Carvest Properties – Federal Court of Appeal confirms that the relevant valuation unit in an apartment building for ETA s. 191(1) self-assessment purposes was each rental unit

The company (“Carvest”) constructed a 137-unit building in London, Ontario, for purposes of renting the units. Nonetheless, it registered each of the units under the Condominium Act in order to avoid paying property taxes at a commercial-building rate. The Tax Court had found that Carvest was required under s. 191(1) to self-assess HST on the FMV of each “condo” unit as each unit was occupied by its tenant, rather than self-assessing under s. 191(3) on the FMV of the whole building when the first tenant moved in (or on substantial completion, if later). Furthermore, it accepted that the best method for valuing condo units was comparable sales of condo units, and rejected the cost plus 6% method proposed by Carvest (in light inter alia of difficulties in allocating common-area costs to the individual units.) However, the resulting per-unit value was to be reduced by a 6% “absorption discount” to reflect the effect on the market of absorbing the sale of 137 condo units over a 16-month period.

Monaghan JA found that the Tax Court had made no reversible error. Among other submissions, she rejected the Carvest suggestion “that the proper approach is to first determine the value of the property and then decide which part of section 191 applies—subsection 191(1) or 191(3)” and stated:

I disagree. [C]onsistent with Nash … the first step is to identify the property to be valued [i.e., each “condo” unit].

Neal Armstrong. Summary of Carvest Properties Limited v. Canada, 2022 FCA 124 under ETA s. 191(1).