Executive Summary: Key Legal and Evidentiary Issues

• Yogesh Sharma appealed the denial of a $24,000 GST/HST New Residential Rental Property Rebate for 11 Sudeley Lane, Brampton, Ontario

• The central dispute was whether the property qualified as a "qualifying residential unit" under paragraph (c) of subsection 3 of section 256.2 of the Excise Tax Act at the closing date of November 10, 2020

• No lease existed on the closing date, and the first lease signed 13 days later was only for ten months — falling short of the statutory one-year minimum

• Testimony from the Appellant and his spouse was deemed insufficient to prove a reasonable expectation of a one-year lease at the particular time

• Neither the real estate broker nor the first tenant testified, leaving critical evidentiary gaps regarding the circumstances surrounding the closing date

• The Court dismissed the appeal without costs, finding the Appellant failed to meet the burden of proof on a balance of probabilities

Background and purchase of the property

In May 2019, Yogesh Sharma entered into an Agreement of Purchase and Sale with Upshift Investments Inc. in view to purchase a residential unit at 11 Sudeley Lane, Brampton, Ontario. The first tentative closing date for the purchase and sale was October 28, 2020, but the possession and closing date ultimately took place on November 10, 2020. The parties agree that the November 10, 2020 date is the date the HST is payable in respect of the sale and purchase of the property. On August 17, 2022, Mr. Sharma filed a GST/HST New Residential Rental Property Rebate Application with the Minister of National Revenue, claiming a rebate of $24,000. By notice of assessment dated June 21, 2023, the Minister of National Revenue disallowed Mr. Sharma's Rebate Application. Following a notice of objection filed by Mr. Sharma, the Minister of National Revenue confirmed the notice of assessment on June 17, 2024. On September 16, 2024, the Registrar Office of the Tax Court of Canada received a Notice of Appeal filed by Mr. Sharma.

The search for tenants and the first lease

During the construction period in 2020, Mr. Sharma contacted a real estate agent to assist him and find prospective tenants for the property. According to Mr. Sharma, the search for a serious tenant was not necessarily an easy task. The earlier months in searching for a tenant were not encouraging. The complex where the property is located involves a substantial number of residential units that would essentially become available for renting on or about the same time, affecting the leasing opportunities. The renting window was to start just before the holiday season and therefore was not necessarily promising. At some point in fall of 2020, the agent proposed a tenant to Mr. Sharma, and Mr. Sharma accepted the tenant's terms. The tenant's situation was such that the rental of the property was linked to the construction of the tenant's own residence, and it was difficult to predict exactly when the tenant's property would be delivered. The tenant did not want to enter into a longer lease term than ten months, although nothing guaranteed that the tenant's residence would be delivered on time. On November 23, 2020, the parties entered into an Agreement to Lease the property for a term of ten months commencing on December 1, 2020 and ending on September 30, 2021. In fact, the tenant's residence was made available earlier and the tenant left the property premises after eight months, in July 2021. The parties agreed to terminate the tenant's lease after eight months instead of ten as originally agreed on.

The second lease

Once informed of the first tenant's intention to terminate the lease earlier, Mr. Sharma reached the same real estate agent to find a subsequent tenant. On June 17, 2021, Mr. Sharma entered into a one-year lease with a new tenant, effective from August 1, 2021 to July 31, 2022. The new tenant renewed the terms of the lease after July 2022.

The statutory test under the Excise Tax Act

The sole issue in dispute was whether the property was a qualifying residential unit of Mr. Sharma at the relevant time for purposes of paragraph (c) of subsection 3 of section 256.2 of the Excise Tax Act. Under subsection (1) of section 256.2, a qualifying residential unit requires, among other conditions, that it is the case — or can reasonably be 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 place of residence of individuals, each of whom is given continuous occupancy of the unit, under one or more leases, for a period, throughout which the unit is used as the primary place of residence of that individual, of at least one year. The term "first use" is defined in subsection (1) of section 256.2 of the Excise Tax Act to mean the first use of the unit after the construction of the residential unit.

The Court's analysis of the one-year lease requirement

The Court identified two possible ways Mr. Sharma could satisfy the test. Under Option 1, the property would already be on November 10, 2020 the primary place of residence of a tenant under a lease for a period of at least one year — this was not possible to satisfy due to the fact that no lease was signed on November 10, 2020. Under Option 2, it had to be demonstrated that the circumstances on November 10, 2020 were such that it was reasonable for Mr. Sharma to expect that the first use of the property will be the primary place of residence of a tenant under a lease for a period of at least one year. Only Mr. Sharma and his spouse, Mrs. Sonia Bibra, testified. The real estate broker appointed earlier by Mr. Sharma to recruit potential tenants and discuss with the prospects the rental terms did not testify, and neither did the tenant under the first lease. The testimony of Mr. Sharma and Mrs. Bibra dealing specifically with the circumstances existing on or about November 10, 2020 was relatively brief. The Court found that the comments made by Mr. Sharma and his spouse support the flexibility that the situation required during the month of November 2020 — the priority and the challenge to find a trusted tenant to start on good basis the couple's rental project were the driving goals, and not to close at all costs a lease with a minimum term of one year. This was in line with the fact that a 10-month lease was signed 13 days following the closing date. Citing Hickman Motors Ltd. v Canada, [1997] 2 SCR 336, the Court held that Mr. Sharma did not present evidence that was "credible and sufficiently convincing on a balance of probabilities" to rebut the Minister's assumption. The Court further noted that the success with a subsequent tenant under a new lease once the first lease was terminated could not be of any assistance, as the Act is clear and only the first use after the construction is substantially completed is relevant — "First does not include second."

The primary place of residence condition

Beyond the one-year duration issue, the Court also addressed the requirement that throughout the period of at least one year, the residential unit must be used as the primary place of residence of the particular individual. Criteria indicative of a primary place of residence include the mailing address, income tax (forms or returns), voting, municipal/school taxes, and telephone listing, as noted by the Court. Referring to Fiducie CHRY-CA (2008 TCC 423), the Court noted that under the wording of section 256.2 of the Excise Tax Act, an individual can possess no more than one primary place of residence. Additional factors include the purpose of the stay, length of the stay, physical presence at the residence, the intention to use the residence as the primary residence, and the address appearing on the individual's personal records. The Court found that the evidence in this case did not establish, on the balance of probabilities, that it could reasonably be expected that the tenant would continuously occupy the property as the primary place of residence. This particular condition was just not addressed, and no witness was heard to address this particular aspect.

Ruling and outcome

Justice Jean Marc Gagnon of the Tax Court of Canada, in a decision signed on December 12, 2025, dismissed the appeal without costs. The Court concluded that the evidence at the hearing was not credible and sufficiently convincing on a balance of probabilities that the circumstances on November 10, 2020 were such that it was reasonable to expect that the first use of the property will be continuously occupied as the primary place of residence of a tenant under a lease for a period of at least one year. The Respondent, His Majesty the King, prevailed, and Mr. Sharma's claimed rebate of $24,000 was accordingly denied. No costs were awarded to either party.