How Much Time in Your Rental is Enough Time? Tax Court of Canada Rules on GST Rental Rebates
In a recent Tax Court of Canada decision, 12329905 Canada Ltd. v. The King, 2024 TCC 115, Justice Randall S. Bocock ruled in favor of 12329905 Canada Ltd. (the “Appellant”), in a new residential rental unit rebate of goods and service tax (“GST Rental Rebate”).
General Overview
The case is centered on whether the Appellant company qualified for a new residential rental property rebate under section 256.2 of the Excise Tax Act (the “ETA”). The decision, dated September 3, 2024, examined the timing and intention behind the Appellant’s leasing of a Toronto condominium to determine eligibility for the GST rebate.
Facts
The condo, purchased in 2020, was occupied by two consecutive tenants. The first tenant, a nurse, entered a six-month lease with the Appellant on December 30, 2020, and rented the unit for an initial period of eight and a half months. After the first tenant vacated, a second tenant moved in immediately, continuing the unit’s occupancy without interruption.
Issue(s) on Appeal
The core of the dispute revolved around the ETA’s definition of “qualifying residential unit” and the interpretation of the “particular time” at which the taxpayer’s reasonable expectation of a long-term lease should be evaluated.
The Respondent, His Majesty the King, argued that the rental did not qualify for the GST Rental Rebate as the term of the first tenant fell short of the full one-year lease requirement. It was further argued that eligibility for the rebate should be assessed only at the time when tax became payable, which in this case was on the date of legal title transfer in October 2021. By then, the first tenant had already left, undermining the one-year occupancy condition, according to the Respondent.
The Appellant Corporation, however, having expected a longer tenancy, argued that the property qualified for the GST Rental Rebate because of the Appellant’s genuine expectation that the term of the leases would exceed one year.
Decision
Justice Bocock accepted the Appellant’s position holding that the “particular time” should be viewed as when the lease was signed (in 2020). The court noted that the Appellant reasonably expected the first tenant to stay for a year and found that denying the rebate would go against the ETA’s purpose of supporting long-term rental housing. The court pointed to precedents supporting a more flexible interpretation of the law, emphasizing that the tenant’s actual lease length need not be precisely one year if a reasonable expectation for a longer tenancy existed at lease inception.
The ruling highlights the importance of legislative intent, statutory interpretation, and taxpayer expectations in determining eligibility for tax rebates.
By acknowledging the nuances in rental property leasing, this decision may have implications for landlords seeking GST rebates under similar conditions. If you need advice regarding your eligibility for the GST Rental Rebate under the ETA, contact us today!
** Disclaimer: This article provides information of a general nature only. It does not provide legal advice, nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.
Michelle Kosarnia