Citation: 2012 TCC 257
Date: 20120717
Docket: 2011-1994(GST)I
BETWEEN:
ZUBIN PHEROZE DARUWALA, AIMAI DARUWALA
and MAKI PHIROZE DARUWALA,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
In 2009, the appellants purchased a
newly-constructed home from a builder and paid goods and services tax (GST) at
the time of the purchase.
[2]
The issue in the appeal is whether
the purchase was exempt from GST on the basis that the property had previously
been used as a residence. If it had, the GST should have been paid by the
builder and not by the appellants.
[3]
The appellants filed a rebate
application on the ground that they had paid the GST in error. They rely on the
exempt supply set out in section 4, Part I of Schedule V of the Excise Tax
Act on the basis that the property had been subject to the self supply rule
in subsection 191(1). The rebate application was denied.
[4]
The relevant provisions are
reproduced in an appendix. The
appellants submit that s. 191(1)(b)(i) applies to the builder. The
respondent takes the position that this provision does not apply because there
was no lease, licence or similar arrangement with respect to the Property and
because the Property was not occupied as a place of residence.
[5]
By way of background, I
would mention that the respondent previously brought an application to add the
builder as a party to this appeal. The application was denied: Daruwala v
The Queen, 2012 TCC 116.
[6]
Testimony at the
hearing on behalf of the appellants was provided by Zubin and Aimai Daruwala
and testimony on behalf of the respondent was provided by Goshtasb Hassani and
his son, Roozbeh Hassani.
Background facts
[7]
On June 30, 2009, Zubin Daruwala,
his wife Aimai Daruwala and his mother Maki Daruwala purchased a newly-constructed
residence at 1160 Kings Avenue, West Vancouver (the “Property”) for a purchase
price of $1,561,904.76. GST in the amount of $78,095.24 was collected on the
purchase.
[8]
The seller, TRG Construction Corp.
(“TRG”), was incorporated in 2006 and is wholly-owned by Goshtasb Hassani.
[9]
At the time of incorporation, Mr.
Hassani had recently immigrated to Canada with his family. It was decided that
TRG would enter into a construction business, in part because this would assist
in satisfying immigration requirements that the family be involved in a commercial
venture in Canada. The Property was the first home that was built by TRG and the
corporation is still in operation.
[10]
TRG purchased the Property in
December 2006. Once construction was nearly complete in September 2008, the
Property was listed for sale. The listing expired in December 2008 without the
Property being sold. The Property was listed again with a new realtor in March
2009 and it was sold to the appellants in June 2009.
[11]
When Mr. Daruwala first viewed the Property, it appeared to him that the home
had been occupied. It contained some furniture, and there was some garbage in
the kitchen. He raised concerns about GST being payable on a used home, but he
was told that the tax had to be paid.
[12]
After taking possession on July 1,
2009, Mr. Daruwala became more convinced that the home had been occupied
because mail for the Hassani family and TRG was received at the Property. In
addition, the appellants noticed burn damage on the roof of the oven. These
circumstances prompted the appellants to file for a rebate of the GST on the
basis that the home had previously been occupied.
[13]
In preparation for the appeal, in
2010 Mr. Daruwala took photocopies of envelopes addressed to the Property for several
members of the Hassani family and for TRG. The mail continued to be received
until the third quarter of 2011.
[14]
In addition, Mr. Daruwala obtained
affidavits from two neighbours. The affidavits were entered into evidence on
consent, although the respondent questioned the weight that they should be
given. I have not given the affidavits any weight. They are simply not
sufficiently reliable without the affiants being available for
cross-examination.
Analysis
[15]
The legislative scheme
for real property requires that GST be paid when new residential property is purchased from a builder. However, if the
property had been used as a residence while it was owned by the builder, the
builder must generally pay the GST under self-supply rules and no further GST
is payable by a subsequent purchaser.
[16]
The appellants submit that the
self supply rule applies to TRG by virtue of s. 191(1)(b)(i). The relevant
part reads:
(b) the builder of
the complex
(i) gives
possession or use of the complex to a particular person under a lease,
licence or similar arrangement (other than an arrangement, under or arising
as a consequence of an agreement of purchase and sale of the complex, for the
possession or occupancy of the complex until ownership of the complex is
transferred to the purchaser under the agreement) entered into for the purpose
of its occupancy by an individual as a place of residence,
(Emphasis
added.)
[17]
The requirements of the
provision are:
-
the builder has given possession
or use of the home,
-
under a lease, licence
or similar arrangement, and
-
the arrangement is
entered into for the purpose of occupancy as a place of residence.
[18]
There is no dispute
about the first element. TRG gave possession and use of the home to its sole shareholder,
Mr. Hassani. It is the second and third elements that the respondent submits are
not satisfied.
[19]
The first question is whether TRG
entered into a lease, licence or similar arrangement with Mr. Hassani. The
respondent submits that this requirement is not satisfied because there was no
a formal arrangement in writing and with set terms and conditions. No case
authority was provided.
[20]
I agree with the respondent that
there was likely no formality to the arrangement. Since Mr. Hassani was the
sole shareholder of TRG, the arrangement was in all likelihood an informal oral
arrangement under which Mr. Hassani had possession and use of the Property
at his pleasure.
[21]
However, I disagree that formality
is required. An informal arrangement of this nature is sufficient to be a “lease,
licence or similar arrangement” as that phrase is used in s. 191(1). The
language used is broad and it encompasses in my view informal arrangements that
give possession of property. The occupation by Mr. Hassani satisfies the requirement,
in my view.
[22]
The second question is whether the
arrangement was for the purpose of giving Mr. Hassani occupancy as a place of
residence. This depends partly on the meaning of the phrase “place of
residence” and partly on the facts.
[23]
As for the meaning of the phrase
“place of residence,”the respondent submits that Mr. Hassani’s occupation of
the home did not have sufficient permanency and other indicia of “residence” as
that term has been defined in Thomson v The Queen, [1946] S.C.R. 209.
[24]
There is some reference to the Thomson
decision in judicial decisions dealing with s. 191(1) (see Sand, Surf
& Sea Ltd. v The Queen, 2008 TCC 96, [2008] ETC 2911). However, I do
not believe that the test of “residence” in Thomson is applicable in
this context.
[25]
The term “residence” has a
flexible meaning which is dependant on the context in which it is used. The
focus of section 191(1) is on the intended use of a property. In this context,
the intent to occupy the premises as a home is sufficient.
[26]
The term “residence” as used in
the context of Thomson applies in determining the liability of an
individual to income tax. The focus in this context is on the individual rather
than on a property and a myriad of personal factors involving the person’s
customary mode of living are looked at. This include things such as social and
economic ties. It does not make any sense to apply this test in the context of
s. 191(1).
[27]
The question, in my view, is
whether TRG gave occupancy to Mr. Hassani for the purpose of enabling his occupancy
of the Property as a home.
[28]
The case for the respondent is
based largely on the testimony of Mr. Hassani and his son, Roozbeh.
[29]
Mr. Hassani testified that the
construction of the home took about 18 months and that it was completed in
December 2008.
[30]
He also stated that the housing
market was poor at the time of the first listing in September 2008, and that there
were no offers by the time the listing expired in December 2008.
[31]
He testified that the real estate
agent then recommended that the property be staged for sale. For this purpose, a
small amount of furniture was moved from the family home in Coquitlam, British Columbia. The furniture was for the bedroom and the living room. The bedroom
furniture came from the master bedroom and consisted of a bed, two side tables
and lamps. The living room furniture consisted of a sofa and love seat. There
was also one piece of art. In addition, kitchen appliances were purchased for
kitchens on the main floor and the lower level and a new television was installed
over a fireplace in the living room.
[32]
Mr. Hassani also testified that he
stayed at the Property for an average of three or four nights a week in order
to protect the property. This lasted from mid‑February to mid-April, he
stated, and then the realtor told him that it was no longer necessary. He also
stated that his spouse and son sometimes visited and that the spouse brought
food when she came. He denied that the oven was ever used.
[33]
Mr. Hassani also testified that he
loudly played the television so that the neighbours would know that someone was
in the home.
[34]
As for mail coming to the home,
Mr. Hassani said that he filed a change of address notification with Canada
Post so that mail would be redirected from Coquitlam to the Property for
himself and his spouse. He testified that his mail was redirected as he was anxious
about an expected letter from the immigration authorities. He said that his
wife did not read English and therefore he could not rely on her to explain the
mail that came to Coquitlam.
[35]
The mail also included items for
TRG, and the Hassanis’ two sons. Mr. Hassani stated that TRG’s bank knew
this address and he thought the mail for the sons was just advertising.
[36]
The fact that mail was redirected
to the Property is quite damaging to the respondent’s position, and I was not
persuaded by Mr. Hassani’s testimony on this point. The testimony was vague,
and at times it was non-responsive on cross-examination. I have given some
allowance for the fact that the English language is not Mr. Hassani’s first
language. Even with this allowance, however, I did not find the testimony to be
persuasive. In particular,
-
From an objective
standpoint, it seems very unlikely that someone would redirect mail if they had
a permanent home that was regularly used.
-
It was not
satisfactorily explained why the problem with the mail was satisfactorily
resolved by Mr. Hassani being at the Property only on average three or four
nights a week.
-
It was also not
adequately explained why it was desirable for the spouse’s mail to be
redirected.
-
The testimony also
failed to adequately explain why Mr. Hassani was only at the residence for two
months. If Mr. Hassani was present to protect the home, this need would have
continued until the Property was sold.
[37]
On the whole, the testimony
regarding the mail was not sufficiently cogent and detailed to be persuasive.
[38]
Finally, I would note that Mr.
Hassani is not a disinterested witness as TRG may be affected by the outcome of
this appeal.
[39]
In my view, the respondent’s
position cannot prevail when its case rests so heavily on testimony which is
not persuasive. In the absence of reliable evidence as to the purpose for which
the Property was to be occupied by Mr. Hassani, I would conclude that it
is likely that Mr. Hassani intended to use the Property as his home for at
least several months. This is sufficient to satisfy the requirements of
s. 191(1).
[40]
Before concluding, I would briefly
mention the burden of proof. The burden that the appellants bear is only to
establish the intended use of the property on a prima facie basis: McMillan
v The Queen, 2012 FCA 126, at para 7. This burden has been satisfied.
Conclusion
[41]
The appeal will be allowed, and
the reassessment will be referred back to the Minister for reconsideration and
reassessment on the basis that the purchase of the Property by the appellants was
exempt from GST. As the appeal was governed by the informal procedure, no costs
will be awarded.
Signed at Toronto, Ontario this 17th day of July 2012.
“J. M. Woods”
APPENDIX
Definition of “exempt supply” in s. 123(1)
“exempt supply” means a supply included
in Schedule V;
Section 4, Part I, Schedule V
4. [Single
home or condominium sold by builder] - A supply by way of sale of a single unit residential
complex (in this section referred to as the “complex”) or a residential
condominium unit (in this section referred to as the “unit”) or an interest in
the complex or unit made by a builder of the complex or unit where
(a) in the case of a unit situated in
a residential complex (in this section referred to as the “premises”) that was
converted by the builder from use as a multiple unit residential complex to use
as a condominium complex, the builder received an exempt supply of the premises
by way of sale or was deemed under subsection 191(3) of the Act to have
received a taxable supply of the premises by way of sale, and that supply was
the last supply of the premises made by way of sale to the builder, or
(b) in any case, the builder received
an exempt supply of the complex or unit by way of sale or was deemed under
subsection 191(1) or (2) of the Act to have received a taxable supply of the
complex or unit by way of sale, and that supply was the last supply of the
complex or unit made by way of sale to the builder,
unless
(c) after the complex, unit or
premises were last acquired by the builder, the builder carried on, or engaged
another person to carry on for the builder, the substantial renovation of the
complex, unit or premises, or
(d) the builder claimed an input tax credit
in respect of the last acquisition by the builder of the complex, unit or
premises or in respect of an improvement to the complex, unit or premises
acquired, imported or brought into a participating province by the builder
after the complex, unit or premises was last acquired by the builder.
Subsection
191(1)
191. (1) Self-supply of single
unit residential complex or residential condominium unit [on occupancy or lease
by builder] -
For the purposes of this Part, where
(a) the construction
or substantial renovation of a residential complex that is a single unit
residential complex or a residential condominium unit is substantially
completed,
(b) the builder of
the complex
(i) gives
possession or use of the complex to a particular person under a lease, licence
or similar arrangement (other than an arrangement, under or arising as a
consequence of an agreement of purchase and sale of the complex, for the
possession or occupancy of the complex until ownership of the complex is
transferred to the purchaser under the agreement) entered into for the purpose
of its occupancy by an individual as a place of residence,
(ii) gives
possession or use of the complex to a particular person under an agreement for
(A) the supply by way of sale of the
building or part thereof in which the residential unit forming part of the
complex is located, and
(B) the supply by way of lease of the
land forming part of the complex or the supply of such a lease by way of
assignment,
other than an agreement for the supply of a
mobile home and a site for the home in a residential trailer park, or
(iii) where the builder is an
individual, occupies the complex as a place of residence, and
(c) the builder, the particular person,
or an individual who has entered into a lease, licence or similar arrangement
in respect of the complex with the particular person, is the first individual
to occupy 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 or use of the complex is so given to the
particular person or the complex 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.
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