Citation: 2012 TCC 215
Date: 20120614
Docket: 2011-1069(GST)I
BETWEEN:
SHU WEI CHEN and CHIEN CHUNG TANG,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The appellants, Shu Wei Chen and
Chien Chung Tang, operated a real estate business in partnership under the name
Great Tang’s Development from 1994 until late in 2010.
[2]
The appeal relates to an
assessment of net tax under the Excise Tax Act in the amount of
$8,702.91. The assessment covers the period from January 1 to December 31,
2008.
[3]
The issue is whether the
partnership should have collected harmonized sales tax (HST) in respect of
three sales of vacant land that took place in 2008. The HST on the three sales,
if applicable, is $11,828.96.
[4]
The partnership was represented at
the hearing by Ms. Chen. She was married to Mr. Tang during the relevant period
and they have since divorced. Although Mr. Tang is no longer a partner, the
partnership continues to exist for HST purposes by virtue of s. 272.1(6) of the
Act. Ms. Chen now operates the business as a sole proprietor.
[5]
Ms. Chen submits that sales are
not taxable since the three parcels were acquired for personal purposes and not
in the course of a business of buying and selling land. She also submits that
two of the properties were owned by her alone and not by the partnership.
Were properties owned by
partnership?
[6]
I will first consider the
appellants’ argument that two of the properties were owned by Ms. Chen and not
the partnership. The two properties have been identified as Lot S1, Terence Bay Road,
Terence Bay, Nova Scotia and 8 Clarence
Street, Dartmouth, Nova Scotia.
[7]
I would observe that
the position of the appellants is contrary to the HST returns filed by the
partnership. The sales were reported in the returns. Further, the argument was
not raised in the notice of appeal and was first raised at the hearing.
[8]
These factors are not
fatal to the appellants’ case but in these circumstances the appellants need to
have clear and convincing evidence in support. Unfortunately
for the appellants, the evidence is not clear.
[9]
The evidence included a statement
of disbursements relating to Terence Bay which suggests that the property was sold by Ms. Chen.
What is not clear, however, is whether the property was held by Ms. Chen on her
own behalf or whether she was acting on behalf of the partnership as
represented in the HST return. It is just as likely that the Terence Bay property, as with other properties, were registered
in Ms. Chen’s name on behalf of the partnership. The evidence as a whole is not
sufficient to overcome the representations that were previously made.
[10]
Ms. Chen testified that the HST
returns were prepared by a bookkeeper based on information provided by Mr.
Tang. She
stated that Mr. Tang was careless in dealing with the returns and that she did
not review them. This testimony cannot assist the appellants. Even if I accept
that the HST returns were carelessly prepared, there is insufficient evidence
that the properties were owned by Ms. Chen alone.
Were properties held for
personal purposes?
[11]
The appellants submit that the properties were held for
personal purposes and that they qualify for the exemption in s. 9(2) of
Schedule V, Part I of the Act. The relevant part of the exemption
provides:
9(2) A supply
of real property made by way of sale by an individual or a personal trust,
other than
[…]
(b) a
supply of real property made
(i) in the
course of a business of the individual or trust, or
(ii) where the
individual or trust has filed an election with the Minister in prescribed form
and manner and containing prescribed information, in the course of an adventure
or concern in the nature of trade of the individual or trust;
(Emphasis added.)
[12]
As a preliminary comment, the
respondent attempted to raise an argument that the exemption does not apply in
these circumstances because the properties were owned by a partnership and the
exemption does not apply to partnerships. It is not necessary that I consider
this argument because it was withdrawn by the respondent as it was not raised
in the Reply.
[13]
The only question, then, is
whether the sales of the vacant land occurred in the course of a business.
[14]
The evidence reveals that the
partnership had substantial activity, and that the appellants had other real
estate interests outside the partnership as well.
[15]
In particular, the partnership
owned a relatively large number of properties of various types, parcels of
vacant land, commercial properties and rental condominiums. Some of the
properties were large and others were purchased by Ms. Chen at tax sales. Further,
in addition to properties held in partnership Ms. Chen and Mr. Tang also
owned a corporation that held other real estate. A document that Ms. Chen
provided the respondent showed six property sales in 2008 (R-1, Tab 1).
[16]
I would also note that the registration of the partnership listed the
partnership’s business as real estate investment and development. In addition,
Ms. Chen also had her real estate license for a period of time.
[17]
This evidence strongly suggests that
the three vacant parcels sold in 2008 were sold in the course of a business of
buying and selling land.
[18]
Ms. Chen submitted that the
appellants never had plans to become real estate developers and develop the
vacant land. This does not assist the appellants because this is not the test.
[19]
The earmark of a business is an
undertaking with an intent to profit. Accordingly, an undertaking to earn
profit by buying and selling undeveloped land is also a business. It does not
matter that there is no intent by the appellants to develop the land.
[20]
The evidence as a whole
is overwhelming that the appellants were actively engaged in buying and selling
land for a profit. The appellants sought properties that they considered had a
low value. It was hoped that the land would be sold for a profit at some future
time. The exemption is not available in these circumstances.
[21]
Ms. Chen testified that
she only sold land when she needed the money. This may be true but it is of no
assistance in this appeal. The appellants may have had an intent to hold land
for an indefinite period. But it is the intent to earn a profit at some point
that is the crucial factor. The appellants actively pursued a venture which was
designed to earn a profit from the sale of land. This is fatal to the appeal.
[22]
Ms. Chen testified that she held a
number of properties for the purpose of giving them to her sons and that she
owned Terence Bay as a recreational property. The evidence on this
point was far too vague and lacking in detail to be convincing.
[23]
Ms. Chen also argues that the
assessment is harsh because if the appellants had known that the sales were
subject to HST they would have collected it from the purchasers.
[24]
The result may be harsh, but
taxpayers have an obligation to seek proper tax advice regarding their
obligations under the Act. There is no evidence that the appellants did
this. Further, the harshness of the result is not sufficient grounds for relief.
The Court must apply the legislation as Parliament has enacted it.
[25]
The appeal will be dismissed. The
parties shall bear their own costs.
Signed at Ottawa, Ontario this 14th day of June 2012.
“J. M. Woods”
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