Date:19980604

Docket: 96-116-GST-I

BETWEEN:

PAUL RAJ,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Rip, J.T.C.C.

[1] In late fall 1993, while he was a student at the University of Alberta and a licensed real estate agent, Paul Robert Raj, the appellant, started construction on land owned by him in the City of Edmonton of a one and a half story house ("house"). Construction of the house was completed in March 1994 but the appellant never moved into the house. In February 1994, the appellant accepted an offer of a summer job from Syncrude Limited in Fort McMurray, Alberta. Because he was going to leave the City of Edmonton for Fort McMurray, the appellant declared, he put the house up for sale in February 1994 and sold the property on July 5, 1994. Mr. Raj stated that when he commenced construction of the house, he intended to move into it upon its completion. It was only because he obtained the unexpected job in Fort McMurray that he sold the house. He complained he had been unsuccessful in his attempts to obtain employment in his field of study. When he did get such a job out of town, he decided to sell the house. Mr. Raj is appealing an assessment issued by the Minister of National Revenue ("Minister") imposing Goods and Services tax ("GST"), pursuant to the Excise Tax Act ("Act"), on the sale of the house. Mr. Raj claims that the sale of the house in July 1994 is exempt from GST since the sale is an exempt supply under Part I of Schedule V of the Act. He also claims the new housing rebate contemplated by subsection 256(2) of the Act. At all relevant times Mr. Raj was not a registrant under the Act.

[2] The Minister's position is that the house was a residential complex and that Mr. Raj was a builder within the meaning of subsection 123(1) of the Act. Therefore, the house sold by the appellant was a supply in the course of a business or an adventure or concern in the nature of trade and is therefore taxable under the Act.

[3] Mr. Raj's parents owned a real estate agency, Ranger Realty Ltd., and in 1992, Mr. Raj became a licensed real estate agent. He said it was not his intention to make real estate his occupation. He wanted to be a mining engineer. He began his studies in 1987 at the Faculty of Engineering of the University of Alberta and then studied minerals and resources at the Northern Alberta Institute of Technology. He returned to the University of Alberta in 1992 and graduated at the end of 1994.

[4] During 1993 and 1994 Mr. Raj worked part-time for Ranger Realty Ltd. and was not optimistic he would obtain a position as a mining engineer on graduation. If he did not obtain employment in his chosen field, he was prepared to continue to work for his parents. Accordingly, he said, he decided to build the house.

[5] The appellant testified that job prospects for mining engineers were not too good in Edmonton in the 1993. The best prospects for mining engineers were in Fort McMurray and in northern Canada. In October 1993 he was interviewed by Syncrude for a summer position. He knew any position he obtained either with Syncrude or other employer would be outside of Edmonton, if he obtained a job at all.

[6] Mr. Raj obtained financing from his parents for the purchase of the land and for the construction of the house. He testified he purchased the land ("house lot") before 1993.

[7] The house had an area of 2,000 square feet. It had three bedrooms and a den, a kitchen, a family room, and a living room. The basement was unfinished. The cost of the house and land was approximately $190,000 and he sold the property in July 1994 at his cost.

[8] At all relevant times Mr. Raj was not married. In 1993 he was 25 years old.

[9] Mr. Raj stated that he consulted an accountant to determine whether or not he was subject to GST on the sale of the house. The accountant informed him that since he paid GST during construction of the house, no GST was exigible a second time when he sold the house.

[10] Mr. Raj's parents previously carried on the business of building contractors under the name Adria Homes Ltd. Mr. Raj asked his mother to "take care" of the construction of the house and she did so. According to the appellant, he was "bystander" insofar as actual construction of the house is concerned.

[11] The house was completed in March 1994. Mr. Raj authorized his parents to sell the house as his agents. He left Edmonton at the end of April 1994 and moved to Fort McMurray. The offer to purchase the house was accepted in July 1994. The house was vacant between March and July.

[12] Mr. Raj acknowledged that the Syncrude job offer was only for the summer of 1994 but, he declared, Syncrude had the reputation of hiring back summer students as permanent employees. Indeed, Mr. Raj stated he did get an informal offer in July 1994 from Syncrude for a full time position. He returned to school in September 1994. Syncrude expressed interest in October 1994 in hiring Mr. Raj as a full time employee and Mr. Raj indicated that he was interested in such a position. He was eventually hired as a permanent employee by Syncrude and on March 1, 1995 commenced working in Fort McMurray. He worked at Fort McMurray until 1997.

[13] Mr. Ralph Lee, an auditor with Revenue Canada, testified that when he received the file to review the Notice of Objection to the assessment in issue he contacted Mr. Raj by telephone. Mr. Raj informed Mr. Lee that the house was built for resale. The appellant referred Mr. Lee to his mother for additional information. When Mr. Lee spoke to Mrs. Raj, she insisted no GST was payable on the sale of the house since the sale was between individuals.

[14] On the facts before me I am not satisfied that Mr. Raj's sole intention when purchasing the house lot and then building the house was to live in the house. He did not use any of his own money to acquire the property and build on it. Although he was a licensed real estate agent, his main occupational thrust was studying at the University of Alberta. His goal was to secure employment as a mining engineer and in 1993 the prospects of attaining this goal were not good. He was prepared to work as a real estate agent in Edmonton if he was unable to find work in his chosen field. At best, as I appreciate the evidence, working as a real estate agent was a poor second option.

[15] For the above reasons - and even if I ignore the evidence of Mr. Lee who testified that Mr. Raj informed him the house was built to sell - I find it questionable that when Mr. Raj undertook and commenced to build the house (or even earlier, when he acquired the house lot) he was satisfied in his mind that he was prepared to take up residence in the house. That he was prepared to sell the property on the basis of a summer job, a temporary job only confirms that if not when he purchased the house lot, then when he decided to build the house, the possibility of selling the property was an operating motivation for the acquisition of the house lot and the construction of the house.¹ Mr. Raj must have had in his mind that upon a certain type of circumstances arising, such as securing employment away from Edmonton, he would sell the house instead of using it as his residence.

[16] Mr. Raj had, at the time he decided to build the house, a "secondary intention" of selling the house if circumstances require and I have no doubt that he intended to make a profit on any such sale. Hence, purchase of the land, the construction of the house and sale of the property constituted a commercial activity to Mr. Raj within the meaning of subsection 123(1) of the Act: the transactions constituted an adventure or concern in the nature of trade. There was no evidence that Mr. Raj did not have a reasonable expectation of profit, when he commenced the activity.

[17] Mr. Raj was a builder, as defined by subsection 123(1) of the Act. He had an interest in the real property, the land, on which a residential complex, the house, is situated and engaged another person to carry on for him the construction of the house in the course of an adventure or concern in the nature of trade. Thus, GST was exigible on the sale of the house.

[18] With respect to the new housing rebate requested by Mr. Raj, there is no evidence, among other things, that Mr. Raj applied for the rebate within the time required by subsection 121(4) of the Act. It may be, as suggested by respondent's counsel, that Mr. Raj is entitled to a rebate pursuant to section 252 of the Act as it read in 1994. I understand he had not applied for the rebate at time of trial and I advised him to do so forthwith since the application is to be filed within four years after the day the consideration for the supply became due or was paid without becoming due, that is, on or about July 5, 1994.

[19] The appeal is dismissed.

Signed at Ottawa, Canada, this 4th day of June 1998.

"Gerald J. Rip"

J.T.C.C.

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