Citation: 2010 TCC 50
Date: 20100305
Docket: 2008-1722(GST)I
BETWEEN:
CORPORATION OF THE COUNTY OF RENFREW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Counsel for the Appellant: Brian R. Carr
Counsel for the Respondent: Julian Malone
AMENDED REASONS FOR JUDGMENT
(Delivered orally from the Bench on
December 11, 2009, at Ottawa,
Canada)
Pizzitelli, J.
[1] There are initially two issues to be decided
in this manner:
(i) Whether
the Appellant was entitled to input tax credits of $201,207.94 relating to the
construction of Miramichi Lodge under the self‑supply rules of the Excise
Tax Act (the “Act”); and
(ii) Whether
the Appellant is entitled to input tax credits of $41,615 in relation to the
provision of administrative services to the Province of Ontario under the Ontario Works Program.
[2] At the beginning of the trial, the Respondent
agreed that the appeal with respect to the allowance of input tax credits for
$41,615 in issue (ii) above should be allowed. Accordingly, the main issue to
be dealt with by this Court is whether the County of Renfrew is entitled to
input tax credits of $201,207.94 under subsection 191(3) of the Act as
it then read for the period April 1, 2006 to June 30, 2006, and if
not, whether the Appellant would be entitled to same under the coming into
force rules set out in subsection 73(15) of the Budget Implementation
Act, 2008, S.C. 2008. c. 28.
Background
[3] The County
of Renfrew is a municipality which undertook the construction of Miramichi
Lodge located in Pembroke, Ontario, during the period April 1, 2002 to January 31, 2004.
The new Lodge replaced the previous Miramichi Lodge on completion and was a
long-term care facility for 166 residents whose average age was 85 years, and
which operated under the Ministry of Health and Long‑Term Care
Regulations and Standards. There are 166 beds and 100 private suites and the
balance are shared units. The Lodge provides 24-hour nursing and personal care,
nutritious meals and snacks, activation and recreation, rehabilitation,
palliative care, housekeeping, laundry and administrative support. The Lodge provides
medical staff as well. The residents of the Lodge all suffer from physical,
psychological and mental incapacities in addition to their senior age, all of
which are requirements to qualifying for entry to the Lodge. Accommodation
rates are set by the Ministry of Health and Long-Term Care and reduced rates
are available upon application to the Minister.
[4] The construction of the Lodge was completed
in December 2004 and an occupancy certificate was issued by the City of Pembroke on December 20, 2004. On January 16, 2005, the move
was completed from the old facilities on Bell Street to the new Lodge on Pembroke
Street. The cost of
construction for the Lodge for GST purposes was $31,234,103. The value of the
Lodge was assessed by the Municipal Property Assessment Corporation at
$13,420,000. The County of Renfrew claimed public-service body
rebates equal to 57.14% of GST paid on construction pursuant to section 259 of
the Act and the Regulations thereunder. It should be noted that
after January 31, 2004, the Regulations were amended to provide that municipalities
could claim 100% of the GST paid as a rebate. Clearly the Appellant missed out
on the higher rebate percentage and consequently incurred $352,996.39 of GST
expense representing the 42.86% of the total GST paid that was not rebated to
it.
[5] On July 19, 2006, the Appellant executed a GST
return for the period April 1, 2006 to June 30, 2006, in which it claimed
to collect $4,033.36 on revenues of $69,627. It claimed GST rebates of
$188,515.46, presumably being the balance of total public service body rebate
it was entitled to since it was not disallowed.
[6] On July 26, 2006, the Appellant wrote Canada
Revenue Agency (“CRA”) requesting corrections to such GST return by claiming
further input tax credits of $242,822.94. This amount included $201,207.94 for
the construction of the building and $41,615 for administrative services
provided to the Ministry of Health and Long-Term Care which the Respondent has
agreed to allow in this appeal as stated above. The amount in issue, still
disallowed, is then the $201,207.94 which the Treasurer for the Appellant
testified was calculated as representing the 42.86% of the input tax credits
for which it did not receive the rebate based only on the portion of the cost
above the fair market value of the property. In other words, the Appellant was
of the belief that at the time it could not claim any input tax credits for the
portion of the construction costs representing the assessed fair market value
of the property at $13,420,000 only on the amount over such value. It should be
noted that the July 26, 2006 letter still made no reference to GST payable on
any self-assessment.
[7] Also, on July 26, 2006 after telephone
conversations with the GST Rulings Division, the Appellant wrote to CRA
requesting a ruling as to whether or not it qualified for an additional GST
rebate or input tax credit based on the fair market value of the property or on
the actual cost of construction. It is clear from such letter and the response
of CRA dated October 3, 2006, that the Appellant was seeking a ruling as to
whether the self-supply rules of the Act would apply to the construction
of the project so as to enable the Appellant to claim the full input tax credits
paid on total construction. The response from the CRA was that it was not
prepared to give a ruling, however, provided its interpretation only that the
self‑supply provisions of subsection 191(3) did not apply since the
builder did not meet the condition of said subsection in that it must give “possession
or use of any residential unit in the complex under a lease, licence or similar
arrangement entered into for the purpose of the occupancy of the unit by an
individual as a place of residence.” As a result, the Appellant would
not be able to utilize the provisions of subsection 191(3) to deem the supply a
taxable supply and consequently claim all ITCs. CRA also provided its
interpretation that the long-term care facility is not used in a commercial
activity since it is an exempt supply under sections 1 and 2 of Part II of Schedule
V as the provision of institutional health care services. Obviously, CRA disallowed
the further input tax credits claimed by the Appellant from which the Appellant
has appealed and for which, as I stated above, CRA has now agreed to partially
allow on administrative services provided but not in relation to the
construction of the complex.
[8] Almost three years later on March 31, 2009,
the Appellant wrote CRA on the advice of its accountants, requesting that the
GST return for the period January 1, 2005 to March 31, 2005, which would encompass
the date the Lodge became occupied, be amended to effectively claim on line 103
GST collected of $2,439,735.18 representing the amount of self-supply. The
stated purpose of the adjustments was "to allow the county to meet the
coming into force provision for purposes of amended subsection 191(3) of the Act,”
now contained in subsection 73(15) of the Budget Implementation Act, 2008.
In that same letter, the County confirmed that it was of the view it had a
requirement to self assess the GST pursuant to subsection 191(3) and did not
self assess due to CRA's letter of October 3, 2006, stating that it did
not feel the County was subject to the self‑supply rules. Accordingly,
the County asked that the March 31, 2009 adjusted return be accepted to take
into account a requirement to self assess in circumstances.
[9] The first issue to be addressed is whether
the Appellant was entitled to self assess under old subsection 191(3) as it read
at the time of the supply, being January 16, 2005, the date the first unit was
occupied in the complex. It should be noted that the parties are in agreement
that all preconditions to qualifying under such subsection are met save and except
the requirement that the builder give possession of a residential unit in the
complex to a person under a lease, licence or similar arrangement for the
purpose of occupying the unit as a place of residence of an individual.
[10] The parties are both in agreement that the
definition of “possession” is not defined in the Act, however, was
considered by the Federal Court of Appeal in North Shore Health Region v. The Queen, 2008 FCA 2. In such case, the Court
concluded that the word “possession” as used in subsection 191(3) was intended
to describe a right of possession that is equivalent or analogous to the right
of possession normally enjoyed by a tenant under a residential lease. Sharlow,
J.A. went on to say at paragraph 44:
44 … That would suggest, generally
speaking, a right to the exclusive use and enjoyment of a particular apartment
for a defined period of time for residential purposes, a right that cannot be
defeated during the stipulated period except upon a breach by the tenant of the
terms of the tenancy. …
[11] In the North Shore Health Region
case, the Federal Court of Appeal decided that since room assignments could be
changed at will by the North Shore Health Region, i.e., the right of an
individual to occupy a particular room is entirely at the discretion of North
Shore, that such person would not have a right of possession as that term is
normally used in the context of occupying a residential space.
[12] In the case at hand, the Appellant has
argued that the terms of occupancy by a resident are substantially stronger
than those in North Shore Health Region, and accordingly, this case is
distinguishable from North Shore Health Region. In particular, the Appellant
pleaded that residents are assigned specific rooms and cannot be moved without
their approval, that the individual has the ability to exclude others from the
room, is entitled to alter or make changes to the room (i.e., furnishings
or decorating the room), can control the temperature in the room and obtain
insurance for personal property in the room. The evidence of the Appellant's
Lodge administrator on examination-in-chief was that no patient has ever been
moved without their consent or that of their substitute decision-maker and that
if they consider a patient should be moved to enable better access to treatment
or equipment within the facility, then they meet with a resident or their
representative and explain the reasons, which have never been refused.
However, on cross-examination, the same witness testified that the final
decision would belong to the Lodge not the resident, and that she would act to
protect the safety of the resident or other residents and staff. In addition,
she agreed that there were restrictions on what furniture could be brought into
the premises by the resident depending on the size and the requirements, that
there were no locks on the unit doors, staff was not barred from a room at any
time and that patients with Alzheimer's generally wander in and out of rooms at
will and that temperature changes could only be made within a range of five
degrees.
[13] The Admission Agreement signed with respect
to residents who stay at the Lodge clearly provides in paragraph 2 that:
Provincial funding regulations allow each resident to be absent from
the Home for the following periods of time:
1. Casual Leave - 2 days per week, …
2. Vacation Leave - 21 days per year …
Clearly the terms of the Agreement restricts a
resident's freedom to come and go as they please without risk of being
discharged from the home.
[14] In addition, a new resident handbook used
by the Appellant limits alcohol use to a maximum of two drinks daily when
prescribed by a physician, while decorating is subject to what space and safety
allow suggesting an overriding control by the home. Likewise, there are
restrictions on having refrigerators, electrical heating pads or grain-filled
microwaveable pads and residents can only bring in personal furniture that is
assessed as safe by staff and as space allows. Having regard to the fact that
private rooms are only 180 square feet in size and all bedroom furnishings such
as beds, bedside tables, easy chairs, etc. are provided by the homes, it seems
reasonable to conclude there is very little space for residents’ additional
personal belongings. All of these restrictions on the use of the premise and
the residents’ conduct within them are hardly consistent with the use of a
leased premises or right of possession normally enjoyed by a tenant of a
residential lease as contemplated by the Court of Appeal in the North Shore
Health Region case.
[15] It should be noted that in the North
Shore Health Region case, the policy of North Shore Health Region was not
to move a patient unless a change occurred in the individual's physical or
mental condition. Notwithstanding this, the Court still ruled there was no “possession”
in the room given in the ordinary sense. The case at hand is no different when
the Lodge recommends a change in room due to a resident's change in health and has
the final say as to whether or not it happens.
[16] When one considers all the evidence as a
whole, I find that Miramichi Lodge does not give “possession” of the unit
to an individual for the purposes contemplated by subsection 191(3), as it then
read, and that the facts in this case are not in any meaningful way
distinguishable from the North Shore Health Region case.
[17] Counsel for the Appellant
also argued that since the Budget Plan 2008 giving rise to the Budget
Implementation Act, 2008 amending subsection 191(3) makes reference to
the purpose of the budget as being to “clarify” the GST/HST treatment of long-term
residential care facilities that the Courts should then interpret old subsection
191(3) as having always been intended to apply to such facilities. In effect,
counsel for the Appellant is asking the Court to ignore the Federal Court of
Appeal's decision in North Shore Health Region as a result of the stated
clarification.
[18] This Court has no jurisdiction to overrule its
appellate body and Parliament dealt with the issue in Bill C-50 which gave rise
to the Budget Implementation Act, 2008.
[19] In fact, the next question to be determined
is whether the Appellant falls within the coming into force provisions of Bill
C-50 being subsection 73(15) of the Budget Implementation Act, 2008.
[20] Since the particular time in question is
before February 26, 2008, then only the provisions of paragraph 73(15)(b)
of the Budget Implementation Act, 2008 apply. The conditions found in said
subparagraph (b) above are basically twofold.
[21] Firstly, the Appellant must have been
deemed to have made a taxable supply if the provisions of subsections 73(1) to
73(13) applied as amended to the Appellant at a particular time, which is
defined in subsection 73(14) as effectively being the later of the date of
completion or date of first possession or use of a unit, in our case, January
16, 2005. Since the provisions now read that the builder must give “possession
or use” of a unit to an individual it is clear the new provisions would have
applied at the particular time and this was acknowledged by the Respondent.
[22] Secondly, the Appellant, as the builder must
have reported an amount as or on account of tax, as a result of the builder
applying section 191 of the Act in respect of the complex in a builder's
return under Division V of Part IX of the Act, for any reporting period
the return for which is either filed on or before February 26, 2008, or is
required to be filed on or before that date. It is this second requirement that
gives rise to dispute between the parties.
[23] The requisite elements of this second
condition found in clause (ii) of paragraph 73(15)(b) are:
(i) The
builder must have reported all or part of the tax as a result of self‑assessing
under section 191 in respect of the complex;
(ii) The tax
must be reported in a builder's return under Division V of Part IX of the Act;
and
(iii) The
return must be for any reporting period that is either filed on or before
February 26, 2008 or is required to be filed before that date.
[24] The evidence establishes that returns were filed
for two different periods:
(i) For the period
April 1, 2006 to June 30, 2006, the Appellant filed a return on July 19, 2006 as
amended July 26, 2006.
(ii) For the
period January 1, 2005 to March 31, 2005, the Appellant filed a return which was
amended on March 31, 2009.
The position of the Appellant is that both filings
comply with the requirements of subparagraph 73(15)(b), while the Respondent
argues none of them do.
[25] In connection with the filing for the first
period April 1, 2006 to June 30, 2006, the return dated July 19, 2006, and
mailed July 20, 2006, shows sales revenue of $69,627 and GST collected or that
became collectible of $4,033.36. Line 405 dealing with GST to be self-assessed
is left blank. Clearly there is no evidence that any tax let alone the entire
amount of tax was reported in connection with the self-supply of the complex
which cost $31,234,103. The tax of $4,033.36 pertains to revenue earned of
$69,627 and there is evidence that the Lodge provided taxable supplies such as
hairdressing and other charges for services for which GST had to be remitted. More
importantly, the evidence is that no self‑supply was contemplated at this
time. The amendment of July 26, 2006 only amended the amount of input tax
credits and adjustments claimed in line 108 and subsequent provisions showing a
larger refund claimed such that it is clear the ITCs were claimed in connection
with the complex as earlier stated but no tax on account of the self‑assessment
were recorded. Accordingly, the filing for this period simply showed no tax on
account of the self-assessment and hence the requisite elements above have not
been met with respect to that return.
[26] In connection with the reporting period of
January 1, 2005 to March 31, 2005, the original return was not submitted into
evidence. However, since by letter of March 31, 2009, the Appellant applied to
amend such return by including in line 103 an amount of $2,439,735.18, it is
clear at this point that the Appellant attempted to self assess. The question
then remains whether this amended filing meets the requirements of paragraph
73(15)(b).
[27] Although a copy of the initial filing for
this period was not submitted into evidence, there was no argument or pleading
by the Respondent that the initial filing did not comply with the provisions of
Division V of Part IX of the Act. Hence, the second element is not in
dispute. The Respondent's only objection is that the return could not be said
to be filed within the time limitations of the section.
[28] The Appellant was clearly a GST registrant
who filed quarterly returns as per the evidence provided. The Appellant admits
in the March 31, 2009 letter that the requirement to self assess arose in the
reporting period January 1, 2005 to March 31, 2005 and that the GST return for
this reporting period was due May 2, 2005. Clearly, in the initial return, no
self-assessment occurred since the stated purpose of the amended return of
March 31, 2009, was to remedy that fact. The Appellant stated in that
letter of adjustment that “the purpose of the foregoing adjustments is to allow
the County to report the GST under subsection 191(3) of the Excise Tax Act (“ETA”)
by way of an amended GST/HST Return for the reporting period in 2005 …” in
question.
[29] The third element, however, of paragraph
73(15)(b) was that the return for any reporting period be filed on or
before February 26, 2008, or that it is required to be filed on or before
February 26, 2008. Clearly the amendment occurred March 31, 2009 and cannot be
said to have been filed before February 26, 2008. However, the Appellant
argued that the words “or is required to be filed on or before February 26,
2008”, should be taken to mean that since the reporting period in question
required a filing on or before February 26, 2008, it makes no difference
whether the filing actually occurred by that date. I agree with this position.
[30] The language of the provision clearly
contemplates that the relief is available to periods for whom filings were
actually made before February 26, 2008, or for periods for which filings were
due before that time, even if not yet made, otherwise that specific clause has
no relevant meaning. It would be absurd to suggest that the filing containing
the self-assessment must be made before February 26, 2008, in regards to a
transaction which occurred before that date when the entire purpose of the
relieving provision is to permit an election to be made and filed to receive
retroactive treatment.
[31] In Canada Trustco Mortgage Co. v.
Canada, 2005 SCC 54, the Supreme Court of Canada, in discussing the rules
of statutory interpretation, stated in paragraph 23 that where such a provision
admits of no ambiguity in its meaning or in its application to facts, it must
be strictly applied. I find the words "or is required to be
filed" to be clear and unambiguous as stated. Even if I were to have
accepted that, based on the different positions of the parties, the words
created a real ambiguity, then the Supreme Court of Canada in Canada Trustco
Co. would have directed in paragraph 47 that:
47 … In order to reveal and resolve any latent ambiguities in
the meaning of provisions of the Income Tax Act, the courts must
undertake a unified textual, contextual and purposive approach to statutory
interpretation.
and said in paragraph 29 that the courts could then
resort to external interpretative aids.
[32] In considering the Budget Plan of 2008 as
such interpretative aid, I note that page 314 of the Budget Plan 2008 clearly
sets out that the change will apply to such facilities “on a going forward
basis” and to certain past transactions where the owner has paid tax on the
facility “or elects to have the new rules apply”. In addition, on page 315
in direct reference to Changes to Self-Assessment Rules, it is clear that
it will only apply for transactions on or before February 26, 2008, where the
owner has self-assessed GST/HST … “or an election has been made”. The intention
of the budget seems clear that retroactive treatment was the method by which Parliament
chose to deal with the results of North Shore Health Region when certain
terms are met. The intention of Parliament is clear that either there was a
self-assessment already or an election could be made to self-assess. Otherwise,
only those taxpayers who self-assessed before February 26, 2008, contrary to
the law as it stood at that time, could benefit from the retroactive provision
while the law-abiding taxpayer who respected the law as it stood, including
those that went to the effort of confirming the status of the law with CRA and
received it and respected it, as the County did in this instance, would be penalized,
which would be an absurd result.
[33] The Appellant, by its letter of March 31,
2009, took the position that the amendment should be permitted under the CRA
administrative policy of allowing adjustments to GST returns outlined in P-149R,
which allows returns to be adjusted, except where a person is attempting to
increase the amount of input tax credits or other credit adjustments without a
corresponding increase in tax liability. It seems clear that the amendment did
not have the effect of changing the net refund, and accordingly has met the criteria.
In any event, while it is clear that the CRA Administrative Policy is not
binding law on the Court, the Minister pleaded no assumptions in regards to the
form of the filing. In fact, the Respondent argued the only issue was one of
timing, not form. In any event, based on the wording of the provision as
discussed above, it would make no difference in my view whether the filing was
a new one or an amended one as long as it referred to any period for which a
filing was due before February 26, 2008, because the wording clearly
contemplates a late filing.
[34] Accordingly, this appeal is allowed in full
and the matter is referred back to the Minister for reassessment on that
basis. There will be no order as to costs.
Signed at Ottawa, Canada,
this 5th day of March
2010.
“F.J. Pizzitelli”
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