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Citation: 2004TCC679
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Date: 20041117
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Docket: 2002-1517(GST)G
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BETWEEN:
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ST. CHARLES PLACE HOLDINGS LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
General Procedure was heard at Victoria, British Columbia, on
September 13, 2004. Michael Holmes, solicitor for the Appellant
at the material times, and Cameron Garbutt, the chief officer of
the Appellant, were the only witnesses.
[2] Paragraphs 3 to 12 inclusive of
the Amended Reply to the Notice of Appeal read:
3. With
respect to paragraph A.3 of the Notice of Appeal, he states that
the basis for the reassessment was (1) that the GST would be
collected on a GST included basis which reduced the amount of GST
collected by the Appellant from $104,580 to $100,472 and (2)
additional input tax credits ("ITC's") of $31,789
will be allowed relating to new housing rebates for all units
except the one sold to a corporation.
4. With
respect to paragraph B.1 of the Notice of Appeal, he admits that
the subject matter of the reassessment involves an issue of
substantial renovation and denies the balance of the
paragraph.
5. With
respect to paragraph B.3 of the Notice of Appeal there are no
facts to admit or deny.
6. The
Minister of National Revenue (the "Minister") assessed
the Appellant by Notice of Assessment No. 11CU0301901, dated
December 22, 2000, in the amounts of $70,939.00 net tax,
$10,438.45 net interest, and $15,387.25 penalty in respect of
Goods and Services Tax ("GST") returns for the period
of May 24, 1995 to February 28, 1997.
7. A Notice of
Objection was filed on November 29, 2001.
8. By Notice
of Decision No. 117992024 dated February 14, 2002, the Minister
varied the assessment and reassessed the Appellant by Notice of
Reassessment No. 11CU-117992024 dated February 14, 2002 in the
amounts of $35,042.00 net tax, $4,525.11 net interest, and
$7,073.10 penalty in respect of Goods and Services Tax
("GST") returns for the period of May 24, 1995 to
February 28, 1997.
9. The Notice
of Appeal was filed on April 17, 2002 and served on the Minister
on May 8, 2002.
10. In so reassessing the
Appellant, the Minister relied on the following assumptions:
a) the facts
stated and admitted above;
b) the
Appellant is a GST registrant with GST Registration No. 89511
1375 RT;
c) the
Appellant was a corporation involved in property development;
d) the
Appellant is required by the Excise Tax Act, R.S.C. 1985,
c.E-15, as amended (the "Act") to file its GST returns
on a quarterly basis;
e) the
Appellant purchased a property located at 800 St. Charles Street,
Victoria, B.C. for $570,000 in 1995;
f) at
the time of the purchase 800 St. Charles Street was occupied by a
single family dwelling (the "House") built in the early
1900's;
g) the
Appellant spent $543,073 to convert the House to seven strata
titled residential condominium units (the "Condos")
consisting of Units 1 to 4 which are four two-level condos on the
main floor and basement, Units 5 and 6 which are two condos on
the second floor of the House and Unit 7 which is one condo in
the attic of the House;
h) prior to
this renovation the attic and the basement of the House were not
habitable;
i) as
part of the renovation to the House the exterior walls were
filled with insulation; interior walls were exposed to the studs
and new gypsum board, 48,000 square feet, was applied to most
walls and ceilings; new insulation, electrical, plumbing and
heating was installed to meet current building codes; new
interior dividing walls were constructed to create separate
condos; a new balcony was built; skylights were added; additional
windows were added; new interior staircases were added; the
original boiler heating system was replaced with electrical
heating and gas fireplaces; new appliances and fixtures were put
in each of the seven condos; the basement floor was removed,
excavated down one foot to allow for eight foot ceilings and
replaced with a new concrete slab; the existing floor joists of
the second floor were removed and new floor joints installed to
change the ceiling height of the second floor from 10 feet to
eight foot; carpet, hardwood, linoleum and ceramic floors were
installed in the condos;
j) the
remaining original interior components of the House, such as the
fireplaces and mantles, would not exceed 10% of the costs
applicable to the calculation of a substantial renovation;
k) the garage
was not part of the determination of a substantial
renovation;
l) the
Appellant sold the Condos for $1,504,000, an increase in value of
$390,927, but did not charge GST and did not claim ITC's;
m) the Minister
assumed that the single family dwelling was converted to a
multi-residential strata complex and further assumed that this
was a substantial renovation; and
n) Units 1 to
4 did not exist in the pre-renovation configuration, the basement
[which is 50% of the floor space of Units 1 to 4] was not
habitable, Unit 7 did not exist prior to the construction in
issue, and units 5 and 6 were part of a single family dwelling
and not independent strata units.
B. ISSUES
TO BE DECIDED
11. The issue is whether
the Appellant is liable for GST as assessed.
C.
STATUTORY PROVISIONS RELIED ON
12. He relies on sections
123(1), 165, 169, 192, 221, 223(1), 254.1(3), 256.1(1) and 256(3)
of the Act, the Financial Services (GST)
Regulations (SOR/91-26), and the Input Tax Credit
Regulations (SOR/91-45).
[3] Assumptions 10(a), (b), (c), (d),
(e), (f), (g), (h), (k), (l) and (n) were not refuted by the
evidence. With respect to the remaining assumptions:
(i) The additional windows were
added in the basement area which was divided into four separate
two-bedroom, one bath units, each of which formed part of four
condo units on the main floor.
(j) Is wrong. The evidence of
the witnesses is accepted that the value of the new
"substantial renovation" components (omitting those
excluded in the definition in subsection 123(1) of the Excise
Tax Act in the structure amounted to about 60 percent to 70
percent of the current cost value of the old similar components
upon completion of the structure. In other words, upon
completion, about 40 percent of the value of those components of
the residential complex was new and about 60 percent was original
of those portions that are not excluded from the definition of
"substantial renovation". The original components
remaining included:
1. All of the exterior
original "rock stucco, tudor wood fascia, 20 to 30 wood
windows, the entrance door, entrance and wood trim and the
garage.
2. The entire main floor
inlaid oak floor with wood trim and the similar flooring at the
second floor; the original wooden entry hall and stair landing -
all of which became the entryway to the six upper suites.
3. On the second floor,
one 20 foot long original Honduras mahogany floor to ceiling
bookcase and one whole original bathroom.
4. The three original
fireplaces were retained. All of the original wood was
retained.
5. Mr. Garbutt calculated
that $60,000 was spent on new sewer and water lines from the
original house to the city services, on parking areas and on
landscaping. This sum would be part of the amounts contained in
the $543,073 described in 10(g).
As a result, the Court finds that the remaining original
interior components of the house did exceed 10 percent of the
costs applicable to the calculation of a substantial renovation.
There is no evidence contrary to the evidence given by the
Appellant's two witnesses and their evidence is accepted as
true.
(k) The original garage formed part of
one of the main floor suites and it constitutes part of the
determination of substantial renovation determined by the
Court.
(m) Whether the conversion of a single
family dwelling to a seven unit multi-residential strata complex
constitutes a substantial renovation is a question to be
determined.
[4] In the course of the hearing,
Appellant's counsel conceded that the suite created in the
former attic was subject to GST. It was constructed in a bare,
studded attic.
[5] For the period May 24, 1995 to
February 28, 1997, subsection 123(1) in the Excise Tax
Act, the definition of "substantial renovation", is
important with respect to the remaining six units. It
reads:
"substantial renovation" of a residential complex
means the renovation or alteration of a building to such an
extent that all or substantially all of the building that existed
immediately before the renovation or alteration was begun, other
than the foundation, external walls, interior supporting walls,
floors, roof and staircase, has been removed or replaced where,
after completion of the renovation or alteration, the building
is, or forms part of, a residential complex
[6] It should further be noted that
for work such as this, the City of Victoria does not require
rezoning. It considers this work to be an extension or
enhancement project for which it is important that the exterior
should retain its original façade or character. In such
circumstances it is not a new project for municipal zoning
purposes. Nor did this project qualify for the new home warranty
programme.
[7] Because of the finding in
paragraph [3] that about 40 percent of the components of the
completed structure was new, the Court finds that the work did
not constitute a "substantial renovation".
[8] The Appellant's work did,
however, put it in the business of making supplies of real
property and therefore section 192 of the Excise Tax Act
applies to it. Section 192 reads:
192. For the purposes of this Part,
where in the course of a business of making supplies of real
property a person renovates or alters a residential complex of
the person and the renovation or alteration is not a substantial
renovation, the person shall be deemed
(a) to have made and
received a taxable supply, at the earlier of the time the
renovation is substantially completed and the time ownership of
the complex is transferred, for consideration equal to the total
of all amounts each of which is an amount in respect of the
renovation or alteration (other than the amount of consideration
that was paid or payable by the person for a financial service or
for any property or service in respect of which the person is
required to pay tax) that would be included in determining the
adjusted cost base to the person of the complex for the purposes
of the Income Tax Act if the complex were capital property
of the person and the person were a taxpayer under that Act;
and
(b) to have paid as
a recipient and to have collected as a supplier, at that time,
tax in respect of the supply, calculated on the total determined
under paragraph (a).
[9] In summary, the former attic is
subject to GST as a substantial renovation as conceded by the
Appellant and the remaining six units are subject to GST pursuant
to section 192.
[10] This matter is referred to the Minister
of National Revenue for reconsideration and reassessment
accordingly.
[11] There is no order as to costs.
This Amended Judgment and Amended Reasons for
Judgment is issued in substitution for the Judgment and Amended
Reasons for Judgment dated October 8, 2004.
Signed at Vancouver, British Columbia, this 17th day of
November 2004.
Beaubier, J.
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