A Temporary Tenant Nearly Cost a Family Their HST Rebate

The situation

Amalia worked as a surgeon and Diego managed a small portfolio of commercial rental units, and after twelve years in a starter home they were ready to move up. They signed an agreement of purchase and sale for a new-build home in Cambridge, priced at roughly $1,650,000, with a builder whose sales office had a closing date printed on every brochure: eighteen months out. Like most new-build agreements, the price already assumed the buyers would qualify for the HST new housing rebate — the refund of most of the provincial portion of HST that applies when a newly built home will be the buyer's or a close relative's primary residence. Amalia and Diego signed the standard assignment, agreeing the builder would collect the roughly $24,000 rebate directly and credit it against the purchase price, rather than the couple having to apply for it themselves after closing.

Their plan was simple on paper. Sell the old house close to the new build's completion date, move directly from one to the other, and avoid ever carrying two properties at once. For the first sixteen months, that plan held. Then, three months before the promised closing, the builder pushed the date back — first by a few weeks, then by an unspecified further delay tied to a trade shortage on the project. Amalia and Diego had already accepted an offer on their old home, with a firm closing date they could not walk back without breaching that agreement themselves.

Diego, with years of experience managing rental units, saw the obvious short-term fix: rent somewhere for a few months and wait out the builder's delay. But when the new build finally reached final occupancy nine months late, the couple's own housing situation had shifted again — Amalia had accepted a temporary posting in another city for what was expected to be roughly a year, and moving the family into the new Cambridge home only to relocate again within weeks made little sense. Diego suggested leasing the finished new-build to a tenant for that stretch, then moving the family in once Amalia's posting ended. It solved a real problem. It also, without either of them realizing it at the time, put their entire rebate at risk.

What the review found

The new housing rebate under the Excise Tax Act is available where the purchaser, or a close relation of the purchaser, acquires a newly built home with the genuine intention of using it as a primary place of residence. Intention at the time of purchase is what governs eligibility — but the Canada Revenue Agency does not take a buyer's word for that intention in isolation. It looks at what actually happened after closing, and the first thing that happens after closing is usually the strongest evidence available.

What happened after closing, in this case, was that a tenant named Alejandro moved into the home under a signed one-year lease, and Amalia and Diego did not. When the builder filed the rebate paperwork on the couple's behalf, it went through without incident. It was roughly a year later, during a routine CRA compliance review of a batch of rebates the builder had processed that season, that a request for information landed on Amalia and Diego's desk. The CRA reviewer had pulled utility and lease records tied to the address and found exactly what the file showed: a residential tenancy in place from the very first month of ownership, with the purchasers' own move-in date coming about a year later.

The rebate the couple had already received, in effect, by way of the reduced purchase price, was built on the premise that they intended to occupy the home as their primary residence from the outset. A home leased to an unrelated tenant immediately after closing looks, from the outside, exactly like an investment property acquired to generate rental income — the fact pattern the new housing rebate was never meant to cover. Under the Excise Tax Act, a newly built home rented out is generally treated as falling under a separate program, the new residential rental property rebate, which has its own eligibility rules, a different calculation method, and requires the owner to have collected and self-assessed HST on the fair market value of the property at the time it was first occupied as a rental. None of that had been done, because nobody involved in the closing had flagged the rental as a rebate issue at all.

The CRA's position, set out plainly in the review letter, was that the new housing rebate of roughly $24,000 had been improperly claimed and was subject to repayment, with interest accruing from the date it was credited at closing. For a couple who had genuinely intended, and eventually did, move into the home as their family residence, being treated the same as an arm's-length investor stung — but the paperwork on file told the CRA a rental story, not a residency story, and the burden was on Amalia and Diego to show otherwise.

What we did

1. Reviewed the full timeline before responding. Before replying to CRA, we reconstructed the sequence in detail: the original agreement of purchase and sale signed eighteen months before the eventual closing, the builder's own delay notices, the firm closing date on the old home that the couple could not unilaterally move, and the specific dates of Amalia's temporary posting. A rental that looks arbitrary in isolation can look very different once the surrounding pressures are documented.
2. Conceded the rental honestly rather than disputing the facts. There was no reasonable argument that the home had not been rented — the lease was real, and Alejandro had genuinely lived there for about a year. Trying to characterize the tenancy as something other than what it was would have damaged the couple's credibility on every other point in the file. We advised leading with the facts, not fighting them.
3. Argued the intention test on the couple's actual conduct. We built the response around what the couple did once the temporary need passed: they moved into the home themselves as soon as the lease ended, sold no other property, and have lived in it as their only residence since. We supported this with utility transfers, updated driver's licence and voter registration addresses, and a signed statutory declaration setting out why the lease had been necessary and temporary rather than intended as an ongoing rental arrangement.
4. Applied in parallel for the new residential rental property rebate. Rather than treat the CRA's position as all-or-nothing, we filed a separate application for the smaller rebate available for the genuinely rented period, supported by the signed lease and evidence of the fair market value of the home at the point Alejandro moved in. This gave the CRA a compliant alternative to fall back on instead of a full repayment with nothing recovered in its place.
5. Negotiated the interest position. Because the couple had relied on the builder's standard closing paperwork in good faith and had not attempted to conceal the rental, we asked CRA to apply its discretion to reduce the interest accruing on the repayment, rather than charging the full amount that had built up over the roughly year-long gap between the original rebate and the review.

The outcome

CRA did not accept that the original new housing rebate could stand — the year-long tenancy before move-in was too clean a fact for the agency to waive on intention alone, and Amalia and Diego repaid the full roughly $24,000 originally credited at closing. That part of the outcome was a genuine cost, and one the couple had not budgeted for a year after they thought the file was closed.

What softened it was the parallel application. The new residential rental property rebate, calculated on the fair market value of the home at the point the lease began and the HST self-assessed on that value, came back at roughly $16,000 — smaller than the original rebate, because the two programs are calculated differently and do not mirror each other dollar-for-dollar, but real money recovered against a real repayment. On the interest, CRA agreed to reduce the amount owing to roughly $600, well below the more than $2,000 that had technically accrued, in recognition that the couple had not misrepresented anything at the time of purchase and had come forward with full records once asked.

Net, the family was out roughly $8,000 compared to where they would have stood if the original rebate had held — a real number, but a contained one next to the alternative of repaying $24,000 with full interest and no offsetting claim at all. Amalia and Diego have lived in the Cambridge home since Alejandro's lease ended, with no further contact from CRA on the file. Diego, who had assumed his rental experience made the arrangement straightforward, now applies a rule he did not have before: any time a newly built home changes from owner-occupied to rented, even briefly and even with the best intentions, it is a tax event, not just a logistics problem.

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