[OFFICIAL ENGLISH TRANSLATION]
Date: 20011219
Docket: 2000-3549(GST)I
BETWEEN:
NATHALIE BÉLANGER AND CAROL RIOUX,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This appeal concerns an
application for rebate of the Goods and Services Tax
(''the GST'') on substantial work done on the
appellants' residence. The application for rebate was
disallowed on the ground that it was filed late, that is, after
the time limit set out in the Excise Tax Act
(''the Act'').
[2] The appellants explained that they
had first purchased a cottage or a summer place in 1990. It
was an old property without any real foundation and which
required extensive repair and renovation.
[3] In the fall of 1995, the
appellants carried out substantial work on the site where the
cottage was located. The cottage was moved in order to lay
foundations that would ultimately make it possible to build a
habitable basement.
[4] During the excavation and
foundation construction, the cottage was moved from its original
location and serviced by means of temporary facilities and
connections; the appellants continued to enjoy the premises.
[5] For this phase of the work, the
appellants spent approximately $28,000 on various
contracts. The appellants having done very little of this
work themselves, the money was paid out to third parties.
[6] Once this work was completed, the
cottage was placed permanently and definitively on the new
foundation; this work made it possible to create a bedroom in the
new basement.
[7] Once the above-mentioned work was
completed, work on the site was interrupted. Some time
later, the appellants became parents. In the spring of
1998, they decided to carry out additional substantial work
affecting the entire living space above the foundation.
[8] As a result, the appellants redid
the flooring, partitioning, plumbing, wiring and
insulation. The windows and kitchen counters and cupboards
were replaced, the stairs were redone and an
eight-by-sixteen-foot addition was built. In addition to
all this work there was inherent, complementary work such as
installing drywall sheets, filling joints, and doing
painting. In other words, only the exterior walls were not
redone.
[9] While this work was being carried
out, the appellants lived in the basement; at times, they had
their parents look after their young child. This work was
carried out over a lengthy period because the appellants did most
of the work themselves, Carol Rioux being a plumber by
training.
[10] The evidence has established that the
substantial work was carried out in two separate phases separated
by a lengthy period of time. The parties themselves used
the expression ''two phases'' to describe the
work; the first phase involved laying the foundation and
finishing the basement area; the second phase involved working on
all the living space on the ground-floor or above the
foundation.
[11] After the work was completed, the
appellants applied for a rebate of the GST they had paid on all
the work carried out. Their application was disallowed on
the ground that it was filed late, because over two years had
elapsed from the time they began to occupy the premises, on
completion of the first phase of the work, and the time they
applied for rebate of the GST.
[12] The respondent gave the following
reasons for disallowing the application:
[TRANSLATION]
(a) the appellants
are individuals;
(b) the appellants
made substantial renovations to their residence;
(c) after the
substantial renovations were begun, the appellants first occupied
the premises on November 1, 1995;
(d) the appellants
filed an application for rebate of the GST paid on their
residential unit; the respondent received the application on
September 28, 1998;
[13] The conditions governing entitlement to
rebate of the GST are set out in subsection 256(3) of the
Act; they read as follows:
Application for rebate
A rebate under this section in respect of a residential
complex shall not be paid to an individual unless the individual
files an application for the rebate within two years after the
earliest of
(a) the day that
is two years after the day the complex is first occupied as
described in subparagraph (2)(d)(i),
(a.1) the day ownership is transferred as
described in subparagraph (2)(d)(ii); and
(b) the day
construction or substantial renovation of the complex is
substantially completed.
[14] At the hearing, the respondent argued
that the only substantial work was the work on the foundation and
that the work carried out during the second phase was finishing
work.
[15] This interpretation by the respondent
is not supported by the evidence. Rather, the evidence has
established that the second phase of the work constituted a
substantial renovation that qualified for a rebate of the GST and
was closely and directly related to the residential purpose of
the building.
[16] Redoing the flooring, partitioning,
insulation and stairs; replacing the windows and kitchen
cupboards; and carrying out all the work involved in adding an
addition is substantial work that cannot be described as mere
finishing work. It is therefore not appropriate to accept
the respondent's interpretation of the nature and extent of
the second phase of the work.
[17] Nor does the respondent's
interpretation correspond at all to the provisions of the
Act. In subsection 123(1) of the Act,
Parliament defined substantial renovation as follows:
''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 staircases, has been
removed or replaced where, after completion of the renovation or
alteration, the building is, or forms part of, a residential
complex;
[18] Although the first phase of the work
carried out was substantial, it did not prevent the appellants
from using or enjoying the premises. The evidence has
established that the living conditions were essentially unchanged
since there had never been a basement. The appellants
therefore lived in the same conditions as those existing at the
time of purchase.
[19] The initial or first phase of the work
formed the basis or foundation for the subsequent work to be
done. It was structural and had nothing to do with whether
the residence, which in fact was moved from its original
location, was habitable.
[20] The same cannot be said for the second
phase of the work, which considerably affected the living
conditions. I point out that the appellants replaced the
partitioning, windows, flooring, wiring, plumbing, cupboards,
stairs and other features. The very nature of this work
makes it easy to conclude that the living space was no longer
habitable. In fact, the appellants stated that they moved
into the basement and, at times, had someone look after their
child.
[21] In 1990, the appellants purchased a
property that, by and large, was habitable seasonally since,
according to their testimony, it was a cottage requiring repair
and renovation.
[22] With the objective of making the
cottage an appropriate residence for their family and given that
they had to deal with various constraints, including limited
finances and an expected child, the appellants chose to carry out
their family project in phases.
[23] The appellants decided, first, to
provide a basis for their project by laying a foundation on which
they could eventually carry out work to make the acquired space
habitable.
[24] The parties described this planning by
referring to two separate stages or phases, with a lengthy period
separating the first and second phases of the work.
[25] Must all the work carried out be
considered an indivisible whole?
[26] If so, the appellants' application
would be inadmissible. Before 1997, subsection 256(3) of
the Act read as follows:
256(3) A rebate shall not be paid under subsection
(2) in respect of a residential complex to an individual unless
the individual files an application for the rebate within two
years after the earlier of
(a) the day the
complex is first occupied as described in subparagraph
(2)(d)(i) or ownership is transferred as described in
subparagraph (2)(d)(ii), and;
(b) the day
construction or substantial renovation of the complex is
substantially completed.
(Emphasis added.)
[27] Subsection 256(2)(d) reads as
follows:
...
(d) either
(i) the first
individual to occupy the complex after the construction or
substantial renovation is begun is the particular individual or a
relation of the particular individual, or
(ii) the particular
individual makes an exempt supply by way of sale of the complex
and ...
[28] Thus, to be entitled to a rebate of the
GST, the appellants should have filed their application within
two years following the day they first occupied the complex after
the work was begun, or the day the substantial renovation of the
premises was substantially completed, the earlier of the two
dates being the time limit to file an application.
[29] The appellants admitted that they
occupied the property from the time the work was first begun in
November 1995. The two-year period for filing an
application for rebate of the GST would therefore have expired in
November 1997.
[30] In Thompson v. Canada, 98 GTC
2124, [1997] TCJ 1381, Mogan J. of this Court very
clearly defined the provisions of the Act concerning the
time limit for applications for rebate, as follows:
... I conclude that they do not come within paragraph
256(3)(b) of the Act because they occupied the house
throughout the renovation period. At no time did they move away
from the dwelling while the renovations were in progress. They
consolidated their furniture into those portions of the home
where the contractor was not going to work; and they continued to
reside in the home throughout the construction period.
12 The evidence and
the Notice of Appeal confirmed that the kitchen had been
renovated at a prior time and was not being renovated in 1993.
Therefore, the Appellant and his wife were able to use the
kitchen and also, they were storing some china cabinets and other
furniture in the kitchen. Their living quarters were cramped
because they had to pull the furniture from those areas of the
house where the contractor was working and consolidate it in
other rooms. They had a room finished in the basement under the
old part of the bungalow and they had a davenport there where
they were able to sleep. Therefore, they were sleeping in the
basement and using the kitchen on the main floor and actually
residing in the dwelling throughout the renovation period.
13 Because they were
residing throughout, they interpreted the date when a person
might first occupy the home after the renovation had begun as not
applying to them. In the circumstances of this appeal, I construe
subparagraph 256(3)(a) to mean that the date when they
first occupied the home after the renovation began was April 29,
1993. I come to that conclusion by my interpretation of both the
booklet published by Revenue Canada, which was the
Appellant's guide, and by the legislation itself. Under
sub-paragraph 256(2)(d)(i), the words are very clear:
"the first individual to occupy the complex after the
construction or substantial renovation is begun."
14 I look at the day
when the renovation was begun which was April 28, 1993, and then
ask: "Was the dwelling occupied at all on that date?".
If the dwelling is occupied when the renovation begins and
throughout the renovation period, then pursuant to subparagraph
256(2)(d)(i), the first individual to occupy the dwelling
after substantial renovation has begun is the individual who
lives there on April 28, 1993. The Appellant was occupying the
dwelling on the first day after the renovation began.
...
16 The person who
continues to reside in a residential complex throughout a period
of substantial renovation must make the application for the new
housing rebate within two years after the "substantial
renovation is begun"....
[31] This decision by Mogan J. clarifies the
time limit insofar as the issue of occupancy is unequivocal; this
issue has been the subject of a number of important decisions,
including inter alia:
- Balicki v.
Canada, 97 GTC 1138, [1997] TCJ 729;
- Craig W. Warnock
v. The Queen, [1996] GSTC 86;
- Hull v.
Canada, 97 GTC 1174, [1997] TCJ 908;
- Wong (E) v.
Canada, [1996] GSTC 73.
[32] In this case, occupancy is not at issue
since the appellants admitted that they occupied their residence
during the first phase of the work without being overly
inconvenienced.
[33] Occupancy is also an important factor
in clearly delineating the two phases of the work. As well,
it establishes that the first phase of the work had no bearing on
the residential purpose of the purchased property since the
appellants continued to live there without major
difficulties¾the work completed was carried out at another
location, so to speak.
[34] Once the first phase of the work was
completed, the residence was connected to the foundation, thus
allowing the appellants to finish and have access to a basement
as part of the living space, something that was not possible
before the residence was set on the new foundation.
[35] In light of the evidence adduced, I
consider that the first phase of the work was independent of the
second phase of the work. Given the provisions of the
Act, and specifically the provisions governing the time
limit for filing applications for rebate of the GST, I believe
that the appellants are not entitled to a rebate of the GST for
the work on the foundation. The application for rebate was
filed late. I believe that this phase of the work can be
excluded from the application for rebate filed by the appellants,
given that, first, the appellants continued to occupy the
residential premises and that, second, if we set aside the issue
of occupancy in computing the time limit, the starting date for
filing an application for rebate would be the completion of the
work-in which case as well, the two-year time limit had expired
well before the application was filed.
[36] The same is not at all true for the
second phase of the work, which constituted substantial
renovation that more than adequately satisfies the requirements
of subsection 123(1) of the Act, in which the expression
''substantial renovation'' is defined as
follows:
''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 staircases, has been
removed or replaced where, after completion of the renovation or
alteration, the building is, or forms part of, a residential
complex;
[37] It is worth reproducing certain
passages from the decision by Beaubier J. of this Court in
Hole v. Canada, 98 GTC 2128, [1998] TCJ 332.
Beaubier J. was to determine whether the following work
constituted a ''substantial renovation'' within
the meaning of section 123 of the Act:
10 The Appellant
renovated 50% of the house within the foregoing definition by
means of the basement work. On the main floor the kitchen, dining
area, the living room, one bedroom, the hallway and the bathroom
were completely renovated. Two bedrooms were not. Windows and the
floor surfaces were replaced. The kitchen and bathroom work, in
terms of quantity, nature and expense, were very substantial; in
essence, everything was replaced but the kitchen plumbing
fixtures.
[38] In finding that this work did
constitute a substantial renovation, Beaubier J. wrote as follows
at paragraphs 12 and 13:
12 The question is
whether, other than the foundation, exterior walls, interior
supporting walls, floors, roof and stair cases,
''essentially'' or ''really'' all
of the residential complex was replaced.
... The actual
value of the home after the renovations did not increase by a
large percentage. However that is not a criterion in the
definition. Nor is an exact square footage percentage set out in
the definition. Rather it is a question whether, within the
limits of the definition, substantially all of the original
interior was removed or replaced. In the Court's view it
was.
[39] There can be no doubt about the extent
of phase two of the work; by its very nature, it constitutes a
substantial renovation. During this phase, the appellants
redid the flooring, partitioning, plumbing, wiring and
insulation; replaced the windows and kitchen counters and
cupboards; redid the stairs; and built an eight-by-sixteen-foot
addition. In addition to all this work there was inherent,
complementary work such as installing drywall sheets, filling
joints, and doing painting. In other words, only the
exterior walls were not redone.
[40] Since this substantial work was carried
out in 1998, the application for rebate of the GST was filed
within the time limit; as a result, the application for rebate is
entirely admissible and the appellants are fully entitled to a
rebate of the GST on the second phase of the work.
[41] For these reasons, I allow the appeal,
in that the application for rebate of the GST on the second phase
of the work, that is, the work carried out in 1998, is considered
to have been filed within the time limit set out in the
Act.
Signed at Ottawa, Canada this 19th day of December 2001.
J.T.C.C.
Translation certified true
on this 19th day of March 2003.
Sophie Debbané, Revisor
Email this Content