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Citation: 2003TCC47
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Date: 20030217
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Docket: 2001-2360(GST)I
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BETWEEN:
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KENT G. RUMBLES,
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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
Bowie J.
[1] The Appellant and his former
common-law spouse owned a farm jointly. When their relationship
ended, he sold her his one-half interest in it. If she purchased
it for her personal use and enjoyment, then the transaction was
not subject to the goods and services tax that is levied under
Part IX of the Excise Tax Act (the Act); otherwise,
tax was exigible, and he was bound to collect it from her and
remit it to the Receiver General for Canada. He did not do so and
the Minister of National Revenue (the Minister) has now assessed
him for tax on the fair market value of the interest transferred.
He now appeals from that assessment under the informal
procedure.
facts
[2] In September 1993, the Appellant
and Leanne Chubocha bought a farm consisting of 160 acres of
land, a house, a garage, a barn and a Quonset building (the
"property"). The price was $143,500, and they paid GST
on the basis that 48% of the price was the value of the
residential portion, and 52% was for the farm land and
buildings. They each held an undivided one-half interest in
the property. They bought the land to farm it, and that is what
they did; they operated under the name Rumlee Farms. For that
purpose, the Appellant registered as a supplier under section 240
of the Act. They lived on the farm as husband and wife,
and they raised crops and cattle. They owned a few head of
cattle, and they raised some others under a crop-sharing
agreement. The Appellant did most of the physical work on the
farm, but Leanne did some of it as required from time to time.
She also looked after the books and other record-keeping. They
both had full time jobs elsewhere as well.
[3] In 1996, personal problems arose
between the Appellant and Leanne, and they separated that summer.
She went to live with her parents, but she left many of her
personal belongings at the farm, and she came and went between
their home and the farm as she pleased; however, she took no
further part in the operation of the farm. The Appellant
testified that it was not a friendly break-up. The Appellant
continued to live in the farmhouse and to operate the farm on his
own, and he would have been content to continue doing so. In the
spring of 1999, he made an offer to Leanne to buy her interest,
but she refused to sell to him, saying that the price he offered
was too low. He also testified that she took the position that if
they were not going to operate the farm together, then neither of
them should do so. On June 1, 1999 she made a counter-offer to
him to buy his share, and on June 15, he accepted it. The
agreement of purchase and sale was drawn up by Leanne's
solicitor, and it contained the following clause:
13 The Vendor
represents and warrants to the Purchaser that:
c. this sale
of the Property is an exempt supply within the meaning of the
Excise Tax Act of Canada and there is no GST payable by
the Purchaser with respect to this transaction.
It is a curious warranty for the purchaser to exact from the
vendor, given that the question whether the supply is an exempt
one turns on whether the purchaser is acquiring the farmland for
her own personal use and enjoyment, and not to continue farming
it, or for some other commercial purpose. If the latter had been
her intention, she could hardly have asked for such a warranty
from the Appellant.
[4] Under the agreement, the
transaction was to close and the purchaser was to take possession
on June 30, 1999, but that did not actually happen until
July 5. The Appellant testified that by that time, he had moved
his cattle from the farm to his father's farm, and that the
crop-sharing cattle had been removed by their owner. Leanne
Chubocha's testimony on this point was vague and uncertain, and I
prefer that of the Appellant. There was a second hay crop on the
land that had to be removed in the fall so that the land could be
used for pasture the following year. The Appellant had cut the
first crop before the possession date. The second crop was cut
and removed by Leanne's father; he did not purchase the crop from
her, but simply removed it, with her concurrence, in order to
preserve the quality of the pasture for the next growing season.
When Leanne sold the farm, in November 1999, her solicitor made
the following representation to the Minister on her behalf in
order to obtain a favourable GST ruling:
4. Upon
separation, the land was transferred to the vendor [Leanne] in
her name alone. Since the separation and transfer, the Vendor
[Leanne] has not farmed the land nor rented it out. She has
received no income from the land. The 1999 hay crop was removed
from the land by the vendor's [Leanne's] father, and kept by him
as a gift from the daughter (vendor) [Leanne].
[5] Although counsel for the
Respondent strove to elicit evidence from Leanne that would
establish that some farming activity had taken place on the land
with her concurrence after the possession date, she did not
succeed. Leanne's evidence as to the hay crop was as vague as her
evidence as to the cattle. I find that she did no farming, and
that she did not permit anyone else to do any farming on the land
after she obtained possession on July 5, 1999. Her counsel
accurately advised the Minister that she had neither farmed the
land nor rented it out. In November 1999, Leanne sold the farm,
in an arm's length transaction, for $225,000. Her purchase of the
Appellant's half of their equity had been based upon a value of
$230,000.
issue
[6]The issue between the parties in this appeal is an
extremely narrow one. It is common ground that the Appellant was
obliged to collect and remit GST on the sale of his interest in
the farm to Leanne, unless the transaction comes within section
10 of Schedule V, Part I of the Act, in which case it is
an exempt supply. That section reads:
10 A supply of
farmland by way of sale made by an individual to another
individual who is related to or who is a former spouse or
common-law partner of the individual where
(a) the
farmland was used at any time by the individual in a commercial
activity that is the business of farming;
(b) the
farmland was not used, immediately before the time ownership of
the property is transferred under the supply, by the individual
in a commercial activity other than the business of farming;
and
(c) the other
individual is acquiring the farmland for the personal use and
enjoyment of that other individual or any individual related
thereto.
The Respondent does not dispute that the opening words of
section 10 and the requirements of paragraphs (a) and
(b) are satisfied. The only issue in dispute is whether
Leanne was acquiring the farmland for her personal use and
enjoyment.
positions of the parties
[7] The position taken by the Minister
in assessing is that Leanne acquired the Appellant's interest in
the farm for the purpose of farming it. In support of that,
counsel for the Respondent relied heavily on the evidence of
Leanne as to the grazing of cattle after the possession date, and
the cutting of the fall hay crop. Counsel for the
Respondent also argued that title to the Appellant's interest in
the land passed to Leanne when he accepted her offer on June 15,
and that his farming of the property between then and the closing
on July 5 amounted to a commercial use of the property while she
was the owner, and so precluded a finding that she purchased the
property for her personal use and enjoyment. Finally, counsel
argued that Leanne's real purpose in acquiring the Appellant's
interest in the farm was to bring about a reconciliation of their
domestic differences, following which they would resume their
farming operation on the farm as before.
[8] The Appellant's position is that
Leanne had no intention of farming the property, or of putting it
to any other use than living in the house, and that she made no
commercial use of the property between the time she took
possession in July 1999 and the time when she sold it in
November.
decision
[9] In my view, the Appellant is
entitled to succeed in his appeal. I am satisfied by the
Appellant's evidence that by the closing date he had removed all
his cattle from Rumlee Farms, and that he gave up possession and
did not carry on any farming or other activity there after that
date. Nor did Leanne or her father carry on any farming there.
Leanne gave some evidence that suggested that some cattle owned
by her father were on the property for some period of time during
the summer or fall of 1999, but I am satisfied that there was no
commercial animus to their presence there. To the extent
that cattle grazed there, or that hay was cut there, after the
closing date, it was for the preservation of the property. Leanne
testified in that connection that if the second hay crop had not
been removed from the fields then they would not have been
productive in the following year.
[10] Nor can I see any merit to the
argument that the Appellant was farming the property between the
date of accepting Leanne's offer and the date of closing. Counsel
for the Respondent relied on the judgment of Bell J. in 277287
Alberta Ltd. v. The Queen[1] for the proposition that ownership of the Rumlee
Farms passed to Leanne on June 15 with the acceptance by the
Appellant of her offer to purchase. However, that proposition is
irrelevant to the issue in this case. The incidence of GST does
not turn on the use to which the Appellant's one-half interest in
the farm was being put by him during the period following Leanne
becoming the owner but prior to him giving up possession. It
turns entirely on the purpose for which Leanne acquired the farm,
or in other words, the use to which she intended to put it after
she obtained possession. Similarly, even if it were established
that her father's cattle grazed there for a few days in the fall
for his benefit (and I emphasize that that has not been
established), there is no evidence establishing that in June or
July she had formed the intention to permit that to happen.
[11] It is clear from the use of the
expression "personal use and enjoyment" throughout the Act
that it is intended simply to convey the concept of a use that is
not commercial in nature: see subsections 169(1) and
170(1)(b) and (c); 190(2); 207(1); and 208(2). In
all these provisions, a sharp line is drawn between "personal use
and enjoyment" on the one hand and "commercial activity" on the
other. This accords, too, with the normal meaning of the
expression in everyday use. The question that must be answered in
this case, then, is whether Leanne, when she made her offer to
purchase the Appellant's interest, had in her mind a commercial
purpose, or a personal one. Ms. McCabe argues that her intention
was to farm the land again with the Appellant as they had done in
the past, and she relies for that on the evidence given by
Leanne. The relevant parts of her evidence are these.
Examination-in-chief
Q. After the closing
date, though. I take it, you did then go to live in the farm, did
you?
A. I went there,
yes. I was still at my parents, and I was going through a rough
time so I didn't want to be there alone all the time.
(Transcript, page 65)
Q. When did you make
the decision to sell the land again?
A. Selling the land
was always an option. At that time my focus was more on the
relationship than on the farm. I honestly thought that - I
don't know, maybe I had my head in the clouds at that time,
but I honestly thought that we were going to continue farming,
and even with Kent moving off, I just - I don't know, I think
I put mind blocks up to that, and still thought that we would be
back together and farming there still. So I didn't want to
get rid of it. I can't remember exactly when. I think, you
know after everything was kind of gone and -
Q. Did you continue
to see Kent then, sort of during and after the close of the
property? Like through July and into August of that year?
A. I don't know
what you mean by "see". Like yeah, we saw each
other.
Q. Did you?
A. Yeah.
Q. At the farm or
other places?
A. Yeah.
Q. Both?
A. Yes, both.
Q. Okay.
A. Not often, but
you know, we were both very busy people.
(Transcript, pages 67-68)
Q. So, it became
clear to you, I take it, at some point that you weren't going
to continue farming?
A. I think at that
time, like I said, I was more focussed on the relationship and I
thought maybe if I listed it for sale that - I don't know,
maybe Kent would reconsider. Like it being absolutely somebody
else's than just mine.
Q. So even at that
time then, sort of onwards through the summer, you were still
hoping for a reconciliation, hoping to continue to do what you
wanted to do with him with the farming?
A. To some
degree.
Q. At some point I
take it you came to the conclusion that wasn't going to
happen?
A. Right.
(Transcript, page 71)
Cross-examination
Q. Now, you had
mentioned that after the separation, selling the land was always
an option. Your focus really was on the relationship and you
hoped that the two of you would get back together and farm
it together, and you had no intention of farming it with your
dad. Did you ever intend to farm that land on your own?
A. I'm sure I
thought about it, but I don't think I could have economically
done it on my own.
Q. But I guess at
that time your focus was really on your relationship, is that
right?
A. That's
correct.
(Transcript, pages 82-83)
Re-examination
Q. You were asked
about selling the land was always an option, and you were asked,
did you intend to farm the land on your own and your answer was,
and I'm not sure if I got you exactly, but you thought of it
but you knew economically you could not. Is that correct?
A. Correct.
Q. So you did think
of it?
A. Well, I was
mostly thinking of farming with Kent.
(Transcript, pages 84-85)
[12] This evidence has to be read in the
context of Mr. Rumbles' evidence to the effect that the break-up
of their relationship had not been a friendly one, as well as the
rest of Leanne's evidence. I do not detect in it anything so
concrete as an intention to farm the land, either with Mr.
Rumbles or alone. It is no more than the ex post facto
expression of a vague romantic hope.
[13] It is quite clear that Leanne did
nothing with the farm other than live in the house during the
period of about four months between her taking possession of the
Appellant's interest in July and her sale of it in November.
Her representation to the Minister that I have reproduced at
paragraph 4 above was accurate; she made no commercial use of the
farm and she derived no income from it. The evidence does not
support the contention that she purchased the Appellant's
interest with a commercial purpose in mind. It was simply
personal. She was not liable to pay GST on the purchase, and so
the Appellant was not required to collect and remit it. Indeed,
if Leanne had been required to pay GST on the supply to her of
the Appellant's interest she would not have been able to
claim an input tax credit in respect of it, as she was not a
registrant, nor was she either required or entitled to become a
registrant: see subsections 169(1) and 240(1) and (3) of the
Act.
[14] The appeal is allowed and the
assessment is referred back to the Minister for reconsideration
and reassessment on the basis that the Appellant was not liable
to collect and remit GST on the sale of his interest in the
property. Counsel may speak to the issue of costs if it is not
agreed upon.
Signed at Ottawa, Canada, this 17th day of
February, 2002.
J.T.C.C.
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