Wallace v. The Queen, docket 98-1735-GST-I (Informal Procedure)

Date: 19991102

Docket: 98-1735-GST-I

BETWEEN:

WALLACE CONSTRUCTION AND KEN WALLACE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1] This appeal pursuant to the Informal Procedure was heard at Kelowna, British Columbia on October 18, 1999. Ken Wallace and his wife, Donna, were the only witnesses.

[2] Paragraphs 11 and 12 of the Reply to the Notice of Appeal read:

11. In so reassessing the Appellant, the Minister relied on the following assumptions of fact:

(a) the facts admitted and stated above;

(b) the Appellant, Ken Wallace, originally registered as a partnership with Donna Wallace under Part IX of the Excise Tax Act (the "Act"), effective March 23, 1992 (GST No. 132192063) but subsequently advised the Minister in July 1992 that the GST registration name should be changed to Wallace Construction;

(c) the Appellant is a proprietor, doing business under the name, Wallace Construction;

(d) the Appellant solely reports the income and losses from Wallace Construction on his income tax returns;

(e) the Appellant is in the business of supplying general contracting services and constructing commercial buildings;

(f) in addition to Purcell Drive, the Appellant also participated in the development and construction of a residential complex at 2324 Lillooet Crescent, British Columbia ("Lillooet Crescent)'

(g) The Appellant purchased the lot at Purcell Drive and commenced construction of a single unit residential complex on the property on or about April 1992;

(h) title to Purcell Drive was in the name of Ken and Donna Wallace;

(i) construction of Purcell Drive was substantially completed by July 1992 and the Appellant moved into the home on July 5, 1992;

(j) Purcell Drive was listed for sale on October 26, 1992 for $319,500 and was sold on February 26, 1993 for $319,000;

(k) the Appellant made a profit on the sale of Purcell Drive;

(l) Purcell Drive was advertised as having been built by the owner, Wallace Construction;

(m) a GST New Housing Rebate application was filed by Ken and Donna Wallace with respect to Purcell Drive, claiming a rebate of $5,380.53 and listing the builder as Wallace Construction;

(n) the Appellant paid GST in the amount of $12,170.81 with respect to inputs for the construction of Purcell Drive and was entitled to a new housing rebate of $8,038.80 with respect to this property;

(o) the Appellant commenced construction of a single unit residential complex at Lillooet Crescent on or about April 1993 and Lillooet Crescent was substantially completed by October 1993;

(p) the Appellant moved into Lillooet Crescent on October 1, 1993 and listed Lillooet Crescent for sale on October 29, 1993 for $289,500;

(q) a GST New Housing Rebate application was filed on April 29, 1994 by Ken and Donna Wallace, claiming a rebate of $4,562.00 with respect to Lillooet Crescent;

(r) Ken and Donna Wallace were allowed a New Housing Rebate of $4,449.79 with respect to Lillooet Crescent;

(s) Lillooet Crescent is still currently listed for sale;

(t) at all material times, the Appellant had in mind the possibility of resale of Purcell Drive at a profit and that possibility was an operating motivation for the acquisition, construction and resale of Purcell Drive;

(u) the Appellant acquired and carried on the construction of Purcell Drive in the course of a business or an adventure in the nature of trade;

(v) the Appellant was the "builder" of Purcell Drive as defined in section 123 of the Act;

(w) the Appellant had no intention of constructing Purcell Drive for use primarily as his place of residence; and

(x) the Appellant failed to report the GST on the supply of Purcell Drive pursuant to subsection 191(1) of the Act in the amount of $22,330.00.

B. ISSUES TO BE DECIDED

12. The issues in this Appeal are:

(a) whether the Appellant is a "builder" within the meaning of subsection 123(1) of the Act with respect to Purcell Drive;

(b) whether the Appellant is liable to pay GST on the self supply of Purcell Drive pursuant to subsection 191(1) of the Act; and

(c) whether the Appellant is entitled to the benefit of the personal use exception in subsection 191(5) of the Act in respect of Purcell Drive.

[3] Assumptions 11(b), (c), (d), (h) and (k) are true. Assumptions 11(m), (n), (o), (p), (q) and (r) were not refuted. The following corrections apply to the remaining assumptions:

(e) Was true, but Ken Wallace now works in the scaffolding business.

(f) Will be corrected hereafter.

(g) Ken and Donna purchased the lot. Ken self-contracted the construction of the house at 915 Purcell Drive ("915") and worked as a labourer, bid preparer and bid gatherer and awarder of the subcontracts on 915. He was employed full time as a labourer for Norcan Construction simultaneously until he was laid off in July 1992, whereupon he received unemployment insurance from time to time.

(i) They applied for a building permit (Exhibit A-1) on March 6, 1992 under the names Ken and Donna Wallace, contractor "self". The building permit was awarded on April 1, 1992. Ken Wallace "owner" got a second building permit on November 5, 1992 in order to develop the basement of 915. Ken and Donna moved into the basement of 915 in May, 1992 and upstairs in July, 1992, the remainder of 11(i) is true. The date of the occupancy permit is not in evidence. With one exception, none of the invoices were to "Wallace Construction". Rather, they were to Ken or to Donna or to both of them. (Exhibit A-2).

(j) 915 was first listed on October 26, 1992 for $334,500 (Exhibit A-3). It was sold February 26, 1993 for $319,000.

(l) 915 was advertised as being built by "Wallace Construction", not by owner.

(s) Lillooet Crescent was sold by the Wallaces on May 1, 1996 whereupon they purchased an acreage in Kelowna, where they now live in a much smaller old house. They own or board 22 horses there. Their daughter, Briar, and Donna ride competitively.

[4] 915 cost them $220,000 of which $140,000 was financed and the rest was paid from their savings.

[5] The history of the GST registrations and assessment is pertinent. It follows:

(1) March 23, 1992, "Ken and Donna Wallace" register as partners in "General Contracting" (Exhibit R-1).

(2) July, 1992, Ken changes the registration to his sole name as "Wallace Construction".

(3) March 6, 1993 "Wallace Construction" is assessed for $14,636.28 GST owed to 93-12-31 (Exhibit A-4).

(4) March 20, 1998 "Ken Wallace – Wallace Construction" is reassessed for $8,469.63 GST amount owing to 93-12-31 (Exhibit A-5).

The reassessment of the rebate occurred less than four years after the day the rebate application was filed. This is permitted under subsection 298(2) of the Excise Tax Act. It was also reassessed in Ken's and Construction's names.

[6] 915 is in a fine home area of Kelowna. It has 3,268 square feet finished on three levels with a sundeck of about 1,400 square feet. It has 16" studs and steel reinforced concrete, which is above building code standards. It is formal with a dining room, study and five bedrooms and a spiral staircase, oak woodwork, peaked interior door frames and glassed French doors between the formal rooms. The colour scheme was chosen by a decorator. Ken wired it for air conditioning, a burglar alarm and serviced it for a hot tub; none of them were installed because the Wallaces lacked the money. Briar was then a small child, and still is their only child. They did not have the furniture or curtains for it and meeting the payments each month was a struggle. However, Ken testified that he has always spent beyond his income and still does.

[7] The Wallaces listed 915 about three months after they were able to occupy the upper house. It was sold four months after that. When 915 sold, its mortgage was transferred to the Lillooet Crescent property on which they built a smaller house. 915 was a house that was far beyond the Wallace's needs and means. It was not in accord with Donna's desires. It was their first home. They owned the lot and house for a total of less than 11 months and had the Lillooet property before they transferred 915. Ken and Donna both worked on 915; Ken as a labourer and contractor and Donna cleaning up and painting. They testified that they sold after meeting the realtor at a nearby show home while taking a weekend walk. They said that they learned of the demand for their style of house from the realtor and then Donna expressed her dissatisfaction with 915 to Ken. She wanted a less formal country home. But they did not move to the country then. Rather, they built a second house and moved into it. They did not refer to the fact (which the Court hereby finds) that they could not afford 915 and that this was obvious from the first moment of construction. They testified that their motive was to build 915 as their home. But it did not fit their family, their means, their horse-related lifestyle or Donna's wishes for a home. It did fit the burgeoning sales market in upscale Kelowna at that time.

[8] The construction of 915 by Ken was an adventure in the nature of trade. Ken constructed 915 as a builder within the meaning of paragraphs 123(1)(a) and (f) of the Excise Tax Act. He is liable to pay GST on the self-supply of 915 pursuant to subsection 191(1) of the Excise Tax Act.

[9] His primary purpose in constructing 915 was to sell it for a profit, not to reside in it or use it as a home for his family. Rather, they moved into its basement and then upstairs before it was substantially completed for the primary purpose of finishing it and completing it and then selling it for profit as a house ready for occupancy. For this reason, the Appellant is not entitled to the personal use exception in subsection 191(5) of the Excise Tax Act.

[10] The appeal is dismissed.

Signed at London, Ontario this 2^nd day of November 1999.

"D.W. Beaubier"

J.T.C.C.