Citation: 2009 TCC 470
Date: 20090917
Docket: 2008-3798(GST)I
BETWEEN:
DON WALLACE REYNOLDS
and PAUL PO HUI PEI,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1]
The issue in this
appeal is whether the Appellants are entitled to the transitional rebate
of goods and services tax (GST) provided for in subsection 256.3(1) of the
Excise Tax Act (the Act). A rebate equal to 1% of the price paid
for a residential complex is available to the purchaser of the complex where
certain conditions have been met. The rebate is a consequence of the reduction
of the rate of GST from 7% to 6% that came into force on July 1, 2006.
[2]
Among the conditions
for the rebate, paragraph 256.3(1)(a) requires that ownership and
possession of the residential complex be transferred to the applicant on or
after July 1, 2006. Subsection 256.3(1) reads as follows:
256.3(1) If a particular
person, other than a cooperative housing corporation,
(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 person 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 not
entitled to claim an input tax credit or a rebate, other than a rebate under
this subsection, in respect of the tax referred to in paragraph (b),
the Minister shall, subject to
subsection (7), pay a rebate to the particular person equal to 1% of the value
of the consideration for the supply.
(Emphasis added.)
[3]
In this case, the
Minister of National Revenue refused the Appellants’ application for the rebate
on the basis that they took possession of their new condominium prior to July
1, 2006.
[4]
Mr. Reynolds and Mr. Pei closed on the purchase of their new condominium on
March 17, 2006 and began occupying it on March 28, 2006, the date at which it
was substantially complete. However, title was not transferred to them until
October 24, 2006.
[5]
The Appellants maintain
that, while they moved into the condominium in March 2006, they merely occupied
it under a licence from the developer, and that they did not have possession of
the unit until title was transferred to them. Schedule C to the Agreement
of Purchase and Sale provided that upon payment by Mr. Reynolds and Mr. Pei of
the required amounts on or before the closing date, the Vendor would grant them
“a licence to occupy the unit” between the closing date and the unit transfer
date. It also provided that they would be required to pay a monthly “Occupancy
Fee”, and set out the basis for the calculation of that amount. Mr. Reynolds
and Mr. Pei paid all of these
amounts.
[6]
The Appellants also
argue that their occupancy of the condominium amounted to something less than
possession because the developer maintained substantial control over ingress
and egress from the unit. According to section 23 of the Agreement of Purchase
and Sale, the Vendor and persons authorized by it
had a right of entry to the Appellants’ condominium to inspect the unit or to
do any work that was required. That provision reads as follows:
Right of Entry
23 Notwithstanding the Purchaser
occupying the Unit on the Closing Date or the closing date of [the] transaction
and the delivery of title to the Unit to the Purchaser, as applicable, the
Vendor or any person authorized by it shall be entitled at all reasonable times
and upon reasonable prior notice to the Purchaser to enter the Unit and the
common elements in order to make inspections or to do any work or replace
therein or thereon which may be deemed necessary by the Vendor in connection
with the Unit or the common elements and such right shall be in addition to any
rights and easements created under the Act. A right of entry in favour of the
Vendor for a period not exceeding five (5) years similar to the foregoing may
be included in the [final] Transfer/Deed provided on the Unit Transfer Date and
acknowledged by the Purchaser at the Vendor’s sole discretion.
[7]
Mr. Reynolds said that
after he and Mr. Pei moved in, workers frequently required
access to correct construction deficiencies, and that this disturbed their
enjoyment of the unit. On two occasions, each lasting several days, Mr.
Reynolds said that he and Mr. Pei were required to
move out so that the floors could be redone. Work was also continuing in the
common areas of the building.
Analysis
[8]
The term “possession”
is not defined in the Act. In North Shore Health Region v. Canada, the Federal
Court of Appeal considered the meaning of the word “possession” as used in
section 191 of the Act, which deals with the “self‑supply rule”.
One of the issues in North Shore was whether occupants of a healthcare facility were
given possession of the rooms they occupied in that facility. In determining
the meaning to be given to the word possession in the provision, the Court said
that “when used in a legal
context, “possession” generally implies elements of dominion and exclusivity.” The Court went on to
say, at paragraph 44:
In
my view, the word “possession” in the context of subparagraph 191(3)(b)(i)
of the Excise Tax Act is intended to describe a right of possession that
is equivalent or analogous to the right of possession normally enjoyed, for
example, by the tenant of a residential apartment. That would suggest,
generally speaking, a right to the exclusive use and enjoyment of a particular
apartment for a defined period of time for residential purposes, a right that
cannot be defeated during the stipulated period except upon a breach by the
tenant of the terms of the tenancy.
I accept that the word “possession” in
subsection 256.3(1) should also be interpreted as requiring exclusive
possession.
[9]
In support of their
position that they did not have exclusive possession of the unit before October
24, 2006, the Appellants relied on the description of their right to occupy the
premises as a “license’. They said that a license to occupy premises does not
normally entail a grant of exclusive possession. It is clear, however, that the
nature of the right granted to the Appellants is a matter of construction of
the Agreement, and the terms used by the parties are not determinative.
[10]
While Schedule C to the
Agreement of Purchase and Sale, which granted the right to occupy the unit in
the interim between the closing date and the title transfer date, does not
explicitly state that the Appellants were granted exclusive possession of the
unit, I believe that it can be inferred from the remainder of the Agreement for
Purchase and Sale and from all of the circumstances that this was the case.
[11]
Firstly, the
reservation to the Vendor of the right to enter in certain circumstances
relating to the repair or inspection of the premises implies that the parties
intended that the Appellants’ possession would otherwise be exclusive.
[12]
Secondly, the right of
entry granted to the Vendor and its agents in the Agreement of Purchase and Sale is not inconsistent with the Appellants having a
right to exclusive possession of the unit. The right of entry is limited in
nature and is not unlike the right of a landlord to enter leased premises to
carry out repairs. Such a right was held not to be incompatible with the grant
of exclusive possession in Radaich v. Smith:
A reservation to the landlord, either by contract or statute, or a
limited right of entry, as for example to view or repair, is, of course not
inconsistent with the grant of exclusive possession. Subject to such
reservations, a tenant for a term or from year to year or for a life or lives
can exclude his landlord as well as strangers from the demised premises…
This finding was adopted by the Ontario Superior Court
of Justice in Arsandco Investments Ltd. v. Municipal Property
Assessment Corporation et al
at paragraph 21.
[13]
Finally, the evidence
showed that the Appellants moved into the unit as their residence on March 28,
2006 and, except for two short periods, have continued to reside there. Mr.
Reynolds conceded in cross-examination that they have had control over who
entered the unit since that time. It appears to me as well that on the two
occasions that they vacated the premises, this was by mutual agreement with the
developer in order to facilitate the necessary repair work. Nothing in any of
the documents showed that the developer had the right to unilaterally require
the Appellants to vacate the unit. Also, their possessions remained in the unit
at all times after March 28, 2006, and I infer that the Appellants maintained
control over the unit even during the periods when the repairs were carried
out.
[14]
These facts distinguish
this case from North Shore, where possession of the residents’ rooms could be
taken by the operator of the facility at any time at the operator’s sole
discretion. Here, the two temporary unanticipated interruptions to the
Appellant’s occupancy of their unit and the entry of workers to do repairs did
not result in the Appellants not having possession from March 28, 2006 on.
[15]
As a result, I find
that the Vendor transferred possession of the condominium unit to the
Appellants on March 28, 2006 within the meaning of paragraph 256.3(1)(a)
of the Act.
[16]
The Appellants’
representative also suggested that even if the Appellants were found to have
taken possession of their condominium before July 1, 2006, this would not
disqualify them from receiving the rebate. This position, in my view, is not
supported by the wording of paragraph 256.3(1)(a) which requires that
“ownership and possession” of the residential complex be transferred to
the applicant on or after July 1, 2006 in order to be eligible for the rebate.
It is clear that the transfer of both elements must occur on or after July 1,
2006, and as I have already found, this was not the case here.
[17]
For all of these
reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 18th day of September 2009.
“B.Paris”
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