Date: 20000808
Docket: 2000-205-GST-I
BETWEEN:
MINAZ REHMAT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] By Notice of Reassessment Number 11GU0102788 dated October 8, 1998 ("Reassessment") the Minister of National Revenue ("Minister") reassessed the Appellant for GST net tax in the amount of $34,518.02, interest $14,610.01 and penalty of $17,905.57 for a total of $84,245.58. The basis of the Reassessment was that the Appellant was subject to the self-supply rules of subsection 191(1) of the Excise Tax Act (the "'Act") in relation to the construction and occupation of a single unit residential complex at 3951 Piper Avenue, Burnaby, British Columbia, the legal description of which is noted below. The said complex and related land are sometimes hereinafter referred to as the "Property". The facts and issues involved are essentially set forth in the following paragraphs of the Reply to the Notice of Appeal.
11. In so reassessing the Appellant, the Minister relied on the following assumptions of fact:
...
(b) the Appellant registered under Part IX of the Excise Tax Act (the Act") effective March 30, 1993, and was assigned Registration number 135025369;
(c) the Appellant was required to file GST returns on a quarterly basis;
(d) the Appellant was involved in the real estate development business ... ;
(e) in November 1992, the Appellant purchased the Property whose legal description is Parcel Identifier 002-949-750, Lot 108, District Lot 42, Plan 44013;
(f) the Appellant contracted to have the house located on the Property demolished and have a new house built, and paid all costs, including the GST;
(g) the Appellant claimed as ITC's the GST paid on the construction cost in the amount of $23,180.52;
(h) the ITC's were incurred in respect of the Appellant's commercial activities;
(i) on or about March 24, 1994, the Appellant took possession of the house for use as his place of residence; and
(j) the Appellant did not remit the GST on $739,000.00, the fair market value of the Property.
B. ISSUES TO BE DECIDED
12. The issues in this Appeal are:
(a) whether the Appellant is liable to pay GST on the self-supply of the Property, pursuant to subsection 191(1) of the Act;
(b) whether the appellant is entitled to the benefit of the personal use exception in subsection 191(5) of the Act; and
(c) the fair market value of the Property at the time of the deemed sale to the Appellant.
SUBMISSIONS
[2] The Appellant contends that he was initially assessed on February 24, 1998 and by Notice of Decision August 19, 1998, the Minister allowed ITC's claimed and did not assess unremitted GST interest and penalties. The Reassessment assessed the amounts described above. In other words, the Appellant feels the first Decision was correct and that the Reassessment is not. He further contends that any GST that might be exigible should be calculated on the cost of the Property, which was less than the fair market value. The Appellant contends further that any GST that might be owing should only have to be remitted when the Property is sold. As of the date of the hearing of this Appeal, the Property remained unsold and the Appellant and his family continued to reside at the Property. The Appellant added that the real estate market had collapsed in the area of the Property and that the value is less than the fair market value assessed by the Minister. Counsel for the Minister contends that the Appellant as a builder is subject to the self-supply rules contemplated in subsection 191(1) of the Act and that the Appellant cannot take advantage of the exception for personal use contemplated in subsection 191(5) of the Act because the Appellant claimed and was granted Input Tax Credits in respect of the construction of the new house.
ANALYSIS
[3] The relevant provisions of the Excise Tax Act are:
191. Self-supply of single unit residential complex or residential condominium unit
(1) For the purposes of this Part, where
(a) the construction or substantial renovation of a residential complex that is a single unit residential complex or a residential condominium unit is substantially completed,
(b) the builder of the complex
(i) gives possession of the complex to a particular person under a lease, licence or similar arrangement (other than an arrangement, under or arising as a consequence of an agreement of purchase and sale of the complex, for the possession or occupancy of the complex until ownership of the complex is transferred to the purchaser under the agreement) entered into for the purpose of its occupancy by an individual as a place of residence,
(ii) gives possession of the complex to a particular person under an agreement for
(A) the supply by way of sale of the building or part thereof in which the residential unit forming part of the complex is located, and
(B) the supply by way of lease of the land forming part of the complex or the supply of such a lease by way of assignment,
other than an agreement for the supply of a mobile home and a site for the home in a residential trailer park, or
(iii) where the builder is an individual, occupies the complex as a place of residence, and
(c) the builder, the particular person or an individual who is a tenant or licensee of the particular person is the first individual to occupy the complex as a place of residence after substantial completion of the construction or renovation,
the builder shall be deemed
(d) to have made and received, at the later of the time the construction or substantial renovation is substantially completed and the time possession of the complex is so given to the particular person or the complex is so occupied by the builder, a taxable supply by way of sale of the complex, and
(e) to have paid as a recipient and to have collected as a supplier, at the later of those times, tax in respect of the supply calculated on the fair market value of the complex at the later of those times.
(5) Exception for personal use
Subsections (1) to (4) do not apply to a builder of a residential complex or an addition to a residential complex where
(a) the builder is an individual;
(b) at any time after the construction or renovation of the complex or addition is substantially completed, the complex is used primarily as a place of residence for the individual, an individual related to the individual or a former spouse of the individual;
(c) the complex is not used primarily for any other purpose between the time the construction or renovation is substantially completed and that time; and
(d) the individual has not claimed an input tax credit in respect of the acquisition of or an improvement to the complex.
[4] Subsection 191(1) operates where a builder is the first individual to occupy a single unit residential complex as a place of residence after substantial completion of the construction the complex. If so, the builder is then deemed to have made and received a taxable supply by way of sale of the complex, at the later of the time the construction is substantially completed and the time the complex is so occupied by the builder. He is further deemed to have paid as a recipient and to have collected as a supplier, tax in respect of the supply calculated on the fair market value at the later of those times. The deeming provision for who is a builder is found in subsection 190(1) of the Act and the definition of “builder” is found in subsection 123(1). Based on the evidence the Appellant was a builder.
EXCEPTION IN SUBSECTION 191(5)
[5] Subsection 191(5) states that subsection (1) will not apply in limited circumstances. Firstly, if the builder is an individual, if the home is used primarily as a place of residence by him so long as the home is not used primarily for any other purpose. The most important part of the exception is that the individual has not claimed an input tax credit in respect of the acquisition or improvement of the complex. The fact that the Appellant did claim input tax credits in respect of the improvements to the Property, therefore disqualifies him for this exception. He is thus not entitled to the benefits of subsection 191(5).
[6] On the issue of the value to be used for purposes of the GST the contention of the Minister is that the assumption contained in paragraph 11(j) of the Reply to the effect that the fair market value was $739,000 at the relevant time has not been disproved by the Appellant. The Appellant submitted no appraisals and simply made his own estimate that the property was worth about $600,000 which is slightly higher than the cost. Counsel for the Minister, through Mr. Reardon, the auditor of the Minister in this matter, also submitted Exhibit R-4 which comprises inter alia a note as to how the values were arrived at, which values were based on the BCAA Assessment notices. It appears from this note that the BCAA Assessment valued the property at $739,000 in 1995; $741,000 in 1996; $723,000 in 1997 and $693,000 in 1998. Counsel referred to a decision of Beaubier, J.T.T.C. in Watt v. R. [1999] Carswell Nat. 2344 which held that the Appellant in that case did not call expert evidence respecting the value of certain items and simply relied on his own testimony. Judge Beaubier concluded that without the testimony of a qualified expert as to the value of the items in question, the assumptions of the Minister are not refuted. Counsel also referred to Goodwin v. M.N.R. 82 D.T.C. 1679 where the Tax Review Board stated as follows at 1680:
The Board's primary role, as I see it, in a valuation case, is to decide whether the evidence presented by the appellant supports a different valuation than that used by the Minister in assessing. The mechanism chosen by the appellant in this appeal, and in most such appeals, is to present evidence in support of a different valuation – in this case $6,000 per acre. Unless there is good "prima facie” evidence to support that alternative valuation, I am not of the opinion that the Board is required to consider at all whether the valuation used by the Minister is correct or incorrect.
[7] Counsel for the Respondent also referred to Budden v. Canada [1997] G.S.T.C. 7 being another decision of Beaubier, J.T.T.C. where it was held in a facts situation very similar to those of this appeal, that the appeal should be dismissed because the self-supply rule in subsection 191(1) applied and the exception in subsection in 191(5) did not apply. It is helpful to also quote the note of David Sherman with respect to the Budden case.
This was a routine "self-supply" case. It is not clear why the appellant appealed, other than perhaps because he did not understand the law.
The basic concept of the self-supply rules is straightforward. If a builder builds a new home and sells it, the sale is taxable. If the builder, instead of selling the home, rents it out or occupies it personally, subsec. 191(1) applies to deem the builder to have sold the home, and GST is payable on the fair market value of the home.
Many builders are unaware of this rule. In this case, the builder tried to sell the home for 8 months. When he did not succeed, he moved into the home. This, of course, triggered the self-supply rule in subsec. 191(1).
If the builder had not claimed input tax credits, subsec. 191(5) would have prevented the self-supply rule from applying, as Judge Beaubier noted. See Brown (C.G.) v. Canada, [1995] G.S.T.C. 38 (T.C.C.). However, since he had claimed such credits, this exclusion did not apply and the self-supply rule applied.
[8] For all of the above reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 8th day of August, 2000.
"T. O'Connor"
J.T.C.C.