Home away from home doesn't count
When is a motorhome not a home?
That question recently came before the Canada Revenue Agency when it was asked whether someone buying a motorhome would be able to participate in the Home Buyers’ Plan (HBP).
The HBP allows a first-time homebuyer to withdraw up to $25,000 of funds tax-free from your RRSP to buy or build a “qualifying home.” You then have up to 15 years to repay the withdrawals back to your RRSP. Repayments are generally equal to 1/15 of the amount withdrawn and failure to repay an amount due for a particular year means that the amount must be included in your income for that year.
The CRA was asked about a situation where someone was planning to purchase a small motorhome as their permanent residence, making it possible for them to travel south for the winter and return to Canada for the warmer months. The taxpayer wrote to the CRA wanting to know, before they purchased the RV, whether a motorhome could be considered a qualifying home for purposes of the HBP.
So, what exactly is a “qualifying home”?
The Income Tax Act defines a qualifying home as “a housing unit located in Canada.” In other words, to be a qualifying home for the purposes of the HBP, two requirements must be met. First, it must be a “housing unit” and second, it must be located in Canada.
While the term “housing unit” is not actually defined in the Tax Act, the courts have assigned it a broad meaning. The CRA, in its HBP Guide, lists various types of properties that are considered to be “housing units” and these include a house, cottage, condo, trailer, houseboat and mobile home. Since a motorhome is a type of mobile home, the CRA stated that it would indeed be considered a housing unit for the purposes of satisfying the first requirement.
The problem, however, seems to be in satisfying the second requirement, which is that the housing unit must be located in Canada to be a qualifying home. The CRA stated that if the motorhome was located in Canada it would be considered a qualifying home. In our case, however, because the motorhome will be driven to the U.S. and therefore located outside Canada in the winter months, the CRA’s view is that it will not satisfy the conditions required by the Tax Act, and therefore would not be considered to be a qualifying home for purposes of the HBP, despite it being located in Canada in the warmer months.
This appears to be a harsh interpretation of the law as clearly the motorhome was located in Canada when it was purchased and it should be that date which should matter for the purposes of the definition. It may ultimately take the courts to determine whether CRA’s interpretation of “located in Canada” can be justified.