Citation: 2011TCC502
Date: 20111103
Docket: 2011-1645(GST)I
BETWEEN:
ROSS HUNTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The issue in this
appeal is whether the Appellant should be denied the input tax credits that he
claimed for GST that he paid in relation to the construction of a new building
and a driveway in 2009 that were used in his landscaping business as a result
of the provisions of subsection 208(4) of the Excise Tax Act.
[2]
The Appellant commenced
his landscaping business in 2000. He carried on the business from his home and
from a barn and a garage that were situated on his property. His property was
approximately 7 acres when he acquired it and he subdivided it and sold two lots
prior to the time in question. Each lot that he sold was approximately 1/2 acre
in size and therefore the property at the time when the new building was
constructed was approximately 6 acres in size.
[3]
His landscaping business
grew to the point where he needed an additional facility to house the equipment
that he was using in his landscaping business and in his snow plowing business
during the winter. As a result he constructed a new building in late 2009 which
was approximately 48 feet x 80 feet. As well he also constructed a new access
from the road that was further from the house so that the vehicles that were
traveling to the new structure would not have to travel close to the house. In
constructing the new building and the new driveway the Appellant incurred GST
in the amount of $3,468.38. The Minister does not dispute the amount of GST
that was paid by the Appellant nor does the Minister dispute that the structure
was used exclusively in the landscaping business of the Appellant. It seems
clear to me that the landscaping business would be a commercial activity for
the purposes of the Excise Tax Act.
[4]
Since the new building
was used exclusively in a commercial activity of the Appellant intuitively one
would expect that the Appellant would be entitled to input tax credits in
relation to the construction of this building. The Technical Notes to section
169 of the Excise Tax Act (which were released around the time that the
GST provisions were added to the Excise Tax Act) provided as follows:
A fundamental principle underlying the GST is that no tax should be
incorporated into the cost of inputs used by a registrant in the course of a commercial
activity to produce a taxable supply (including a zero-rated supply).
To ensure that inputs to commercial activities effectively bear no
GST, registrants are able to claim a full refundable credit, or “input tax
credit”, for the GST paid or payable on such inputs. This section provides
that, to the extent a taxable input is used in a commercial activity, the tax
paid or payable gives rise to an input tax credit.
[5]
However in this case
the Appellant was denied the input tax credits on the basis of subsection 208(4)
of the Excise Tax Act. This provision provides as follows:
(4) Where an individual who is a registrant acquires, imports or
brings into a participating province an improvement to real property that is
capital property of the individual, the tax payable by the individual in
respect of the improvement shall not be included in determining an input tax
credit of the individual if, at the time that tax becomes payable or is paid
without having become payable, the property is primarily for the personal use
and enjoyment of the individual or a related individual.
[6]
The property referred
to in this subsection is the entire property not just the building that was
constructed. The new building is a fixture and became part of the real
property. In situations where individuals were unable to establish that the
entire property was not primarily for their personal use and enjoyment the
input tax credits related to the construction of buildings that were used in
commercial activities were denied.
[7]
However, if:
(a)
a sole proprietor who
is a registrant were to construct a building that is to be used exclusively in
his commercial activity on his land;
(b)
the sole proprietor is
denied the input tax credits only because of subsection 208(4) of the Excise
Tax Act; and
(c)
the sole proprietor
were to sell the entire property to another individual who is a registrant and
who will be using the entire property in the same manner as the sole proprietor
(including the use of the separate building in a commercial activity);
as a result of the provisions of subsection 136(2) of
the Excise Tax Act (which would separate the property into two parts) the
purchaser would be entitled to input tax credits for the GST (or HST) paid in
relation to the acquisition of the commercial building. Therefore the two
individuals would not be treated the same way as the purchaser of the property
(with the commercial building) is entitled to input tax credits for GST (or
HST) paid in relation to the building used exclusively in the commercial activity
of the purchaser but the person who constructs that building on his or her own
land for the same use is denied the input tax credits. Perhaps this would
suggest that the Excise Tax Act should be clarified to allow
input tax credits to a sole proprietor, who is a registrant and who constructs
on his or her own land a building that is not a residential complex and that
will be used in a commercial activity, to the same extent that he or she would
be entitled to input tax credits if the building would have been constructed on
a separate parcel of land.
[8]
In this case, however,
it seems clear to me that the Appellant has established that at the relevant
time the property was not primarily for the personal use and enjoyment of the Appellant
or a related individual. The relevant time for the purposes of subsection 208(4)
of the Excise Tax Act is the time when the tax becomes payable or is
paid without having become payable. This would have been in late 2009,
presumably shortly after the building was constructed and when the work was completed
on the driveway.
[9]
Justice Angers in Lavoie,
above, was considering the provisions of subsection 208(4) of the Excise Tax
Act when he noted that:
10….One must also remember that “primarily” might be defined as of
first importance, principal or chief and can also mean more than 50% (See Mid-West
Feed Ltd. v. Minister of National Revenue, 87 DTC 394 (T.C.C.))
[10]
The relevant condition
as stated in subsection 208(4) of the Excise Tax Act is whether:
…the property is primarily for the personal use and enjoyment of the
individual or a related individual.
[11]
The provision does not
provide that in order to claim the input tax credits the property must be
primarily used by the Appellant in his commercial activity. It is only
necessary to determine if the property is primarily for the personal use and
enjoyment of the Appellant (or a related individual). Either the property is
primarily for the personal use and enjoyment of the Appellant (or a related
individual) or it is not. These are the only two possibilities that are
relevant for the purposes of subsection 208(4) of the Excise Tax Act.
[12]
In this particular case,
of the Appellant’s 6 acre property, approximately one‑half of the
property is a hayfield. The Appellant allowed neighbouring farmers to cut the hay
on this field for themselves. For two years he allowed one farmer and for
another year he allowed another farmer to cut the hay. It seems clear to me
that this portion of the property was not primarily for the personal use and
enjoyment of the Appellant or a related individual as it was for the primary
use of the neighbouring farmers who were cutting the hay for their own
purposes. The Appellant referred to three years for which the hay was cut. It
seems to me that it is more likely than not that those three years would be
2009, 2010 and 2011.
[13]
The Appellant did not
state whether the neighbours were related to him nor was he asked whether they
were related to him. Justice Rothstein,
writing on behalf of the Supreme Court of Canada, in F.H. v. McDougall,
[2008] 3 S.C.R. 41 stated that:
47 Finally
there may be cases in which there is an inherent improbability that an event
occurred. Inherent improbability will always depend upon the circumstances. As
Baroness Hale stated in In re B, at para. 72:
Consider the famous example of the animal seen in Regent's Park. If it is
seen outside the zoo on a stretch of greensward regularly used for walking
dogs, then of course it is more likely to be a dog than a lion. If it is seen
in the zoo next to the lions' enclosure when the door is open, then it may well
be more likely to be a lion than a dog.
48 Some
alleged events may be highly improbable. Others less so. There can be no rule
as to when and to what extent inherent improbability must be taken into account
by a trial judge. As Lord Hoffmann observed at para. 15 of In re B:
Common sense, not law, requires that in deciding this question, regard
should be had, to whatever extent appropriate, to inherent probabilities.
It will be for
the trial judge to decide to what extent, if any, the circumstances suggest
that an allegation is inherently improbable and where appropriate, that may be
taken into account in the assessment of whether the evidence establishes that
it is more likely than not that the event occurred. However, there can be no
rule of law imposing such a formula.
[14]
Although it was not
clearly stated that the neighbouring farmers were not related to the Appellant,
it seems to me that it is more likely than not that the neighbouring farmers
are not related to the Appellant. The Appellant simply referred to the farmers
as his neighbours which in the context of the case leads me to the conclusion
that the more probable answer is that the neighbouring farmers who cut the hay
were not related to the Appellant.
[15]
In addition to the new
building that was used in the landscaping business, there was an area around
the building that was gravelled and used to store equipment and also other
parts of the property that were used in carrying on the business (including the
new driveway). When the part of the property that is (and was) a hayfield is
added to the parts of the property that were used in the landscaping business,
clearly less than one half of the property was used by the Appellant or his family
for their own personal use and enjoyment and therefore it seems clear to me
that the property was not primarily for their own personal use and enjoyment.
It seems to me that this was the situation in 2009 when the building was built.
Therefore when the tax became payable or was paid in 2009 (which would have
been after the construction of the new building and the driveway), the property
was not primarily for the personal use and enjoyment of the Appellant or a
related individual.
[16]
As a result the appeal
is allowed and the matter is referred
back to the Minister of National Revenue for reconsideration and reassessment
on the basis that the Appellant is entitled to claim the input tax credits in
the amount of $3,468.38 that had been denied. The Appellant is entitled to
costs which are fixed in the amount of $500.
Signed at Halifax, Nova Scotia,
this 3rd day of November 2011.
“Wyman W. Webb”
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