A Temporary Tenant Nearly Cost This Couple Their HST Rebate

The situation

Emily, a pharmacist, and Fernanda, a police sergeant, signed an agreement to purchase a pre-construction condominium unit in North Bay for roughly $950,000, with an anticipated completion date about eighteen months out. They planned to sell their existing home and move in together once the building was finished. Like most new-build purchase agreements in Ontario, theirs assigned them the harmonized sales tax, or HST, that applies to newly constructed homes, but credited back an amount called the new housing rebate directly at closing, so long as they signed a statement confirming the unit would be their primary residence.

The federal portion of that rebate phases out on homes priced above a certain threshold, and at $950,000 it did not apply. The provincial portion of the Ontario new housing rebate, however, is capped at a flat amount — roughly $24,000 — regardless of price, and applies whenever the buyer or a close relation genuinely intends to occupy the home as a primary residence. The builder credited that amount against the closing price, which is standard practice, but it comes with a condition: if the Canada Revenue Agency later determines the home was not actually used as intended, it can reassess and require repayment, with interest.

Our team handled the closing. Part of that work is explaining, plainly, what the attestation the buyers are about to sign actually commits them to. Many buyers assume that once the rebate is credited at closing, the matter is settled — that it is simply part of the purchase price, no different from any other adjustment on the statement of adjustments. It is not. The rebate is a benefit tied to a specific, ongoing use of the property, and the CRA can and does verify that use, sometimes years after the fact, by matching addresses on file against tax returns, licences and other government records. We walked Emily and Fernanda through that condition before closing, along with the general principle that a genuine, unavoidable delay in moving in is treated differently from renting the unit out to someone else in the meantime.

At the time, nothing about the file looked unusual — a straightforward attestation, a straightforward closing, and two buyers with every intention of moving in as soon as the building was ready for occupancy.

What changed after closing

About five months after closing, Fernanda was posted to a temporary assignment several hours away, expected to last close to a year. Rather than leave the new condo sitting empty, the couple let a friend, Heather, stay there rent-free while they sorted out their plans, intending to move in themselves once the posting ended.

Fifteen months later, when they finally moved in, Emily updated her mailing address and applied for a change to her driver's licence using the new unit. That triggered a routine CRA data match against the rebate claim filed at closing — the kind of cross-check the agency runs periodically on new housing rebates, comparing the occupancy date implied by the paperwork against other records tied to the buyers. A letter arrived asking the couple to substantiate that the condo had been their primary residence from the point of first occupancy, as the rebate required.

This is where new-home rebate claims most often run into trouble. The rebate is not conditional on the buyer occupying the unit the day the keys change hands — construction timelines and life circumstances shift constantly, and the CRA does not expect immediate occupancy in every case. But the underlying condition is stricter than most buyers realize: the rebate requires that the purchaser, or a 'relation' — a narrow, defined category limited to a spouse, common-law partner, or someone connected by blood, marriage or adoption — be the first person to occupy the unit as a residence after construction is complete. A friend does not qualify as a relation for this purpose, however informal or well-meant the arrangement. Heather moving in ahead of Emily and Fernanda was not just a fact that looked bad on paper; it went to whether the very condition the rebate was built on had ever been satisfied, and gave the CRA grounds to argue the entire credit, not merely part of it, should be repaid.

What we did

1. Reviewed the closing file and the original attestation. We confirmed exactly what Emily and Fernanda had signed at closing, and what standard the CRA would apply in assessing whether their later conduct was consistent with it. That mattered because the CRA's letter did not spell out its legal theory; before drafting any response, we needed to know precisely which condition the couple had attested to and how strictly the agency was likely to read it.
2. Gathered contemporaneous evidence of intent. The couple still had records showing their reasoning throughout: the listing history and eventual sale of their previous home, correspondence about Fernanda's temporary posting, and messages with Heather describing the stay as a favour, not a tenancy — Heather had never paid rent, and there was no lease. Records created at the time carry far more weight with the CRA than a written explanation assembled after a reassessment letter arrives, so gathering everything before drafting a single word of the response was the priority.
3. Distinguished informal use from legal occupation. We prepared a written response to the CRA's letter explaining the sequence of events: the posting, the decision not to leave a new unit sitting empty, and the couple's move-in as soon as the posting ended. The absence of any lease or rent payments from Heather was central to this — without a tenancy, and without Heather ever establishing the unit as her own residence in any of the ways the CRA checks (a changed address, a driver's licence, a utility account in her name), there was a real argument that she had never legally occupied the unit in the sense the rebate condition addresses, leaving Emily and Fernanda's own move-in as the first qualifying occupation.
4. Flagged the exposure that remained. Even with intent well documented, the CRA's stricter reading of the rule — that Heather's presence, however informal, meant the purchaser-or-relation condition had failed outright — remained a live risk that could cost the couple the entire rebate, not merely a share of it. We advised the couple honestly that a full waiver of any adjustment was unlikely, and that the realistic goal was avoiding a full denial and confining any repayment to the period genuinely in question.
5. Negotiated a settlement through the CRA's objection process. Rather than let the CRA's initial position — that Heather's occupancy disqualified the rebate in full — proceed to a formal disallowance, we filed a notice of objection and pressed the case that only the period she actually lived there was properly in dispute. That meant arguing for a proration tied to the fourteen months of unrelated occupancy, rather than accepting the agency's all-or-nothing framing of the first-occupant condition.

The outcome

The CRA's opening position was the harder one: because Heather, an unrelated friend, had been first to occupy the unit, the purchaser-or-relation condition had never been met and the full roughly $24,000 credit was repayable. Working through the objection process, our team kept the case focused on what the CRA could actually document — Heather had never signed a lease, never paid rent, and never re-registered so much as her mail to the address, while Emily and Fernanda's own paper trail showed an unbroken intention to occupy the unit themselves from the day of purchase. Rather than push a full disallowance to a hearing, the CRA agreed to settle: the couple would repay a portion of the credit — a bit under half of the original amount, plus interest — reflecting the roughly fourteen months an unrelated person had use of the unit before they moved in, with the balance of the rebate left standing. That result was a negotiated compromise reached through the objection process, not an outcome the legislation guarantees; a stricter reading of the first-occupant condition could have cost Emily and Fernanda the entire credit.

It was not the clean outcome anyone wanted. Had Emily and Fernanda sought advice before letting Heather move in — even a short call about how an empty new-build unit should be handled during an unplanned absence — the arrangement could likely have been structured to avoid the reassessment altogether, for instance by formalizing it as the couple's own temporary secondary use rather than letting an outsider occupy it unpaid and unrecorded for over a year. The favour to a friend, offered without a second thought, ended up costing them several thousand dollars in repayment and interest they would not otherwise have owed.

What limited the damage was that the couple had never actually changed their plans — they always meant to live in the unit, they moved their previous home's sale around it, and Emily could point to a documented, unbroken thread of intent from the day of purchase to the day they finally moved in. That thread is what kept the CRA's reassessment narrow instead of complete.

What you can learn from this