Citation: 2011 TCC 264
Date: 20110513
Docket: 2010-2460(GST)I
BETWEEN:
ROBERT and MARY KEARSE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowie J.
[1] This appeal is brought from the decision of
the Minister of National Revenue to refuse the appellants’ application for what
is called the transitional rebate of goods and services tax (gst) that was made
available, in certain circumstances, to the purchasers of new residential
housing. By an amendment to subsection 165(1) of the Excise tax Act, Part IX, (the Act)
the rate at which gst was exigible on commercial transactions was reduced from
7% to 6% on July 1, 2006.
Both before and after that date the gst was ameliorated by section 254 which
provides for a rebate of gst on a new residence bought for occupation by the
purchaser or a family member. Where the selling price is less than $450,000.00,
the amount of that rebate is 36% of the gst. That effectively reduced the rate
of gst in such cases to 4.48% before July 1, 2006 and to 3.84% after that date.
[2] It is common in the new housing market for
transactions to take place by way of agreements of purchase and sale that
specify a price that is inclusive of gst. It is also common that agreements of
purchase and sale include an assignment by the purchaser to the vendor of the
section 254 gst rebate. Many agreements for the sale of new housing were
entered into in the months immediately prior to July, 2006 that specified
closing dates after July 1. To ensure that these purchasers were not deprived
of the benefit of the reduction in the rate of tax, Parliament enacted
subsection 256.3(5); it makes provision for the transitional rebate.
[3] Subsections 256.3(5) and (6) provide as follows:
256.3(5) If
a particular individual
(a) pursuant
to an agreement of purchase and sale, evidenced in writing, entered into on or
before May 2, 2006, is the recipient of a taxable supply by way of sale from
another person of a residential complex in respect of which ownership and
possession under the agreement are transferred to the particular individual on
or after July 1, 2006,
(b) has
paid all of the tax under subsection 165(1) in respect of the supply calculated
at the rate of 7%, and
(c) is
entitled to claim a rebate under subsection 254(2) in respect of the complex,
the Minister shall, subject to subsection (7),
pay a rebate to the particular individual equal to the amount determined by the
formula
A × [0.01 - ((B/A)/7)]
where
A is the total of all
amounts, each of which is the consideration payable for the supply to the
particular individual of the complex or for any other taxable supply to the
particular individual of an interest in the complex in respect of which the
particular individual has paid tax under subsection 165(1) calculated at the
rate of 7%, and
B is the amount of the
rebate under subsection 254(2) that the particular individual is entitled to
claim in respect of the complex.
256.3(6) If a supply of a
residential complex is made to two or more individuals, the references in
subsection (5) to a particular individual shall be read as references to all of
those individuals as a group, but only the particular individual that applied
for the rebate under section 254 may apply for the rebate under subsection (5).
Subsection 256.3(5) provides very specific
requirements that must be met in order to entitle a purchaser to the
transitional rebate:
·
the agreement must be
in writing and predate July 1, 2006;
·
the transaction must
close after July 1, 2006;
·
the purchaser must have
paid gst at the rate of 7%;
·
the purchase must be as
a dwelling for the purchaser or a relative of the purchaser.
[4] On April 15, 2004 the appellants purchased a new
home, to be built, from Lebovic Enterprises Limited (Lebovic). The agreement of
purchase and sale specified a price of $324,918.00, and a closing date of July
28, 2005. The purchase price was stated to include gst at the rate of 7%. An
addendum to the agreement provided this:
The parties acknowledge and agree that the purchase price stipulated
in the within Agreement is inclusive of the NET amount of G.S.T. which would be
otherwise payable by the Purchaser pursuant to the appropriate G.S.T.
legislation.
The term “Net amount of G.S.T.” shall mean the total amount of
G.S.T. payable by the Purchaser, less the refunds, credits, rebates or the like
to which the Purchaser is entitled to [sic] under the G.S.T. legislation, which
refunds, etc. may be reasonably estimated by the Vendor, if necessary. The
Purchaser shall assign the right to receive such refund, credit or rebate to
the Vendor if necessary.
On April 23, 2007 the parties agreed to amend their
contract, changing the lot number on which the house would be built, changing
the closing date to September 20, 2007, and increasing the price to
$329,918.00. By a further amendment the closing date was changed again to
November 5, 2007, and the transaction did in fact close on that date. By that
time the gst rate had been reduced to 6%.
[5] On, or soon after, November 2, 2008 the
appellants applied for the transitional rebate provided for in subsection
256.3(5), on the basis that they had paid gst at the rate of 7% as the contract
specified, and that the rate imposed by the Act at the time of closing was 6%.
This application was rejected on the basis that the appellants had actually
paid tax at the new rate of 6%, and following their filing of a notice of
objection this decision was confirmed by notice dated April 27, 2010.
[6] The appellants argue that with the reduction of
the rate of gst to 6% the price of their house, net of tax at the rate of 7%,
should have been $329,918.00 ÷ 1.07 = $308,334.58, and that the gst payable at
6% should then have been $308,334.58 x 0.06 = $18,500.07. That is not the basis
on which the gst was collected and remitted, however.
[7] The statement of adjustments that was used to govern
the closing of the transaction on November 5, 2007 is in evidence at tab 6 of Exhibit
R-1. It proceeded on the basis that the price of the house, inclusive of net tax
at the then prevailing rate of 6%, was $329,918.00, and that gst was exigible
on the “adjusted price”, that being $329,918.00, net of gst at the effective
after rebate rate of tax, which is 3.84%, to which the 6% rate of gst was then
applied:
$329,918.00 ÷ 1.0384 =
$317,717.64 x 0.06 = $19,063.06
That is the amount of gst that was collected and
remitted by Lebovic
[8] It is evident from the foregoing that Lebovic
reaped most of the benefit of the reduction of the gst rate from 7% to 6%. By
Ms. Kearse’s calculations in Exhibit A-3, which I do not doubt are
correct, Lebovic’s price for the house increased by $2,520.36 because the
contract was interpreted on the basis that the tax included price of
$329,918.00 on the date of closing included net gst at the new rate rather than
the former one. The amount of gst to be paid by the appellants, she says,
should have been: $329,918.00 ÷ 1.07 = $308,334.58 x 0.06 = $18,500.07. In
other words, the appellants paid $2,520.36 more than they should have to the
builder, and $562.99 more than they should have in gst.
[9] I express no opinion as to the correctness of the
manner in which the closing balance was computed. Perhaps the selling price
should have been reduced by the ratio of 1.0448 to 1.0384 which would result in
a price of $327,897.00; perhaps the closing should have simply have taken place
at 7% leaving the purchasers free to apply as they did for the transitional
rebate. The contract is ambiguous, but it is not for this court to resolve that
ambiguity. It is clear from the statement of adjustments that the gst was
calculated using a gross rate of 6% and a net rate of 3.84%. The Minister’s
assumptions pleaded in the Reply to the Notice of Appeal include a statement
that gst was collected and remitted at the rate of six%, and the evidence
supports that assumption. The transitional rebate is available only if the gst
was collected and remitted at the rate of 7%. The appellants therefore do not
qualify, and their appeals must be dismissed. This court has no jurisdiction to
grant any remedy in relation to their dispute with Lebovic.
Signed at Ottawa, Canada, this 13th day of May, 2011.
“E.A. Bowie”
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