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Under the relevant provisions of the Excise Tax Act, when a person purchases a new residential complex with the intention of renting it, he is entitled to a rebate, commonly referred to as the “GST/HST New Residential Rental Property Rebate”. In a recent court decision, a taxpayer did just that. He used a corporation (the appellant in the case) to purchase a condo unit with the intention of renting it. The agreement of purchase and sale was entered into on December 10, 2020. Although work on the building was not done yet, the unit was deemed “occupiable” on an interim basis pending final completion. The taxpayer gained immediate access and managed to find a tenant (the first tenant). They entered into a lease on December 30, 2020 for a six-month period. The lease was thereafter extended on a month-to-month basis. The first tenant left on September 30, 2021 and a new tenant moved in right away on October 1, 2021 (the second tenant). In the meantime, work on the building was completed and registered title for the unit was received on October 21, 2021.
In order to be entitled to the GST/HST New Residential Rental Property Rebate, a property needs to meet the definition of “qualifying residential unit”. In the context of the present case, the Court summarized the requirements as follows:
- the unit must be used as a place of residence of individuals;
- each of whom is given continuous occupancy of the unit;
- under one or more leases;
- for a period;
- throughout which the unit is used as the primary place of residence of that individual;
- of at least one year.
The core issue in this case dealt with the computation of the one year requirement. Should we start counting the one year period based on the December 30, 2020 date (the beginning of the lease for the first tenant) or the October 21, 2021 date (when the registered title for the unit was received).
The Crown argued that the relevant date was October 21, 2021 based on a strict reading of the legislation, which refers to the time tax first becomes payable. The Court summarized the Crown’s position as follows:
The Respondent further reasons that the expectation of the Appellant on October 20, 2021, the date of title transfer, is the only time for consideration relevant in this appeal. As such, factually on October 20, 2021, Tenant #1 had already vacated the unit and therefore the Appellant could not have reasonably expected that Tenant #1 would continue to reside there for at least one year. On October 20, 2021, first use of the unit had ended and limited to an 8 and one-half month period, despite the immediate execution of a new lease with and immediate occupancy by Tenant #2. Accordingly, the Appellant could no longer reasonably hold the expectation on that date that Tenant #1 would occupy the premises for at least one year. The Respondent asserts such a logical impossibility nullifies the qualification for the GST Rental Rebate.
The purpose of the rebate is to incentivize the creation of new rental units. In this case, although the unit was rented continuously for a period exceeding one year, thus aligning with the purpose of the rebate, the Crown adopted a technical and narrow interpretation in order to deny the taxpayer a rebate to which he was entitled. Rightfully, the Court sided with the taxpayer and allowed the appeal. The Court commented: “The calculation of the date for payment of the tax should not be conflated with the commencement point for the assessment of reasonable expectation for length of tenancy where the result is non-sensical and not clear from the legislation.” [Emphasis added.]