Citation: 2008TCC151
Date: 20080313
Docket: 2007-1575(GST)I
BETWEEN:
BILL SLADE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] In assessing the Appellant under the Excise
Tax Act (“Act”) for the period October 1, 2004 to March 31, 2005, the
Minister of National Revenue (the “Minister”) assessed goods and services tax (“GST”)
in the amount of $13,064.70 on the sale of a residential complex and denied
input tax credits (“ITCs”)claimed in the amount of $3,217.05.
[2] At the hearing of the appeal, the Appellant
stated that he did have the documentation to support the ITCs claimed. However,
he did not submit anything to support them. The appeal with respect to the
issue of the ITCs is dismissed. The remaining issue in this appeal is whether
the Minister was correct in assessing GST on the sale of the house and lot.
FACTS
[3] In January 2004 the Appellant and Harold
Westendorp (“Westendorp”) agreed to form a partnership to purchase a house,
relocate it to a lot that the Appellant would purchase, rebuild the house and
sell it. Their purchase of the house did not include the land on which the
house was situated. In an agreement dated January 23, 2004, it was agreed that
the Appellant would provide the funds to move and rebuild the house on a new
lot. It had been decided by the partners that the Appellant would purchase the
lot described as “part of Blocks Q & S on Registered Plan 194” (“the lot”).
For his 50% share of the project, Westendorp’s business, Harold’s Demolition
& Recycling (“HDR”) would prepare the house for moving, move the house, and
rebuild the house on the new lot. The Appellant was to hold title to the house
and the lot.
[4] On January 24, 2004, the Appellant learned
that the owners of the lot would not sell it to him but would sell the lot to
Westendorp. The partners agreed that HDR would purchase the lot and then in
turn would sell it to the Appellant. In an agreement dated January 26, 2004,
HDR purportedly sold the lot to the Appellant. On January 28, 2004, the Appellant
gave Westendorp $20,000 for the purchase of the house. The house was moved and
construction on the house proceeded. The costs to rebuild the house greatly
exceeded the amounts originally agreed on in the January 23, 2004 agreement.
The Appellant testified that he spent approximately $190,000 on materials to
rebuild the house.
[5] Problems arose when the Appellant tried to
sell the house. The partners had a falling out. On November 5, 2004, the
Appellant searched the title to the lot only to discover that the lot had never
been transferred to HDR. The Appellant commenced an action against Westendorp,
HDR and the owners of the lot. The action was eventually settled and the
Appellant received title to the lot on March 15, 2005. He in turn sold the house
and lot to a Mr. Running on March 15, 2005.
[6] After the construction of the house was
completed on the lot, it was not occupied by anyone until it was sold to Mr.
Running.
[7] The issue in this appeal is whether the
sale of the residential complex is subject to GST or whether it is an exempt
supply.
[8] To discern the answer, it is necessary to
look at the definition of various terms in the Act. Pursuant to
subsection 123(1) of the Act a “supply” means, among other things, the
provision of property in any manner including a sale. This same subsection
defines a “taxable supply” as a supply that is made in the course of a
commercial activity. The Act defines “commercial activity” and an “exempt
supply” as follows:
"commercial
activity" of a person means
…
(c) the making
of a supply (other than an exempt supply) by the person of real property of the
person, including anything done by the person in the course of or in connection
with the making of the supply;
"exempt
supply" means a supply included in Schedule V;
[9] The Appellant’s position is that the sale
was an exempt supply as he sold a used residential property. Schedule V, Part
I, section 2 exempts the sale of a used residential property as follows:
2. A
particular supply by way of sale of a residential complex or an interest in a
residential complex made by a particular person who is not a builder of the
complex or, if the complex is a multiple unit residential complex, an addition
to the complex, unless
(a) the
particular person claimed an input tax credit in respect of the last
acquisition by the person of the complex or in respect of an improvement to the
complex acquired, imported or brought into a participating province by the
person after the complex was last acquired by the person; or
(b) the
recipient is registered under Subdivision d of Division V of Part IX of the Act
and
(i)
the recipient made a taxable supply by way of sale (in this paragraph referred
to as the "prior supply") of the complex or interest to a person (in
this paragraph referred to as the "prior recipient") who is the
particular person or, if the particular person is a personal trust other than a
testamentary trust, the settlor of the trust or, in the case of a testamentary
trust that arose as a result of the death of an individual, the deceased
individual,
(ii)
the prior supply is the last supply by way of sale of the complex or interest
to the prior recipient,
(iii)
the particular supply is not made more than one year after the particular day
that is the day on which the prior recipient acquired the interest, or that is
the earlier of the day on which the prior recipient acquired ownership of the
complex and the day on which the prior recipient acquired possession of the
complex, under the agreement for the prior supply,
(iv)
the complex has not been occupied by any individual as a place of residence or
lodging after the construction or last substantial renovation of the complex
was substantially completed,
(v)
the particular supply is made pursuant to a right or obligation of the
recipient to purchase the complex or interest that is provided for under the
agreement for the prior supply, and
(vi)
the recipient makes an election under this section jointly with the particular
person in prescribed form containing prescribed information and filed with the
Minister with the recipient's return in which the recipient is required to
report the tax in respect of the particular supply.
[10] The Appellant has
argued that he bought a house that was a used residential property; he
renovated it with some used materials and he sold the house as a used
residential property. The house that the Appellant bought was not the house
that the Appellant sold. The documentary evidence submitted showed that he
purchased the house for $20,000 and he spent approximately $190,000 on
materials to construct the complex that he eventually sold.
[11] The Act does
not define the term “residential property” but it does define “residential
complex” which is the terminology used in Schedule V, Part I, section 2. A
portion of the definition for a “residential complex” is as follows:
"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
(ii) that proportion of the land
subjacent to the building that that part of the building is of the whole
building,
[12] For our present
purposes, a residential complex is the building, the lands subjacent to the
building and the lands contiguous to the building that is reasonably necessary
for its use and enjoyment as a home. Seen from this perspective, the Appellant
did not purchase a residential complex when he purchased the house or an
interest in the house without the land on January 28, 2004. He only acquired an
interest in the residential complex when he purchased the lot on March 15,
2005. Consequently, when he sold the house and the lot on March 15, 2005 the
Appellant sold a residential complex. For the sale to qualify as an exempt
supply, the Appellant must not be a builder as that term is defined in the Act.
[13] Paragraphs 123(1)(d) and (e) of the Act define
a “builder” of a residential complex as a person who:
(d)
acquires an interest in the complex
…
(ii) in any case, before it has been
occupied by an individual as a place of residence or lodging,
for the primary purpose of
(iii) making one or more supplies of
the complex or parts thereof or interests therein by way of sale, or
…
(e) in any
case, is deemed under subsection 190(1) to be a builder of the complex,
…
[14] The Appellant
acquired an interest in the complex on March 15, 2005 for the primary purpose
of selling it. He is a builder in accordance with the Act and
consequently, the sale of the complex is not an exempt supply.
[15] The Appellant
testified that prior to entering into the transaction with Westendorp, he
consulted with the Canada Revenue Agency (“CRA”) to ascertain whether GST would
be exigible on the sale of the property. He was informed that the sale was not
taxable and as a result he did not collect GST when he sold the property. The
Appellant also stated that on June 22, 2005 he was notified by CRA that there
had been a mistake in the audit. He was offered the option of not receiving any
more ITCs and not paying the GST on the house. As a result he did not submit
any further claims for ITCs.
[16] I interpret the
Appellant’s statements as raising an issue of estoppel. The case law is clear
that an assessment must be made pursuant to the provisions of the Act
and it is not open to a taxpayer to set up an estoppel to prevent the operation
of the statute. (See, for example, Woon v. M.N.R., [1950] C.T.C. 263 at
paragraph 17, where Cameron, J. stated:
17
It is not necessary in this case, however, to consider the effect of the
cases to which reference has just been made. It is sufficient to state that the
assessment here under appeal was made pursuant to the terms of a statute and
that, therefore, it is not open to the appellant to set up an estoppel to
prevent its operation.
[17] In conclusion,
the appeal is dismissed.
Signed
at Ottawa, Canada this 13th day of March, 2008.
V.A.
Miller, J.
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