The need to carefully consider who is entitled to the GST/HST New Housing Rebate has been emphasized in recent court cases involving trust agreements.
A trust agreement is an agreement between two parties where one party has done something on behalf of the other. We see these agreements in real estate where an individual has entered into a purchase and sale agreement “in trust” for another party, generally a company. It’s good to take a look at specific instances to better understand how trust agreements affect those applying for the GST/HST New Housing Rebate. Here’s a look at a couple examples that illustrate trust agreements in which the purchasers do not qualify.
Trust agreements with an unrelated individual
In a case decided at the Federal Court of Appeal in February 2018 (The Queen v. Cheema), a taxpayer had assistance from an unrelated individual to obtain a mortgage. The individual co-signed the mortgage and was a co-purchaser on the agreement of purchase and sale. The individual acted as a bare trustee who had no interest in the property itself. A bare trustee is someone that holds title to property on behalf of another person; the other person is the beneficial owner.
Although the individual acquired the property only as trustee, this was of no consequence for GST/HST purposes. The rebate rules require a particular individual (or his or her relation) to have the intention to use the property as the “primary place of residence” at the time that particular individual signs the agreement of purchase and sale. For GST/HST purposes, the test as a primary place of residence is different than defined by income tax. You cannot elect to claim a property as your primary residence. Instead, you must occupy the property more than 50% of the time to qualify for the rebate.
Because the individual had signed the agreement of purchase and sale but never intended to occupy the residence, the taxpayer was not entitled to the rebate.
Trust agreements with a known co-purchaser
In a second case decided by the Tax Court of Canada in April 2018 (The Queen v. Duyo), a taxpayer and his wife signed an agreement of purchase and sale but were unable to obtain financing. Their friend agreed to be co-mortgager on the land and a registered owner on title for them to receive financing.
The friend was added as a co-purchaser to the agreement of purchase and sale and an acknowledgment of trust was signed. Since all signatories to an agreement of purchase and sale for a newly constructed home must have the intention to occupy the residence to qualify for the rebate, the taxpayer’s appeal was dismissed.
In each of these cases the co-signors owned only 1% of the property and did so only to assist the factual owners to obtain mortgage financing. However, there is no contemplation of this common situation in the Excise Tax Act that would allow for the New Housing Rebate to be eligible. This is among many things to consider if and when applying for a rebate with the CRA.
If you’re unsure about your eligibility, you can find some more in-depth information about the New Housing Rebate here. Or you can contact us to discuss your particular situation and see what your options are.
Scott Merry, CPA, CGA
Partner, Indirect Tax
Tags: GST/HST, rebates, trust agreements