf of Feigenbaum Law

Disputes leading to litigation can quickly arise when two parties interpret the law differently. This can be especially true regarding personal and corporate tax matters. Working with the government on a tax issue where you believe you have been unjustly denied a tax break or tax credit can be an intimidating experience.

This week’s blog post will look at a recent decision from the Tax Court of Canada in which the appellant applied for the GST/HST New Housing Rebate, only to be told that she did not qualify.

Appellant purchases her own home after discovering husband’s infidelity

In the case of Robb v. The King, the appellant home-buyer purchased a three-bedroom townhouse in Etobicoke prior to its construction. She signed the purchase and sale agreement on July 7, 2014, which listed the purchase price before taxes as $574,327.43. She took possession of the home on May 8, 2017.

The appellant told the Court that when she signed the purchase and sale agreement, she had discovered that her husband was cheating on her. The parties had been married for 22 years and had been experiencing difficulties in the years leading up to this point. After discovering her husband’s infidelity, she left their shared home and moved in with her parents. At the time she purchased the home, she stated that she did not own any other properties.

Bank account associated with mortgage shared with former husband

The appellant made monthly deposits of $15,000 towards the home throughout the summer and autumn of 2014, and she had financial assistance from her parents while doing so. When the construction was complete, she took on a monthly mortgage of approximately $800. The appellant had not worked between 2014 to 2017 and used a bank account to secure her mortgage. She told the bank that the bank account associated with the mortgage was shared with her former husband, but the money in it was hers.

When the appellant took possession of the house, her sister moved in with her. Her sister had children who sometimes resided at the home as her sister had shared parenting time.

Appellant attempts to reconcile with former husband

In the years following the appellant’s ownership of the home, she attempted to reconcile with her former partner. She lived in Panama for much of 2017 and 2018, as well as in the United States, where her former partner was based for work.

The appellant told the Court that her attempts to reconcile with her husband were unsuccessful. Following the divorce, she went back to live with her parents and rented out the home in question since it was too large to live in alone.

Canada Revenue Agency denies rebate ap

The appellant applied for the Ontario portion of the GST/HST New Housing Rebate with respect to the Etobicoke home. However, section 254(2) of the Excise Tax Act requires that:

“(i) the particular individual intend to use the property as their (or their relation’s) primary residence, and (ii) proof of this intention in turn requires that the particular individual (or their relation) occupy the property as their primary residence.”

The Canada Revenue Agency noted that it was not enough for the appellant to simply say that she intended to occupy the property, as relying on a taxpayer is not the most reliable basis to use when determining intent.

Court finds law does not actually require the home to be used as applicant’s primary residence

However, the Court pointed out that the Excise Tax Act does not require the appellant to have actually used the home as their primary residence. Instead, it states only that the individual had to intend to use it as their primary residence and that they actually live in the home after its completion. Further, the law does not require the home to be used as a primary residence.

Regarding whether the appellant’s claim that she intended to use the home as a primary residence was sufficient, the Court said, “the proposition put forth in the case law says that a party’s actions are often the best objective evidence of their stated subjective intent and I agree.”

The Court found that the appellant’s “testimony and timeline of events have the messy authenticity of a marital breakdown in which the couple has been together for a significant period of time and has the means in terms of resources, time, motivation, and support to attempt reconciliation in multiple cities.” The Canada Revenue Agency did not provide any evidence that the appellant had a history of flipping properties for profit or that any of her actions showed profit-related motives. Instead, the Court found that the appellant’s actions were consistent with an individual making personal choices rather than business ones.

Court finds that appellant is entitled to rebate

The Court also looked at the purchases related to the rebate claim and found that they were consistent with an intention to live in the home. The appellant had taken steps to occupy the home by purchasing an alarm system, a bed frame, and a central vacuum system to clean up hair from her pets. She also ordered items online to be delivered directly to the house in question.

The Court determined that when the appellant purchased the townhouse, she intended to use it as her primary residence. Further, she was the first person to occupy the home after it was built. Therefore, the Court held that she was entitled to receive the rebate she applied for.

The Tax Lawyers at Feigenbaum Consulting Help Clients Manage Personal Tax Matters, Including Those Resulting From Divorce or Separation

If you have questions regarding personal tax compliance or income tax disputes, including those resulting from separation or divorce, contact the trusted and experienced tax lawyers at Feigenbaum Consulting. We help clients develop a tailored tax planning solution for their personal filings or corporate tax compliance needs. With their extensive experience and understanding of the law, our team provides honest advice and ensures compliance with appropriate tax laws while maximizing tax strategies. We offer various tax planning and legal services to clients located in the United States and Canada. Contact us online or call us at (416) 468-7298

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