3 November 2023 APFF Financial Strategies and Instruments Roundtable Q. 2, 2023-0978631C6 F - CELIAPP - Autoconstruction d'une habitation - FHSA - Self-construction

Unedited CRA Tags

146.6(1) "habitation admissible" "particulier déterminé" "retrait admissible".

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Translation disclaimer

This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Whether an individual, holder of a FHSA, may make a qualifying withdrawal if his house is built by a contractor with whom he is bound by contract? Whether the conclusion would be the same if the individual is an owner-builder who only subcontracted some specific work for the construction of his home.

Position: In the first case, likely yes. In the second case, it could be possible depending on the facts.

Reasons: Paragraph (c) of the definition of "qualifying withdrawal” requires that the individual entered into an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the following calendar year. That condition should generally be met when the individual enters into an agreement with a contractor for that person to build the home. The same applies when only parts of the work are subcontracted, as long as there are written agreements with the subcontractors demonstrating that significant work is undertaken to ensure that the construction will be completed within the time limit.

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2. FHSA - Purchase of land, construction or self-construction of a home and qualifying withdrawal

Mr. X, a single Quebec resident, has never owned a qualifying home. He signed an offer to purchase on January 1, 2020, and the deed of purchase with the notary was signed on February 1, 2020.

On May 1, 2023, having met all the conditions for opening a Tax-Free First Home Savings Account ("FHSA"), he opened a FHSA account and contributed $8,000. He will make a further contribution of $8,000 on January 1, 2024.

On February 1, 2024, Mr. X will sign a written agreement with a contractor to build a single-family home on his land. Under the terms of the agreement, the house will be habitable by Mr. X on September 1, 2024, and it is Mr. X's intention to begin living in it on that date.

Mr. X would like to withdraw all of his FHSA contribution on June 1, 2024, and will complete Form RC725 (footnote 1) to do so.

Questions for the CRA

(a) In such a situation, would Mr. X satisfy all the conditions for the purposes of the definition of "qualifying withdrawal" in subsection 146.6(1) of the Income Tax Act (footnote 2) in order to make a qualifying withdrawal, i.e., a non-taxable withdrawal, in particular the condition set out in paragraph (a) relating to the acquisition?

(b) If Mr. X does not sign any agreement with a contractor for the construction of the entire house, but rather builds the house himself, i.e., he will only entrust certain work to subcontractors who deal at arm's length with him (e.g., plumber, electrician, roofer, etc.) and will carry out part of the work himself, would paragraphs (a) and (c) of the definition of "eligible withdrawal" in subsection 146.6(1) be satisfied assuming that the house will be habitable on September 1, 2024?

CRA's response

An individual who is the holder of an FHSA, when the individual wishes to make a qualifying withdrawal from that account for the acquisition of a qualifying home, must ensure that the amount the individual will receive as a benefit meets the conditions described in the definition of "qualifying withdrawal" in subsection 146.6(1).

Those conditions can be summarized as follows:

The withdrawal must be made as a result of the individual’s written request in prescribed form in which the individual sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence (paragraph (a)).
The individual must be resident in Canada from the time of the withdrawal until the earlier of the acquisition of the qualifying home and the individual's death. In addition, the individual must not, during the four calendar years preceding the particular year in which the withdrawal is made, and the period of the particular year ending on the 31st day preceding the withdrawal, have occupied an owner-occupied home owned by the individual (paragraph b)).
The individual must have (before the withdrawal) entered an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the calendar year following the calendar year in which the amount is received (paragraph c)).
The individual must not have acquired the qualifying home more than 30 days before the withdrawal was made (paragraph d)).

More specifically, paragraph (c) of the definition of "qualifying withdrawal" states that an individual may receive an amount that is a qualifying withdrawal from an FHSA if the individual proceeds with the construction of the qualifying home.

As previously stated for the construction of a qualifying home under the home buyers' plan ("HBP"), the Canada Revenue Agency ("CRA") considers that the home is generally acquired by the individual when it becomes habitable.

Thus, in the situation described in Question 2(a), we are of the view that Mr. X could be in a position to satisfy all the conditions set out in the definition of "qualifying withdrawal" insofar as, in particular, his qualifying home should be habitable from September 1, 2024 and he intends to begin using it as his principal place of residence on that date.

With regard to the situation described in Question 2(b), our comments above are essentially equally relevant. However, in that case, it is indicated that Mr. X would not sign any agreement with a contractor for the construction of the entire home and would instead plan to do some of the construction work himself. It is also indicated that, before withdrawing an amount from his FHSA, he entered into written agreements with various subcontractors for the construction of his home. We consider that in such a situation, he could generally satisfy the conditions set out in the definition of "qualifying withdrawal", in particular to the extent that those written agreements show that sufficiently significant work was undertaken to complete the construction of the qualifying home before October 1 of the calendar year following that in which the amount withdrawn from the FHSA was received.

Michel Ostiguy

November 3, 2023

2023-097863

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 CANADA REVENUE AGENCY, Form RC725, "Request to Make a Qualifying Withdrawal from your FHSA".

2 R.S.C. 1985, c. 1 (5th Supp.) ("I.T.A.").

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Text of Severed Letter

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principales Questions: Un particulier, titulaire d'un CELIAPP, peut-il faire un retrait admissible s'il fait construire sa maison par un entrepreneur avec qui il est lié par contrat ? Est-ce la même conclusion s'il construit lui-même son habitation et ne confie à des sous-traitants que certains des travaux ? / Whether an individual, holder of a FHSA, may make a qualifying withdrawal if his house is built by a contractor with whom he is bound by contract? Whether the conclusion would be the same if the individual is an owner-builder who only subcontracted some specific work for the construction of his home.

Position Adoptée : Dans le premier cas, probablement oui. Dans le second cas, cela pourrait être possible selon les faits / In the first case, likely yes. In the second case, it could be possible depending on the facts.

Raisons: L'alinéa c) de la définition de "retrait admissible" exige que le particulier ait conclu une convention écrite et que celle-ci vise l'acquisition ou la construction de l'habitation admissible avant le 1er octobre de l’année civile suivante. Cette condition devrait généralement être remplie si le particulier conclut une convention écrite avec un entrepreneur pour que celui-ci construise l'habitation. Il en est de même lorsque seulement une partie des travaux est confiée à des sous-traitants, dans la mesure où il y a des conventions écrites avec ceux-ci démontrant que des travaux suffisamment importants sont entrepris pour qu’il y ait achèvement de la construction dans le délai. / Paragraph (c) of the definition of "qualifying withdrawal” requires that the individual entered into an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the following calendar year. That condition should generally be met when the individual enters into an agreement with a contractor for that person to build the home. The same applies when only parts of the work are subcontracted, as long as there are written agreements with the subcontractors demonstrating that significant work is undertaken to ensure that the construction will be completed within the time limit.

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2. CELIAPP - Achat d’un terrain, construction ou auto-construction d’une habitation et retrait admissible

Monsieur X, domicilié au Québec et célibataire, n’a jamais été propriétaire d’une habitation admissible. Il a signé une offre d’achat le 1er janvier 2020 afin d’acheter un terrain et l’acte d’achat chez le notaire a été signé le 1er février 2020.

Le 1er mai 2023, respectant toutes les conditions pour procéder à l’ouverture d’un compte d’épargne libre d’impôt pour l’achat d’une première propriété (« CELIAPP »), ce dernier a ouvert un compte CELIAPP et y a versé une cotisation de 8 000 $. Il y versera une nouvelle cotisation de 8 000 $ le 1er janvier 2024.

Le 1er février 2024, Monsieur X signera une convention écrite avec un entrepreneur afin de se faire bâtir une maison unifamiliale sur son terrain. Aux termes de cette entente, il est prévu que la maison sera habitable par Monsieur X le 1er septembre 2024 et il est de l’intention de Monsieur X de commencer à l’habiter à cette date.

Le 1er juin 2024 Monsieur X souhaiterait effectuer un retrait de la totalité de son CELIAPP et complètera alors le Formulaire RC725 (footnote 1) pour effectuer ce retrait.

Questions à l’ARC

a) Dans une telle situation, Monsieur X respecterait-il toutes les conditions aux fins de la définition de « retrait admissible » prévue au paragraphe 146.6(1) de la Loi de l’impôt sur le revenu (footnote 2) afin d’effectuer un retrait admissible, c’est-à-dire non imposable, notamment la condition prévue à l’alinéa a) relativement à l’acquisition?

b) Si Monsieur X ne signe aucune convention avec un entrepreneur visant la construction de la totalité de la maison et qu’il s’agit plutôt d’une auto-construction, c’est-à-dire qu’il confiera seulement certains travaux à des sous-traitants qui n’ont aucun lien de dépendance avec lui (par exemples, plombier, électricien, couvreur pour le toit, etc.) et qu’il effectuera lui-même une partie des travaux, est-ce que les alinéas a) et c) de la définition de « retrait admissible » au paragraphe 146.6(1) L.I.R. seraient respectés en prenant pour acquis que la maison sera habitable le 1er septembre 2024?

Réponse de l’ARC

Le particulier qui est titulaire d’un CELIAPP, lorsqu’il souhaite procéder à un retrait admissible de ce compte pour l’acquisition d’une habitation admissible, doit s’assurer que le montant qu’il recevra à titre de prestation remplisse les conditions décrites à la définition de « retrait admissible » au paragraphe 146.6(1) L.I.R.

Ces conditions peuvent être résumées comme suit :

Le retrait doit être effectué en vertu d’une demande présentée au moyen d’un formulaire prescrit qui indique l’emplacement de l’habitation admissible que le particulier occupe ou qu’il a l’intention d’occuper comme lieu principal de résidence au plus tard un an après l’acquisition de l’habitation admissible (alinéa a)).
Le particulier doit être résident du Canada depuis le moment du retrait jusqu’au premier en date de l’acquisition de l’habitation admissible ou de son décès. De plus, le particulier ne doit pas, durant les quatre années civiles précédant l’année donnée dans laquelle le retrait est effectué, et la période de l’année donnée se terminant le 31e jour précédant le retrait, avoir occupé une habitation dont il était propriétaire (alinéa b)).
Le particulier doit avoir (avant le retrait) conclu une convention écrite visant l’acquisition ou la construction de l’habitation admissible avant le 1er octobre de l’année civile suivant celle de la réception du montant (alinéa c)).
Le particulier ne doit pas avoir acquis l’habitation admissible plus de 30 jours avant que le retrait n’ait été effectué (alinéa d)).

C’est ainsi, plus précisément à l’alinéa c) de la définition de « retrait admissible », qu’il est fait mention qu’un particulier pourrait recevoir un montant qui est un retrait admissible d’un CELIAPP dans le cas où il procède à la construction de son habitation admissible.

Comme nous l’avons déjà énoncé pour la construction d’une habitation admissible dans le cadre du régime d’accession à la propriété (« RAP »), l’Agence du revenu du Canada (« ARC ») considère que l’habitation est généralement acquise par le particulier au moment où elle devient habitable.

Ainsi, dans la situation décrite à la question 2 a), nous estimons que Monsieur X pourrait être en mesure de satisfaire à toutes les conditions prévues à la définition de « retrait admissible » dans la mesure notamment où son habitation admissible devrait être habitable dès le 1er septembre 2024 et qu’il a l’intention de commencer à l’utiliser comme lieu principal de résidence à cette même date.

À l’égard de la situation qui est décrite à la question 2 b), nos commentaires donnés précédemment sont pour l’essentiel également pertinents. Cependant, dans ce cas, on indique que Monsieur X ne signerait aucune convention avec un entrepreneur visant la construction de la totalité de l’habitation et prévoirait plutôt d’effectuer lui-même une partie des travaux de construction. On indique de plus qu’avant de procéder au retrait d’un montant de son CELIAPP, il aurait conclu des conventions écrites avec divers sous-traitants visant la construction de son habitation. Nous estimons que dans une telle situation, il pourrait généralement satisfaire aux conditions prévues à la définition de « retrait admissible », dans la mesure notamment où ces conventions écrites démontrent que des travaux suffisamment importants sont entrepris pour qu’il y ait achèvement de la construction de l’habitation admissible avant le 1er octobre de l’année civile suivant celle de la réception du montant retiré du CELIAPP.

Michel Ostiguy
Le 3 novembre 2023
2023-097863

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 AGENCE DU REVENU DU CANADA, Formulaire RC725, « Demande pour effectuer un retrait admissible de votre CELIAPP ».

2 L.R.C. (1985), ch. 1 (5e suppl.) (« L.I.R. »).

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 146.6 - Subsection 146.6(1) - Qualifying Withdrawal - Paragraph (a)

acquisition of home is when it becomes habitable

A single individual (Mr. X) acquired a land lot in 2000, made contributions to his FHSA starting in May 2023 and on February 1, 2024, signed an agreement with a contractor to build a single-family home on his land. It was agreed that the house would be habitable by him on September 1, 2024, and his intention was to begin living in it on that date. Mr. X would like to withdraw all of his FHSA contribution on June 1, 2024.

Regarding the requirement in para. (a) of the qualifying withdrawal that Mr. X have begun, or intends not later than one year after his “acquisition” of the qualifying home, to use it as his principal place of residence, CRA stated:

[T]he CRA considers that the home is generally acquired by the individual when it becomes habitable.

Thus … Mr. X could be in a position to satisfy all the conditions set out in the definition of "qualifying withdrawal" insofar as, in particular, his qualifying home should be habitable from September 1, 2024 and he intends to begin using it as his principal place of residence on that date.

Words and Phrases

acquisition

Summary Under

Tax Topics - Income Tax Act - Section 146.6 - Subsection 146.6(1) - Qualifying Withdrawal - Paragraph (c)

written agreement for construction before October 1 could be satisfied with agreements with trades by self-constructing individual

A single individual (Mr. X) acquired a land lot in 2000, made contributions to his FHSA starting in May 2023 and then commenced, using the services of subcontractors such as electricians and plumbers well as his own services, to build a single-family home on his land. He expects the house would be habitable by him on September 1, 2024, and his intention was to begin living in it on that date. Mr. X would like to withdraw all of his FHSA contribution on June 1, 2024. Regarding the requirement in para. (c) of the “qualifying withdrawal” definition that Mr. X prior to the withdrawal time have entered into an agreement for the acquisition or construction of the qualifying home before October 1 of the following calendar year, CRA stated:

We consider that in such a situation, he could generally satisfy the conditions set out in the definition of "qualifying withdrawal", in particular to the extent that those written agreements [with the subcontractors] show that sufficiently significant work was undertaken to complete the construction of the qualifying home before October 1 of the calendar year following that in which the amount withdrawn from the FHSA was received.

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3 November 2023 APFF Financial Strategies and Instruments Roundtable Q. 2, 2023-0978631C6 F - CELIAPP - Autoconstruction d'une habitation - FHSA - Self-construction

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