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Docket: 2002-1517(GST)G |
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BETWEEN: |
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ST. CHARLES PLACE HOLDINGS LTD., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
Appeal heard on September 13, 2004 at Victoria, British Columbia
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By: The Honourable Justice D.W. Beaubier |
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Appearances: |
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Counsel for the Appellant: |
George F. Jones |
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Counsel for the Respondent: |
Patricia A. Babcock |
AMENDED JUDGMENT
The appeal from the reassessment made under the Excise Tax Act, notice of which is dated February 14, 2002 and bears number 11CU-117992024 is allowed, and the reassessment it referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Amended Reasons for Judgment.
This Amended Judgment and Amended Reasons for Judgment is issued
in substitution for the Judgment and Reasons for Judgment dated October 8, 2004.
Signed at Vancouver, British Columbia this 17th day of November 2004.
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"D.W. Beaubier" |
Beaubier, J.
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Citation: 2004TCC679 |
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Date: 20041117 |
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Docket: 2002-1517(GST)G |
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BETWEEN: |
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ST. CHARLES PLACE HOLDINGS LTD., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
AMENDED REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the General Procedure was heard at Victoria, British Columbia, on September 13, 2004. Michael Holmes, solicitor for the Appellant at the material times, and Cameron Garbutt, the chief officer of the Appellant, were the only witnesses.
[2] Paragraphs 3 to 12 inclusive of the Amended Reply to the Notice of Appeal read:
3. With respect to paragraph A.3 of the Notice of Appeal, he states that the basis for the reassessment was (1) that the GST would be collected on a GST included basis which reduced the amount of GST collected by the Appellant from $104,580 to $100,472 and (2) additional input tax credits ("ITC's") of $31,789 will be allowed relating to new housing rebates for all units except the one sold to a corporation.
4. With respect to paragraph B.1 of the Notice of Appeal, he admits that the subject matter of the reassessment involves an issue of substantial renovation and denies the balance of the paragraph.
5. With respect to paragraph B.3 of the Notice of Appeal there are no facts to admit or deny.
6. The Minister of National Revenue (the "Minister") assessed the Appellant by Notice of Assessment No. 11CU0301901, dated December 22, 2000, in the amounts of $70,939.00 net tax, $10,438.45 net interest, and $15,387.25 penalty in respect of Goods and Services Tax ("GST") returns for the period of May 24, 1995 to February 28, 1997.
7. A Notice of Objection was filed on November 29, 2001.
8. By Notice of Decision No. 117992024 dated February 14, 2002, the Minister varied the assessment and reassessed the Appellant by Notice of Reassessment No. 11CU-117992024 dated February 14, 2002 in the amounts of $35,042.00 net tax, $4,525.11 net interest, and $7,073.10 penalty in respect of Goods and Services Tax ("GST") returns for the period of May 24, 1995 to February 28, 1997.
9. The Notice of Appeal was filed on April 17, 2002 and served on the Minister on May 8, 2002.
10. In so reassessing the Appellant, the Minister relied on the following assumptions:
a) the facts stated and admitted above;
b) the Appellant is a GST registrant with GST Registration No. 89511 1375 RT;
c) the Appellant was a corporation involved in property development;
d) the Appellant is required by the Excise Tax Act, R.S.C. 1985, c.E-15, as amended (the "Act") to file its GST returns on a quarterly basis;
e) the Appellant purchased a property located at 800 St. Charles Street, Victoria, B.C. for $570,000 in 1995;
f) at the time of the purchase 800 St. Charles Street was occupied by a single family dwelling (the "House") built in the early 1900's;
g) the Appellant spent $543,073 to convert the House to seven strata titled residential condominium units (the "Condos") consisting of Units 1 to 4 which are four two-level condos on the main floor and basement, Units 5 and 6 which are two condos on the second floor of the House and Unit 7 which is one condo in the attic of the House;
h) prior to this renovation the attic and the basement of the House were not habitable;
i) as part of the renovation to the House the exterior walls were filled with insulation; interior walls were exposed to the studs and new gypsum board, 48,000 square feet, was applied to most walls and ceilings; new insulation, electrical, plumbing and heating was installed to meet current building codes; new interior dividing walls were constructed to create separate condos; a new balcony was built; skylights were added; additional windows were added; new interior staircases were added; the original boiler heating system was replaced with electrical heating and gas fireplaces; new appliances and fixtures were put in each of the seven condos; the basement floor was removed, excavated down one foot to allow for eight foot ceilings and replaced with a new concrete slab; the existing floor joists of the second floor were removed and new floor joints installed to change the ceiling height of the second floor from 10 feet to eight foot; carpet, hardwood, linoleum and ceramic floors were installed in the condos;
j) the remaining original interior components of the House, such as the fireplaces and mantles, would not exceed 10% of the costs applicable to the calculation of a substantial renovation;
k) the garage was not part of the determination of a substantial renovation;
l) the Appellant sold the Condos for $1,504,000, an increase in value of $390,927, but did not charge GST and did not claim ITC's;
m) the Minister assumed that the single family dwelling was converted to a multi-residential strata complex and further assumed that this was a substantial renovation; and
n) Units 1 to 4 did not exist in the pre-renovation configuration, the basement [which is 50% of the floor space of Units 1 to 4] was not habitable, Unit 7 did not exist prior to the construction in issue, and units 5 and 6 were part of a single family dwelling and not independent strata units.
B. ISSUES TO BE DECIDED
11. The issue is whether the Appellant is liable for GST as assessed.
C. STATUTORY PROVISIONS RELIED ON
12. He relies on sections 123(1), 165, 169, 192, 221, 223(1), 254.1(3), 256.1(1) and 256(3) of the Act, the Financial Services (GST) Regulations (SOR/91-26), and the Input Tax Credit Regulations (SOR/91-45).
[3] Assumptions 10(a), (b), (c), (d), (e), (f), (g), (h), (k), (l) and (n) were not refuted by the evidence. With respect to the remaining assumptions:
(i) The additional windows were added in the basement area which was divided into four separate two-bedroom, one bath units, each of which formed part of four condo units on the main floor.
(j) Is wrong. The evidence of the witnesses is accepted that the value of the new "substantial renovation" components (omitting those excluded in the definition in subsection 123(1) of the Excise Tax Act in the structure amounted to about 60 percent to 70 percent of the current cost value of the old similar components upon completion of the structure. In other words, upon completion, about 40 percent of the value of those components of the residential complex was new and about 60 percent was original of those portions that are not excluded from the definition of "substantial renovation". The original components remaining included:
1. All of the exterior original "rock stucco, tudor wood fascia, 20 to 30 wood windows, the entrance door, entrance and wood trim and the garage.
2. The entire main floor inlaid oak floor with wood trim and the similar flooring at the second floor; the original wooden entry hall and stair landing - all of which became the entryway to the six upper suites.
3. On the second floor, one 20 foot long original Honduras mahogany floor to ceiling bookcase and one whole original bathroom.
4. The three original fireplaces were retained. All of the original wood was retained.
5. Mr. Garbutt calculated that $60,000 was spent on new sewer and water lines from the original house to the city services, on parking areas and on landscaping. This sum would be part of the amounts contained in the $543,073 described in 10(g).
As a result, the Court finds that the remaining original interior components of the house did exceed 10 percent of the costs applicable to the calculation of a substantial renovation. There is no evidence contrary to the evidence given by the Appellant's two witnesses and their evidence is accepted as true.
(k) The original garage formed part of one of the main floor suites and it constitutes part of the determination of substantial renovation determined by the Court.
(m) Whether the conversion of a single family dwelling to a seven unit multi-residential strata complex constitutes a substantial renovation is a question to be determined.
[4] In the course of the hearing, Appellant's counsel conceded that the suite created in the former attic was subject to GST. It was constructed in a bare, studded attic.
[5] For the period May 24, 1995 to February 28, 1997, subsection 123(1) in the Excise Tax Act, the definition of "substantial renovation", is important with respect to the remaining six units. It reads:
"substantial renovation" of a residential complex means the renovation or alteration of a building to such an extent that all or substantially all of the building that existed immediately before the renovation or alteration was begun, other than the foundation, external walls, interior supporting walls, floors, roof and staircase, has been removed or replaced where, after completion of the renovation or alteration, the building is, or forms part of, a residential complex
[6] It should further be noted that for work such as this, the City of Victoria does not require rezoning. It considers this work to be an extension or enhancement project for which it is important that the exterior should retain its original façade or character. In such circumstances it is not a new project for municipal zoning purposes. Nor did this project qualify for the new home warranty programme.
[7] Because of the finding in paragraph [3] that about 40 percent of the components of the completed structure was new, the Court finds that the work did not constitute a "substantial renovation".
[8] The Appellant's work did, however, put it in the business of making supplies of real property and therefore section 192 of the Excise Tax Act applies to it. Section 192 reads:
192. For the purposes of this Part, where in the course of a business of making supplies of real property a person renovates or alters a residential complex of the person and the renovation or alteration is not a substantial renovation, the person shall be deemed
(a) to have made and received a taxable supply, at the earlier of the time the renovation is substantially completed and the time ownership of the complex is transferred, for consideration equal to the total of all amounts each of which is an amount in respect of the renovation or alteration (other than the amount of consideration that was paid or payable by the person for a financial service or for any property or service in respect of which the person is required to pay tax) that would be included in determining the adjusted cost base to the person of the complex for the purposes of the Income Tax Act if the complex were capital property of the person and the person were a taxpayer under that Act; and
(b) to have paid as a recipient and to have collected as a supplier, at that time, tax in respect of the supply, calculated on the total determined under paragraph (a).
[9] In summary, the former attic is subject to GST as a substantial renovation as conceded by the Appellant and the remaining six units are subject to GST pursuant to section 192.
[10] This matter is referred to the Minister of National Revenue for reconsideration and reassessment accordingly.
[11] There is no order as to costs.
This Amended Judgment and Amended Reasons for Judgment is issued in substitution for the Judgment and Amended Reasons for Judgment dated October 8, 2004.
Signed at Vancouver, British Columbia, this 17th day of November 2004.
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"D.W. Beaubier" |
Beaubier, J.
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CITATION: |
2004TCC679 |
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COURT FILE NO.: |
2002-1517(GST)G |
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STYLE OF CAUSE: |
St. Charles Place Holdings Ltd. v. Her Majesty the Queen |
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PLACE OF HEARING: |
Victoria, British Columbia |
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DATE OF HEARING: |
September 13, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice D.W. Beaubier |
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DATE OF AMENDED JUDGMENT: |
November 17, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
George F. Jones, Q.C. |
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Counsel for the Respondent: |
Patricia A. Babcock |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
George F. Jones |
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Firm: |
Jones Emery Hargreaves Swan |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |