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Citation: 2007TCC27
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Date: 20070119
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Docket: 2005-1783(GST)I
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BETWEEN:
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494743 BC LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
[1] This appeal was heard before The Honourable Justice M.J. Bonner in Vancouver, British Columbia on January 31 and February 1, 2006. Upon consent of the parties, these Reasons for Judgment have been prepared by me on the basis of the transcript of the evidence and the argument.
A. FACTS
[2] The appeal is in respect of an assessment period (the "Assessment Period") from October 1, 2002 to December 31, 2002.
[3] During the Assessment Period the Appellant operated a residential construction and renovation business under the name of Flame Engineering and Construction.
[4] The Appellant was registered under Part IX of the Excise Tax Act (the "Act") and the Appellant was required to file quarterly tax returns.
[5] At all material times the Appellant was required to pay Goods and Service Tax ("GST") on all or substantially all supplies purchased at a rate of 7%.
[6] The Appellant filed a GST tax return on April 3, 2003 and reported GST of $161.00 and claimed Input Tax Credits ("ITCs") of $36,928.55 in respect of the Assessment Period.
[7] The Minister of National Revenue (the "Minister") assessed the Appellant and disallowed the ITCs that were claimed.
[8] The Appellant filed a Notice of Objection to the Minister's decision.
[9] After the Notice of Objection was filed the Minister received copies of the Appellant's general ledger for the Assessment Period, supporting invoices and five GST New Housing Rebate Application Forms in respect of the following:
1. Jong Sang Mo ("Mo");
2. Roland Blanchette ("Blanchette");
3. Shenaz Dharamshi ("Dharamshi");
4. Parvaneh Beheshti ("Beheshti"); and
5. Satpal Kaur ("Kaur").
[10] The New Housing Rebates were received by the Minister on December 6, 2004.
[11] Each of the New Housing Rebates that were filed were a Type 4 Application for an owner built home. This type of application is filed directly by the purchaser in a situation where the builder does not pay or credit the Rebate to the purchaser.
[12] The New Housing Rebates that were filed by the Appellant for Mo, Blanchette and Dharamshi were not signed by the purchasers.
[13] The Minister received signed New Housing Rebate Application Forms directly from Mo and Blanchette and the Minister issued cheques to Mo and Blanchette in respect of their Applications.
[14] The Appellant entered into Building Contracts (the "Building Contracts") with Mo, Blanchette and Dharamshi. Each of the Building Contracts contain the following common terms:
1. The Owner is the owner or is entitled to become the owner of the lands;
2. The Builder has agreed with the Owner to construct one new dwelling on the land;
3. The date that construction is to commence;
4. The date that the Appellant will complete the construction;
5. The price to be paid by the Owner to the Builder for the Dwelling House shall be the sum of $_______________ including net GST and Extra Costs as per Schedule "A";
6. The Building Contract indicates that the rebate will be assigned to the Builder for construction costs only;
7. The Building Contracts also contain general clauses in respect of referral to arbitration for any dispute arising plus a clause indicating that the Contract is the entire agreement between the parties.
[15] The New Housing Rebate for Beheshti is signed by the claimant on December 16, 1999 and is signed and dated by the Appellant on March 18, 2003.
[16] The New Housing Rebate for Kaur is signed by the claimant dated June 15, 2000 and is signed and dated by the Appellant on March 18, 2003.
[17] On February 18, 2005 the Minister reassessed the Appellant to increase ITCs to $5,886.57 for a total net tax credit of $5,725.57 and to disallow the Appellant's claim for New Housing Rebates in the amount of $29,143.27.
B. ISSUES
[18] (1) Whether the Appellant is entitled to ITCs in excess of the amount already allowed by the Minister for the Assessment Period.
(2) Whether the Minister properly determined that the Appellant was not entitled to New Housing Rebates in the amount of $29,143.27.
C. ANALYSIS AND DECISION
Issue No. 1
[19] With respect to the first issue a portion of the ITCs consisted of a $14.00 fee paid by the Appellant on behalf of another corporation. According to the evidence of the Appeals Officer, the $14.00 fee was paid by the Appellant but the fee was for the purpose of allotting the shares of a second company owned by the shareholder of the Appellant. The second company did not have a GST account and therefore the Appellant claimed the expense.
[20] ITCs are allowed to a taxpayer on inputs a person or a corporation incurs in the course of its commercial activities. The $14.00 fee was not a fee incurred by the Appellant in the course of its commercial activities. The Respondent maintains that this amount was not incurred in the course of the Appellant's commercial activities as is required by paragraph 169(1)(a) of the Act. I agree with counsel for the Respondent and the appeal on this point will be dismissed.
[21] The Respondent maintains that the Appellant is not entitled to any amount in respect of the New Housing Rebates based on the following arguments:
(a) The Appellant is a general contractor and not a "builder" as defined under subsection 123(1) of the Act;
(b) The Appellant was not a builder during the Assessment Period required by subsection 254(5) of the Act;
(c) The Appellant has not provided the individual purchasers' applications for Rebates as required by subsections 234(1) and 254(5) of the Act and that further, the Mo, Blanchette and Dharamshi applications are not dated or signed by the purchasers;
(d) The Appellant has not met the time limits set by the Act; and
(e) Pursuant to section 169 of the Act, the Appellant can only claim ITCs in respect of tax paid on purchases (inputs) that it uses in its commercial activities. The New Housing Rebates do not constitute ITCs.
Argument #1 - Appellant is a general contractor not a builder
[22] Section 256 of the Act provides for the New Housing Rebate in respect of owner-built homes. Under this section, the homeowner is the only one that may apply for a Rebate. There is no provision in this section to allow an owner to assign the Rebate. In this case, on the evidence presented to the Court, it is clear that the homes in question were owner-built. This is indicated on the Rebate applications. These five applications are signed by Mr. Familamiri, the director of the Appellant. Mr. Familamiri had also indicated that with respect to the Dharamshi application he may have purchased the land at some point.
[23] Counsel for the Respondent maintains that there is no documentation or anything to suggest that Mr. Familamiri had purchased the land. Mr. Familamiri explanation was that the land was purchased from the landowner at the time and then sold to the purchaser before building the house. Therefore when the house was built it was built on owner-owned lands. The Dharamshi contract states that the owner is the owner of the lands.
[24] Counsel for the Respondent admits that the Appellant's intent may have been to have the New Housing Rebate assigned. However, counsel said if the parties choose to make a part of their contract something that there is no provision for in legislation, that is their choice and they will have to deal with the consequences. The Tax Court must apply the provisions of the Act which are clear. The Act states that only the homeowner is entitled to claim the rebate for an owner-built home.
[25] Section 254 of the Act enables a purchaser to recover the GST housing rebate directly from the builder by way of a payment of the rebate by the builder or credit against GST payable at the time of the sale. However, it is the submission of counsel for the Respondent that the Appellant is a general contractor and not a builder. Builder is defined in subsection 123(1) of the Act.
[26] The definition in the Act for a "builder" is different from the ordinary connotations of the word. To be a builder under the Act, an interest in the real property is required or an interest in the complex had to have been acquired.
[27] In this case, the land was owned by the purchasers not the Appellant. In this situation the Appellant had no interest in the land as is required to be a builder.
[28] In this situation the purchasers hired the Appellant as a general contractor to construct their homes. For those reasons the Appellant does not meet the requirements of subsection 123(1) of the Act and is not a builder for the purposes of the Act. I have therefore concluded that the provisions in section 254 do not apply to the Appellant and it is not entitled to the New Housing Rebate.
Argument #2 - Appellant was not a builder during the Assessment Period[1]
[29] Counsel for the Respondent submits that the Appellant was not a builder during the Assessment Period.
[30] Paragraph 254(4)(a) of the Act allows an application to be assigned to a builder.
the builder of a single unit residential complex or a residential condominium unit has made a taxable supply of the complex or unit by way of sale to an individual and has transferred ownership of the complex or unit to the individual under the agreement for the supply, (Emphasis mine)
[31] There is also a further condition at paragraphs 254(4)(b), (c) and (d), and at the end of the paragraph 254(4)(d) there is an "and". It therefore follows that all of these conditions have to be met. Counsel for the Respondent submits that the first condition is not met. Paragraph 254(4)(a) requires that there be a taxable supply of the complex or unit by way of sale, and, "and" a transfer of ownership of the complex.
[32] In this case, the landowners did not purchase their homes from the Appellant. It is clear from the contracts that they hired the Appellant to construct their homes, but there is no mention anywhere in the contract of them transferring ownership or possession.
[33] Furthermore the Appellant only received compensation for services and for the materials provided. The houses, as indicated in the three contracts were completed on various dates in 2000 and 2001. There is no evidence that the houses in question were built in the Assessment Period.
Argument #3 - Appellant has not provided the individual purchaser's rebate applications[2]
[34] Counsel for the Respondent submits that the Appellant has not provided the individual purchasers' New Housing Rebate applications because the purchaser is the only eligible claimant by virtue of subsection 254(3) of the Act.
Subsection 254(3) reads as follows:
A rebate under this section in respect of a residential complex or residential condominium unit shall not be paid to an individual unless the individual files an application for the rebate within two years after the day ownership of the complex or unit is transferred to the individual.
[35] Therefore, the person referenced is the one that owns the complex. Counsel for the Respondent submits that the reason that subsection 254(4) is added in the Act is to permit that person to assign their Rebate to the builder.
[36] Paragraph 254(4)(c) allows an individual to transfer the rebate by submitting to the builder "in prescribed manner an application in prescribed form containing prescribed information for the New Housing Rebate." The form that is mentioned in the Act is the GST Form 190.
[37] The term "prescribed" means a form authorized by the Minister, meaning the GST Form 190. This is specified in its New Housing Rebate circular RC4028. This circular is referenced on the Form 190.
[38] Counsel for the Respondent maintains that the New Housing Rebate Applications submitted by the Appellant are not complete and the New Housing Rebate Applications are missing considerable amounts of information. Many of the forms are missing completion dates. Many of the forms are missing dates that the Rebates were credited. Three of the forms are missing signatures from the applicants, (the Mo, Blanchette, Dharamshi applications). Since the purchasers have not assigned their rights in the prescribed manner and as required by the Act, the Appellant cannot claim the rebates.
[39] In Polygon[3] the issue was whether certain conveyances to purchasers were subject to self-supply rules. However, a collateral issue was whether Polygon, as the builder, was entitled to that portion of the New Housing Rebate not yet claimed by the purchasers. At paragraph 42 the Federal Court of Appeal stated:
In my analysis, there are obvious difficulties with the application of section 254 to this case as the NHRs belong to the purchasers and not to the builders. Section 234 of the Act directs that builders derive a deduction for NHRs only to the extent that those NHRs have been paid or credited to purchasers. Purchasers, not builders, are the "particular individuals" targeted to receive NHRs pursuant to section 254 of the Act. In this case, Polygon does not, in its own right, have an entitlement to the NHRs. In the documents signed on closing, the purchasers represented and warranted that they are entitled to a NHR in a specific amount as at the completion date and Polygon agreed to credit specific amounts to the purchasers.
[40] In the case at bar, not only have the purchasers not assigned their rights to the Appellant in the form required by the Act, two of the purchasers have claimed the rebates themselves, that being Mo and Blanchette.
Argument #4 - The Appellant has not met the time limits set by the Act[4]
[41] The Respondent maintains that the Appellant has not met the time limits set by the Act which imposes strict time limits on New Housing Rebate applications.
[42] Subsections 234(1) and 254(5) of the Act require the New Housing Rebate to be claimed and transmitted with the builder's return for the reporting period in which the Rebate was paid or credited. It is not clear exactly when the Rebates were paid or credited in this case, although it appears to have been on the various dates in 2000 and 2001 as per the invoices submitted and attached to the application by the Appellant. The fact that the Rebates would have been paid in 2000, 2001 appears to be consistent with the completion dates in the contracts, and appears to be consistent with the invoices submitted by the Appellant. There is no evidence that the Rebates were paid or credited in the Assessment Period (i.e. October 1, 2002 to December 31, 2002). The Appellant has not suggested that is the case at all and so ITCs are claimed for that period of reporting.
[43] The Appellant did not transmit the application to the Minister with the return filed for the reporting period in which the rebate was paid or credited. If the rebate was paid in 2000 and 2001, it does not appear that these New Housing Rebate applications were transmitted at that time.
[44] Subsection 254(3) of the Act allows additional time in the case of a purchase from a builder, and it indicates a rebate shall not be paid to an individual unless the individual files an application for the rebate within two years after the day the complex is transferred to the individual.
A rebate under this section in respect of a residential complex [or a residential condominium unit] shall not be paid to an individual unless the individual files an application for the rebate within two years after the day [ownership] of the complex [or unit] is transferred to the individual.
[45] The Zubic[5] case relates to an application for rebate of GST paid in construction of the Appellant's house. At paragraph 7 the Court states midway through the paragraph:
... There is no question that Mr. Zubic ... failed to file his application within the time permitted under subsection 256(3), the Minister was prohibited by the clear wording of the legislation from paying the rebate to Mr. Zubic: "a rebate ... shall not be paid ...". The use of the words "shall not" deprives both the Minister and this Court of any discretion to extend the time for filing, even where the circumstances, as in the present case, call out for such an extension to be granted. Accordingly, there is nothing in the provisions of the Excise Tax Act that permits the Minister to pay the GST rebate to Mr. Zubic after the statutory time period.
[46] Counsel for the Respondent's submits that the complex was owned by the individual purchasers at all relevant times, and that there is no date that the ownership of the complex was transferred to the purchasers. Counsel for the Respondent further submits that the Appellant does not qualify for this rebate after the statutory time period has elapsed in any event. I agree with the points made by counsel for the Respondent.
Argument #5 - The NHR is not an ITC[6]
[47] The New Housing Rebates were claimed by the Appellant as an ITC. However, pursuant to section 169 of the Act, the Appellant can only claim ITCs for tax paid on its purchases on (i.e. no change) inputs which it uses in the course of its commercial activities. The rationale behind the whole ITCs concept is that the end user be the one that is paying the GST. Therefore, individuals who purchase products in the course of their commercial activities to produce another product that is taxable are eligible for ITCs.
[48] The New Housing Rebates do not constitute ITCs. The Rebates are simply an exclusion to the general rule that the purchasers have to pay the full amount of GST on a purchase and its purpose is to encourage buying.
[49] In Trengrove[7], page 35-3 reads as follows:
A purchaser of a new house is therefore liable for GST equal to 7% of the price the purchaser pays for the house in money and anything else. The tax is payable the day ownership of the house (which is not a condominium) is transferred to the purchaser or the day possession of the house is transferred to the purchaser under the agreement of purchase and sale, whichever day is earlier: subsec. 168(5). The recipient of the supply, the purchaser, pays the GST to the supplier, the vendor, as agent of the Crown, to remit to the Receiver General for Canada. In preparing the appropriate GST return for filing with the Minister of National Revenue ("Minister"), the supplier claims input tax credits for GST paid on its own purchases. The supplier remits to the Receiver General the difference between the GST collected on sales and the input tax credits.
When the purchaser transfers and assigns the GST housing rebate to the builder, and the builder pays or credits the amount of the rebate to the purchaser, the builder is to transmit the purchaser's rebate application to the Minister with the builder's GST return which is filed for the reporting period in which the rebate was paid or credited: subsec. 254(4). Subsec. 234(1) of the Act permits the builder to deduct the amount of the rebate in determining its net tax for that reporting period.
[50] From an analysis of the Trengrove Developments case the amount that is deducted by the builder is a New Housing Rebate and not an ITC.
[51] From an analysis of the relevant facts, the legislation and the Court decisions referred to, I have concluded that the Minister's decision to disallow the Appellant's claim for an ITC was correct.
Issue No. 2
[52] The Appellant is not entitled to the New Housing Rebates for the reasons noted above.
[53] The appeal is dismissed with costs.
Signed at Vancouver, British Columbia, this 19th day of January 2007.
Little J.
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