Citation: 2008TCC27
Date: 20080114
Docket: 2007-1894(GST)I
BETWEEN:
PETER AND MARLENE YAKABUSKI,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1] This is an appeal
from an assessment by the Minister, notice of which was numbered
06073510012370001 dated December 12, 2006, by which assessment the Minister
denied the Goods and Services Tax (“GST”) rebate in the amount of $34,300,
which the Appellants claimed was paid in error when purchasing the property.
Issue
[2] The sole issue in
this appeal is whether or not the Appellants are properly entitled to the
rebate under the provisions of the Excise Tax Act, R.S.C. 1985,
c. E-15, as amended (“Act”) and Part I of Schedule V of the Act.
Facts
[3] The facts in this
matter are essentially undisputed. One of the Appellants, Marlene Yakabuski,
testified that before she became interested in the property in question it had
been owned by a corporation, Cedar Ridge Holdings Ltd. (“Cedar Ridge”).
One house on the property was used as the principal residence of an individual,
the shareholder of Cedar Ridge. This resident was
Ms. Lucille Johnstone. The other building on the property, a
so-called cottage, was vacant. This witness identified Exhibit A-3 which was a Contract
of Purchase and Sale
for the property in question. She referred particularly to clause 7 of the
Contract which indicated that:
The Purchase Price includes any
buildings, improvements, fixtures, appurtenances and attachments thereto ... as
viewed by the Buyer at the date of inspection.
Clause 8 of the Contract indicated
that:
The Property and all included items will
be in substantially the same condition at the Possession Date as when viewed by
the Buyer on March 30, yr. 2005.
[4] The witness further
identified Exhibit A-4 which were coloured photographs of the property in
issue, viewed as of the date of the Contract.
[5] She told the Court
that she paid GST on the property and took possession on May 19, 2005. The
property had been partially demolished. Her husband completed the demolition
after receiving a Demolition Inspection Notice which was introduced as Exhibit
A-6. This Notice indicated that the permit was issued for the demolition of a
cottage on the property. It further indicated that the foundation would remain,
and the fire-damaged house would remain, as is, for now. The date on the
inspection certificate was July 19, 2005.
[6] The witness said
that they believed that the restoration had started and that they were buying a
partially restored house. They had received engineering reports showing what
was needed to complete the restoration. The cottage had been destroyed.
[7] In
cross-examination she agreed that the house and cottage were uninhabitable.
Argument on Behalf of the Appellant
[8] The agent for the
Appellant argued that the sole issue in the case was whether or not the sale of
the remains of a dwelling house and land are exempt of GST as a used
residential complex pursuant to the Act, Schedule V, Part I,
section 2. It was his contention that the structural remains of the
fire-damaged home, even though it was vacant and uninhabitable at the time of
the sale, was nevertheless a residential complex within the meaning of the Act
and is GST exempt as a sale of used residential housing. They sought the return
of $34,300 plus accumulated interest.
[9] He stated that the
Appellant testified that what she purchased was a partially restored building.
[10] He referred to the
definitions of “residential complex” and “residential unit” as found in
the Act. His position was that the term “residential complex” is
intended to include that part of a building that includes a residential unit
together with the land that was reasonably necessary for its use and enjoyment
as a place of residence for individuals. “Residential unit” is intended to
include a detached house or that part thereof that is vacant but was
last occupied or supplied as a place of residence or lodging for individuals.
According to him this rule permits an existing structure, including the remains
of a dwelling house that is damaged by fire, to retain its status as a used
residential complex for all purposes of the Act including an exempt sale
under Schedule V, Part I, section 2 of the Act.
[11] A seriously
fire-damaged single family home, notwithstanding that it is uninhabitable until
it is repaired or restored, is still a residential complex within the meaning
of the Act and subject to the GST rules affecting used residential
housing.
[12] Of significance to
him was the fact that clause 7 of the contract of purchase and sale stated that
the purchase price included any buildings, improvements, fixtures and all
appurtenances and attachments thereto in substantially the same condition as
when viewed by the borrower on March 30, 2005. At that time, the property
included the foundation, walls, sub-floors and other parts of the residential
complex as evidenced by the photographs.
[13] He referred to a
GST/HST memoranda series issued by Revenue Canada in February of 1998 in support of
his argument that the last use of the property prior to the vacancy was
residential and therefore the property in question qualified as a residential
unit even though the house may need extensive work to make it fit for
habitation. It was his contention that the last use of these premises was as a
residential complex.
[14] He took issue with
the CRA ruling made on September 22, 2005 at page 3. This concluded
that “the structure was not habitable and could not be used as a place of
residence or lodging. Therefore, what was in fact supplied by way of sale does
not come within the definition ‘residential unit’ in subsection 123(1) of the Act;
accordingly cannot be a residential complex”. He argued that Canada Revenue
Agency’s (“CRA”) ruling is not supported by legislation or published policy.
[15] Further he argued
that the definitions of “residential complex” and “residential unit” do not
contain the condition or requirement that the structure must be habitable. The
definition is wide enough to include that part of a detached house that is
vacant but was last occupied or supplied as a place of residence or lodging for
individuals.
[16] The agent referred
to the term “improvement” for GST purposes and said that in accordance with the
Income Tax Act, the cost of improvements would be included in
determining the adjusted cost base to the person of the property for the
purpose of the Income Tax Act. Improvements that are included in the
contract on the sale of this property appear also to be “improvements” for
income tax and, therefore, for GST purposes. He said the question that must be
answered is this: “was the improvement to the land part of a residential unit
that qualified as a residential complex”? If yes, then the sale was GST exempt
and the Appellants are entitled to the GST rebate claim as filed.
[17] He took the position
that CRA’s decision that a structure that is not habitable is not a residential
unit and cannot be a residential complex is a departure from fairness and
logic. Thus, he referred to the fact that a leaky condo “would cease to be a
residential complex where it had to be vacated for the duration of the
repairs”. Similarly, an entire residential building was recently so tragically
struck by a small aircraft would not, be a residential complex because it is
not currently fit for habitation.
[18] He opined that the
Respondent in this case wants us to accept that the nature or use of a property
and the consequent GST implications, can occur by pure accident, an unfortunate
incident such as a fire in one’s personal residence. However, according to his
argument GST legislation appears to permit the retention of the underlying
characteristics of tax exempt used residential property through a wide variety
of circumstances including serious damage by fire.
[19] Here, the nature and
use of the property was not changed in spite of the fire that occurred.
[20] Therefore the appeal
should be allowed and the Minister’s assessment should be reversed and the
relief sought by the Appellant granted.
Argument on Behalf of the Respondent
[21] In argument counsel
for the Respondent referred to the appropriate definition of “residential
complex” and emphasized “(a) that part of the building in which one or more
residential units are located, together with (i) ... use and enjoyment of the
building as a place of residence ...” taking the position that in order for the
structure in question to be a residential complex “it must be a place of
residence”. She further referred to the case of Ko v. R.,
2002 CarswellNat 3429 (T.C.C.) in arguing that Little J. in that case
decided that:
It is apparent that the above definition
does not include partly finished buildings. The evidence presented to the Court
was to the effect that the house that was being built by Mr. and Mrs. Ko on Lot 5 was not finished and was not approved for
occupancy until December 1998. It therefore follows that at the time of the
transfer of Lot 5 by the Partnership to Mr. and Mrs. Ko in October 1998
there was no “residential complex” as contemplated by Schedule V, Part 1 section 3.
He went on further to say,
In this situation, the home was not
finished at the time of transfer by the Partnership to Mr. and Mrs. Ko. It was
therefore not occupied primarily as a place of residence by Mr. and Mrs. Ko. It
therefore it follows that Lot 5 was not an exempt supply within the
meaning of section 3.
It was her position that this case
applies equally to the case at bar. This Court’s reasoning should be the same.
Here, as in that case, the structure was not inhabitable. At the point of
transfer, at the time of transfer, it had to be capable of being occupied as a
residence.
[22] She further referred
to the case of Balicki v. R., 1997 CarswellNat 1043 (T.C.C.) where
Beaubier J. at paragraph 11 when referring to the case of Warnock v. R.,
[1996] G.S.T.C. 86 (T.C.C.) said:
The building (or “house” or
part thereof described in subsection 123(1)) must also be qualified for
human residence, since that is intrinsic in the word “residential” under the Excise
Tax Act.
He went on further to say,
These are all the things that the
Appellant’s residential complex had when it was completed and the family moved
into it in January, 1994. Until then, any passer‑by would have said
that they were living in a basement or, perhaps, in a hole in the ground. No
one would have called what they moved into in 1989 a “residential complex”
or a “residential unit” or a “house” or even a “residence”. Nor would the
basement have been part of any of them since none of them existed as a
residential complex in 1989.
[23] This was a case of
“substantial renovations”, unlike the case at bar, but in any event, the
learned trial judge in that case said,
Thus, in the Court’s view, there was no
residential complex until the furnace and duct work was installed in January,
1994 and the family moved into what at that time became a residential complex
which they then occupied as a residence.
The Court went on to allow the
appeal that permitted the taxpayer to obtain the new housing rebate since the
application was made within the appropriate period of time (two years) first
occupying the “single unit residential complex”. Counsel emphasized that the
appropriate period of time to consider was the time of transfer of the property
to the taxpayer.
[24] It was her position
that the agent for the Appellant when making argument with respect to the
GST/HST memoranda series 19.2.1, residential real property ‑ sales,
when referring to the last use before vacancy situation did not quote the whole
of the paragraph but only a selected portion.
[25] Further she argued
that what existed in this case was not a detached house.
[26] In the case of Leowski
(A.D.) v. Canada, 1996 CarswellNat 1447 (T.C.C.) in paragraph 9
the Court said:
The argument is that the
property was a residential unit because it was part of a detached house that
was vacant but was last occupied as a place of residence for individuals.
Bowman C. J. pointed out
in that case:
In other words the part that was vacant
was the empty space that remained after the previous dwelling was demolished
and that in any event the preloading of sand represented the commencement of
the building, and residential complex may include buildings not yet completed.
(Cragg & Cragg Design Group Ltd. v. Minister of National Revenue,
[1994] G.S.T.C. 53 (C.I.T.T.)).
However, the learned trial judge at
paragraph 17 said as follows:
Despite the ingenuity of the argument and
the great skill with which Mr. McMahon presented it, there are a number of
parts of it that I cannot accept.
(a) I do not think that the
property was a “residential complex” as defined. Paras. (a), (b) and (c) refer
to a part of a “building”. The plain meaning of “building” does not include a
plot of vacant land, even if it has been preloaded with sand in anticipation of
constructing a building on it. Nor do I think the property is a residential
unit. A vacant parcel of land is none of the things set out in paras. (a), (b)
or (c) of the definition of residential unit. Nor is the vacant land a “part
thereof” (i.e. of the things set out in para. (a), (b) and (c)). I would need
to construe para. (f) to read:
The part of the land that was subjacent
to a detached house that was demolished before the purchaser acquired the land
and that was occupied as a place of residence for individuals.
I do not think para. (f) bears that
construction. If that was what Parliament meant it would have been quite
capable of saying so.
It follows therefore that section 2 of
Part I of Schedule V does not assist the appellant even if s. 177 turned the supply
into one by the Bentalls.
Counsel argued that in reading the
two sections in conjunction it must be concluded that the building was
habitable.
[27] Further, counsel
took the position that when the term “residential unit” is referred to in
section 123(1) of the Act and states in (f) “is vacant, but was last
occupied or supplied as a place of residence or lodging for individuals”, what
the section is referring to was the very structure which was being transferred
to the taxpayer not something that had existed on that lot sometime in the
past. By that interpretation what was being transferred had never been occupied
or supplied as a place of residence or lodging for individuals in the past or
at any time because it was incapable of being supplied or occupied as a place
of residence or lodging for individuals.
[28] In rebuttal the
agent for the Appellant argued that the last use of the property being
transferred was the use by Mrs. Johnstone of the property as a habitable unit.
The section is not referring to the remains that were being transferred.
Further the agent argued that the term “or that part thereof that is referred
to in (c) of the term ‘residential unit’” meant part of that which was a
residential unit at some time in the past.
Analysis and Decision
[29] As indicated before
the facts in this case are not in dispute. The facts are relatively simple and
are clearly set out in the Reply to Notice of Appeal and the evidence given in
Court supports that set of facts.
[30] In order for the
Appellants to be successful in this case they must be able to satisfy the
Court, that what was transferred in accordance with the Contract of Purchase
and Sale dated March 30, 2005, on the date of the transfer, was an exempt
supply under section 5.2, Part I, Schedule V of the Act. It is trite to
say that this section only applies where the land supplied forms part of a
residential complex as defined under section 123 of the Act.
[31] A further
consideration is the term “residential unit” as contained in that section.
[32] The Appellant in his
argument took the position that clauses 7 and 8 of the Contract of Purchase and
Sale assist him in that
regard. Of particular significance to him was clause 7 which indicated that the
purchase price included “any buildings, improvements, fixtures, appurtenances
and attachments thereto”. This is what was viewed by the buyer at the date of
inspection. His position was that what was sold was a partially restored
building which was a part of the house originally located on the land before
the fire.
[33] The Court is of the
view that these sections of the Contract are not of great assistance to the
Appellant’s cause. There is no doubt that what was transferred was partially the
destroyed remnants of a former house as shown in the photographs in Exhibit
A-4. Obviously these remains did not represent what was there initially and
what had been occupied by Mrs. Johnstone when the property was last
occupied.
[34] The Appellant also
referred to the term “adjusted cost base” under the Income Tax Act which
sets out that capital cost to the taxpayer of the property includes “(a) any
depreciable property of the taxpayer”. Depreciable property includes, for
example, from capital cost allowance, class 3 of Schedule II to the ITA
Regulations, “a building or other structure, or part thereof, including
component parts such as electrical wiring, plumbing, sprinkler systems, air
conditioning equipment, heating equipment, lighting fixtures, elevators and
escalators, acquired by the taxpayer ...”. He said that these improvements were
included in the contract for the sale of the property and would appear to be
“improvements” for income tax and, therefore, for GST purposes.
[35] The Court is
satisfied that this argument does not advance the Appellant’s cause to any
extent and even though the Court agrees with the agent for the Appellant
according to the Contract of Purchase and Sale that the purchase price included
any buildings, improvements, fixtures, appurtenances and attachments thereto as
viewed by the buyer at the date of inspection, the transfer of these items as
part of the transaction does not assist the Court in determining whether or not
that which was transferred on the date of sale was a “residential complex” or
“residential unit” as set out in section 123 of the Act so as to make,
that which was transferred, an exempt supply under section 5.2, part I,
Schedule V of the Act.
[36] The agent for the
Appellant also referred to the GST/HST memoranda series published by Revenue
Canada, 19.2, residential real property, and to an example set out therein in
support of his position that, if the last use prior to the vacancy was
residential, the property would qualify as a residential unit even though the
house may need extensive work to make it fit for habitation. The answer to the
question in this case cannot be found in this bulletin and even though the
Court may consider it, it is not law and is not binding upon the Court. In any
event, it does not provide the answer to the question in the present case.
[37] Counsel for the
Respondent took the position that in order for this to be a residential unit or
residential complex; it has to be a place of residence. In the case at bar
whatever the taxpayers were going to do with the property after the fact, they did
not finish the renovation and did not make it a residential complex. Whatever
was transferred was not inhabitable and therefore was not a residential
complex. The important point in time was the point of transfer and at that time
it had to be capable of being occupied as a residence.
[38] The Court is
satisfied that the argument of counsel for the Respondent is well-taken where
she argued that what we are talking about at the point of transfer is “that
which was transferred”. We are not talking about whatever existed there before.
All references in the terms “residential complex” and “residential unit” have
to be related to that which was transferred to the Appellant when she completed
the transaction as referred to in the Contract of Purchase and Sale. Simply put, that which
was transferred was not a “residential complex” or “residential unit”.
[39] The term
“inhabitable” or “uninhabitable” is not referred to in the term “residential
complex” or “residential unit”. Under section 123 counsel took the position
that this requirement of being inhabitable or being fit for habitation, or being
a place of residence require it to be inhabitable. This is the effect of cases
like Ko v. R., supra, Balicki v. R., supra, Leowski (A. D.) v.
Canada, supra and Sneyd v. R.,
supra.
[40] All of these cases
are of some relevance to the issue in the case at bar although the factual
situations differ. That does not prevent the Court from being able to glean
from all of those cases, taken as a whole, a commonality which, according to
counsel for the Respondent, is the requirement that whatever is transferred be inhabitable
or be capable of being used as a place of residence.
[41] The Court is
satisfied that using the above-noted cases and by taking a reasonable view of
the wording as set out in the statute, it becomes clear what the Act is
talking about.
[42] Under section 123 of
the Act “under Definitions, you find the term “residential complex”
means:
(a) that part of a building
in which one or more residential units are located, together with
(i) that part of any common areas and
other appurtenances to the building and the land immediately contiguous to the
building that is reasonably necessary for the use and enjoyment of the building
as a place of residence for individuals, and ...
Further the term “residential unit”
means:
(a) a detached house,
or that part thereof that ...
(f) is vacant,
but was last occupied or supplied as a place of residence or lodging for
individuals, or ...
Of paramountcy in the term
“residential complex” are the terms “residential units” and “place of
residence”. Of paramountcy in the term “residential unit” is the term “a
detached house, or that part thereof” and the term “place of residence or
lodging for individuals”.
[43] When reviewing all
of these terms with their clear common-use meaning, the Court is satisfied that
that which was transferred according to the Contract of Purchase and Sale had
to be capable of being used as a place of residence and that which was being
transferred had to be a detached house or part thereof that was last occupied
or supplied as a place of residence or lodging for individuals. These terms are
almost synonymous with the term “inhabitable” as used by counsel for the
Respondent. Consequently, it follows that that which was transferred had to be
capable of being used as a place of residence or, as counsel for the Respondent
put it, it had to be “inhabitable”.
[44] This same conclusion
was reached by Chief Justice Bowman in Leowski (A. D.), v. Canada, supra, when he was dealing
with:
the empty space that remained after the
previous dwelling was demolished and that in any event the preloading of sand represented
the commencement of the building, a residential complex may include buildings
not yet completed.
Yet as Chief Justice Bowman said in
that case, and as this Court agrees:
I do not think that the property was a
“residential complex” as defined. Paras (a), (b) and (c) refer to a part
of a “building”. The plain meaning of “building” does not include a plot of
vacant land, even if it has been pre-loaded with sand in anticipation of
constructing a building on it. Nor do I think the property is a residential
unit. A vacant parcel of land is none of the things set out in paras (a), (b)
or (c) of the definition of residential unit. Nor is the vacant land a “part thereof”
(i.e. of the things set out in para. (a), (b) and (c)). I would need to
construe para. (f) to read:
The part of the land that was subjacent
to a detached house that was demolished before the purchaser acquired the land
and that was occupied as a place of residence for individuals.
I do not think that para. (f) bears that
construction. If that was what Parliament meant it would have been quite
capable of saying so.
[45] In the case at bar,
the Court is satisfied that that which was transferred did not meet any of the
requirements of the terms.
[46] Although the factual
situations were different in the other cases referred to, the reasoning in
those cases also applies to that in the case at bar. The appeal is dismissed
and the Minister’s assessment is confirmed.
Signed at New
Glasgow, Nova Scotia, this 14th day of January 2008.
“T. E. Margeson”
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