McLean v. The Queen, docket 97-2286-GST-I (Informal Procedure)

Date: 19980529

Docket: 97-2286-GST-I

BETWEEN:

ALEX AND LYNN MCLEAN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

O'Connor, J.T.C.C.

[1] This appeal was heard at Kamloops, British Columbia on May 5, 1998 pursuant to the Informal Procedure of this Court. Testimony was given by one of the Appellants, Lynn McLean and by her agent, Wolf A. Sellmer, C.A. The issue is whether renovations by the Appellants to their home during the period May, 1994 to January 1996 constituted a "substantial renovation" as contemplated in subsection 123(1) of the Excise Tax Act ("Act"). It provides:

"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;

[2] If the Appellants succeed in establishing a substantial renovation, they would be entitled to the New Housing Rebate provided for in subsection 256(2) of the Act.

[3] The Minister's Reply to the Notice of Appeal contained, inter alia, the following assumptions of fact:

(a) the Appellants reside at 2019 High Country Road, Kamloops, British Columbia (the "Complex");

(b) the Appellants began renovation and redecorating work (the "Renovation") on the Complex in May 1994, completed the Renovation in January 1996 and resided in the Complex during the Renovation; [Mrs. McLean stated that the Appellants were away for a fair amount of time on vacations and that at points in time, when the kitchen could not be used, they essentially camped out in their own back yard with their own propane stove.]

(c) the total cost of the Renovation was $166,962.37, with GST paid of $11,495.56; [The evidence demonstrated that the cost was $166,962.37 plus GST of $11,495.56.]

(d) no additional rooms or floors were added to the Complex as a result of the Renovation; [Mrs. McLean stated that a new garage measuring 454 square feet was added where the previous simple carport existed and that increased storage space of 70 square feet was added.]

(e) the assessed value of the Complex as at July 1, 1994 and July 1, 1995, per the British Columbia Assessment Authority, was $183,800 (Land $53,800, Building $130,000) and $204,800 (Land $53,800, Building $151,000) respectively;

(f) based on the number of rooms or on the square footage of the Complex which were included in the Renovation, the Complex was not substantially renovated; ...

[4] It is clear that a considerable renovation of the property was undertaken. However, 70% of the upstairs portion of the house, measuring 727 square feet, was not renovated. Moreover a large portion of the expenses related to outside renovations.

[5] Numerous photographs were submitted as Exhibit A-1 showing the renovated areas. Also submitted as Exhibit A-2 was the calculation by the Appellants of the square footage of the areas renovated and not renovated as well as additional areas. That calculation provides as follows:

Dr. Alex and Mrs. Lynn McLean Substantial Renovations at 2019 High Country Blvd
	Pre Restoration Area finished	Substantial Renovation	Post Restoration Area finished
Upstairs	1039 Sq ft	30%	312 sq ft
Not renovated		70%	727 sq ft
Downstairs	1224 Sq ft	100%	1,224 sq ft
Increased size		100%	56 sq ft
Shop	252 Sq ft	100%	252 sq ft
Decreased size		100%	(36) sq ft
Basement
Finished		100%	372 sq ft
Storage area
Increased size		100%	70 sq ft
Garage
Increased size	__________	100%	454 sq ft
Total	2515 Sq ft		3,431 sq ft
		Less not renovated	(727) sq ft
		Net renovated Area	2,704 sq ft

Analysis

[6]The definition of substantial renovation is restrictive. Firstly, it has no reference to the total costs of the renovation in relation to the value of the home. Secondly, renovations or alterations to the foundation, external walls, interior supporting walls, floors, roof and staircases are not taken into account. Thirdly, it appears that additions are not to be considered. The only items that are considered are the renovations or alterations of "the building that existed immediately before the renovation or alteration was begun". This leads to the conclusion that what is being referred to is the interior structure of the residential complex excluding interior items mentioned above.

[7]Counsel for the Minister referred to Warnock v. The Queen [1996] G.S.T.C. 86 where Beaubier, J. of this Court, in dealing with a similar situation, held that the extensive renovations contemplated in that case did not qualify as a substantial renovation. Reference has also been made to another decision of Beaubier, J. in Hole v. The Queen, (97-2703(GST)I) rendered April 30, 1998. In that case 50% was renovated in the basement plus four of six rooms upstairs were renovated. On that basis it was found that a substantial renovation had occurred. The facts in that case are far from those in this appeal and therefore, in my opinion, the decision is not applicable.

[8]Exhibit A-2 demonstrates that the pre-renovation area measured 2515 square feet. If one deducts from that figure the area not renovated upstairs (727 square feet) and the additions, namely the garage (454 square feet) and the increased storage area (70 square feet), one must conclude that the interior portions of the residential complex which were renovated totalled 1,264 square feet, i.e., 2,515 - 1,251. That means that the area substantially renovated was approximately 50% of the pre-renovation area. Although the arbitrary number that the Minister applies, namely 90% as the meaning of "substantial", that is not binding on this Court. However, in my opinion, renovations of merely 50% do not constitute a substantial renovation as contemplated in the Act.

[9]The definition of substantial renovation is quite severe as is evident from the above analysis. But that is what the Act says and I am bound by the Act. It may be that substantial new additions to an existing structure might qualify as new housing but that would not appear to apply to the relatively minor additions contemplated in this appeal.

[10]Consequently, the appeal is dismissed.

Signed at Ottawa, Canada this 29th day of May 1998.

"T.P. O'Connor"

J.T.C.C.