Principal Issues Questions: In a situation where during her marriage, a spouse inhabited a home wholly owned by her husband, what would be the CRA position:
1. If she buys a home shortly after her husband’s death and she doesn’t have another spouse or a common-law partner:
a. Would she meet the condition in paragraph f) of the definition “regular eligible amount” in subsection 146.01(1)?
b. Would she meet the condition in subparagraph (a)(iii) of the definition “qualifying home” in subsection 118.05(1)?
2. If she acquires the home from the estate by inheritance, would she be eligible for the HBP?
Position: 1. a. Paragraph f) of the definition “regular eligible amount” in subsection 146.01(1) would have no application if the withdrawal is made after the death.
1. b. Subparagraph (a)(iii) of the definition “qualifying home” in subsection 118.05(1) would have no application if the acquisition of the home is made after the death.
2. Question of fact.
Reasons: 1. Previous positions and according to the ITA.
2. Previous position regarding the broad meaning of "written agreement" for purposes of the HBP and other requirements of the definition “regular eligible amount” in subsection 146.01(1).
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 2
Eligibility for the home buyers' plan following the death of a spouse
The rules governing the home buyers' plan ("HBP") are set out in section 146.01. One of the important HBP definitions is that of "regular eligible amount" in subsection 146.01(1).
In that definition, several conditions are provided for, including one regarding the occupation of a housing unit during a specific period of time. Paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) states that the individual did not have an owner-occupied home in the period that began at the beginning of the fourth preceding calendar year that ended before the time of the withdrawal, and that ended on the 31st day before the time of the withdrawal.
In addition, in paragraph (f) of that definition, a similar test is provided in respect of a spouse or common-law partner, namely that the spouse or common-law partner must not have an owner-occupied home during the same period that it that was inhabited by the individual during the spouse’s or common-law partner’s marriage or common-law partnership to the individual.
Consider the following situation: Monsieur, the sole owner of the family home, died in April 2019. The estate sold the house during the following months, and Madame, the 58-year-old wife of Monsieur at the time of his death, bought a condominium in July 2019.
The Income Tax Folio S1-F5-C1 (Footnote 1) explains in particular in paragraphs 1.5 to 1.7 that the relationship created by marriage ceases at the time of death. Thus, following the death of Monsieur, we can state that Madame no longer has a spouse.
At the time of purchase of the condominium in July 2019, Madame therefore no longer had a spouse and she did not have a common-law partner within the meaning of subsection 248(1). It is our understanding that the test in paragraph (f) of the definition of "regular eligible amount" in respect of the spouse or common-law partner would not be relevant, since Madame does not have a spouse or common-law partner at the time of the withdrawal from the registered retirement savings plan ("RRSP") under the HBP (which will, of course, occur after Monsieur’s death). With respect to the test in paragraph (e) of the definition, since it was her late husband who was the sole owner of the home before his death, and thereafter it has been owned by his estate, Madame has never owned the home that she occupied during the period referred to in paragraph (e) of the definition. She therefore appears to be eligible for the HBP in respect of the purchase of the condominium in July 2019.
A similar test is also provided for in the definition of "qualifying home" in subsection 118.05(1) for the purposes of the first time home buyers' tax credit (HBTC), and as a result, Madame also appears to fully qualify for that credit for the year 2019.
Questions to the CRA
a) Can the CRA confirm that Madame will be eligible for the HBP and the HBTC in 2019 with respect to the above situation, assuming all other conditions are satisfied?
b) Can the CRA confirm that she would also be eligible for the HBP in a situation where the estate had instead transferred the property held by her deceased spouse to her to occupy as her principal place of residence?
CRA Response to Question 2(a)
To participate in the HBP, paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) provides that the individual must not, at the time the individual withdraws an amount from the individual’s RRSP, have an owner-occupied home in the period that began at the beginning of the fourth preceding calendar year that ended before the year of withdrawal, and that ended on the 31st day before the date of the withdrawal.
Furthermore, paragraph (f) of the definition "regular eligible amount" in subsection 146.01(1) stipulates that the individual's spouse or common-law partner must not, during the same period, have an owner-occupied home that was inhabited by the individual during their marriage or common-law relationship. The CRA is of the view that if the individual does not have a spouse or common-law partner at the time of withdrawal of an RRSP amount, that condition is not applicable.
In the situation presented, since Madame does not have a spouse or common-law partner at the time of the withdrawal of an amount from her RRSP, being in July 2019, the condition set out in paragraph (f) of the definition "regular eligible amount" in subsection 146.01(1) would not be applicable. Furthermore, since she was not the owner-occupant of a home during the period beginning on January 1, 2015 and ending 31 days before the date of the withdrawal in July 2019, we are of the view that the condition in paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) is satisfied. Thus, if the other conditions set out in the definition of "regular eligible amount" are satisfied, Madame could participate in the HBP.
With respect to the HBTC, subsection 118.05(3) provides a tax credit in computing an individual's tax for the taxation year in which a qualifying home is acquired. Subsection 118.05(1) defines a "qualifying home" to include a home in Canada that is acquired, whether jointly or otherwise, after January 27, 2009 and which satisfies the conditions of paragraph (a) of that definition.
Subparagraph (a)(i) of the definition of "qualifying home" in subsection 118.05(1) provides that the individual must intend to inhabit the home as a principal place of residence not later than one year after its acquisition.
Subparagraph (a)(ii) of the same definition provides that the individual must not own, whether jointly or otherwise, a home that was occupied by the individual in the period that began at the beginning of the fourth preceding calendar year that ended before the acquisition, and that ended on the day before the acquisition.
Subparagraph (a)(iii) of the same definition provides, inter alia, that the individual’s spouse or common-law partner did not, in the period referred to in subparagraph (ii), own, whether jointly or otherwise, a home that was inhabited by the individual during the marriage to or common-law partnership with the individual. The CRA is of the view that if the individual does not have a spouse or common-law partner at the time of the acquisition, that condition is not applicable.
In the situation presented, since Madame did not have a spouse or common-law partner at the time of acquisition of the home, the condition in subparagraph (a)(iii) of the definition "qualifying home" in subsection 118.05(1) is not applicable. Furthermore, since she was not the owner-occupant of a home during the period starting on January 1, 2015 and ending the day before the acquisition, we are of the view that the condition in subparagraph (a)(ii) of the definition of "qualifying home" in subsection 118.05(1) is respected. Thus, the home acquired in July 2019 could, if all the other conditions set out in paragraph (a) of the definition "qualifying home" in subsection 118.05(1) are otherwise satisfied, qualify as a "qualifying home" for the purposes of the HBTC.
CRA Response to Question 2(b)
The comments above with respect to paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1) are also applicable in such a situation.
However, paragraph (b) of that definition provides that, at the time of the withdrawal, the individual must have entered into an agreement in writing before the particular time for the acquisition of the home or with respect to its construction.
The Income Tax Act does not define the term "agreement in writing". However, for the purposes of the HBP, we consider that a person has entered into an agreement in writing provided that there is a series of correspondence or written documents that constitute, in their entirety, the offer made by an individual and its acceptance by another in connection with the acquisition.
The question of whether and at what time an agreement in writing to acquire a home is entered into in an estate context is a question of fact. Depending on the circumstances, various correspondence or other written documents could be considered together to constitute the offer made to the heir or the legatee and his or her acceptance in connection with the acquisition and thus be considered together as an agreement in writing for purposes of the HBC. In any event, and given the regime regarding the publication of rights provided for in the Civil Code of Quebec, we understand that any acquisition of an immovable by way of succession must, in Quebec, be the subject of a declaration of transmission that must be published to make the transfer of property enforceable against third parties. In that context, the CRA generally agrees that such a statement may be considered an agreement in writing for the purposes of the HBP.
Furthermore, it is only if all of the conditions in the definition of "regular eligible amount" in subsection 146.01(1) are satisfied that Madame could be eligible for the HBP in the situation described. In particular, in addition to the requirement in paragraph (e) above, the condition in paragraph (d) of that definition must be taken into account. That condition requires that neither the individual nor the individual’s spouse or common-law partner has acquired the home more than 30 days before the time of withdrawal.
Whether the conditions set out in paragraphs (d) and (e) of the definition "regular eligible amount" in subsection 146.01(1) are satisfied at the time of withdrawal in the situation described will depend on when the home is acquired, which is also a question of fact.
Dominic-Jean Gagnon
(418) 634-2991
October 11, 2019
2019-081188
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Income Tax Folio S1-F5-C1, “Related Persons and Dealing at Arm's Length” November 24, 2015.