TAX COURT OF CANADA
IN RE: The EXCISE TAX ACT
2004-3010(GST)I
BETWEEN:
DAVID K. ANDERSON and
WENDY ANDERSON,
Appellants;
- and -
HER MAJESTY THE
QUEEN,
Respondent.
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Held before Mr. Justice Teskey at Courts Administration Service,
Courtroom No. 602, 6th Floor, 701 West Georgia Street, Vancouver, B.C., on
Tuesday, January 11, 2005.
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APPEARANCES:
Mr. D.K. Anderson, For the Appellants;
Mr. S. Repas, For the Respondent.
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THE REGISTRAR: L. Giles
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Allwest
Reporting Ltd.
#302-814
Richards Street
Vancouver,
B.C.
V6B
3A7
Per: S. Leeburn
REASONS FOR JUDGMENT
(Delivered Orally in Vancouver, B.C. on January 11, 2005)
JUSTICE: The appellant appeals a reassessment of tax
assessed under the Excise Tax Act of Canada, the GST provisions thereof.
The facts are not in dispute. The appellants, David
Anderson and Wendy Anderson, are husband and wife and they are a partnership.
The only evidence given was by David Anderson (Anderson), and counsel for the
respondent did not cross‑examine Anderson on his testimony, therefore the
facts given by Anderson are accepted by the Court without reservation.
The partnership is in the business of land development and
house construction. The partnership is registered under the Excise Tax Act for
GST purposes and files its returns annually.
In December of 2000, a written residential tenancy agreement
was entered into by Anderson as landlord, with a tenant by the name of Tom Ball
(Ball). At the time this agreement was entered into, it was contemplated that
the appellants would construct a 3,600 square foot residence on a specified
parcel of land. It was a term of the agreement that the basement would be finished
and available to rent to a tenant. This tenancy agreement was obviously
prepared by lay people, and was executed. No plans or specifications are
attached to it. I am satisfied that the parties had a meeting of mind as to what
was going to be produced, namely a completed 3,600 square foot house in which
the basement could be rented out to third parties.
Early in the year 2000, the appellants applied for and
received a building permit, which only covered the completion of the first and
second floor and not the basement. The building progressed. It was not a straight
forward progression in that there was a general contractor, Parkridge Homes,
that was doing some of the construction; the appellants were also doing some of
the work and they also hired subs directly, usually the subs that Parkridge
Homes were using. At the same time, the proposed tenant, Ball, was doing some
of the work.
I find as a fact that the written tenancy agreement
contemplated a complete building, with three floors completed, namely a
basement and the first and second floors. I find as a fact that Ball and his
wife moved in when the basement had not even been started, cement floor and
nothing else. I find as a fact that there was no landscaping whatsoever at that
time. I find as a fact that by August of 2001, that the first and second floors
for all intents and purposes were substantially complete.
Ball moved into the premises and occupied only the first and
second floor. He did this without permission of either the general contractor
Parkridge Homes, or the appellants. The appellants did not bring an action for
trespass, did not bring an action to eject them from the premises, but condoned
the occupation and negotiated with them that the rent would be $1,500 a month
until the basement apartment was completed, the agreement calling for $2,300 a
month for all three floors on completion. It is immaterial whether you look at
the written tenancy agreement as having been amended or whether it was just a
new oral agreement. That is what was done.
The basement was completed in February of 2002, and the rent
went up to the $2,300 as originally agreed upon. At that time it was agreed
that the value of the property was $306,000.
Almost to a year later, the parties entered into a written
agreement wherein Ball, the tenant, would purchase the completed house from the
appellants. The written contract is quite clear. House price 350,000.
Appliances and equipment 10,000. Total house, appliances and equipment
360,000. GST 25,200. Total price 385,200. Paragraph 9(b) of this written purchase
and sale agreement states:
"The purchase price includes GST. The vendor will pay the
applicable house and land GST. The purchaser will sign any necessary
documentation prepared by the vendor to complete the GST new home rebate
application for the vendor. The purchaser warrants that the property will be
his principal residence. This condition is for the sole benefit of the
vendor."
It is agreed that about March 1st, 2002, the value of
the property was $360,000. The appraiser who prepared the evaluation took into
consideration that the landscaping had not been done but that figure reflected
as if the landscaping was done or would be done.
The respondent's position is that the moment the tenant
moved into the property, there was a deemed self-supply pursuant to the
provisions of Section 191(1) of the Excise Tax Act. Although it is not clear
what the appellant's position is, it appears to me his best position is that
"I was building a house for Ball in which he was to get 3,600 square feet
all completed, the bottom 1,200 feet was to be a self‑contained unit
available to be leased to a tenant, and that since the basement 1,200 feet was
not available for occupancy until the end of February in 2002, that is when the
building would be substantially complete."
Section 191(1) under the heading "Self-Supply of Single
Unit Residential Complex" -- Section 191(3) deals with self-supply of a multi-unit
residential complex. I am satisfied that the wording of those two sections is
so similar that they both say the same thing. I believe that in this case the
assessment should be pursuant to Section 191(3) and not 191(1), what was being
supplied here was a building containing two units, with separate tenants to
occupy each unit.
There was a bulletin from the CCRA in 2004, # 10, thus
if this was a single unit, 3,600 square feet, we are under 191(1). If it is two
units, we are under 191(3). The bulletin is not the law, what governs is the
wording of the statute. The bulletin talks about where there are more than one
unit, and it says that when the first unit is occupied you have a deemed sale.
I would point out that Exhibit A-5 does not contain any
options to purchase. It is simply a residential house agreement. The
purchasers had no right enforceable in law to buy that house from the
appellants until the written contract (Exhibit A‑7) was executed. It
may have been understood all along between Ball and the Andersons that they
were going to buy it, however Ball certainly had no enforceable rights to
purchase the complex.
Several cases have been referred to me. The first case is
by my former colleague Mogan J. in Lawson (W.) v. Canada, 1995
CarswellNat 49, [1995] G.S.T.C. 59. In that case, Mogan J. was dealing
with a single family house that was completed in June of 1990. That is when
the real estate market crashed right across this whole country, and the
appellant builder therein could not sell the house. It was listed with real
estate agents. Although it was completed in June, it had actually been listed
the month before. That was in 1990 and in October of '91, a year and some-odd
later, the property not having sold the appellant therein put a tenant in the
house.
It should be pointed out that Mogan J. was dealing with
191(1)(a). If I can presume to translate this subsection into more
understandable language, it states that where a new housing unit has been
constructed, the builder is deemed to have made and received a taxable supply
by way of sale of the housing unit at the later of two times, either the time
when the construction was substantially completed – (that would have been June
'90) -- or the time when possession of the housing unit was first given. Mogan J.
held that the deemed self‑supply was when it was first rented.
The provision of the Act is quite clear:
"The builder shall be deemed to have made and received at
the latter of the time construction or substantial renovation is substantially
completed, and the time possession of the complex is so given."
It is not the first, and that is what Mogan J. says.
My colleague Beaubier J., in Phillips (L.E.) v.
Canada, 1995 CarswellNat 36, [1995] G.S.T.C. 39, was dealing with a
builder occupier, owner occupier, and he held in paragraph 6:
"Mr. Johnson testified that the house was completely closed
in, and from his testimony and his description of the premises at the time, the
Court finds that it was completely capable of being inhabited. As Mr. Johnson
stated, the outside work remaining to be done was seasonal. The interior was
capable of being lived in while the appellant and his wife, who did much of the
interior work and painting, completed the minor finishing that remained."
So he came to the conclusion that the house was fully capable of
being used for the purposes it was constructed, and was occupied.
My colleague Sarchuk J., in Kornacker (A.) v. Canada,
1996 CarswellNat 638, [1996] G.S.T.C. 21, 4 G.T.C. 3057, dealt
specifically with the penalty and interest and says that the language found in
Section 280 of the Excise Tax Act is extremely similar to some sections
in the Income Tax Act, and I particularly make reference to the phrase:
"... the person shall pay on the amount not remitted or
paid
(a) a penalty ... and
(b) interest ..."
He held that the word "shall" in Section 280 of the Excise
Tax Act was mandatory. Thus when the conditions required are met, the
penalty and interest must be imposed. It is not a discretionary thing on
behalf of the Minister.
My former colleague Hamlyn J., in Vallières v. R.,
2001 CarswellNat 1689, 2001 G.T.C. 545,[2001] G.S.T.C. 97, [2001] T.C.J.
No. 528 (Q.L.), said:
"To be 'substantially completed', a residential complex must
be capable of being used for the purpose for which it was constructed.
In determining what constitutes 'substantial completion'..., a certain
common-sense assessment of what, ..., a reasonable person would regard as
substantial completion."
He was dealing in that case with a taxpayer that was
building a house for himself. A taxpayer that builds his own house has the
right to apply to get a rebate. The taxpayer pays 7 percent for everything he
does during the construction; pays 7 percent to the concrete people, 7 percent
to the lumber yard, 7 percent to all his trades. A new house doesn't attract 7
percent if it's under a certain value. The Act states that you have to
apply for the rebate within a certain length of time. Hamlyn was dealing
with this situation.
You will find in all of these cases dealing with the
required time to apply for the GST rebate, that the Court is bending over
backwards not to find that the application was late. A taxpayer is entitled to a
rebate of approximately 3 percent.
MR. REPAS: 4.48, Your Honour. I can say 4.48.
JUSTICE: Yes. We have all had many of these cases where
the CCRA were absolutely hard-nosed about it, and myself included, we would try
and find where we could so that the taxpayer was not denied that 3 percent rebate
that he or she was entitled to. I believe when you interpret these cases you
must realize what the justices were trying to do.
Now my colleague Louise Lamarre Proulx J.'s in Tessier v.
R., 2001 CarswellNat 3791, [2001] G.S.T.C. 142, -- (and I must say
she is one of my colleagues that I have the utmost respect for. I think her
decisions are right on. We all disagree with each other at times, but Justice
Lamarre Proulx is one I have never disagreed with in all her judgments) was
dealing with a duplex. The upstairs was rented in May of '96. The taxpayer
moved into the ground floor. The Minister took the position the construction
had been substantially completed and therefore they only had till May of '98 to
apply for the rebate, and it was not filed till May of 2000. She allowed the
appeal. The evidence indicated the initial plan was to construct a multifamily
residence with two floors, and the completion of the basement was part of the
plan. She held that the time period did not start until the residence was
capable of being used for the purpose for which it was constructed. That had
not been established.
I think her case is basically all on fours with the case
before me. Yes, the tenant moved in. Yes, the tenant paid rent. But it was not
what was agreed upon. There had to be a third floor, namely the basement, and
that was not completed until 2002. The Act is quite clear:
"The builder shall be deemed to have made and received at
the latter of the time the construction was substantially completed, and the
time possession of the complex is given."
It is not the first event, it's the latter event that governs. I
find that the basement was not substantially complete. It had not even been
started and was not substantially completed until February or March of 2002,
and that is when the builder, the appellants herein, are deemed to have sold
it.
The appeal is allowed. The assessment is referred back to
the Minister for reconsideration and reassessment on the basis that in the year
2001, there was not a deemed sale of the property known as 1499 for 306,000,
and therefore from the assessment the sum of $21,420 is to be removed therefrom
and all penalties and interest relating thereto. Your assessor understands
that?
MR. REPAS: I am sure the order will read -- I understand
that the appeal has been allowed.
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