Citation: 2011 TCC 243
Date: 20110506
Docket: 2010-523(GST)I
BETWEEN:
STEVE NADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
The appeal in this case
is the result of a denial by the Minister of Revenue for Québec (the Minister)
under his mandate to administer the goods and services tax (GST) of the
application for a GST rebate for $741.65 for a new residential complex or one
that has undergone substantial renovation with respect to a residential complex
located at 45 chemin Lambert, in the municipality of Saint‑Apollinaire.
The appellant submitted the rebate application on March 12, 2009, and the
Minister's decision to deny the application was made by notice of assessment
bearing the number 814461828RT0001, dated June 1, 2009.
[2]
The dispute between the
parties is solely on the issue of whether the renovation work meets the
definition of "substantial renovation" for the purposes of subsection
256(2) of the Excise Tax Act, R.S.C. (1985), c. E-15, as amended (the
ETA). The expression "substantial renovation" is defined at
subsection 123(1) of the ETA as follows:
“substantial renovation” of a residential complex means the
renovation or alteration of a building to such an extent that all or
substantially all of the building that existed immediately before the
renovation or alteration was begun, other than the foundation, external walls,
interior supporting walls, floors, roof and staircases, has been removed or
replaced where, after completion of the renovation or alteration, the building
is, or forms part of, a residential complex.
[3]
According to the
Minister, the residential complex for which the appellant applied for the
rebate did not undergo substantial renovations within the meaning of the ITA,
on the following grounds:
(a) the renovations did
not substantially alter the existing building;
(b) the new living area
of 140 square feet constitutes renovations that were integrated into the
existing house, which did not cease to exist;
(c) the new living area
did not have either the size or proportion to create a new residential complex.
[4]
In his rebate
application, the appellant indicated that the following work was completed
during the period of April 16, 2008 (start date of the work) to January 16,
2009 (date on which most of the work was completed):
(a) moving the house on pilings to
redo the foundation and dig a basement;
(b) adding living area of 140 square
feet (entrance hall of 10 feet by 14 feet with stairway to basement);
(c) partial roof repair;
(d) replacing insulating foam under the basement
floor;
(e) replacing three windows and the entrance
door;
(f) repairing cracks in the walls
caused by the window replacements and putting the house on pilings;
(g) installing gutters;
(h) replacing the bathroom vanity.
[5]
At the hearing,
additional information was provided about the work in the basement. These
include:
- replacing sewage pipes;
- installing a 200-amp power supply and
a hot water tank;
- setting up a playroom for the children
(divisions and a wall finished in wood) and a workshop (divisions only);
- installing a pellet stove for heating
and a chimney;
- finishing drywall joints and painting.
[6]
The residence in
question was acquired in 1996 for $42,000. The municipal evaluation for the
residence before the work began was $52,900. The cost of the renovation work
totalled $45,910.01, not including the cost of cedar for the exterior
finishing, which was installed after the period covered by the rebate
application. Further to the work, the municipal evaluation of the residence
increased to $114,200.
[7]
In his notice of
appeal, the appellant referred to a July 11, 2008, evaluation report on energy
efficiency, file number 3C10D08121 regarding his residence and his renovation
project for an ecoENERGY Retrofit—Homes grant application in which the
certified energy efficiency agent qualified the intended renovations as
substantial renovations.
[8]
The appellant's
application for the tax rebate was processed by Marie-Claude Marmen of the
Canada Revenue Agency (CRA) who testified at the hearing. Her audit report was
submitted as Exhibit I-1. Her report indicates she denied the application
because the interior of the existing part of the residence before the work was
not renovated. According to the information she had, the main floor was
unaltered and had, both before and after the work, a kitchen, a bedroom, a
living room and a bathroom, in which only the vanity was changed; no modifications
were made to the first floor which had, before and after the work, two
bedrooms; the renovation in the basement was not completed and it could not be
considered a finished basement.
Analysis
[9]
For renovation work to
be considered "substantial renovations" for the purposes of the ITA,
an existing building must be refurbished or transformed to the extent that all
or substantially all (90% or more) is removed or replaced, with the exception
of the foundation, exterior walls, interior supporting walls, floors, roof and
stairs.
[10]
According to
Information Bulletin B-092A, "Substantial Renovations and the GST/HST for
New Housing Rebate" published by the CRA in January 2005, the cost of the
renovations or the fair market value of the improvements made are not
acceptable methods for determining whether the "all or substantially
all" requirement has been met (page 3, paragraph 5).
[11]
Also according to this
bulletin, the definition of "substantial renovation" refers to the
building that existed immediately prior to the work that is to be considered
significant renovations. This means that additions to an existing residence are
not generally considered when determining whether the residential complex was
subject to substantial renovations (bottom of page 3). However, if the
renovations and additions to an existing residential complex are extensive
enough for the resulting structure to be considered a newly constructed
residential complex, the tax rebate may be granted (page 16 under "Major
Additions").
[12]
This bulletin also
indicates that even if the addition is as large or larger than the existing
residence, it would not be viewed as creating a newly constructed residential
complex if the existing residence remains largely intact. The existing
residence must become a minor part of, and be incorporated into, the newly
constructed residential complex (page 17, paragraph 2).
[13]
The bulletin states the
guidelines that may be used to determine whether a major addition to an
existing residential complex results in a newly constructed residential
complex. These are found on page 17:
1. The addition should at
least double the size (in terms of floor space, for example) of the habitable
areas of the existing residence to be considered a newly constructed
residential complex. However, the relative size of the addition alone is not
sufficient to make this determination.
2. The existing residence must cease to exist both
physically and in the manner in which it had functioned as a residential unit,
and must become integrated, along with the addition, into what is essentially a
new residential complex.
[14]
The application of the
above-noted guidelines first requires a determination of the living area of the
addition. The entrance hall of 10 feet by 14 feet is not problematic and should
be considered. However, the basement cannot be taken into consideration in
determining whether the minimum requirements in the definition of "major
renovations" have been met because it is only partially completed.
[15]
According to
information bulletin B-092A, the CRA does not consider a partially completed
basement with roughed-in plumbing and partially completed walls to be
habitable, even if the basement is used for certain purposes (page 5, paragraph
3). To be considered habitable, a basement should at least have finished walls,
a ceiling, flooring and electrical wiring (page 5, paragraph 3).
[16]
According to the
evidence, the basement was only partially completed. It had divisions for a
workshop and only one finished wall in the playroom. The appellant did not
submit any evidence regarding the ceiling or flooring of the basement. As a
result, the basement cannot be considered a habitable area.
[17]
Even if the basement
were considered a habitable area, the addition of the basement and the entrance
hall did not double the surface area of the habitable areas of the residence
and, more importantly, did not create a new residential complex because the
residence remained mostly intact.
[18]
The work carried out by
the appellant was certainly significant and constituted major renovations
within the ordinary meaning of the expression and for the purposes of the
ecoENERGY program. However, Parliament's definition of the expression
"substantial renovations" in the ETA is very restrictive since it
excludes work that, theoretically, should be considered major, such as work to
the foundation, exterior walls, interior support walls, floors, roof and
stairs.
[19]
Even considering all of
the renovation work, including to the basement, I do not believe the work to
the building was sufficient enough for the building to be considered as having
been renovated or altered to such an extent that all or substantially all of
the building was removed or renovated.
[20]
For these reasons, the
appeal must be dismissed.
Signed at Ottawa, Canada, this 6th day of May 2011.
"Réal Favreau"
Translation
certified true
on this 1st day of
June 2011.
Elizabeth Tan,
Translator
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