Date: 20020423
Docket: 2001-2217-GST-I.
BETWEEN:
PAUL K. SNIDER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
O'Connor, J.T.C.C.
ISSUE
[1] The issue in this appeal is whether the Appellant is entitled to a goods and services tax ("GST") new housing rebate in an amount of $4,512.61, whether under section 254 or section 256 of the Excise Tax Act ("Act"). Section 256 is applicable to builder-built or owner-contracted residential complexes. Section 254 relates to residential complexes built by and purchased from a builder.
FACTS
[2] In January of 1996 the Appellant contracted for the purchase of a custom-built home and lot from Robert J. Scott Construction ("Scott"). The Appellant and Scott had agreed to the terms of sale of the home and lot which is described as 198 Orchard Crescent, R. R. #3, Perth, Ontario and had agreed to incremental payments at various stages of construction.
[3] The Appellant filed a new housing application ("Application") for a rebate of GST in the amount mentioned above. This Application was received by the Minister of National Revenue ("Minister") on July 20, 2000.
[4] By a Notice of GST assessment dated December 11, 2000 the Minister notified the Appellant that the Application had been disallowed.
[5] In so disallowing the Minister made the following assumptions of fact:
(a) In April 1996, the Appellant bought a piece of land from a builder before the construction of the residential complex was started and entered into a contract that the same builder would build the residential complex;
(b) the Application does not qualify as a builder-built residential complex pursuant to subsection 254(2) of the Act since the ownership of the residential complex was not transferred to the Appellant after the construction was substantially completed;
(c) the Appellant hired a contractor to construct a residential complex, that was a single unit residential complex for use as his primary place of residence, located at 198 Orchard Crescent, RR #3, Perth, ON (the "Complex");
(d) the Appellant was the first individual to occupy the Complex after the construction was begun;
(e) construction of the Complex was substantially completed in or around June 28, 1996;
(f) the Appellant occupied the Complex as his primary place of residence in or around June 28, 1996;
(g) the Appellant filed an Application and the Minister received the said Application (Agency stamped) on July 20, 2000;
(h) the Application was filed on or after April 23, 1996;
(i) subsection 256(3) of the Act requires an Application for an owner-built residential complex to be filed within two years after the earlier of the day that is two years after the day the complex is first occupied after its construction has begun or the day ownership is transferred to another person without the complex having been occupied and the day construction of the complex is substantially completed;
(j) in accordance with subsection 256(3) of the Act, the Appellant's Application should have been filed two years after the day the construction of the Complex was substantially completed which is on or before June 28, 1998;
(k) the Appellant's Application was not filed within the two-year time limit referred to in paragraphs 6(i) and 6(j) above.
[6] It will be observed that some of the assumptions set forth above are assumptions of law.
SUBMISSIONS
[7] The Appellant submits that his Application was filed on time as he was filing under section 254 of the Act. The Minister contends that section 254 of the Act which relates to homes purchased from builders cannot apply, principally because ownership of the home was not transferred to the Appellant after construction was substantially completed. The Appellant contends that this condition in effect was met because when he made his first payment of $17,000 on April 14, 1996 that represented an amount of $15,000 with respect to the lot and $2,000 with respect to certain materials which were to be incorporated into the home and because the arrangement was for incremental payments as construction advanced. The Appellant also points to the restrictive covenant in the deed of transfer to the effect that the Appellant was obliged to have the transferor construct his home. The Appellant concludes that he met the conditions of section 254.
ANALYSIS
[8] In my opinion section 254 of the Act is not applicable because the ownership of the residential complex was not transferred to the Appellant after the construction was substantially completed. The transfer took place on April 14, 1996 and originally affected the lot and the housing materials which were on the lot at that time. With respect to further house materials and improvements to be made after that date reference is made to The Right Honourable Sir Robert Megarry, The Law of Real Property, 5th edition at page 731 and following:
The meaning of "real property" in law extends, as has been seen, to a great deal more than "land" in everyday speech. 94 It comprises, for instance, incorporeal hereditaments; and it also includes fixtures. The general rule as to fixtures is "quicquid planatur solo, solo cedit"95 (whatever is attached to the soil becomes part of it). Thus if a building is erected on land and objects are permanently attached to the building, then the soil, the building and the objects affixed to it are all in law "land", i.e. they are real property, not chattels. They will all become the property of the owner of the land, unless otherwise granted or conveyed. ...
... The materials used for building a house are thereby converted from chattels into land, and so automatically pass out of the ownership of the person who owned them as chattels and become the property of the owner of the land to which they are attached; and it makes no difference whether the person who attached them had a right to do so or not.
[9] Thus, in my opinion, because the transfer took place before construction was substantially completed section 254 of the Act is not applicable.
[10] The applicable subsections of the Act are 256(2) and 256(3). They provide, so far as material, as follows:
256. In this section, ...
(2) Where
(a) a particular individual constructs or substantially renovates, or engages another person to construct or substantially renovate for the particular individual, a residential complex that is a single unit residential complex or a residential condominium unit for use as the primary place of residence of the particular individual or a relation of the particular individual,
(b) the fair market value of the complex, at the time the construction or substantial renovation thereof is substantially completed, is less than $450,000,
(c) the particular individual has paid tax in respect of the supply by way of sale to the individual of the land that forms part of the complex or an interest therein or in respect of the supply to, or importation by, the individual of any improvement thereto or, in the case of a mobile home or floating home, of the complex (the total of which tax under subsection 165(1) and sections 212 and 218 is referred to in this subsection as the "total tax paid by the particular individual"),
(d) either
(i) the first individual to occupy the complex after the construction or substantial renovation is begun is the particular individual or a relation of the particular individual, or
(ii) [not applicable]
the Minister shall, subject to subsection (3), pay a rebate to the particular individual equal to ... [ a formula follows] ...
(3) A rebate under this section in respect of a residential complex shall not be paid to an individual unless the individual files an application for the rebate within two years after the earliest of
(a) the day that is two years after the day the complex is first occupied as described in subparagraph (2)(d)(i),
(a.1) [not applicable]; and
(b) the day construction or substantial renovation of the complex is substantially completed.
[11] Subsection 256(3) quoted above was introduced by S.C. 1997, c. 10, s. 66(3), and is applicable to any rebate in respect of a residential complex for which an Application is filed with the Minister of National Revenue on or after April 23, 1996 subject to certain exceptions which do not apply in this case as the Appellant only occupied the home after April 23, 1996.
[12] David M. Sherman in Canada GST Service, Binder C5, explains the former subsection 256(3) and the amendment as follows:
Deadline for Claiming Rebate
As originally enacted, the deadline for claiming the rebate was two years from the earlier of:
(a) the day the complex was first occupied as described in subparagraph 256(2)(d)(i) or the home was sold before being occupied as described in subparagraph 256(2)(d)(ii),
and
(b) the day construction or substantial renovation of the complex is substantially completed.
This led to numerous cases where taxpayers were denied the rebate because they applied for it more than two years after moving in. See below under "Case Law-Rebate Application Deadline".
The amendments enacted in 1997, first released on April 23, 1996, changed the rebate deadline significantly. It is now limited by a combination of subsections 256(3) and 256(2.01).
The application deadline is two years from the earliest of:
· two years after occupancy of the home (i.e., this deadline is 4 years from occupancy);
· the day the home is sold by the applicant before being occupied (this situation is rather rare); and
· the "substantial completion" of the construction or substantial renovation.
The change relates to the occupancy of the home, which now starts a four-year rather than a two-year clock running. However, substantial completion still starts a two-year clock. Whichever clock runs out first sets the deadline.
In addition, subsection 256(2.01) prevents any GST from being included where that GST accrues after two years from when the home is first occupied. In other words, once one moves into the home, one has two years to finish it off, after which any later costs will not be eligible for the rebate.
These changes generally took effect for rebate applications filed after April 23, 1996, with grandfathering for homes occupied, substantially completed or resold before that date. See the History annotation above.
The courts are unlikely to accept a claim beyond the deadline on the grounds of equity, compassion or unjust enrichment to the government. See the discussion of this point in the commentary to subsection 261(3), as well as the cases below under the heading "Case Law-Rebate Application Deadline". However, if the deadline expires on a weekend or holiday, it may be extended by the Interpretation Act or the case law. See the commentary to section 301.
In addition, Cabinet has granted a number of remission orders to individuals who missed the deadline. (For discussion of remission orders, which are granted under the Financial Administration Act, see the commentary to subsection 165(1).)
[13] In the present case the construction was completed on June 28, 1996 and the Application was only received by the Minister on July 20, 2000, i.e. a date more than two years after the construction of the complex was completed.
[14] Consequently since section 254 of the Act does not apply and since the Appellant is beyond the delay contemplated in amended subsection 256(3) of the Act, the Appellant is not entitled to the rebate and the appeal must be dismissed.
[15] As mentioned above, the Appellant might consider applying for a remission order under the Financial Administration Act.
Signed at Ottawa, Canada, this 23rd day of April, 2002.
"T. O'Connor"
J.T.C.C.
COURT FILE NO.: 2001-2217(GST)I
STYLE OF CAUSE: Paul K. Snider v. Her Majesty the Queen
PLACE OF HEARING: Ottawa, Canada
DATE OF HEARING: February 4, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Terrence O'Connor
DATE OF JUDGMENT: April 23, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Justine Malone
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada