The Tax Court of Canada Considers Entitlement to the GST/HST New Housing Rebate

A recent Tax Court of Canada decision highlights the problems that can be encountered by taxpayers claiming the GST/HST New Housing Rebate. In Malik v. The Queen, 2015 TCC 83, the taxpayer entered into a contract to purchase a newly constructed house in the City of Ajax. The taxpayer could not arrange financing for the property due to his credit history. In order to secure financing, the taxpayer appealed to family and friends. Ultimately, a family member agreed to assist and was added as a purchaser to the Agreement of Purchase and Sale.

In order to be entitled to the GST/HST New Housing Rebate, a taxpayer must satisfy certain conditions set out in the Excise Tax Act. The relevant sections of the Act specify that the builder makes a taxable supply at the time that the Agreement of Purchase and Sale is entered into, and in order to be entitled to the rebate, those individuals to whom the taxable supply is made (i.e. the parties to the contract) must intend to use the house as their primary place of residence. In Malik, because the family member was a party to the Agreement of Purchase and Sale but never intended to move into the property, the taxpayer was not entitled to the rebate. Had the taxpayer been in a position to secure a mortgage, he would have been entitled to the rebate.

Compare Malik to the Tax Court of Canada decision, Javaid v. The Queen, 2015 TCC 94, which was released only 13 days after Malik. In Javaid the taxpayer entered into an Agreement of Purchase and Sale for a new house but struggled to arrange financing. A friend agreed to act as guarantor for the taxpayer’s mortgage, and as required by the lender, was added to the Agreement of Purchase and Sale as a purchaser. The friend did not move into the property nor did he ever intend to. The taxpayer was initially denied the GST/HST New Housing Rebate on the basis that the friend failed to meet the conditions set out in the Act, but he was successful on appeal.