Docket: 2008-581(GST)I
BETWEEN:
SYLVAIN R. LAVOIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on July 6, 2009, at Edmundston, New Brunswick.
Before: The Honourable
Justice François Angers
Appearances:
|
Agent for the Appellant:
|
Denis
St. Pierre
|
|
Counsel for the Respondent:
|
Justine Malone
|
____________________________________________________________________
JUDGMENT
The
appeal from the assessment made under Part IX of the Excise Tax Act, the
notice of which is dated May 1, 2006, for the period from October 1 to December
31, 2005 is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada,
this 5th day of October 2009.
"François Angers"
Citation: 2009 TCC 501
Date: 20091005
Docket: 2008-581(GST)I
BETWEEN:
SYLVAIN R. LAVOIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This appeal was filed
in the French language but at trial the appellant requested that the hearing be
held in both languages and that the judgment be in the English language. The
Crown did not oppose the request.
[2]
By notice of assessment
dated May 1, 2006, the Minister of National Revenue (the Minister) informed the
appellant that for the period from October 1 to December 31, 2005, he was
not entitled to claim an input tax credit with regard to the construction of a
garage during that period. The assessment was later confirmed on November 13,
2007.
[3]
In 2005, the appellant
and his wife purchased a residential lot of 1.21 hectares on which they built a
3400 square foot house as their residence. Following the construction of their
residence, the appellant, who is a machinist, also built on the same lot, near
his residence, what was described as a garage so that he could operate his
business there. The garage is 2400 square feet and is used exclusively for his
business. The appellant claimed an input tax credit (ITC) of $18,282.53 with
respect to the construction of the garage. The issue is whether the appellant
is entitled to the said ITC.
[4]
The appellant drew a
map of his lot and highlighted the portion he considers is being used for
commercial purposes. Other than the garage, there is the use of a portion of
the lot to stock metal pieces and for the purpose of access to the garage. Another
portion is used as a common driveway for the business and for the appellant's
residence. There is a small wooded area facing the appellant's residence and a
larger wooded area behind the garage, which wooded area is approximately 500
feet long by the width of the lot, which is 186 feet. That wooded area would
therefore cover an area of 93,000 square feet or 2.14 acres or .87 hectare.
[5]
The appellant has
included a fairly large area next to the garage to park some of the machinery he
works on. In terms of use of the lot in relation to its square footage, the
appellant submitted a summary described as follows:
|
|
Business
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Personal
|
|
Building
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2,400 square feet
|
3,000 square feet
|
|
Parking
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6,140 square feet
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1,535 square feet
|
|
Storage
|
2,000 square feet
|
—
|
|
Land
|
70,800 square feet
|
38,860 square feet
|
|
Total
Proportion
|
81,340 square feet
65%
|
43,395 square feet
35%
|
[6]
The evidence given by
the appellant regarding the actual portion of the lot used for business as
opposed to personal purposes is somewhat unreliable as he is not the one who
did the actual allocation of the square footage and was unable to explain what
some of the square footage allocated really included. In fact, the evidence
indicates that it was the appellant's representative's assistant who prepared
the summary and she did not testify at trial. The issue became particularly
relevant when the appellant was unable to explain what was actually included in
the 70,800 square feet referred to as land and how it could be considered as
being used for business purposes.
[7]
The appellant's
representative testified that the 6,140 square feet for parking in addition to
the square footage for the building and the 2,000 square feet for storage was
the area covered by the driveway, that the 38,860 square feet represented the
wooded area in front of the house less the area of the house as shown on the
plan, and finally, that the 70,800 square feet was the remaining area of land at
the back of the lot.
[8]
The issue, as mentioned,
is whether the appellant is entitled to input tax credits on the construction
of his garage. The Minister relied on subsection 208(4) of the Excise Tax Act
(the "Act") in disallowing the appellant's ITC. That subsection
which reads as follows:
Improvement to capital real property by individual
-- 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.
[9]
If all the conditions
of subsection 208(4) are met, the tax paid with respect to the improvement does
not give rise to an ITC. In this case, the only condition in dispute is whether
the property is still used primarily for the personal use and enjoyment of the
appellant despite the construction of the garage.
[10]
There is no doubt that
a fairly large portion of the property in issue is being used for the
appellant's commercial activities, but to include under the business heading in
the appellant's summary, reproduced in paragraph 5 of these reasons, the wooded
area behind the garage as being used for commercial purposes, would be contrary
to the evidence. If we exclude the 70,800 square feet which is not used for
commercial purposes, that leaves 10,540 square feet of commercial use out of a
total area of 124,735 square feet. On the basis of the square footage alone, it
is clear that the property is not primarily used for commercial purposes. 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. et al vs. M.N.R., 87 DTC 394).
[11]
The appellant first
acquired this property for his personal use, building his residence on it. A
decision was later made to build the garage to be used in his business
activities. The end result, in my opinion, and according to the evidence heard,
is that the property continued to be used primarily for the appellant's
personal purposes despite the fact that the garage and the land immediately
surrounding it are used exclusively for his commercial activities. The
appellant has therefore failed to establish on a balance of probabilities that
the property in question was no longer used primarily for his personal use and
enjoyment.
[12]
The appellant argued
that since the garage was built to be used exclusively for commercial purposes,
subsection 208(2) of the Act should apply such that he is deemed to have
received a supply by way of sale of the property and to have paid tax in
respect of the supply equal to the basic tax content of the property. This
deemed sale would generate a deemed acquisition of two separate properties by
virtue of subsection 136(2) of the Act given that the garage does not
form part of the residential complex. The supply of the residential complex is
thus deemed to be a separate supply from the garage portion and neither supply
is incidental to the other. The tax status of each property created under subsection
136(2) would need to be considered separately, the residential part being
exempt, such that the appellant can claim the ITC on the garage portion.
[13]
I have addressed this
question in Polley v. The Queen, 208 GSTC 482 and concluded that there
is no deemed supply since the application of the change-in-use provisions of
subsection 208(2) of the Act is not triggered. Subsection 208(2) deals
with a change in use where a registrant begins using real property as capital
property in commercial activities and is no longer using it primarily for the registrant's
personal use and enjoyment. The registrant is then deemed to have received a
supply of the entire property by way of sale.
[14]
As I have concluded
that such was not the case in this instance, subsection 208(2) has no
application. The property as a whole is still being used primarily as a place
of residence of the appellant and it has therefore not ceased to be used
primarily for personal purposes. There has been no change in use and so no
deemed supply or actual supply of real property.
[15]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 5th
day of October 2009.
"François Angers"
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