REASONS
FOR JUDGMENT
Lyons J.
[1]
This is an appeal from an assessment issued
under the Excise Tax Act (the “Act”) relating to the GST/HST
New Housing Rebate (“rebate”).
[2]
Zila Berkovich, the appellant, and Vladimir
Khaimsky (“they”) entered into an amended agreement (“Agreement”) to purchase a
new condominium to be constructed at 38 The Esplanade, Unit 213, Toronto
(the “Unit”). The appellant applied for and was refused a rebate for the
Unit. The Minister of National Revenue refused the rebate on the basis that the
Unit was not acquired for use as their primary place of residence.
[3]
The only issue is whether, at the time they
signed the Agreement, they were purchasing the Unit with the intention of using
it as their primary place of residence.[1]
[4]
If so, the appeal will be allowed and the
appellant is entitled to the rebate. If not, the appeal will be dismissed.
[5]
The appellant, on her own behalf, and Mr. Khaimsky
and Alfred Berkovich, her son (“Alfred”), testified for the appellant. Ms.
Shortt, a Canada Revenue Agency ("CRA") auditor, testified for the
respondent.
I. Facts
[6]
The appellant is 65 years of age and has been a
registered real estate agent for 25 years. She works at Remax located at 185 Finch Avenue, Toronto.
[7]
Mr. Khaimsky is 72 years of age and the
common-law partner of the appellant of 17 years. Until February 2009, when he
sustained a workplace injury to his leg, he was working as a fitter at Proline,
located at Highways 7 and 27, Toronto and 20 kilometres from home (ie., Rockford Road). Driving from home to work in his car would take up to an hour and a half in
the afternoon and 40 minutes in the morning.
Rockford Property
[8]
Since 1997, the appellant lived with Mr. Khaimsky
and Alfred on Rockford Road, Toronto (“Rockford property” or “Rockford”). It is
a detached house situated north of Highway 401. Prior to that, the appellant
had resided at the Rockford property with her former spouse and children for a
number of years.
The Unit
[9]
The appellant testified that she was “hanging
out” in the area where The Esplanade condominium complex is situated and “fell
in love” with the model unit she had seen. Mr. Khaimsky liked the marina, the
lake and the loft. They liked the neighbourhood, proximity to downtown and the
condominium lifestyle.
[10]
Mr. Khaimsky testified that a few years before
purchasing the Unit they had discussed the prospect of buying a new home together
but it was not a defined goal because he was working full-time. He stated that
everyone lives in a condominium when approaching retirement. They were walking
along the waterfront and they saw a billboard and a sales office and dropped
in. They liked it and decided to buy the Unit.
[11]
On April 18, 2005, the appellant had signed an
agreement of purchase and sale for the Unit for $329,900. On April 24, 2005,
the agreement of purchase and sale was amended to add Mr. Khaimsky as a
purchaser (i.e., Agreement). Under the Agreement, the Unit was to be
constructed by September 2008. Because of construction delays, it was not ready
for possession until August 14, 2009.
[12]
They each testified that they intended to leave
the Rockford property and live in the Unit. The appellant planned to give the Rockford property to Alfred outright; he was 39 years old at the time of the hearing. Mr.
Khaimsky had no legal interest in the Rockford property.[2]
[13]
The floor plan of the Unit shows the size of the
floor area of the Unit as 925 square feet. It is a one-bedroom unit with a
walk-in closet and only one shower, all of which are on the second floor. It came
with one parking space.
[14]
They requested upgrades because of their plan to
live at the Unit.
[15]
The appellant testified that in the summer
evenings (after August 17, 2009), they would walk along the lakeside and nearby
marina. In the winter evenings, she would go to the theatre and restaurants
with guests. They had a number of social gatherings at the Unit for friends
plus held a News Year's party with several couples.
[16]
Drapes were installed at the Unit in October
2009, and four rattan armchairs and a desk were purchased for the Unit in
December 2009.[3]
Photos taken by Mr. Khaimsky on January 9, 2010, show those items in the Unit.
[17]
Title was transferred to them on December 15,
2009.[4] The Unit was listed for sale
on February 17, 2010. It sold for $140,000 more than the purchase price. The
transaction closed in early July 2010. They stated that they remained in the Unit
until July 2010.
Other Circumstances
[18]
A landline phone at the Unit was unnecessary
because they each had a cell phone.
[19]
They did their grocery shopping mainly at Costco
or went to eateries on Yonge Street and the St. Lawrence Market for small food
items. Other than the American Express card for Costco, the Appellant said in cross‑examination
that she had no credit card statements showing that she made purchases in the
area.
[20]
When asked about not being able to retain two
cars at the Unit, the testimony was that they did not need two cars at the time
and they wanted to sell one but it was too old.
Other Properties
Navy Wharf Condominium
[21]
On August 25, 2005, they entered into an
agreement to purchase the condominium at 1803 – 10 Navy Wharf near the Toronto waterfront ("Navy Wharf property"). It has one level. The appellant
testified that they did not rent this condominium because Mr. Khaimsky used it
and sometimes his family used it. Mr. Khaimsky also said his family and sometimes
a colleague used it and, contrary to the appellant's testimony, he said it was
rented in 2009.
Townsend Drive Rental Property
[22]
Mr. Khaimsky owned and received rental income
from 1402 – 11 Townsend Drive, Toronto.
Charles
Street East Condominium
[23]
On January 6, 2011, the appellant was assigned,
by the builder, all rights and title to the condominium situated at #3905, 110 Charles Street East in downtown Toronto (“Charles Street property”). She
testified that an agreement of purchase and sale had been entered into by a
person overseas several years ago; she failed to elaborate further and other
details remained unclear relating to this property.
II. Analysis
[24]
The Minister assesses based on assumptions of
fact. The jurisprudence establishes that the initial onus is on the taxpayer to
demolish the exact assumptions made by the Minister in order to show the
Minister’s assessment is incorrect. That onus (i.e., to demolish assumptions)
is met where a taxpayer makes out a prima facie case. A prima
facie case is one supported by evidence which raises such a degree of
probability in her or his favour that it must be accepted if believed by the
Court unless it is rebutted or the contrary is proved. The taxpayer’s burden of
proof is not to be lightly, capriciously or casually shifted.[5]
[25]
The Minister determined that the appellant is
not entitled to the rebate because they do not meet the requirements under
paragraph 254(2)(b) of the Act requiring
the acquisition of a unit for use as the “primary place of residence.”[6] They must both satisfy the requirements. It reads:
… at the time the
particular individual becomes liable or assumes liability … the particular
individual is acquiring the complex or unit for use as the primary place of
residence of the particular individual or a relation of the particular
individual.
[26]
Some factors that assist in determining what
constitutes a primary place of residence are found in Yang v Canada,
2009 TCC 636, [2009] GSTC 186, at paragraph 7.[7]
The Court states:
7. Many
factors that assist in determining what constitutes a primary place of
residence are found in previous decisions of this Court as well as in policies
issued under the Goods and Services Tax/Harmonized Sales Tax legislation. Some
of these factors are the following: the parties’ intention with regard to the
use of the housing unit as their primary residence; their length of stay
at the new unit; the address they use for correspondence; when they moved in
and when they moved their personal belongings, and if the move was delayed,
what events occurred that caused the delay; details of the insurance coverage;
what they did with their former residence or rental unit; and other factors
that may be relevant depending on the facts of the case.
[27]
When it is necessary to determine an
individual’s intention, one must consider not only the stated intention but all
the surrounding factual circumstances. This well-established principle was
recently reiterated by Justice Jorré, at paragraph 7, in the case of Kukreja
v Canada, 2014 TCC 56, [2014] GSTC 16, also involving the
determination of a primary residence in the context of a rebate.
[28]
Appellant counsel argued that their intention, on April 24, 2005, was to
leave Rockford and move to and use the Unit as their primary place of residence
(“primary residence”) when constructed. The appellant was to then give the Rockford property to Alfred outright. Further, Mr. Khaimsky’s unforeseen
health issues did not change their intention, but impacted the length of their
stay in the Unit which they occupied from August 2009 to July 2010 as their
primary residence.[8]
[29]
The decision in this appeal hinges on findings
of credibility. Based on all of the evidence adduced, I conclude that neither
the appellant nor Mr. Khaimsky were credible or reliable witnesses and reject
their evidence as to their stated intention in light of the surrounding
circumstances. I find that when executing the Agreement in 2005, they did not
intend to use the Unit as their primary residence. Some of the evidence that
has led me to that conclusion is referred to below.
Properties
[30]
The facts that the Unit and the Navy Wharf property
were purchased by them within one day of each other; the appellant’s extensive
experience in real estate for 25 years; the existing Townsend rental property; and
they resided in the Rockford property in 2005, where they resided at the time
of the hearing, are indicators that the Unit was acquired as an investment.
[31]
Furthermore, within one month of receiving legal
title to the Unit and before they received their lawyer's accounting for the
transaction, photos were taken of the Unit to list it on the MLS. In February
2010, it was listed for sale and a few months later, it sold for a $140,000
profit; the transaction closed in July 2010. The appellant admitted that in
2011 she acquired the rights and title to the Charles Street property.
[32]
Contrary to Mr. Khaimsky’s testimony that no
other properties were purchased after the Unit was purchased and later sold, the
appellant admitted in cross-examination that the day after the Unit was
purchased they purchased the Navy Wharf property, and in 2011 she acquired the Charles Street property. Another inconsistency is that he said the Navy Wharf property was rented, the appellant said it was not. I do not find his testimony credible
or reliable.
[33]
These factors reflect their interest in
opportunities in real estate, rather than an intent to leave the Rockford property and acquire the Unit as a primary residence.
Health Issues
[34]
At the end of 2008, Mr. Khaimsky had a heart
attack. On February 10, 2009, he sustained a permanent injury to his leg at
work and went to emergency. He testified that it changed his life: he was
unable to walk normally; he had to use a cane; he could no longer work; and he
received disability benefits in 2009. I accept his evidence relating to his
health issues.
[35]
Clearly, Mr. Khaimsky’s heart attack and
workplace injury in February 2009 could not have been anticipated in 2005.[9]
[36]
In his testimony, he described the metal
staircase in the Unit as steep, narrow and curved, reaching the second level at
a height of 20 feet where the only bedroom, the only shower and a closet were
situated. I accept that evidence. Mr. Khaimsky had been aware of the
configuration and staircase in 2005 when they saw the model unit, and would
have been approximately 63 years of age at that time. I agree with him that
when approaching retirement many people (he said everyone) gravitate to a
condominium lifestyle. However, even if people nearing retirement have no
mobility issues, they would still opt for a condominium on one level, similar
to the Navy Wharf property, as a primary residence. It is highly unlikely that people
would opt for a unit similar to the Unit where the only bedroom and only shower
are situated on the second level, which can only be accessed via a steep,
curved and narrow metal staircase.
[37]
Only six months before they claim to have moved
to the Unit, Mr. Khaimsky sustained a serious and permanent leg injury
where he could not walk normally, used a cane and had developed a heart
condition. In view of his health and his description of the challenges in the
Unit, it is unbelievable that Mr. Khaimsky would even contemplate moving
into the Unit and leave the Rockford property, which was equipped with all the
amenities on the ground floor to facilitate his mobility needs.
[38]
In explaining the impetus to sell the Unit, he
said that every time he climbed the stairs it resulted in pain, pressure and
his leg constantly hurt and was swollen on two occasions; he wondered every
time he climbed the stairs what was going to happen to him. “It was extremely
difficult to go up and down the stairs. My leg hurt me. At any time and even at
night, I had difficulty to sleep, to stand, to walk and even to lie down.
Especially when you put pressure on it -- for instance, one climb on the stairs
may result in pain problems for half a day before getting back to its normal
state.”[10]
Encountering that, it is highly improbable that, in
ascending and descending the staircase daily, it would have
taken them six months (i.e., until February 2010) to reach their realization
that they had to sell the Unit. It is even more improbable that they continued
to stay at the Unit for an additional four months after the realization before
returning to the Rockford property.
[39]
Their testimony that they had not considered
selling the Unit before February 2010 is contrary to the testimony by the
appellant in cross‑examination that the photos of the Unit were taken on
January 9, 2010, for posting in the MLS listing to sell the Unit. Their entire testimony on these matters lacks credibility and I
reject their testimony.
Hydro
[40]
Ms. Shortt testified that having reviewed and
compared the Appliance Usage Chart with the September to December 2009 Enbridge
bills, the energy consumption on the bills does not support people actively
living in the Unit.[11]
[41]
In cross-examination,
the appellant explained that the lower usage of power for September and October
was attributable to Mr. Khaimsky’s practical nature and that they were trying
to save. Also, they cooked infrequently, rarely used the fridge, stove and
microwave, did not use the air conditioning and he read, did some walking and
watched television from the cable from the CN Tower situated nearby. He stated
that he ate cereal for breakfast and did not use the dishwasher.
[42]
If social gatherings took place at the Unit, as
the appellant testified, the hydro usage would be higher. I find their evidence
relating to their purported activities at the Unit implausible. I also draw an
adverse inference from the appellant’s failure to call the individuals as
witnesses to testify that they attended social gatherings at the Unit.
[43]
I accept the evidence proferred by Ms. Shortt
that low hydro usage is consistent with people not actively living in the Unit.
This, the previous factor and subsequent factors lead me to the conclusion that
they did not move into the Unit.
Furniture
and Belongings
[44]
The appellant testified that between August 14
and 17, 2009, they packed Mr. Khaimsky’s vehicle with dishes and clothing and
brought those to the Unit. She stated that on August 17, 2009, their friend and
his brother helped them to move some of their furnishings from the Rockford property to the Unit in their friend’s truck.[12]
Mr. Khaimsky stated that only some of the living room furniture, plus bedside
shelves, lamps, chairs and a television were moved and the remaining belongings
stayed at the Rockford property.
[45]
Alfred’s testimony is inconsistent in that he
said he thought a mini van had been rented to move their belongings and
described it as a “gradual” move over a few weeks. I find Alfred’s evidence of
the duration of the move unlikely and not reliable. In describing the items
that were moved, he identified some dishes, the master bedroom mattress, small
items from the living room that were easy to take such as a small couch, glass
table and “minor stuff” but the “heavy stuff” stayed at Rockford. I accept Alfred’s
evidence that certain items (such as the small couch) were moved to the Unit
because both he and Mr. Khaimsky had testified that a small couch was moved
which was then identified in the photos.
[46]
The appellant stated that they spent their first
night at the Unit on August 17, 2009, or a day later. Initially, the appellant
testified that she did not stay at the Rockford property once they had moved to
the Unit. Later, she said that if she worked late at the Rockford property, she
might have stayed at Rockford overnight. Her evidence is not reliable.
[47]
In response to questions from respondent counsel
in cross-examination as to whether he had to buy anything to replace the items
that went to the Unit, he said he did not because there was enough furniture
remaining in the Rockford house to “fill everything up”. He referred to examples
such as furnishings in the living room, den and every room had a bed. He also
had his bed and bedroom set.
[48]
The appellant produced a letter from their
friend concerning the move. I place no weight on the letter and draw an
adverse inference from her failure to arrange for him to testify, as an
independent witness, about the details of the move. I infer that furniture and
belongings were not moved into the Unit in August 2009.
[49]
Initially, in cross-examination, the appellant stated
that she did not know what staging meant despite her occupation. She had also claimed
staging expenses in her 2009 tax return. Subsequently, she admitted she did
know but did not do it and then said maybe she did some staging for clients but
on a small scale to make the premises look good. The appellant’s testimony
lacks credibility.
[50]
The only furniture that was moved from Rockford to the Unit comprise the items in the photos except for the items that were purchased
in December 2009. The inference I draw is that the Unit was staged to get it ready
for sale.
[51]
Maintaining a house full of heavy furniture, belongings,
services[13]
and insurance plus doing the main laundry at Rockford, indicate that the primary
residence remained unchanged.
[52]
The disposition of a former residence is usually
an indicator that the new residence is intended to be a primary residence. She
testified that her intention was to give the Rockford property to Alfred, and
she maintained her home office at Rockford after August 2009. Neither the
appellant nor Alfred were able to provide specifics as to discussions as to her
intent to give the Rockford property to him and how and when that would occur.
He testified that over the years the appellant told him when she moves out, the
Rockford property would be his. I accept his evidence on this aspect and that
title was never transferred to him.[14]
[53]
Alfred’s testimony, that they returned to Rockford in the fall of 2010, is inconsistent with their testimony.
[54]
After August 2009, she maintained the Rockford home office in order to meet clients, retain contacts, and use it as her business
address. She had no space for an office at the Unit. Rockford is approximately
four kilometres from her business office at Remax. All the bills relating to
services provided at Rockford remained in her name. Except for $400 that Alfred
gave her towards utilities and cable, the appellant paid the rest. She conducted
her banking in the area, and Mr. Khaimsky testified that she did the main laundry
at “home” (i.e., Rockford). I accept the evidence as to retaining services
in her name and the activities she conducted. I infer that the appellant and
Mr. Khaimsky never moved from Rockford.
Change of
Address
[55]
Changing the mailing address from the old to a
new residence can be an indicator of a primary residence at the new address. Mr.
Khaimsky provided copies of various documents showing that he had changed his
mailing address to the Unit.[15]
[56]
Except for a few Enbridge invoices, paid at
Dufferin and Steeles near the Rockford property, the appellant provided no such
proof she had effected a change of address and when asked whether she had
notified her bank and the credit card companies, she indicated she had not. She
explained that Alfred and her home office remained at Rockford. Her testimony
was that she did not think it was crucial to change the address on her driver's
licence because she planned to wait until the next licence renewal. Appellant
counsel referred me to Yang v The Queen, supra, in which Justice
Angers notes, at paragraph 10, that the failure to change an address might be
negligent, but in determining a primary residence, it may be of less importance
where both owners still have relatives residing at their former places of
residence.
[57]
Notwithstanding her rationale for not having
changed her address, when she applied for the Charles Street rebate from the CRA, she indicated on her tax return that her address had
changed to the Charles Street property.[16]
Shortly after receiving that rebate, she had changed her address back to the Rockford property. Her conduct is confusing and inconsistent.
Insurance
[58]
The insurance at the Rockford property remained
intact for contents, and in the appellant’s name, with no similar insurance at
the Unit. The appellant explained this was because of the home office. However,
the insurance policy was not produced at the hearing to show the stated use of
the Rockford property for purposes of the policy such as business coverage.
This is a further indicator that Rockford remained the primary residence.
Parking Space
[59]
The evidence was that the Unit only came with
one parking space. I find it highly improbable that in purchasing the Unit in
2005, they would purchase it as a primary residence with only one parking space.
They would have needed at least two to enable them to commute to work and commuting
from the Unit in downtown Toronto would have extended their already lengthy
commutes. They did not inform the insurance company, for car insurance
purposes, that they had moved in 2009.
[60]
On the totality of the evidence, I reject the
stated intention. The appellant has not made out a prima facie case to demolish
the Minister’s assumptions to show, on a balance of probabilities, that the
Minister’s assessment is incorrect. I find that the Unit was acquired as
an investment, and not as their primary place of residence.
III. Conclusion
[61]
I have concluded that neither the appellant nor
Mr. Khaimsky provided credible or reliable testimony with respect to their
stated intention and reject their stated intent. Given that, I conclude that
the Unit was not acquired for use as their primary place of residence as
required and within the meaning of paragraph 254(2)(b) of the Act.
The appeal is dismissed.[17]
Signed at Toronto, Ontario, this 8th
day of September 2014.
"K. Lyons"
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