Citation: 2009TCC74
Date: 20090206
Docket: 2008-2628(GST)I
BETWEEN:
ROB WALDE HOLDINGS LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
Rob Walde Holdings Ltd., is a corporation carrying on a farming operation near Kindersley,
Saskatchewan through its shareholders, Robin and Brenda Walde. In 2005 Robin
and Brenda, acting in their joint capacity as the directing mind of the
Appellant, built a house (referred to herein as the “New Home”) on the
Appellant’s land. Although the Appellant paid all of the bills (including Goods
and Services Tax) related to construction, because the New Home was to serve a
dual function as a base of operations for the Appellant’s business and as a
personal residence for Robin and Brenda and their children, the Appellant, and Robin
and Brenda always intended to split the construction costs on a 50-50 basis.
When construction was completed, the family moved into the New Home. As
planned, the office was used almost exclusively for the Appellant’s business;
other areas like the kitchen and the garage, were used for both business and
personal purposes with the remainder of the New Home devoted to the family’s
personal use. Also as intended, the builder’s mortgage originally borne only by
the Appellant was somehow restructured to shift some of the financing
obligations to the shareholders personally.
[2] It was on this
footing that having paid all of the GST[1]
on the construction bills, the Appellant claimed only 50% as input tax credits.
Meanwhile, Robin and Brenda (in their personal capacities) applied for a New
Housing Rebate of $4,032.71; no rebate of any kind was claimed by the Appellant.
[3] By Notice of
Assessment dated January 15, 2007, the Minister assessed the Appellant on the
basis that the Appellant was deemed to have made a self-supply of the New Home under
subsection 191(1) of the Excise Tax Act. The details of the assessment
are set out in the assumptions in the Reply to the Notice of Appeal at
subparagraphs 5(i) to (n):
…
(i)
the Appellant gave possession of the House to Brenda and Robin in
December 2005;
(j)
the fair market value of the House in December 2005 was at least
$378,137.16;
(k)
the Appellant is deemed to have made a supply
and received a supply of the House;
(l)
with respect to the deemed supply of the House
(i)
the Appellant was required to self assess and report tax of $26,469.60
($378,137.16 x .07) and remit this tax as part of its net tax remittance for
the Reporting Period;
(ii)
the Appellant failed to report the required tax on the House;
(m)
with respect to the goods and services acquired for use in the
construction of the House
(i) the
Appellant paid tax of no more than $22,403.92;
(ii) the
Appellant claimed ITCs of $11,201.96;
(iii)
the Minister allowed additional ITCs of $11,201.96;
(n) the Minister allowed the Appellant a GST/HST New Residential
Rental Property Rebate
(the “Rebate”) in the amount of $6,287.99 calculated as follows
$450,000
- $378,137.16 x $8,750 (maximum allowable) = $6,287.99
$ 100,000
[4] The Respondent’s
position is that the Appellant, as a “builder” of a “single unit residential
complex”, constructed the New Home ultimately occupied by Robin and Brenda and
accordingly, is deemed to have made a self-supply of the New Home under subsection
191(1) of the Act. The Respondent argues further that regardless of any
agreement between the Appellant and Robin and Brenda regarding the business and
personal use of the New Home, there is nothing in the relevant provisions of
the Act to permit them to allocate between themselves what are
exclusively the Appellant’s legislative obligations and entitlements.
[5] Turning first to
the legislation, the relevant portions of subsection 191(1) provide that:
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
… of a residential complex that is a single unit residential complex
… 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 … entered into for the purpose of its occupancy
by an individual as a place of residence,
…
(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 time. [Emphasis added.]
[6] As noted by the
Appellant’s agent, Rod Perkins, C.A., this provision, like the rest of the Excise Tax
Act, is very complicated making it difficult for even the most compliant taxpayers
to ferret out their rights and obligations under the legislation. Mr. Perkins urged
the Court to consider the Appellant’s case from a common sense perspective in
light of what actually happened: the Appellant and Robin and Brenda (jointly as
individuals) equally shared the cost of the construction and use of the New
Home; thus, they should be able to prorate their rights and claims under the Act
accordingly. Simple prairie logic, however, is no match for what the
Federal Court of Appeal has described as “a model of ambiguity created by a maze
of definitions”[3].
[7] The labyrinth
begins with paragraph (a) of subsection 191(1): it is common ground that
the “construction” of the New Home was “substantially completed”. It remains
only to consider whether the New Home is a “residential complex” that is a
“single unit residential complex”. Both of these terms are defined in
subsection 123(1) of the Act. Briefly put, a “single unit residential
complex” is a “residential complex” that has only one “residential unit”. But
what is a “residential unit”? Back again to subsection 123(1), where one learns
that a “residential unit” means, among other things, “a detached house” or
“that part thereof that (d) is occupied by an individual as a place of
residence…”. From Brenda’s description of the New Home, it is a detached house
as that term is ordinarily understood. The evidence also shows that no portion
of the New Home was off limits to the family: the office (though primarily for
the Appellant’s use) was also accessible to the family; similarly, the garage
housed vehicles owned by the Appellant as well as items for the family’s
personal use. None of this is surprising or blameworthy. The upshot is,
however, that there is no part of the New Home that is not, to some extent,
occupied by Robin and Brenda as “a place of residence”. Accordingly, paragraph
(d) has no application and all of the New Home must be treated as one “residential
unit”.
[8] As such, the New Home falls within paragraph (a) of the definition of “residential
complex”: “that part of a building in which one or more residential units are
located …” which, for the same reasons as above, includes the whole of the New
Home[4]. Accordingly, the New Home is a “residential complex”
that is a “single unit residential complex” under paragraph 191(a) of
the deemed self-supply provision.
[9] The next step is
to consider whether the Appellant’s situation meets the criteria in paragraphs
191(b) and (c). Under (b), it is common ground that the
Appellant “gave
possession or use” of the New Home “for the purpose of its occupancy by” Robin
and Brenda “as a place of residence”; and under (c), that they were the
first individuals “to occupy” the New Home for
that purpose. That leaves only to determine whether the Appellant was the
“builder” of the New Home.
[10] To
answer that question, one must turn again to subsection 123(1) and
specifically, to the definition of “builder”, the relevant portions of which
are set out below:
“builder”
of a residential complex … means a person who
(a) at a time
when the person has an interest in the real property on which the complex is
situated, carries on or engages another person to carry on for the person
…
(iii) … the
construction … of the complex,
...
but does not
include
(f) an
individual described by paragraph (a) … who
(i) carries
on the construction …
(ii) engages
another person to carry on the construction … for the individual, or
(iii)
acquires the complex or interest in it,
otherwise than
in the course of a business or an adventure or concern in the nature of trade,
…
[11] As can be seen
from the above, paragraph (f) excludes from the definition of “builder”
an “individual” as further described in subparagraphs (i) to (iii). As a
corporation, the Appellant is not a “natural person” and therefore, not an “individual”
as defined in subsection 123(1). Accordingly, subparagraph (f) does not
operate to exclude the Appellant from the definition of “builder”.
[12] The Appellant is, however, a “person”
which brings it within the preamble to the definition of “builder”; as the owner of the land on which the New Home was
built in 2005, the Appellant has an “interest in the real property on which the
[New
Home] is situated” as contemplated by paragraph
(1)(a). Finally, the Appellant, through its principals, carried on or engaged
with others to carry on the construction of the New Home. This, argues the
Respondent, establishes that the Appellant is the “builder” of the New Home and
is thereby deemed by operation of subsection 191(1) to have made a self-supply
of the whole of the New Home.
[13] The Appellant contends
that its status as “builder” should be restricted on a pro rata basis to
that portion of the New Home that was used for business purposes, estimated by
the Appellant at 50%. However, I am persuaded by the submissions of counsel for
the Respondent that, even if the Appellant’s percentage of use is correct, the provisions
considered above do not permit such an approach. As the Appellant has been unable
to show that the Minister’s assessment was not in accordance with the
applicable provisions of the Excise Tax Act, the appeal must be
dismissed.
Signed at Ottawa,
Canada, this 6th day of February, 2009.
"G. A. Sheridan"
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