Hot off the tax court presses is a new decision on eligibility for the New Housing Rebate for Owner Built Homes. Adjudicated under the informal procedure (non precedent) this decision diverges from the Canada Revenue Agency’s position in an important way.

The CRA’s position on the question of whether an Accessory Dwelling Unit (aka, Laneway House) built over an existing garage for a residential complex is eligible for a New Housing Rebate (or a New Residential Rental Property Rebate) is articulated in the GST/HST Info Sheet, GI-168: The GST/HST Implications of the Construction of Secondary Housing Units (Laneway Housing):

“A laneway house does not include an addition to an existing house or a suite in the basement or over the garage of an existing house.”

In the particular case in question, the existing garage of the house was detached and that is what likely made the difference (see the reference to Lemieux v R (2009 TCC 17) below) in finding for the appellant.

The definition of a residential complex (RC) that is relevant for this case is:

residential complex means

(a) that part of a building in which one or more residential units are located, together with

(i) that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and

(ii) that proportion of the land subjacent to the building that that part of the building is of the whole building,

From the CRA’s point of view the detached garage was an appurtenance to the residential complex and therefore the entire RC (main house) would have to be substantially renovated for the New Housing Rebate to apply (no renovations were made to the main house). From the appellant’s point of view before the renovations to the detached garage there was no RC on that footprint and after the renovations there was, therefore construction had occurred and made the new dwelling eligible for the rebate.

In their analysis Justice Gabrielle St-Hilaire says:

[26] I note that both parties referred to this Court’s decision in Lemieux v R (2009 TCC 17) wherein Justice Tardif found that the Appellant was not entitled to the new housing rebate. In Lemieux, the appellant had constructed an addition, on top of a two-car garage attached to an existing 2,400 square-foot residence. I find the circumstances of that case to be so different from those in the present case that it is of little, if any, assistance in determining the issue before the Court.

Ultimately Justice Gabrielle St-Hilaire found for the appellant, specifically that they had constructed a new RC where the detached garage stood. After constructing the RC, and having his mother-in-law (a relation for the purposes of the rebate) as the first person to occupy, occupy the RC as a primary place of residence, eligibility for the rebate was made.

As this case was decided under the informal procedure it is not precedent for similar cases but the logic seems correct in my mind. As the appellant’s argument (paraphrased) pointed out , if they had demolished the detached garage and constructed the exact same building on the same footprint, the CRA would certainly have found them eligible for the rebate. That is a conclusive argument in my mind.