Citation: 2013 TCC 225
Date: 20130709
Docket: 2012-2016(GST)I
BETWEEN:
MARK GOULET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Graham J.
[1]
In 2010, Mark Goulet
renovated his house and built an addition onto it. Mr. Goulet claimed a
new residential housing rebate under section 256 of the Excise Tax Act
in respect of the work on his house. The Minister of National Revenue denied
the rebate application. Mr. Goulet has appealed that denial. The quantum of the
potential rebate is not in issue.
Facts:
[2]
Mr. Goulet was the sole
witness. I found him to be credible.
[3]
Mr. Goulet purchased
his house in 2005. Prior to the renovations, his house consisted of one and a
half storeys and an unfinished basement. The main floor contained the kitchen,
living room, dining room, bathroom and master bedroom. The second floor
contained two bedrooms. The main floor and second floor totalled approximately
1,100 square feet. The garage was attached to the house and was entered through
a door from the kitchen.
[4]
In 2010, Mr. Goulet
both renovated his existing house and built an addition onto the back of that
house. The garage was demolished and a 2 storey addition with an unfinished
basement was added in its place. The main floor and second floor of the
addition totalled approximately 1,000 square feet. The addition consisted of a
great room with a wood stove on the main floor and a master bedroom, ensuite
bathroom and walk-in closet on the second floor. The garage was not replaced.
[5]
To accommodate the
extension, the existing door from the kitchen to what had been the garage was
expanded so that there would be a larger entrance to what was now the great
room. The expansion of the doorway involved some related changes to the kitchen
wall and ceiling. The rest of the kitchen was not changed. The cabinets, sink,
plumbing and floors all remained the same.
[6]
The living room and
dining room were not physically altered but their function changed to being an
eating area. The existing bathroom was not changed. The windows and door in the
master bedroom were replaced and the function of the room changed from a master
bedroom to a playroom but the room otherwise remained the same.
[7]
There were more
significant changes made to the second floor of the existing house. In order to
tie into the extension, a new hallway had to be added to the existing second
floor to connect the top of the stairs which were at one end of the house to
the extension which was at the other end. The addition of the hallway required
altering the walls and ceiling of the existing stairway and landing and moving
one wall of one of the existing bedrooms. Connecting to the addition also made
it possible to raise part of the roof of the existing house which allowed the
ceilings of the bedrooms to be raised. The above changes required a lot of
drywall work and changes to the flooring as well as exterior changes to the
roof. The bedrooms on the existing second storey changed in size and layout.
The function of one of the bedrooms did not change. Following the renovations,
the other bedroom was used as an office.
[8]
In order to connect the
existing basement to the addition, it was necessary to remove a portion of the
existing foundation of the house and to replace the basement stairs with a
longer set of stairs that extended into the addition.
[9]
The only significant
change to the electrical system in the house was to move from a fuse box to a
breaker panel.
[10]
There were also changes
made to the exterior of the house. The existing aluminum siding was replaced
with board and batten. The entire house was re‑insulated. A new peak was
added to the roof to improve the look of the house. A covered porch was added
to the addition. The porch wrapped around 3 sides of the addition. The cement
stairs at the front of the house were replaced with a small deck and stairs.
The tile bed and septic system were also re-done as they no longer met the
municipal code requirements. New landscaping was also added.
Analysis:
[11]
Subsection 256(2) of
the Excise Tax Act sets out the requirements that must be met for a
taxpayer to claim a new residential housing rebate. The only requirement that
is in issue is set out in paragraph 256(2)(a):
(2) Where
(a)
a particular individual…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 …
[emphasis added]
[12]
There is no debate that
both before and after the changes, Mr. Goulet’s house was a residential complex
that was used as his primary residence. The sole issue in this appeal is
whether that residential complex was constructed or substantially renovated in
2010.
[13]
It is important to note
that paragraph 256(2)(a) makes no reference to the rebate applying to an
addition that is built onto an existing residential complex. The issue of how
to deal with an addition was thoroughly canvassed by this Court in Erickson v.
The Queen, 2001 CarswellNat 92. I agree with Justice Hershfield’s
analysis. It is worth repeating:
14
In supporting its submission that the Appellant
did not construct a residential complex (a new residential complex), the
Respondent argues that an addition can only be a newly constructed residential
complex if the pre-existing unit is incorporated into an addition that is of
such size and proportion that negates its being seen as merely an addition to
the existing house. The addition should be of such proportion that would make
the pre-existing unit, in effect, the “add on”. I agree with this position. The
test then, as I would put it, 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. The former (but not the latter) may
qualify as the construction of a (new) residential complex. I believe this
expression of the test, of when a housing construction project can properly be
viewed as one that constructs a new complex versus one that renovates an
existing complex by adding to it, is in line with the requirements of the Act
in respect of identifying construction that is eligible for the new housing
rebate. … I do not agree, however, that an addition, whether one constructs
upward or sideways, that simply doubles the square footage of a home,
constitutes construction that is sufficient to create a new residential complex
even if the character of the home is thereby changed. Changing the character of
a home is not only an imprecise and subjective criterion, it is one that the Act
does not invite as a factor in permitting a rebate. To say that changing a
bungalow to a two-storey home may change the character of the former residence
is not sufficient. The character of a home can be easily changed by a variety
of renovations. Changing roof lines, enlarging and adding windows or redoing
the exterior finishing of a home from, say, stucco to brick and stone could
well change the character of a home. However, such changes would not justify a
finding that a new residential complex has come into being. Similarly living
space modifications can change the character of a home in terms of the way it
functions but again such change in character may not be sufficient to support a
finding that such modifications have transformed a pre-existing structure into
a new residential complex.
15
Consider that paragraph 256(2)(a) makes
no reference to additions. From this it has been found that “additions” per se
do not qualify for rebates. Consider also that the Federal Court of Appeal in Sneyd
has said that the GST rebate provisions for new housing are a limited and
carefully tailored exception to the application of GST to taxable services in
relation to house building and house renovations. Since additions are not
mentioned in the rebate provisions and since we are to regard the rebate
provisions as being carefully crafted exceptions in the application of GST, I
must conclude that an addition will not give rise to rebates unless it
incorporates (consumes) a pre-existing premises to the point where the addition
is essentially the new residential premises and the pre-existing premises,
having ceased to exist as a residential unit is essentially reduced to a
relatively minor aspect of that new premises. If renovations which are expressly
provided for under the Act must be so substantial as to require
virtually gutting all of a pre‑existing premises to qualify for a rebate,
additions, for which there are no express provisions in the Act, should
(if they are to be considered at all) presumably be more substantial yet. An
addition that doubles square footage by adding a few rooms in any direction
will not qualify for a rebate applying these criterion, even if the character
of the residence has been modified in the process.
[emphasis added; endnotes omitted]
[14]
Mr. Goulet submits the
he is entitled to the new housing rebate for two reasons. First Mr. Goulet
submits that the existing house was substantially renovated. I do not agree.
The term “substantial renovation” is defined in subsection 123(1) of the Excise
Tax Act:
“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;
[15]
Although there were
many changes made to the existing house, it was not substantially renovated. The
definition essentially requires that the existing house be gutted. Clearly, Mr.
Goulet’s existing house was not gutted. Although the use of some of the rooms
in the existing house was changed, none of them was removed or replaced. The
living room, dining room and bathroom were not altered at all. The changes made
to the master bedroom did not result in its being removed or replaced. The
doorway from the kitchen to what was the garage and then became the great room
was removed and replaced but the kitchen itself was not. The bedrooms on the
second floor were altered but they could not be said to have been removed or
replaced. The stairway to the basement was changed but the basement itself
remained unfinished.
[16]
The basis of Mr.
Goulet’s second submission was not entirely clear. He relied on the same cases
as the Respondent but it was unclear to me whether he was arguing that the
addition to his house met the test for an addition set out in Erickson
or whether he was arguing that it was not necessary to meet the test set out in
Erickson because he had substantially renovated the existing house and
thus any addition would be caught by the substantial renovation. Mr. Goulet
cannot succeed on either ground. As set out above, the existing house was not
substantially renovated. Furthermore, there is no question that the addition
did not meet the test set out in Erickson. The addition did not
incorporate Mr. Goulet’s existing house to the point where the addition was
essentially the new premises and the existing house was a minor aspect of the
total. The existing house (which still included such features as the kitchen,
two-thirds of the bedrooms and the only non-ensuite bathroom) clearly continued
to play a major role in the overall house.
[17]
Based on all of the
foregoing, the Appeal is dismissed.
Signed at Winnipeg, Manitoba, this 9th of
July 2013.
“David E. Graham”
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