REASONS
FOR JUDGMENT
D'Arcy J.
[1]
The issue in this appeal is whether the
purchasers of a new home located in Ontario were entitled to the two new
housing rebates (the “New Housing Rebates”) provided for in Part IX of the Excise
Tax Act (the “GST Legislation”).
Summary of Facts
[2]
On August 4, 2009, the Appellant, Tony Ho,
entered into an agreement of purchase and sale with respect to the purchase of a
new home to be constructed on property located on Woodbine Avenue ByPass in Markham, Ontario (the “Woodbine Property”). The purchase price for the Woodbine Property
was $403,900 (tax included), with a closing date in April 2011. Mr. Ho paid a
$40,000 deposit in respect of the purchase.
[3]
On November 6, 2009, the Appellant’s cousin,
Kwinson Ho, Kwinson Ho‘s spouse, Chun Sim Yip, and Kwinson Ho’s mother
entered into an agreement of purchase and sale with respect to the purchase of
a new home to be constructed on property located on George Heenan Street
in Markham, Ontario (the “Heenan Property”). The purchase price for the Heenan
Property was $549,900 (tax included), with a closing date in October 2011.
[4]
Unfortunately, Mr. Ho subsequently lost his job
and he realized by late 2010 that he did not have the financial ability to
complete the purchase. He then turned to his cousin, Kwinson Ho, for
assistance.
[5]
Sometime in January 2011, the parties amended
the agreement of purchase and sale for the Woodbine Property to add Kwinson Ho
and Chun Sim Yip as purchasers.
[6]
On April 14, 2011, Tony Ho, Kwinson Ho and Chun
Sim Yip closed the purchase of the Woodbine Property. Immediately after
closing, Kwinson Ho, Chun Sim Yip and Kwinson Ho’s mother resided in the
Woodbine Property.
[7]
On April 29, 2011, Kwinson Ho and Chun Sim Yip
listed the Heenan Property for sale.
[8]
On June 8, 2011, Kwinson Ho and Chun Sim Yip
listed the Woodbine Property for sale.
[9]
On June 29, 2011, Kwinson Ho and Chun Sim Yip
sold the Woodbine Property. The sale closed on September 15, 2011.
[10]
In October 2011, Kwinson Ho, Chun Sim Yip and
Kwinson Ho’s mother closed the purchase of the Heenan Property and began to
reside in that property.
Summary of Law
[11]
Under the GST Legislation, taxable supplies that
are considered to be made in a province that is not participating in the
federal value-added tax system are taxed at a 5% rate (the 5% rate is referred
to as the GST), unless the taxable supply is zero‑rated. A taxable supply that is
considered to be made in a province that is participating in the value-added
tax system is taxed at both the 5% rate and the rate applicable for supplies
made in the particular participating province (the combined rate is referred to
as the HST), unless the taxable supply is zero-rated.
[12]
Under the GST Legislation, the tax is imposed on
sales of new homes. Homes situated in Ontario are taxed at the HST rate of 13%.
[13]
The GST Legislation contains two rebates that a
purchaser of a new home situated in Ontario may claim. The first rebate
represents a portion of the 5% component of the tax levied under subsection
165(1) (the “First Rebate”). The second rebate represents a portion of the 8%
component of the tax levied under subsection 165(2) (the “Second Rebate”).
The First Rebate
[14]
Purchasers are entitled to claim the First
Rebate if they satisfy the numerous conditions set out in subsection 254(2).
[15]
The wording of subsection 254(2) refers to the
sale of a single-unit residential complex to a particular individual. However,
subsection 262(3) extends the application of subsection 254(2) to situations
where two or more individuals acquire the single-unit residential complex.
[16]
Subsection 262(3) states, in part, that if a
supply of a residential complex (such as the Woodbine Property) is made to two
or more individuals, the references in section 254 to a particular individual
shall be read as references to all of those individuals as a group, but
only one of those individuals may apply for the rebate under section 254 in
respect of the complex.
[17]
The evidence before me is that a builder sold
the Woodbine Property to a group of individuals. Specifically, the statement of
adjustments (Exhibit A-7) shows Tony Ho, Kwinson Ho and Chun Sim Yip as the
purchasers of the Woodbine Property. I will refer to these three individuals as
the “Purchasing Group”. Exhibit A-7 is consistent with page 1 of Exhibit R-1,
which shows each of Tony Ho, Kwinson Ho and Chun Sim Yip granting a mortgage
charge on the Woodbine Property.
[18]
At the time of closing, Tony Ho applied for the New
Housing Rebates on behalf of the Purchasing Group. Specifically, Tony Ho is
shown on the rebate application as the claimant. Kwinson Ho and Chun Sim Yip
are shown on the rebate application as other owners of the property. The
Purchasing Group assigned the rebates to the builder of the Woodbine Property,
who deducted them from the tax-included purchase price of the home.
[19]
The Purchasing Group will qualify for the rebate
relating to the 5% federal portion of the HST provided the conditions in
subsection 254(2), as modified by subsection 262(3), are satisfied. I will
discuss each of these conditions as they apply to the facts in this appeal.
A. The
First Condition
[20]
The first condition is contained in paragraph
254(2)(a), as modified by subsection 262(3). It requires that a builder
(as defined in the GST Legislation) of a single-unit residential complex have
made a taxable supply of the complex to all of the individuals as a group.
[21]
This condition was satisfied, since a builder
sold the Woodbine Property to the Purchasing Group.
B. The
Second Condition
[22]
Paragraph 254(2)(b) contains the
following requirement: at the time the particular individual became liable or
assumed liability under the agreement of purchase and sale of the complex, the
particular individual was acquiring the complex for use as the primary place of
residence of the particular individual or a relation of the particular
individual.
[23]
After the application of subsection 262(3) to that
paragraph, the condition reads as follows: at the time all of the individuals
as a group became liable or assumed liability under the agreement of purchase
and sale of the complex, all of the individuals as a group were acquiring the
complex for use as the primary place of residence of all of the individuals as
a group or a relation of all of the individuals as a group.
[24]
This Court has consistently held (see for
example Davidson v. The Queen, [2002] G.S.T.C. 25 and Goyer v. The
Queen, 2010 TCC 511, 2010 G.S.T.C 163) that paragraph 254(2)(b),
as modified by subsection 262(3), requires that each member of the
group, at the time he or she assumes liability under the agreement of purchase
and sale, intends to acquire the complex for use as his/her primary place of
residence.
[25]
It is the Respondent’s position that Tony Ho did
not acquire the Woodbine Property for use as his primary place of residence. In
my view, the evidence does not support the Respondent’s position.
[26]
Tony Ho testified that, in August 2009, he was
living with his parents and wanted to move out and live in his own home. As a
result, he entered into the agreement of purchase and sale with respect to the
purchase of the Woodbine Property.
[27]
Kwinson Ho testified that, after his cousin
approached him for help, he sat down with his spouse and discussed which home they
should purchase: the Woodbine Property or the Heenan Property. He testified
that they preferred the Woodbine Property, since it was roughly the same size
as the Heenan Property but had a substantially lower purchase price. A lawyer
subsequently advised Kwinson Ho and his spouse that the agreement of purchase
and sale for the Woodbine Property should be amended to add their names as
purchasers.
[28]
Tony Ho testified that in, January 2011, the
agreement of purchase and sale was amended to add Kwinson Ho and Chun Sim Yip
as purchasers. Tony Ho testified that, at that point in time, he intended to
live in the Woodbine Property with Kwinson Ho, Chun Sim Yip and Kwinson Ho’s
mother. Kwinson Ho’s testimony was to the effect that, at the time he and Chun
Sim Yip were added as purchasers under the agreement of purchase and sale, all
three members of the Purchasing Group intended to live in the Woodbine Property.
[29]
Kwinson Ho stated that he and Chun Sim Yip
intended to sell the Heenan Property. In fact, they listed the property for
sale on April 29, 2011. Kwinson Ho and Chun Sim Yip became concerned when
the Heenan Property did not sell within six weeks of it being listed for sale.
Kwinson Ho explained that the Heenan Property purchase was scheduled for closing
in October 2011 and that, for financial reasons, they had to sell one of the
homes prior to this October 2011 closing date. As a result, on June 8, 2011
they listed the Woodbine Property for sale.
[30]
The Woodbine Property sold shortly thereafter.
Kwinson Ho, Chun Sim Yip and Kwinson Ho’s mother then closed the
purchase of the Heenan Property and began to reside in this home.
[31]
I accept the testimony of Tony Ho and Kwinson Ho
that, at the time each of the members of the Purchasing Group assumed liability
under the agreement of purchase and sale for the Woodbine Property, each
intended to use the Woodbine property as his/her primary place of residence. As
a result, the second condition has been satisfied.
C. The
Third Condition and Fourth Condition
[32]
Paragraph 254(2)(c) provides that the
total consideration for the supply to the group of individuals of the complex
must be less than $450,000. Paragraph 254(2)(d) provides that the
group of individuals must actually have paid the HST in respect of the purchase
of the complex.
[33]
Both of these conditions have been satisfied.
Exhibit A-7 evidences the fact that the purchase price of the Woodbine Property
before HST was $388,364.78, and the GST in respect of the purchase price was
paid on closing.
D. The
Fifth Condition
[34]
Paragraph 254(2)(e) provides that
ownership of the complex must be transferred to the group of individuals after
the construction thereof is substantially completed.
[35]
Exhibits A-7 and R-1 evidence the fact that the
builder transferred ownership of the Woodbine Property to each of the members
of the Purchasing Group. It is clear from the testimony of Kwinson Ho that
construction of the Woodbine Property was substantially completed at the time
ownership was transferred.
E. The
Sixth Condition
[36]
Paragraph 254(2)(f) provides that, after
the construction is substantially completed and before possession of the
complex is given to the group of individuals under the agreement of purchase
and sale of the complex, the property must not be occupied by any individual as
a place of residence or lodging.
[37]
The evidence before me is that the house was not
occupied by any individual before it was sold to the Purchasing Group and before
the group was given possession.
F. The
Seventh Condition
[38]
Clause 254(2)(g)(i)(A) contains the
following requirement: the first individual to occupy the complex as a place of
residence at any time after substantial completion of the construction must be
the particular individual or a relation of the particular individual.
[39]
After the application of subsection 262(3) to clause
254(2)(g)(i)(A), the condition reads as follows: the first individual to
occupy the complex as a place of residence at any time after substantial completion
of the construction must be all of the individuals as a group or a relation of
all of the individuals as a group.
[40]
It is the Appellant’s position that the seventh
condition is satisfied if any member of the Purchasing Group occupied the
Woodbine Property as a place of residence after construction of the home was
substantially completed.
[41]
It is the Respondent’s position that, in order
for the seventh condition to be satisfied, all of the members of the Purchasing
Group had to occupy the Woodbine Property as a place of residence after
construction of the home was substantially completed.
[42]
I agree with the Respondent.
[43]
Clause 254(2)(g)(i)(A) as modified by
subsection 262(3) does not contain any ambiguities. It clearly states that all
of the individuals as a group must occupy the complex as a place of residence.
Further, this is consistent with paragraph 254(2)(b), which requires all
of the members of the group to have the intention, at the time they acquire the
complex, to use the complex as their primary place of residence.
[44]
Further, if one ignores subsection 262(3), subsection
254(2) requires an individual to have acquired the complex with the intention
of using it as his/her primary place of residence and then to actually occupy
it as his/her residence. Subsection 262(3) merely places that same requirement
on all of the individuals who comprise the group.
[45]
The Appellant relies on this Court’s decision in
Hamel v. The Queen, 2004 TCC 315, 2005 G.S.T.C. 75. In
my view, this decision is distinguishable, since my colleague Justice Tardif
found that all of the members of the group either occupied the residence at the
time the rebate application was made or intended to occupy the residence.
[46]
Unfortunately, this is not the fact situation
before me. Tony Ho, one of the members of the Purchasing Group, did not reside
at the Woodbine Property nor did he intend to reside at the property. The only
residents of the Woodbine Property were Kwinson Ho, his spouse and his mother.
[47]
Further, neither Kwinson Ho, nor his spouse, nor
his mother is a relation of Tony Ho for the purposes of the GST Legislation.
[48]
As a result, the Purchasing Group is not entitled
to the First Rebate.
The Second Rebate
[49]
The Purchasing Group will qualify for the Second
Rebate, relating to the 8% portion of the HST, provided the conditions in
subsection 256.21(1) and the related regulations are satisfied.
[50]
Subsection 256.21(1) provides that, if a sales
tax harmonization agreement with the government of a participating province
allows for rebates in respect of residential property relating to the new
harmonized value-added tax system in respect of that participating province,
the Minister shall pay in prescribed circumstances a rebate in respect of
prescribed property to a prescribed person, or a person of a prescribed class,
equal to an amount determined in prescribed manner.
[51]
Ontario is a
participating province. Further it appears that the agreement between the
federal government and Ontario with respect to the application of the HST under
the GST Legislation provides for a rebate in respect of residential property.
[52]
The relevant regulations are contained in Part 8
of the New Harmonized Value-added Tax System Regulations, No. 2 (the
“Regulations”). Subsection 41(2) of the Regulations contains the tests
that must be satisfied before the purchase of the Woodbine Property will
qualify for the Second Rebate.
[53]
The wording in subsection 41(2) refers to an
individual. However, section 40 of the Regulations extends the application
of subsection 41(2) to a group of individuals.
[54]
Section 40 of the Regulations states, in part,
that if a supply of a residential complex is made to two or more individuals,
the references in section 41 of the Regulations and the references in section
256.21 of the GST Legislation to an individual are to be read as references to
all of those individuals as a group. However, only one of the individuals may apply
for the rebate.
[55]
As discussed previously, the Purchasing Group
purchased the Woodbine Property. Therefore subsection 41(2) as modified by
section 40 of the Regulations applies to the sale of the Woodbine Property.
[56]
The subsection as modified provides that, if a
group of individuals is entitled to claim a rebate under subsection 254(2) in
respect of a single-unit residential complex acquired for use in Ontario as the
primary place of residence of the group of individuals or a relation of the
group of individuals, the group of individuals is a prescribed person for the
purposes of subsection 256.21(1). This will be the result provided the total
consideration in respect of the complex is less than $450,000.
[57]
Since the Purchasing Group is not entitled to claim
a rebate under subsection 254(2), it is also not entitled to claim a rebate
under subsection 256.21(1) and the related regulations.
[58]
For the foregoing reasons the appeal is
dismissed, without costs.
Signed at Ottawa, Canada, this 16th day of January 2015.
“S. D’Arcy”
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