Date: 19990407

Docket: 98-70-GST-I

BETWEEN:

ROBERT B. SNEYD,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

BOWIE J.T.C.C.

[1] This appeal concerns a claim made under subsection 256(2) of the Excise Tax Act (the Act) for a rebate of goods and services tax (GST) paid by the Appellant on the cost to him of renovations made and the construction of an addition to his home. The Minister of National Revenue, by an assessment dated June 2, 1997, rejected the rebate application, on the basis that the Appellant neither constructed nor substantially renovated a single unit residential complex. As I understand it there is no disagreement as to the computation of the rebate, but only whether the Appellant is entitled to it.

statutory provisions

[2] In order to qualify for the rebate, the Appellant must bring himself within section 256 of the Act. The relevant parts read as follows:

256(1) In this section,

...

"single unit residential complex" includes a multiple unit residential complex that does not contain more than two residential units.

256(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,

...

(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

...

the Minister shall, subject to subsection (3), pay a rebate to the particular individual equal to [formula for computation is not necessary]

Also relevant are the following definitions found in subsection 123(1). Only the pertinent parts are reproduced.

“residential complex” means

(a) that part of a building in which one or more residential units are located, together with

(i) ...

(ii) ...

(b) that part of a building that is

(i) the whole or part of a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real property owned, or intended to be owned, apart from any other unit in the building, and

(ii) a residential unit,

together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the unit and that is reasonably necessary for its use and enjoyment as a place of residence for individuals,

(c) 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 ...

“residential unit” means

(a) a detached house, semi-detached house, rowhouse unit, condominium unit, mobile home, floating home or apartment,

(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

(c) any other similar premises,

or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) is supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals,

(f) is vacant, but was last occupied or supplied as a place of residence or lodging for individuals, or

(g) has never been used or occupied for any purpose, but is intended to be used as a place of residence or lodging for individuals;

“single unit residential complex” means a residential complex that does not contain more than one residential unit, but does not include a residential condominium unit;

“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 staircases, has been removed or replaced where, after completion of the renovation or alteration, the building is, or forms part of, a residential complex;

facts

[3] The facts, as proved by the Appellant’s evidence, were not disputed. The Appellant lived with his wife in a heritage house, prior to the construction and renovation in question. Since its original construction, an addition had been made to the house, so that it was suitable for occupation by two families in separate dwelling units, and it had been so occupied from time to time. Immediately prior to the construction and renovation, however, the Appellant's family occupied both parts of the building. In 1994, the Appellant had a further addition to the house constructed, and had the first addition renovated, so that the two together comprised a much larger dwelling unit than the first addition by itself. At the same time certain renovations were made to the original main structure of the house.

[4] The floor area of the original house is 2,000 square feet; the first addition is 1,134 square feet. The addition which was built in 1995, and which, along with the renovation is the subject of this appeal, is 1,248 square feet. As well as construction of the addition, the renovation included replacement of the plumbing and electrical systems, the built-in fixtures, and the heating and air conditioning systems of the first addition. A bedroom 12 feet by 16 feet was added, as were a porch and patio doors, a bathroom and hallway. On the lower level, the entrance was rebuilt, as were the kitchen, pantry and washroom. A living room of 21 feet by 11 feet was added.

[5] The renovations to the main house that were undertaken at the same time included replacement of the furnace, renovation of the laundry facility and the upstairs bathroom. Some wiring and plumbing were replaced, and windows were restored. The Appellant estimated that about 50% to 60% of the original structure was renovated.

[6] The Appellant’s evidence about the expenditures involved was somewhat vague, but I understood him to say that the cost of the second addition and the renovation to the first addition was $107,000.00, and that the cost of renovations to the original house was $89,000.00. The latter amount was not included in his refund claim, because he understood that he was only entitled to claim a refund in connection with the work done to renovate, and to add to, the first addition. He concluded this, rightly or wrongly, from discussions with officials of Revenue Canada, and from his reading of Revenue Canada’s published policy document P-153. That document purports to set out Revenue Canada’s assessing policy with respect to rebate applications relating to the construction of major additions to single unit residential complexes.

[7] It is not disputed that after the renovation of the first addition and the construction of the second addition were completed they formed a residential unit, and that it was first occupied by the Appellant’s son, thereby satisfying the concluding words of paragraph 256(2)(a) and paragraph 265(2)(d) of the Act.

analysis

[8] It is apparent from the language of subsection 256(2) that in order to succeed the Appellant must show that he has, personally or through someone engaged for the purpose, either constructed or substantially renovated a single unit residential complex. I am satisfied by the evidence (and it appears to have been accepted by the Minister) that the work done did include a substantial renovation of the first addition. It did not, however, amount to a substantial renovation of the entire house, including the original structure. The Appellant in his evidence said that he estimated that the renovations in the original house amounted to some 50% or 60%. From his description of the work, it is clear that it did not involve the removal or replacement of “all or substantially all of the building that existed immediately before the renovation or alteration was begun”, even after excluding the structural parts referred to in the definition.

[9] The Appellant can only succeed, therefore, if he can show either that he has constructed a single unit residential complex, or that the first addition by itself was, prior to the renovation, a single unit residential complex. In either of those cases he will come within the words of subsection 256(2). The answer to these questions requires a journey through the labyrinthine definitions that I have set out above.

[10] Having regard to the relevant parts of the definitions of “residential complex”, “residential unit”, and “single unit residential complex”, we discover that the part of a building in which an apartment is located is a residential complex, and that for present purposes it is a single unit residential complex if it does not contain more than two residential units. If the first addition to this building is considered to be a residential unit separate from the main house at the time the renovation began, then it would qualify as a “single unit residential complex”, and the work brought about a substantial renovation of it. If it is not considered to be a separate unit at the time the renovation began, then the effect of the work was to create a new “single unit residential complex”. In either event, the Appellant comes within the prescription of subsection 256(2), and is entitled to the rebate.

[11] The appeal is allowed, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is entitled to the rebate for which he has applied.

Signed at Ottawa, Ontario, this 7th day of April, 1999.

"E.A. Bowie"

J.T.C.C.