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GST/HST — rebate to builder of student residence

My client built a large building for students attending an Ontario university. The building was not ready for occupancy until September, and so the first leases to students were for only 8 months, to the end of the academic year.

My client applied for a New Residential Rental Property of $1.25 million. This rebate is given to landlords of new buildings that are rented out to residential tenants who are expected to stay for at least 12 months.

The CRA auditor proposed to allow only $600,000 of rebate, for the 39 units that the first tenants renewed for a second year.

I wrote to the auditor to explain that my client had gone out of its way to market its rentals to first-year students and others who would stay for multiple years, since finding new tenants is very costly. Indeed, 91 of the first tenants were "non-final-year" students who were expected to renew. However, due to other large rental buildings opening in the neighbourhood the next year, my client lost most of its initial tenants — because its tenants could get away with renting only till April, going back to their parents for the summer and not renting again until the next September. That is normally not possible if a student wants to be sure of having an apartment in a tight market the next year. I carefully documented the client's intention to get tenants who were not in their last yeat, and supported my submission with several affidavits from individuals familiar with the facts, as well as published articles about the neighbourhood and the new rental buildings that had opened and drawn away my client's tenants.

As I explained to the auditor, each of the 91 units rented to a "non-final-year" student was "reasonably expected" to be occupied by that student for more than 12 months, which is the test in the Excise Tax Act to qualify for the rebate. I also cited a Tax Court case with similar facts that supported our position.

After many months of review, the auditor accepted my submission, and granted the rebate on 91 of the units, over $1.2 million.

Problem solved!

(2020)