Another recent decision from the Tax Court of Canada indicates that apparently small details may make a big difference when it comes to claiming tax breaks for a primary residence, in this case the New Housing Rebate (NHR).
And while the fever gripping the Toronto real estate market is not referred to in such decisions, it may be helpful for advisors to keep this in mind when advising clients who are purchasing properties for which they intend to claim a tax benefit. Indeed, Ontario Finance Minister Charles Sousa this week asked the federal government to take steps aimed at curbing some of the speculative fever that appears to be pushing Toronto area home prices ever higher.
The March decision in Nahid Safar-Zadeh v. The Queen chronicles a tale in which a family with an existing home in Richmond Hill, north of Toronto, decided to purchase an empty lot on the same street, adjacent to a busy artery, Yonge Street. Their subsequent claim for the New Housing Rebate was denied on the basis that they did not use the home as their primary residence, a requirement for claiming the rebate.
The sole issue in the case was whether the taxpayer, the mother, actually intended to use the home the family built on the lot as her primary place of residence when she entered into the agreement of purchase and sale.
The government denied the taxpayer’s claim for the NHR on the new home, which cost about $550,000. The taxpayer appealed. On dismissing the appeal the tax court noted a number of factors that led it to conclude that credibility was an issue and that there was no intent to use the new home as a principal residence.
These factors include the purchase and sale of the new home within six months of the home’s completion. The cost of the home was about $550,000 with most of the funds borrowed from family and s smaller amount on a line of credit. The income of the taxpayer and her husband was under $20,000 in 2011, 2012 and 2013. The house was resold in 2012, about six months after the first closing, for $625,000. The old house on the same street was not sold.
A substantial part of the evidence turned on testimony relating to whether or not the move to the new house actually took place. These included the taxpayer’s assertion that she only became aware that the new home’s location next to Yonge Street could be a safety issue for her young children after moving in, as well as its noise issues, despite the new house’s proximity to her existing home on the new block. The taxpayer was unable to produce receipts for the cost of the move, or for utility bills. While a brother-in-law testified that he and his girlfriend moved into the old house on a permanent basis, the court was not persuaded that this was the case. The taxpayer and her family members did not notify any government agencies of a change of address, including health cards and drivers licenses. The real estate commission on the sale was paid to the family member who helped finance the house.
In holding against the taxpayer and her witnesses, the court observed that their evidence was not persuasive, on several fronts. These included their very low income, which would have made carrying costs of the home difficult; failure to notice drawbacks of a property located on a street where they already lived; and failure of either the taxpayer, her husband or the brother in law to notify government officials of a change of address.
Concludes the decision: “For all these reasons, I am not persuaded that the Appellant bought the property at 161Shirrick with the intention of using it as the family’s principal place of residence.”
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