Executive Summary: Key Legal and Evidentiary Issues

• Appellants Shivdev Singh and Manju Bala were denied the New Residential Rental Property Rebate under s. 256.2(1)(a)(iii)(B) of the Excise Tax Act for a newly built rental property in Brampton, Ontario.

• Central to the dispute was whether the Property qualified as a "qualifying residential unit," which requires the first use to involve continuous occupancy by tenants as their primary residence for at least one year.

• Initial tenants occupied the Property under a six-month lease (July 1 to December 31, 2022), falling short of the one-year statutory threshold.

• Mr. Singh candidly admitted the Appellants did not expect the first tenants — who were awaiting completion of their own new home — to stay beyond six months, negating any claim of reasonable expectation.

• Attempts to reset the "particular time" to the July 12, 2023 closing date were rejected, as the "first use" criterion anchored the analysis to the initial lease signed in June 2022.

• Despite the Property being rented continuously since occupancy but for a short gap, the Court held the statutory language was clear and dismissed the appeal without costs.

The facts of the case

Shivdev Singh and Manju Bala purchased a newly built residential unit in Brampton, Ontario, through an agreement of purchase and sale dated December 12, 2021. The Property was acquired as an investment, and they bought it to rent it out. The occupancy date was June 22, 2022, and the Appellants leased the unit to their first tenants under a six-month lease running from July 1 to December 31, 2022. Those tenants had a new home in progress, and after the end of the six-month term they moved out of the Property and into their new home. There was no evidence of any expectation that the tenants would stay at the Property longer than six months.
During the period before the formal transfer of title, the Appellants paid interim occupancy fees to the builder — sometimes described as phantom rent — until closing on July 12, 2023. As the first tenants' occupancy was ending, a new tenant signed a one-year lease effective January 1, 2023, but she defaulted. A further new tenant moved in as of March 1, 2023, and has lived there ever since. In summary, the Property was purchased as a rental property and has been rented continuously since the occupancy date up to the date of judgment, but for a short gap that was beyond the Appellants' control.

The rebate application and its denial

The Appellants applied for the New Residential Rental Property Rebate under the Excise Tax Act. The Minister of National Revenue denied the application by way of a notice of assessment dated October 4, 2023, concluding that the Property was not a qualifying residential unit of the Appellants, relying on s. 256.2(1)(a)(iii)(B). The Minister's position was that the Property was not a qualifying residential unit because it was neither a primary place of residence of an individual for a period of at least one year, nor did the Appellants have a reasonable expectation that it would be.

The statutory framework and the "qualifying residential unit" definition

Under s. 256.2(1)(a)(iii)(B) of the ETA, several conditions must be met for a rental property to be a "qualifying residential unit" for Rebate purposes. It must be a self-contained residence that the person owns, leases, or has possession of under a purchase and sale agreement. It must also be the case — or be reasonably expected by the person at the particular time to be the case — that the first use of the unit is or will be as a residence of individuals, each of whom is given continuous occupancy of the unit under one or more leases, for a period of at least one year, throughout which the unit is used as the primary place of residence of the individual. The Court referenced the summary provided by Bocock J. in 12329905 Canada Ltd v The King, 2024 TCC 115, which confirmed that the requirements of the definition will be met if either the first actual use or the reasonable expectation of a first use are consistent with the statutory requirements.

Determining the "particular time" and "first use"

A pivotal question was the identification of the "particular time" at which the Appellants' reasonable expectation had to be assessed. Following 12329905 Canada, the Court held that the "particular time" at which an appellant's reasonable expectation must be considered has to occur before the first tenant vacated the residential unit — otherwise, the statutory scheme would not make any sense. In the Appellants' case, the "particular time" in issue must be the time that the first lease was signed in June 2022. The testimony of Mr. Singh was candid — they did not expect that the first tenants would stay more than six months. While it may have been reasonable to expect that the tenants' own pre-construction home may be delayed, the only evidence was Mr. Singh's admission that they did not think the first tenants would stay on more than six months.
The Court also rejected the argument that the July 12, 2023 closing date could serve as the preferred "particular time" to reset the analysis around the long-term tenant who moved in as of March 1, 2023. That proposition conflicted with the constraint imposed by the "first use" criterion. The first use of the unit after construction was completed was as a primary place of residence for the first tenants, who lived at the Property from July 1 to December 31, 2022. Therefore, the first use principle forced an earlier date, and the tenant who leased the Property starting March 1, 2023 was not making "first use" of the Property.

Policy considerations and the legislative purpose

Justice Sorensen acknowledged that the result may seem somewhat at odds with the policy goal of encouraging the development of new long-term residential rental property in Canada. The Appellants did what a layperson would ordinarily expect would qualify — they purchased and leased out a rental property, the first tenants stayed six months, but the next bona fide tenant has resided at the Property for more than three years. However, the Court emphasized that the ETA expresses overall policy goals in statutory language, and the exercise of drafting legislation often involves drawing lines somewhere. The Rebate program was not structured to incentivize the development of short-term vacation accommodations that may be rented through online rental marketplaces, or executive suites; rather, the Rebate promotes the development of long-term rental property. Parliament's choice was to limit the Rebate to long-term rentals, relying on a one-year lease requirement, while allowing for fair outcomes based on reasonable expectations. Once Parliament has spoken, it does not lie with the courts to override Parliamentary intention expressed in clear language, in order to seek to remedy a perceived injustice. Citing the Supreme Court of Canada's majority reasons in Canada (Attorney General) v Collins Family Trust, 2022 SCC 26, the Court affirmed that Parliament has imposed on the Minister a duty to administer and enforce fiscal law, and it must be applied strictly and without discretion.

The ruling and outcome

For the foregoing reasons, the Tax Court of Canada dismissed the appeal of Shivdev Singh and Manju Bala. Justice John A. Sorensen found that the statutory requirements of s. 256.2(1)(a)(iii)(B) of the Excise Tax Act were not met, as the Appellants lacked a reasonable expectation at the time the first lease was signed that the initial tenants would occupy the Property for at least one year. The Crown (His Majesty the King) was the successful party in this matter. There was no order as to costs, and no specific monetary amount was at issue in the judgment beyond the denied Rebate itself, the exact quantum of which was not specified in the decision.