House not lived in, tax court finds

The Tax Court of Canada has ruled reluctantly that a taxpayer who withdrew funds from his RRSP under the Home Buyers Plan (HBP) to help pay for a new condominium unit must include the withdrawn funds as part of his income.

Although the court agreed that the taxpayer withdrew the funds too late and was misled by a poorly drafted form, the court noted that there was nothing it could do to rectify the error.

The source of the error arose out of a situation that arises very commonly for purchasers of newly constructed condos: the date when the purchaser may take vacant possession of the property may vary by more than a month from the formal closing of the deal.

Under the HBP rules, the purchaser must withdraw the RRSP funds no more than 30 days after the “closing” of the deal; for the purposes of the Income Tax Act, “closing” is deemed to be the same as taking possession of the unit. However, the CRA form that must be filed when the funds are withdrawn from the RRSP for the HBP suggests that the pertinent date is the actual closing date when the purchaser becomes the owner.

The taxpayer in the case, Jignesh P. Chitalia v. The Queen, followed the instructions on the form, indicating that the withdrawal was not made more than 30 days after closing as the closing had not taken place when the withdrawal was made. (He had however, moved into the unit more than 30 days earlier).

In holding for the government, Justice Brent Paris noted in the decision: “In fact, there is no reference to a deemed acquisition date anywhere on [the Canada Revenue Agency] form. A taxpayer reading that form would have no way of knowing about the special rule relating to the deemed acquisition date and that it would differ from the date of ownership, as that term is commonly understood.”

In holding that the taxpayer’s appeal had to be dismissed, given the priority of the rules over the wording of the form, Paris stated: “Given the inequity of this result, Mr. Chitalia may wish to consider applying for a remission of the tax [under the relevant legislation]. The CRA should also revise the wording of the HBP withdrawal form to alert new condominium unit buyers to the deemed acquisition date as provided for [under the Income Tax Act.]”

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