Date: 20001220
Docket: 2000-971-GST-I
BETWEEN:
JASWANT CHEEMA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur, J.
[1]
The Appellant purchased land and built a side-by-side duplex on
McArthur Drive in Kamloops, British Columbia. He sold it within
one year without collecting goods and services tax (GST) on the
sale taking the position that it was the conveyance of a personal
residence. The Minister of National Revenue (Minister) assessed
the Appellant for failing to collect and remit GST of $14,392
together with interest and penalty. The Minister also denied the
New Housing Rebate. The Appellant argued that he and his brother
Parmjit lived in the duplex but moved because Parmjit was
transferred from Kamloops to Surrey. The primary question is
whether the activity was a venture in the nature of trade.
[2]
It is common for small builders to build a home, move in for a
short time, and sell it. The builder believes he has escaped
tax.[1] A builder
who is in the business of building and selling is taxable for any
profit under the Income Tax Act. As explained by the
Minister's auditor, Revenue Canada has been searching for
such builders. Builders who carry on this practice are now also
subject to subsection 191(1) of the Excise Tax Act, the
GST self-supply rule. Under subsection 191(1) when a builder
constructs a home and moves in, he must pay GST on the fair
market value of the home. Someone who builds only for personal
occupancy and not as a business or venture in the nature of
trade, is not a "builder" as defined in subsection
123(1) and thus, not subject to the self-supply rule.[2] Subsection 191(5)
offers a builder an exception to the self-supply rule if the
builder uses the complex primarily as a residence and no input
tax credits were claimed.
[3]
The Appellant's first witness was his brother, Parmjit, who
is a corporal in the RCMP His family had emigrated from India to
Delta, BC in the early 1970s where the Appellant's father was
a roofer amongst other trades. Parmjit joined the RCMP and was
posted to the Kamloops, BC detachment in 1990. He purchased a
home on Bossert Avenue in Kamloops where he resided until 1993.
He and his wife and one child moved into Courtney Crescent in
June 1993 where, with the Appellant and his father, he had
constructed a single family home on a vacant lot. The Appellant
had moved to Kamloops leaving his wife and children in Delta. The
Appellant was looking for work but found nothing permanent during
his year in Kamloops. He lived with Parmjit. In January 1994
Parmjit sold his Courtney residence and moved into a home on
Partridge Drive. This single family dwelling was built by the
Appellant, Parmjit and their father. In the meantime, the
Appellant purchased a lot on McArthur Drive in Kamloops upon
which the two brothers built a duplex, a side-by-side single
family home joined by a common wall which was substantially
completed in May 1994 and described municipally as 754 and 756
McArthur Drive.
[4] I
find as a fact that Parmjit and his family moved into 756
McArthur Drive with the intention of residing there as their
principal place of residence. I also find as a fact that the
Appellant did not reside in 754 McArthur Drive as his principal
place of residence. My finding of facts are based on the
following:
i)
With respect to 756 McArthur Drive:
I believe Parmjit's evidence that he carefully investigated
the area with respect to schools, tranquillity and other aspects
including that it was upwind from the paper mill smells and
intended to permanently reside in 756 McArthur Drive.
ii)
I believe the evidence of his wife which confirmed their
intention to permanently reside in 756. Shortly before moving to
756, she had a second child.
iii)
The Appellant executed a declaration of trust[3] on April 1, 1994 declaring he
held 756 McArthur Drive in trust for Parmjit. The two brothers
were very close and as a matter of convenience left title in the
Appellant's name. I accept that the Appellant was the
beneficial owner of 754 and Parmjit the beneficial owner of
756.
[5]
The Appellant's memory of the events and grasp of details was
limited. An auditor for Revenue Canada, Ms. Panas, was impressive
and gave comprehensive evidence. She gathered a mountain of
detail after careful research. This cast a serious suspicion on
the credibility of the Appellant.
[6]
The Minister's auditor explained that Revenue Canada has
sought out builders who attempt to use the pretense of a
principal residence to avoid payment of GST. The Minister
assesses builders pursuant to subsection 191(1), the self-supply
rule, which provides that if a builder constructs a new home with
the intention of selling it for profit and before selling it,
moves in, the builder must remit GST on the value of the new
home. A taxpayer who builds for personal occupancy and not as a
business or venture in the nature of trade, is not a builder as
defined in subsection 123(1) and is not subject to the
self-supply rule.
[7]
In this case, we have one Appellant yet two owners of the duplex
and two different sets of circumstances. The Appellant in early
1993, was married with children and living in Delta where he had
resided since childhood. He worked as a labourer and had bought
and sold dwellings in Delta. In early 1993, he moved to Kamloops,
lived with Parmjit and looked for work. He found nothing
permanent. His evidence was sketchy and lacked lucidity. He
assisted his father and brother in the construction of a home on
Partridge Drive and Courtney Crescent in Kamloops. The Courtney
residence was registered in the name of Parmjit. The Partridge
residence was registered in the father's name.
[8]
In January 31, 1994, he purchased lots 9 and 10 on McArthur Drive
upon which the duplex was constructed. The brothers blended their
funds. The evidence was confusing with respect to who paid for
what. The vacant lots cost a total of $59,900 and were registered
in the Appellant's name alone. Together the brothers acted as
general contractors in the construction.
[9]
There were two building permits issued to the Appellant in
February 1994, one for the construction of a semi-detached
dwelling unit on lot 9 being 756 McArthur Drive and the second
building permit for the construction of a semi-detached
residential unit on lot 10 being 754 McArthur Drive. I accept the
unchallenged evidence that each unit could be sold separately and
that the Appellant was the beneficial owner of 754 and Parmjit
the beneficial owner of 756.
[10] The
Appellant and his father did not have employment in 1993 and 1994
outside of building the dwellings on Courtney, Partridge and
McArthur. Some of the receipts for materials purchased for
McArthur were made out to Cheema Construction. The Appellant
explained that this name was used to get better prices from
suppliers and he did not operate a construction company. The
Appellant was familiar with construction and had built houses
previously. He spent over a year in Kamloops yet did not move his
wife and children from Delta. He did not have outside employment.
He declared a taxable income in 1992 under $5,000 yet had the
funds, together with Parmjit to buy lots 9 and 10 and construct a
duplex without third-party financing. He moved little or no
furniture into 754.
[11] The first
question is whether the Appellant was in the business of building
houses as in a venture of concern in the nature of trade. I will
apply the often-referred-to tests of Rouleau J. in
Happy Valley Farms Ltd. v. The Queen.[4]
1.
Nature of property sold. In each case the Appellant purchased a
lot, built a dwelling, moved in briefly, if at all, and sold
it.
2.
Length of period of ownership. All three transactions occurred in
less than 18 months.
3.
Frequency of transactions. The Appellant built three dwellings in
1993 and 1994.
4.
Work expended on the property. The Appellant, his brother and
father did all the general contracting.
5.
Circumstances responsible for sale. The Appellant did not have to
move because his brother was transferred. He returned to his
Delta home to join his wife and family.
6.
Motive. I do not accept that he built 754 to live in.
[12] The
evidence leads to the conclusion that the purpose of the
McArthur Drive transaction and the previous ones, was to
make a profit. Building houses was his business. I find as a fact
that 754 was constructed by the Appellant for the purpose of
selling it for a profit. The Appellant was correctly assessed on
the basis that he was a builder who received a self-supply
pursuant to subsection 191(1).
[13] In
conclusion, I find that the Appellant was the builder of 754, and
constructed it with his brother and father, with the primary
intention of selling it at a profit in the course of a venture in
trade. He did not occupy it as a primary place of residence and
was required to collect GST equal to 50% of $14,392.52 assessed
for the whole.[5]
He did not file a New Housing Rebate application for GST within
the time prescribed in the Act or any other time for that
matter. In any event, he is not entitled to a New Housing Rebate.
The Appellant's appeal with respect to 754 is dismissed.
Parmjit is not the Appellant and has no status in this appeal to
claim a New Housing Rebate and it would appear that he is beyond
the strict time limits provided in the Act.
[14] It is
understandable that the Minister assessed the Appellant as he
did. What do we have? A semi-detached residential building
constructed by the Appellant, Parmjit and father. The Appellant
was the owner of 754 and his brother 756. The Appellant was in
the business of building in Kamloops. The entire semi-detached
building was constructed without third-party financing. The
Appellant's primary, if not only, source of income was from
the construction of houses. Parmjit was a full-time police
officer with the RCMP but his primary source of funds to
construct 756 must have come from profits upon the sale of
(i) Bossert Avenue in April 1993, (ii) Courtney Crescent in
December 1993 and (iii) Partridge Drive in April 1994.
[15] While it
is close to the line, I accept that 756 was constructed as
Parmjit's principal place of residence and sold, together
with 754, only because Parmjit was transferred unexpectedly to
Surrey. Parmjit built and owned 756. I find that 754 and 756 were
of equal value.
[16] The
appeal is allowed on the basis that the Appellant is not liable
for GST on 756 McArthur Drive but is liable for GST on 754
McArthur Drive in the amount of $7,196.26 together with interest
and penalties. Interest and penalties to be assessed
proportionately to the reduced assessment.
Signed at Ottawa, Canada, this 20th day of December, 2000.
J.T.C.C.
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