15 April 1999 External T.I. 9907845 - COTTAGE, HOME BUYERS PLAN

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Can a house built on cottage property using the shell of a cottage as its base qualify as a housing unit under the home buyers plan?

Position: If all conditions are satisfied, yes.

Reasons: All of the conditions in section 146.01 have to be satisfied in order to qualify.

XXXXXXXXXX 								990784
M. P. Sarazin
April 15, 1999

Dear Sir\Madam:

Re: Qualifying for the Home Buyer's Plan

This is in reply to your letter dated March 23, 1999, wherein you ask whether the building of a 1,500 square foot home using the shell of an existing cottage as a starting point will qualify under the home buyers plan ("HBP") described in section 146.01 of the Income Tax Act (the "Act").

You purchased a small cottage on XXXXXXXXXX four years ago and you were advised at the time that the purchase did not qualify under the HBP because it was not a housing unit because it had no foundation, no septic system and no well to provide any water. You would like to build a year-round home on the cottage property and the home will become your principal residence. You would like to withdraw $20,000 out of your registered retirement savings plan under the HBP in order to help finance the construction of the year-round home.

Comments

It appears that the interpretation you seek relates to proposed transactions to be undertaken by a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to a specific proposed transaction, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

You will find the Department's general views regarding the HBP in the Guide titled "Home Buyers' Plan (HBP) - For 1999 Participants" (RC4135). In order to participate in the HBP, an individual has to satisfy several conditions which are described very clearly in the Guide.

One of the conditions is that the person qualifies as a first-time home buyer. A person is not considered a first-time home buyer if, at any time during the period beginning January 1, 1995 and ending 31 days before any HBP withdrawal in 1999, the individual or the individual's spouse had an owner-occupied home. An individual will be considered to have an owner-occupied home where the individual owns (jointly or otherwise) a housing unit and the housing unit is inhabited by the individual as the individual's principal place of residence at that time. Generally, a cottage would be a housing unit. However, in our view, where a cottage is not occupied as a principal place of residence, the ownership of the cottage would not prevent an individual from participating in the HBP, notwithstanding that a cottage may be considered to be a home for these purposes. (The Guide also explains the exception to the first-time home buyer condition in respect of making a home more accessible or better suited to the needs of a disabled person.)

Another condition is that there has to be a written agreement to buy or build a qualifying home. Where a cottage does not qualify as a housing unit located in Canada, the construction of a housing unit on the cottage site should not disqualify the housing unit from being eligible under the HBP.

Another condition is that the individual has to certify that the individual intends to use the qualifying home as a principal place of residence not later than one year after its acquisition. In our view it will be difficult to meet this condition if the individual works in an area away from the location of the qualifying home and the individual does not commute to the qualifying home. However, this determination would be a question of fact.

You can get a copy of the Guide at your local tax services office or on the Revenue Canada internet site (www.rc.gc.ca).

We trust these comments will be of assistance.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate