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Citation: 2003TCC929
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Date: 20031212
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Docket: 2002-4187(GST)I
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BETWEEN:
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LOUISE D. LAIR,
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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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REASONS FOR JUDGMENT
Rip, J.
[1] Louise D. Lair appeals an
assessment issued pursuant to Part IX of the Excise Tax
Act ("Act") in which the Minister of
National Revenue denied her application for a New Housing Rebate
in the amount of $1,550.70 under section 256 of the
Act on the basis that the construction carried on at her
residence does not meet the definition of "substantial
renovation" as defined in subsection 123(1) of the
Act.
[2] The appellant was represented by
her sister, Dora Cashaback, who also testified. Mrs. Lair, who at
the time of trial was ill, was not a witness.
[3] In 1999, soon after her
husband's death Mrs. Lair decided to modernize her residence,
which was over 100 years old. The residence rested on cement
blocks which were turning to dust. The residence had no basement.
Among other things, Mrs. Lair had the entire structure raised
several feet off the ground and hired people to dig and construct
a basement for her residence. When the residence was raised,
according to Ms. Cashaback, walls "cracked", stairways
"buckled" and everything "busted out".
[4] The basement, when eventually
completed in 1999, contained a family room, a full bathroom,
laundry room and a sewing and crafts room. The first floor of the
residence had to be gutted and was completely refinished. The old
electrical system, plumbing, installation, drywall, windows and
flooring were all removed and replaced. Due to the new plumbing,
Mrs. Lair was able to install a new septic system. The
residence was also extended at the back to enlarge the kitchen.
New cabinets were installed and a new bathroom and walk-in closet
were built. The entire roof was removed and replaced. All this
construction took place between 1999 and 2001 at a cost of
$67,030.98; the Goods and Services Tax ("GST") paid by
Mrs. Lair was $4,307.50. Further work on the upper floor of the
residence was undertaken after Mrs. Lair applied for the rebate
and this construction was completed in 2003 at a cost of
$7,886.25.
[5] In August, 1998, Mrs. Lair
underwent surgery to replace two valves in her heart. A third
valve was to have been replaced but was not. During all the time
of construction, Mrs. Lair was ill but continued to live in her
home.
[6] Ms. Cashaback produced photographs
of the residence before, during and after construction. According
to the pictures, the exterior of the residence was altered
radically, with a newly located entrance and newly placed
windows. The additions to the residence are obvious. The
completed residence bore no resemblance to the residence before
the construction started. Pictures of the interior of the
building show considerable construction being undertaken.
[7] In order to be eligible for the
GST rebate for an owner-built home, the applicant must meet the
criteria set out under paragraph 256(2)(a), which
reads:
Where
(a) a particular individual constructs or substantially
renovates, or engages another person to construct or
substantially renovate for the particular individual, a
residential complex that is a single unit residential
complex ... for use as the primary place of residence of the
particular individual or a relation of the particular individual,
...
the Minister shall ... pay a rebate to the particular
individual equal to ...
[8] The term "substantial
renovation" of a residential complex is defined in
subsection 123(1) to mean:
... 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 staircases, has been removed or replaced where,
after completion of the renovation or alteration, the building
is, or forms part of, a residential complex;
[9] The definition of
"substantial renovation" includes the alteration of a
building, not only its renovation. The word
"renovation" is defined by the Shorter Oxford
English Dictionary ("Shorter Oxford")
as:
1. The action
of renovating, or the condition of having been renovated;
renewal; restoration ...
[10] The same dictionary defines the word
"renovate" as:
to make new ...
2. To renew
materially; to repair; to restore by replacing lost or damaged
parts; to create anew
[11] The Shorter Oxford defines the
word "alteration" as "the action of altering"
and "an altered condition". The word "alter"
is defined as follows:
1. To make
otherwise or different in some respect, without changing the
thing itself, to modify.
[12] The debate between the parties was
whether Mrs. Lair substantially renovated her residence.
Respondent's counsel argued that if there was renovation, it
was not substantial, relying on the word "substantial"
to indicate that at least 90% of the structure had to be
renovated. The total area of the residence, excluding the
basement, was 1664 square feet. The living room was 126 square
feet; the upstairs was 366 square feet.
[13] After the trial I requested the parties
send me their submissions whether Mrs. Lair
"constructed", if she did not "substantially
renovate", her residence. I was concerned that the final
result of the work undertaken may be considered the construction
of a residential complex rather than its renovation or
alteration.
[14] I have studied the many photographs
produced by Ms. Cashaback. The work carried on was
"substantial" in the true sense of the word. I do not
think measuring different parts of the residence and comparing
the measures, i.e. parts of the residence that incurred the
construction and those which did not, or comparing costs and any
increase in value of the residence as a result of the
construction, is of any assistance in this particular case. On
the facts then before me if a reasonable and neutral observer of
the building, before and after construction of the interior and
exterior of the building, can conclude that the degree of
renovation and alternation was substantial, the definition of
"substantial renovation" is satisfied. Mrs. Lair had an
old house, ready to collapse, and for practical purposes rebuilt
it as a new residence.
[15] The verb "construct" in
paragraph 256(2)(a) is not defined in the Act. In
attempting to show that the appellant had not constructed a
residential complex, the Minister relied heavily on the reasoning
in Erickson v. R.[1] In Erickson the test for whether or not
an addition is construction under paragraph 256(2)(a)
is:
"... whether the pre-existing residence has been
incorporated into a new residence or whether an addition has been
incorporated into a pre-existing residence".[2]
In that case the taxpayer did not satisfy the test. However,
my colleague, Hershfield, J. noted that:
"... there might be cases where an addition is of such
proportion in relation to the existing premises that it can
fairly be said that the existing premises has been incorporated
into the addition in a manner that makes it appropriate to regard
the original premises as effectively having ceased to exist as a
residential unit. In such case (sic), a new premises has been
constructed and the rebate provision will apply."[3]
[16] To these comments I would only add that
the Act provides no objective criteria by which to
distinguish construction from that which is not construction. The
point of distinction between the two is arbitrary, and it is a
subjective determination that must be based on the facts in each
case.
[17] I do not believe the degree of
renovation by Mrs. Lair is reduced by the fact that a foundation
was constructed or a new roof installed. The phrase "other
than the foundation, external walls, interior supporting walls,
floors, roof and staircases" in subsection 123(1) does not
necessarily prevent the Minister from considering renovations or
alterations to the foundation or external walls in determining
whether 'all or substantially all' of the building was
renovated. Rather, it precludes the Minister from requiring
renovations to the foundation, various walls, floors, roof and
staircases in assessing whether the test has been met.
[18] In GST Memoranda (New Series) at 19.3.7
Canada Customs and Revenue Agency ("CCRA") sets out
some of the factors that CCRA regards as indicative of
construction. [4]
Briefly, they are: ratio of new to old floor space; relative size
of the new construction; number and type of new rooms; degree of
annexation; type of changes that had to be made to the exterior
and interior of the building; overall cost; and the presence of
new systems (e.g. electrical and plumbing).
[19] While these administrative guidelines
are in no way determinative, I agree that they do suggest
construction; which must be something more than a simple
"addition". These indicators of construction have all
been satisfied, each to a greater or lesser extent, in this case.
There is no doubt that Mrs. Lair's residence in 2001 is not
the same residence she had before 1999. New premises have been
constructed; at the least the residence was substantially
renovated and altered. Mrs. Lair qualifies for the New
Housing Rebate.
[20] Finally, it appears the application
period under paragraph 256(3)(b) may have expired in
respect of some of the appellant's otherwise eligible
expenditures over and above the initial $67,030.98. Mrs. Lair
submitted her application for the New Housing Rebate on
July 27, 2001. Both the appellant's agent and
counsel for the Minister agree that since Mrs. Lair continued to
occupy her residence from the onset of construction, the
two-year period within which she had to file an application
for their rebate pursuant to subsection 256(3), was the date
on which construction first commenced, that is on or about
July 27, 1999. That is the date she first occupied the
building. An amendment to paragraph 256(3)(b) is pending
which will permit a taxpayer to file the rebate application after
the due date in exceptional circumstances, and the amendment is
worded so as to apply retroactively. This proposed amendment,
once passed into law, will be deemed to come into force on
December 20, 2002.[5]
[21] A serious medical condition
necessitating major heart surgery and the occupation of the
residence during the ordeal of construction would normally
qualify as circumstances for the Minister to allow an application
after the due date. Unfortunately, however, the proposed
amendment cannot assist the appellant now.
[22] Nevertheless, one of the important
policy goals of the Act is that different taxpayers in
similar circumstances be treated the same; a taxpayer in the same
circumstances as the appellant stands to be treated very
differently once the amendment to paragraph 256(3)(b)
passes. As a result, it may well be that the appropriate
procedure with respect to taxes paid by Mrs. Lair after July 27,
2001 is for her to seek a remission order pursuant to subsection
23(2) of the Financial Administration Act for any
amounts that would be eligible for the rebate but for the current
wording of subsection 256(3).
[23] The appeal is allowed with costs.
Signed at Ottawa, Canada, this 12th day of
December, 2003.
Rip, J.
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