A word of caution
Normally new home deals are based on the buyer qualifying for the HST New Housing Rebates (the “rebate”) and assigning them to the builder as part of the payment of the purchase price on closing. If the buyer is credited with the rebate but does not satisfy the criteria to qualify for it, the tax department may later disallow the rebate. In this event there will be interest assessed for which the buyer will be held responsible as well as paying the builder back the rebate credited to it. There have been several cases dealing with the applicability of the rebate which I wanted to summarize.
Rules for buyers to qualify for rebate
- All the buyers named in the agreement of purchase and sale (the “agreement”) must qualify for the rebate.
- Buyers must intend to occupy the home as their own primary place of residence or that of their qualified relations when they sign the agreement. They cannot buy intending to rent it out or resell.
- Buyers do not have to be Canadian residents when they sign the agreement but must have the intent from the outset to occupy the home as their principal worldwide residence (or of their qualified relations) when the house is ready for occupancy.
- If there is more than one buyer and they are not related, all must qualify by occupying the home as the primary place of residence for themselves or for their qualified relation. So if only one of them resides in the home, the rebate will not be allowed. For example, if an uncle and nephew are the buyers but only the nephew intends to live there, the rebate will not be allowed as they are not qualified relations.
- The first persons occupying the home must be all the named buyers or their permitted relations.
- The persons taking title to the home and the buyers named in the agreement must be the same on closing and the named buyers have to be adjusted by amendment if necessary.
- All of the buyers and title holders must be individuals, not corporations, trusts or other entities.
Definition of relation
To properly understand the rules, you must understand the way “related” is defined for purpose of HST. To qualify for the rebate based on relationship to the buyer named in the agreement, the applicant must fall within one of the following two categories: “blood relation” meaning parents, grandparents, children, grandchildren or sibling; or “marriage relation”- meaning a spouse of the buyer (by marriage or common law) or a blood relation to the spouse. Spouse includes a former spouse. It is important to note that uncles, aunts, cousins, nieces and nephews of the buyer are not qualified “relations” in the eyes of Revenue Canada for purpose of the rebate. (In this article the term “relation” means a qualified relation).
Examples of transactions which can cause problems
- sometimes a mortgagee will ask for someone besides the buyer to guarantee the mortgage and also be on title in order to qualify the buyer for a mortgage. If that additional person on title won’t be living there and is not a qualified relation to the buyer, the whole of the rebate cannot be claimed, even if the guarantor only owns 1%.
- if the buyer allows a person who is not a relation to first occupy the home, the rebate cannot be claimed. An example would be if the buyer allows a friend or non qualifying relative to first occupy because the buyer is living elsewhere at closing.
- if two non related persons sign an agreement but one decides not to live there or not go on title, they have to delete that person’s name from the agreement or the rebate cannot be claimed.
- if the true purpose of the buyers at the time that they sign the agreement of purchase and sale is to rent the home or resell, the rebate cannot be claimed. Please note that if people are buying multiple homes, even if they move into each one of them for a brief period of time, the Ministry may find a pattern and disallow the rebate3
- if a parent signs the agreement of purchase and sale then directs title to a child, the agreement should also be assigned to the child or the rebate may be disallowed.
Buyers and sellers should be aware of the rules as the amount of the rebate is in the tens of thousands of dollars. The HST regime is very strict and the consequences of mistakenly doing the wrong thing can be very costly.
© Morrison Brown Sosnovitch LLP, 2016. All rights reserved.