327119 B.C. Ltd. v. R., [1997] 1 CTC 2753 (Informal Procedure)

Bowman J.T.C.C.: — This appeal is from an assessment for Goods and Service Tax. The problem in a nutshell is this. The appellant constructed five buildings forming a student learning facility adjacent to the campus of the University College of the Cariboo in Kamloops, B.C. They were completed and first rented out to students at different times between July 1991 and April 1993. The Minister applied the self-supply rule in paragraph 191(3)(e) of the Excise Tax Act on a building by building basis. The appellant contends that the rule should have been applied when all five buildings of the facility were completed and occupancy commenced.

Subsection 191(3) of the Excise Tax Act reads as follows:

(3) Self-supply of multiple unit residential complex — For the purposes of this Part, where

(a) the construction or substantial renovation of a multiple unit residential complex is substantially completed,

(b) the builder of the complex

(i) gives possession of any residential unit in the complex to a particular person under a lease, licence or similar arrangement entered into for the purpose of its occupancy by an individual as a place of residence and the particular person is not a purchaser under an agreement of purchase, and sale of the complex, or

(ii) where the builder is an individual, occupies any residential unit in the complex as a place of residence, and

(c) the builder, the particular person or an individual who is a tenant or licensee of the particular person is the first individual to occupy a residential unit in the complex as a place of residence after substantial completion of the construction or renovation,

the builder shall be deemed

(d) to have made and received, at the later of the time the construction or substantial renovation is substantially completed and the time possession of the unit is so given to the particular person or the unit is so occupied by the builder, a taxable supply by way of sale of the complex, and

(e) to have paid as a recipient and to have collected as a supplier, at the later of those times, tax in respect of the supply calculated on the fair market value of the complex at the later of those times.

“Multiple unit residential complex” is defined as follows in subsection 123(1):

“multiple unit residential complex” means a residential complex that contains more than one residential unit, but does not include a condominium complex.

“Residential complex” is defined in subsection 123(1) (I set out only that portion of the definition that is relevant to this case) as follows:

“residential complex” means

(a) that part of a building in which one or more residential units are located, together with

(i) that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and

(ii) that proportion of the land subjacent to the building that that part of the building is of the whole building.

“Residential Unit” is defined in subsection 123(1) as follows:

“residential unit” means

(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

(b) a suite or room in a hotel, a motel, an inn, a boarding house, a lodging house or a residence for students, elderly persons, infirm persons or other individuals.

I need not set out the definition of “condominium complex” or “residential condominium unit”. The student facility is not a condominium complex within the meaning of the Excise Tax Act. Nor need I set out the definition of builder. There is no question the appellant is a builder within the meaning of the Act.

The statement of facts agreed to by the parties reads in part as follows:

1. The Appellant is a corporation whose business is apartment construction and residential rentals.

2. By GST Registration Form dated March 27, 1992 and received April 6, 1992, the Appellant registered for GST effective on April 6, 1992 and was subsequently assigned GST Registration No. 132305624.

3. For GST reporting purposes, the Appellant has a December 30th year end and the Appellant reports on a quarterly basis.

4. The Appellant did not file any GST returns for the period under appeal.

5. The Appellant first acquired the land located at 704 McGill Road, Kamloops, B.C. (The “Subject Land”) on April 15th, 1991.

6. The Subject Land is located adjacent to the campus of the University College of the Cariboo.

7. During two phases, the Appellant constructed five separate building (the “Buildings”) on the Subject Land which buildings are as follows:

i) St. Paul (“St. Paul”), a 45,600 sq. ft. four storey building that consists of 16 suites;

ii) St. Peter (“St. Peter”), a 15,200 sq. ft. four storey building that consists of 16 residential units;

iii) Shuswap (“Shuswap”), a 30,400 sq. ft. four storey building that consists of 32 residential units;

iv) St. Andrew (“St. Andrew”), a 17,136 sq. ft. four storey building that consists of 16 residential units; and

v) St. Joseph (“St. Joseph”), a 35,200 sq. ft. four storey building that consists of 32 residential units;

8. Shuswap, St. Andrew, St. Joseph, and part of St. Peter consisted of apartments with two or three bedrooms, a living room, dining room, bathroom and balcony. St. Paul and part of St. Peter consisted of student housing units comprised of four private bedrooms/study rooms whose occupants shared two bathrooms and a kitchen.

9. The Buildings and the Subject Land on which they are located are not strata titled, nor were they ever intended to be, are covered by one title at the Land Titles Office and are legally described as Lot 14, Plan 24440, Section 6, Township 20, Range 17, Wets of the 6th Meridian, Kamloops Division Yale District.

10. The apartments and the student housing units were rented out to students on a month to month basis or on a school semester basis, all such rentals being, or expected to be, for a period of sixty days or more.

11. The Appellant was not a university, public college or school authority.

12. The residential units in the Buildings were substantially complete and subsequently occupied as per the following schedule:

BUILDING SUBSTANTIAL		OCCUPANCY
	COMPLETION	DATES
St. Paul	July 199]	September 1991
St. Peter August 1991		November 1991
Shuswap	October 1991	December 199]
St. Andrew	October 1992	December 1992
St. Joseph	February 1993	April 1993

13. The Minister of National Revenue (the “Minister”) assessed the Appellant by Notice of Assessment No. 11EU0000317 (the “Assessment”), dated September 2, 1994, to $77,534.64 of net tax, $21,778.45 of interest, and $22,831.08 of penalty in respect of Goods and Services Tax (“GST”) returns for the period of July 1, 1991 to June 30, 1993.

14. The Respondent reassessed the Appellant to net tax by applying the self supply rules set out in subsection 191(3) of the Act on a building by building basis to each of the five buildings comprising the McGill Road Student Housing Facility such application of the self supply rules occurring at the following times:

Reporting Period Net Tax Liability
September ,1991	St. Paul - <$44,409.56>
December 31, 1991	St. Peter & Shuswap - $116,741.33
December 31, 1992	St. Andrew - <$43,292.87>
June 30, 1993	St. Joseph - $48,495.74

15. The Assessment was based on each of the Buildings having a fair market

value on the occupancy date, as follows:

BUILDIN	FMV
BUILDING
St. Paul	$2,567,000
St. Paul
St. Peter	2,072,000
Shuswap	743,000
Shuswap
St. Andrew	1,619,000
St. Andrew
St. Joseph	1,375,000
St. Joseph

16. In assessing the Appellant to net tax, GST was calculated at 7% on the fair market value on the occupancy dates on each of the Buildings is as follows:

BUILDIN	GST
St. Paul	$179,690
St. Peter	145,040
Shuswap	52,010
St. Andrew	113,330
St. Joseph	96,250
	$586,320

17. In assessing the Appellant to net tax, the Minister credited the Appellant with input tax credits of $508,785.36 (the GST paid on construction costs) resulting in a GST net tax of $77,534.64.

The question therefore is one of timing. Liability to tax is not disputed, nor is the fair market value of the five buildings. The only question is when the liability arose. The Minister contends that it arose as each building was first occupied, whereas the appellant contends that liability to tax in respect of all five buildings arises only when the last of the five buildings is first occupied.

The essential fact upon which the appellant relies is that the five buildings are all covered by one title at the Land Titles Office. There is no physical connection between the buildings. They were all built for the same purpose, to house students.

There are five legal arguments presented but they boil down ultimately to whether “building” can mean “buildings” in the definition of “residential complex”.

We may start with the Interpretation Act. Subsection 33(2) reads as follows:

Words in the singular include the plural, and words in the plural include the singular.

Section 15 of the Interpretation Act reads:

15(1) Definitions or rules of interpretation in an enactment apply to all the provisions of the enactment, including the provisions that contain those definitions or rules of interpretation.

(2) Where an enactment contains an interpretation section or provision, it shall be read and construed

(a) as being applicable only if a contrary intention does not appear; and

(b) as being applicable to all other enactments relating to the same subjectmatter unless a contrary intention appears.

Counsel for the appellant contends that no “contrary intention” appears that would have the effect of displacing the rule in subsection 33(2), and that subsection 136(2) of the Excise Tax Act confirms that “building” can mean “buildings”. Subsection 136(2) reads:

(2) For the purposes of this Part, where a supply of real property includes the provision of

(a) a residential complex or land, a building or part of a building that forms

or is reasonably expected to form part of a residential complex, and

(b) other real property that is not part, and is not reasonably expected to form part, of a residential complex,

the property referred to in paragraph (a) and the property referred to in paragraph (b) shall each be deemed to be a separate property and the provision of the property referred to in paragraph (a) shall be deemed to be a separate supply from the provision of the property referred to in paragraph (b), and neither supply is incidental to the other.

The argument is that since a building can form part of a residential complex, it follows that two or more buildings can form part of a residential complex so that a residential complex can consist of more than one building.

Counsel for the appellant contends further that if subsection 191(3) is to achieve its purpose “building” must be interpreted as including the plural, where the “complex” consists of more than one structure on an undivided parcel of land and each structure is intended to form part of a residential complex. He also contends that if subsection 191(3) is interpreted as the Minister has done, on a building by building basis, it would be impossible to determine the fair market value of the individual buildings located on the undivided lot. My only observation on that contention is that somebody seems to have managed to do it in this case.

Notwithstanding Mr. Hauser’s able and thorough arguments I am, with respect, unable to accept his interpretation. In concluding that building in the definition of residential complex is used in the singular I am adopting what I conceive to be an interpretation that more closely conforms to the scheme of the Act, which is to impose tax on the earlier of the completion or the first occupation of a multiple residential complex. While it is true that subsection 33(2) of the Interpretation Act provides that the singular includes the plural, the application of this rule depends upon the context. It does not appear to me to conform to the object or the scheme of the Act that the completion and rental of two or more buildings on one lot should carry radically different tax consequences from those that would prevail if they were on separate lots. If this is a “results oriented [1] approach, it at least achieves a result that seems to me to be a reasonable one. The other approach would mean that if a builder set out to construct more than one apartment building on a single lot, tax would be deferred until he got around to completing and renting out the last projected building, if ever.

I am aware of the many tests that have been and continue to be enunciated by the courts, but at the end of the day the courts must seek to put an interpretation on the legislation that makes practical common sense.

In Glaxo Wellcome Inc. v. R., [1996] 1 C.T.C. 2904, 96 D.T.C. 1159, at pages 2907-08 (D.T.C. 1161) some of these principles were set out, as follows:

We have, to start with, the “teleological” approach discussed by Gonthier J. in Communauté Urbaine du Quebec v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3, [1995] 1 C.T.C. 241, 95 D.T.C. 5017, at page 17; then, we have the “words-in-total-context” approach discussed by MacGuigan J. in Lor-Wes Contracting Ltd. v. R., [1985] 2 C.T.C. 79, 85 D.T.C. 5310. In Tennant v. R., [1994] 2 C.T.C. 113, 94 D.T.C. 6505 we are instructed to avoid a “results oriented approach” and by R. v. Swantje, [1994] 2 C.T.C. 381, 94 D.T.C. 6630, to avoid a “purely mechanical” approach in favour of a “functional” one. The matter was put with elegance and simplicity by Cartwright J. (as he then was) in Highway Sawmills Ltd. v. Minister of National Revenue (1966), C.T.C. 150, 66 D.T.C. 5116, where he said at page 5120:

The answer to the question what tax is payable in any given circumstances depends, of course, upon the words of the legislation imposing it. Where the meaning of those words is difficult to ascertain it may be of assistance to consider which of two constructions contended for brings about a result which conforms to the apparent scheme of the legislation.

Many other quotations of high authority might be found. There is, for example, a set of rules enunciated in Stubart Investments Ltd. v. R. [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, where the concept of object and spirit is discussed.

Obviously one starts with the plain words of the statute. If the words of the legislation are clear and unambiguous and admit of but one interpretation one need look no further. If they are not and are susceptible of more than one interpretation one must look to the scheme of the act and its object and spirit. It is only when recourse to all of the other tools of statutory interpretation fails to yield a clear answer that one is entitled to invoke the principle that in case of ambiguity the benefit of the doubt must go to the taxpayer. As Fauteux, C.J. said in Ville de Montréal v. ILGWU Center, [1974] S.C.R. 59 at page 66:

The legislator is presumed to mean what he says; and there is no need to resort to interpretation when the wording is clear....

The same view was expressed by Chief Justice Isaac in R. v. Coopers & Lybrand Ltd., [1994] 2 C.T.C. 2244, 94 D.T.C. 6541, at page 6546:

But these principles are not invitations to Courts to ignore other well- accepted rules of construction, such as that which requires Courts to construe statutes so as “to ascribe some meaning to each word used by the legislature,” Atco v. Calgary Power Ltd., [1982] 1 S.C.R. 557, 140 D.L.R. (3d) 193, at page 569.

Counsel also referred to a decision of the Canadian International Trade Tribunal in Cragg & Cragg Design Group Ltd. v. Minister of National Revenue, [1994] G.S.T.C. 53 in which the majority of that tribunal held that the term “condominium complex” could encompass a collection of buildings for the purpose of the federal sales tax new housing rebate. I understand that that case has been appealed and I do not think that it would be appropriate for me to comment further on it. I have concluded in this case that to construe “building” as “a group of buildings on the same lot” would render the definition of “residential complex” unworkable. One can test this simply by substituting those words for “building”in the definition. Had Parliament intended such a result, it was quite capable of saying so.

A penalty was also imposed by the Minister. Such a penalty is susceptible of defence of due diligence: Pillar Oilfield Projects Ltd. v. R., (sub nom. Pillar Oilfield Projects v. Canada) [1993] G.S.T.C. 49 (T.C.C.). No defence of due diligence has been made out here.

The appeal is dismissed.

Appeal dismissed.