Date: 20001110
Docket: 2000-1732-GST-I
BETWEEN:
SYLVIE LESSARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal from a notice of assessment dated June 2, 1997.
[2] In support of the notice of assessment, the Minister of National Revenue (the "Minister") assumed the following facts:
[TRANSLATION]
(a) by notarial contract dated February 25, 1997, the appellant acquired a two-storey building bearing numbers 522 and 524 Conseil Street, Sherbrooke, Quebec, for $46,000;
ownership and possession of the building were transferred to the appellant upon execution of the notarial contract;
(c) at the time of the purchase, the building was not used primarily as a place of residence in that
one part, the ground floor, was occupied for commercial purposes and another part, the second floor, was used as a residence; and
(ii) the part used for commercial purposes represented 50% of the building;
the GST payable in respect of the commercial portion of the building was $1,610, or 7% of 50% of the sale price of the building;
(e) GST in the amount of $1,610 was collected from the appellant by the vendor on behalf of the Minister;
(f) the appellant is not entitled to a rebate of the GST paid . . . .
[3] The appellant was the only witness in support of her appeal. She explained that she had acquired the building, which included a residential unit and commercial premises, for conversion into a single residential unit.
[4] The appellant stated that she had connected the two floors by means of an interior staircase and that it was now her own private residence. In support of her explanations, the appellant produced a copy of an application for a construction permit dated March 12, 1997 (Exhibit A-2). To support her submissions, the appellant relied on a written document that accompanied her notice of appeal.
[5] It is worth reproducing the contents of that document:
FACTS
1. The purchaser acquired a two-storey house that included a ground floor occupied by a retail business, and a second floor containing a residential unit. The vendor did not live in the building. Price: $46,000.
2. The vendor, represented by her notary, considered that the tax status of the building should be based on use by the then owner (the vendor); as the vendor did not use the building "primarily as a place of residence", "the whole" thereof could not therefore qualify as a "residential complex" as provided for in paragraph (c) of the definition of "residential complex" found in subsection 123(1) of the Excise Tax Act (ETA). The sale was therefore a supply of two separate properties, one exempt and the other taxable. The notary estimated the taxable property at 50% of the sale price.
GST paid: $23,000 x 7% = $1,610.00
QST paid: $24,610 x 6.5% = 1,599.65
$3,209.65
3. Only the vendor is a registrant for GST/QST purposes.
4. The purchaser uses the building "primarily as a place of residence". She lives on the second floor and part of the ground floor. The other part of the ground floor is used for commercial purposes, namely as a hotel for pets (dogs, cats).
PURCHASER'S POSITION
The whole of the building she purchased constitutes a residential complex under paragraph (c) because the purchaser is the individual to whom it was supplied by way of sale and because she uses it primarily as a place of residence.
The supply is exempt under Part I of Schedule V to the Excise Tax Act.
ARGUMENTS
1. Given the harmonization of the GST and QST, my reasoning, although based on the provisions of one law only, is valid for both.
2. Applicable legislation: paragraph (c) of the definition of "residential complex" in subsection 123(1) of the ETA. The two versions read as follows:
(a) the whole of a building described in paragraph (a), or the whole of a premises described in subparagraph (b)(i), that is owned by or has been supplied by way of sale to an individual and that is used primarily as a place of residence of the individual, an individual related to the individual or a former spouse of the individual, together with . . . .
(b) la totalité du bâtiment visé à l'alinéa a) ou du local visé au sous-alinéa b)(i), qui est la propriété d'un particulier, ou qui lui a été fourni par vente, et qui sert principalement de résidence au particulier, à son ex-conjoint ou à un particulier lié à ce particulier, y compris . . . .
3. Paragraph (c) of the definition of "residential complex" contains two conditions for the whole of a building to qualify as a residential complex:
(a) it must be owned by or have been supplied by way of sale to an individual, and
(b) it must be used primarily as a place of residence of the individual.
4. Parliament provided for two possibilities as regards condition (a): the "individual" in question is either the owner of the property [the vendor] or the person who received it by way of sale [the purchaser]. Although the French text is clear, the English version appears to me to be clearer still.
5. Condition (b) does not specify which of the two individuals contemplated in (a) must pass the test of "residence"; here again, in my opinion, the English text is clearer.
6. The application of this definition by the supplier (agent of the Minister) was restrictive in that it did not take into account one of the two possibilities available under the legislation.
[6] In substance, the appellant submits that the use of the property she acquired should be defined and determined on the basis not of its actual use at the time of acquisition, but of the use she intended to make of it after acquiring it, as confirmed by an application for a building permit and subsequent performance of the work.
[7] It is worth reproducing subsections 168(1) and (5) of the Excise Tax Act (the "Act"), which read as follows:
168(1) General rule - Tax under this Division in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.
. . .
(5) Sale of real property - Notwithstanding subsections (1) and (2), tax under this Division in respect of a taxable supply of real property by way of sale is payable
(a) in the case of a supply of a residential condominium unit where possession of the unit is transferred, after 1990 and before the condominium complex in which the unit is situated is registered as a condominium, to the recipient under the agreement for the supply, on the earlier of the day ownership of the unit is transferred to the recipient and the day that is sixty days after the day the condominium complex is registered as a condominium; and
(b) in any other case, on the earlier of the day ownership of the property is transferred to the recipient and the day possession of the property is transferred to the recipient under the agreement for the supply.
[8] The appellant's interpretation contradicts subsection 168(5) of the Act, which clearly provides that GST is payable on the earlier of the day ownership of the property is transferred to the recipient and the day possession of the property is transferred to the recipient under the agreement for the supply.
[9] Under the terms of the notarial contract, the appellant became the owner of the building on February 25, 1997, with immediate possession and occupancy.
[10] The appellant is therefore not entitled to a rebate of the GST paid in respect of the commercial portion of the building even though the commercial area was transformed into a private residence, because its use must be determined as of the day of acquisition and not on the basis of a plan for use after that day, even one that was actually carried out.
[11] For these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of November 2000.
"Alain Tardif"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 24th day of May 2001.
Stephen Balogh, Revisor