Principal Issues: [TaxInterpretations translation] Did a taxpayer meet the eligibility criteria for an HBP where there was an intention to start using a qualifying home as the individual's principal place of residence no later than one year after the acquisition, but after acquiring the housing, found that it was not possible to live in it?
Position: Question of fact.
Reasons: This is an intention test that must be applied at the time when the money is withdrawn from the RRSP. The taxpayer must be able to establish the taxpayer’s intention.
XXXXXXXXXX 2010-038799 Catherine Ayotte, Notary, M. Fisc. February 25,2011
Dear Sir,
Subject: Conditions of eligibility for the Home Buyers' Plan ("HBP")
This is in response to your email of November 23, 2010 where you asked us for an interpretation regarding the eligibility requirements for an HBP. In particular, you wish to know if a taxpayer satisfied the eligibility criteria for an HBP where the taxpayer intended to start using a qualifying home as the taxpayer’s principal place of residence no later than one year after the acquisition but after that acquisition, found it impossible to inhabit it.
Please note that, unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
The situation you described in your email appears to be related to an actual situation which concerns a specific taxpayer. As explained in Information Circular 70-6R5 Advance Income Tax Rulings, it is not the practice of the Directorate to comment on proposed transactions that relate to specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a transaction, you must forward all relevant facts and documents to the appropriate Tax Services Office for their views. We are, however, prepared to provide the following general comments, which may be helpful to you.
Where a benefit received from a registered retirement savings plan ("RRSP") is an "excluded withdrawal" within the meaning of subsection 146.01(1), that benefit need not be included in computing the income of the taxpayer under subsection 146(8). For HBP purposes, a "regular eligible amount" is considered an excluded withdrawal. Among the conditions for an amount to qualify as a regular eligible amount is a requirement that the individual must request in a prescribed form in which the individual sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence.
This eligibility criterion for an HBP is based on the intention of the taxpayer when the taxpayer withdraws the money from the taxpayer’s RRSP. It is therefore a question of fact since this test is one of intention. The taxpayer will then have to demonstrate that the taxpayer had that intention when making the withdrawal. If the taxpayer is able to demonstrate that intention, this eligibility requirement for the HBP is satisfied. If the taxpayer is unable to demonstrate that intention, the amount withdrawn from the RRSP is not a "regular eligible amount". (footnote 1)
Guide RC4135, Home Buyers' Plan (HBP) (Footnote 2), contains information about the rules governing an HBP. On page six, the Guide states the following with respect to the requirement of an intention to occupy the qualifying home as the principal place of residence:
“In some cases, you may not occupy the qualifying home by the end of the 12-month period after you bought or built it. If this happens, you are still considered to have satisfied this condition if, at the time you withdrew funds under the HBP, you did in fact, intend to occupy the home as your principal place of residence no later than one year after buying or building it.”
In the event that that same taxpayer wishes to participate again in the HBP when purchasing another qualifying home, the taxpayer will have to re-establish whether all the eligibility conditions for the HBP are satisfied. One of those conditions is that the taxpayer be considered a first-time home buyer. (Footnote 3) To satisfy this requirement, the person (or their spouse or common-law partner) must not have owned a home as owner-occupant during the period beginning January 1 of the fourth year preceding the calendar year of the withdrawal and ending 31 days before the date of the withdrawal (the "Period"). A taxpayer who purchased a qualifying home with the intention of living in it but was unable to do so would not usually own the home as an owner-occupant. The purchase of that home during the Period will not prevent the taxpayer from being considered a first-time home buyer.
However, as required by the definition of "regular eligible amount" in subsection 146.01(1), to access the HBP in a year, the "HBP balance" within the meaning of subsection 146.01(1) must be nil on the 1st day of January of the year of withdrawal (footnote 4). To that end, in accordance with the definition of the HBP balance in subsection 146.01(1) as well as subsection 146.01(3), contributions made to an RRSP in the first 60 days of the year and designated as a HBP repayment for the preceding year will reduce the HBP balance in determining if the balance on January 1 is nil.
We hope that our comments are of assistance.
Best regards,
Louise J. Roy, CGA
Manager of the Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 See the case: Osei-Yaw v. The Queen, 2009 TCC 627.
2 Available on our website at the following address: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/READ-ME.html
3 For more details on this topic, see Guide RC4135 in the section entitled "You have to be considered a first-time home buyer".
4 For more details on this, see Guide RC4135 in the section entitled "Your repayable HBP balance on January 1 of the year of the withdrawal has to be zero”.