Docket: 2007-2570(GST)I
BETWEEN:
DONALD POLLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on January 15, 2008, at Moncton, New Brunswick.
Before: The Honourable
Justice François Angers
Appearances:
|
Agent for the Appellant:
|
George
Jorgensen
|
|
Counsel for the Respondent:
|
Andrew Miller
|
____________________________________________________________________
JUDGMENT
The
appeal from the assessment made under the Excise Tax Act, for the period
from January 1, 2001 to March 31, 2005, the notice of which is dated
July 11, 2006, is dismissed in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada, this 24th day of April 2008.
“François Angers”
Citation: 2008TCC192
Date: 20080424
Docket: 2007-2570(GST)I
BETWEEN:
DONALD POLLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This is an appeal with
respect to an assessment under Part IX of the Excise Tax Act (the “Act”)
dated July 11, 2006 for the period from January 1, 2001 to
March 31, 2005. Although, the assessment deals with a number of issues,
the appeal relates only to a disallowed input tax credit (ITC) with respect to
the construction of a garage for the period under appeal.
[2]
The assumptions of fact
relied upon by the Minister were admitted upon by the appellant’s
representative. The appellant is a goods and services tax/harmonized sales tax
(GST/HST) registrant. He has been the sole proprietor of a construction
business since 1981.
[3]
In the year 2003, the
appellant built, on the same land as that on which he has his personal
residence, a garage measuring 30 by 40 feet. The garage was built to
store tools and other equipment and both parties agree that it is used
exclusively for business purposes. It was built beside the appellant’s
residence, which has the same square footage as the new garage. There is an
existing 24 by 30 feet garage for personal use. All of the above sit
on an 11-acre lot. The appellant claimed an ITC in the amount of
$ 1,973.72 in respect of the construction of the garage.
[4]
The issue is whether
the appellant is entitled to the ITC so.
[5]
The appellant’s
position is that the garage was built to be used exclusively for commercial purposes
and subsection 208(2) of the Act should accordingly 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 of the property (the garage) under
subsection 208(2) would generate a deemed acquisition of two separate
properties by virtue of subsection 136(2), given that the garage (the commercial
portion) does not form part of the residential complex. Thus, the supply of the
residential complex is deemed to be a separate supply from the garage portion
and neither supply is incidental to the other. The tax status of each of the
two properties created under subsection 136(2) would need to be considered
separately. The garage part would be taxable and the residential part would be
exempt. As a registrant, the appellant should be entitled to claim an ITC on
the garage portion, which was used for commercial activities.
[6]
The respondent argues
that subsection 208(2) is not applicable in this instance as its
application relates to a change in use from personal to commercial. The
applicable subsection in this instance is 208(4), which specifically disallows any
ITC on improvements to real property where the property is primarily for the
personal use and enjoyment of the registrant. Counsel for the respondent went
through the statutory definitions of certain words used in
subsection 208(4) to support his position that the ITC claimed in the
present case cannot be allowed. The improvement made to the personal residence,
that is, the construction of the garage, does not change the fact that the
entire property is still primarily for the personal use and enjoyment of the
appellant and he is therefore not entitled to the ITC.
[7]
The appellant is the
owner of the 11‑acre lot on which sit his residence and a garage, both of
which are for his personal use and enjoyment. The construction of the new
garage in 2003, although that garage is used exclusively for business purposes,
constitutes, in my opinion, an improvement to capital real property as these
terms are defined in subsection 123(1) of the Act.
“improvement”
“improvement” , in respect of property of a person, means any
property or service supplied to, or goods imported by, the person for the
purpose of improving the property, to the extent that the consideration paid or
payable by the person for the property or service or the value of the goods is,
or would be if the person were a taxpayer under the Income Tax Act, included
in determining the cost or, in the case of property that is capital property of
the person, the adjusted cost base to the person of the property for the
purposes of that Act;
“real property”
“real property” includes
(a)
in respect of property in the Province of Quebec, immovable property and every lease thereof,
(b)
in respect of property in any other place in Canada, messuages, lands and tenements of
every nature and description and every estate or interest in real property,
whether legal or equitable, and
(c)
a mobile home, a floating home and any leasehold
or proprietary interest therein;
“capital property”
“capital property” , in respect of a person, means property that is,
or would be if the person were a taxpayer under the Income Tax Act,
capital property of the person within the meaning of that Act, other than
property described in Class 12, 14 or 44 of Schedule II to the Income Tax
Regulations.
[8]
In order for this Court
to permit him to recover the HST paid with respect to the construction of his
garage in 2003, the appellant must prove that the property in question is no
longer used primarily for his personal use and enjoyment. This, in my opinion,
would trigger, as the appellant suggests, the application of the change‑in‑use
provisions found in subsection 208(2) of the Act. The evidence
presented at trial, though, does not support such a finding. Despite the
construction of a garage for exclusively commercial use, the property has
continued to be used primarily for personal use and enjoyment, even after the
improvement.
[9]
The purpose of
subsection 208(4) is to prevent an ITC from being claimed on the cost of improvements
to capital real property if the property is primarily for the personal use and
enjoyment of the registrant.
[10]
Subsection 208(4) reads
as follows:
208 (4) 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.
[11]
The Act does not
make a distinction between an improvement that is made only for business
purposes and one that is not. 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.
[12]
Real property can
consist partly of residential property and partly of commercial property, but
it remains a single property. Only where there is a supply of real property
within the meaning of subsection 136(2) will the supply of each part be
deemed a separate supply. In my opinion, there was no such supply of real
property in the present case.
[13]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 24th day of April 2008.
“François Angers”
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