[OFFICIAL ENGLISH TRANSLATION]
2000-3549(GST)I
BETWEEN:
NATHALIE BÉLANGER AND CAROL RIOUX,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on July 17, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellants: The Appellants themselves
Counsel for the Respondent: Louis Cliche
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act, of which the Notice of Appeal is dated December 22, 1999, and which bears number 992780010229G14, concerning the application for rebate of the Goods and Services Tax on the second phase of the work, that is, the work carried out in 1998, is allowed in accordance with the attached Reasons for Judgment.
No further recourse is available to the appellants.
Signed at Ottawa, Canada, this 19th day of December 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 19th day of March 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20011219
Docket: 2000-3549(GST)I
BETWEEN:
NATHALIE BÉLANGER AND CAROL RIOUX,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This appeal concerns an application for rebate of the Goods and Services Tax (''the GST'') on substantial work done on the appellants' residence. The application for rebate was disallowed on the ground that it was filed late, that is, after the time limit set out in the Excise Tax Act (''the Act'').
[2] The appellants explained that they had first purchased a cottage or a summer place in 1990. It was an old property without any real foundation and which required extensive repair and renovation.
[3] In the fall of 1995, the appellants carried out substantial work on the site where the cottage was located. The cottage was moved in order to lay foundations that would ultimately make it possible to build a habitable basement.
[4] During the excavation and foundation construction, the cottage was moved from its original location and serviced by means of temporary facilities and connections; the appellants continued to enjoy the premises.
[5] For this phase of the work, the appellants spent approximately $28,000 on various contracts. The appellants having done very little of this work themselves, the money was paid out to third parties.
[6] Once this work was completed, the cottage was placed permanently and definitively on the new foundation; this work made it possible to create a bedroom in the new basement.
[7] Once the above-mentioned work was completed, work on the site was interrupted. Some time later, the appellants became parents. In the spring of 1998, they decided to carry out additional substantial work affecting the entire living space above the foundation.
[8] As a result, the appellants redid the flooring, partitioning, plumbing, wiring and insulation. The windows and kitchen counters and cupboards were replaced, the stairs were redone and an eight-by-sixteen-foot addition was built. In addition to all this work there was inherent, complementary work such as installing drywall sheets, filling joints, and doing painting. In other words, only the exterior walls were not redone.
[9] While this work was being carried out, the appellants lived in the basement; at times, they had their parents look after their young child. This work was carried out over a lengthy period because the appellants did most of the work themselves, Carol Rioux being a plumber by training.
[10] The evidence has established that the substantial work was carried out in two separate phases separated by a lengthy period of time. The parties themselves used the expression ''two phases'' to describe the work; the first phase involved laying the foundation and finishing the basement area; the second phase involved working on all the living space on the ground-floor or above the foundation.
[11] After the work was completed, the appellants applied for a rebate of the GST they had paid on all the work carried out. Their application was disallowed on the ground that it was filed late, because over two years had elapsed from the time they began to occupy the premises, on completion of the first phase of the work, and the time they applied for rebate of the GST.
[12] The respondent gave the following reasons for disallowing the application:
[TRANSLATION]
(a) the appellants are individuals;
(b) the appellants made substantial renovations to their residence;
(c) after the substantial renovations were begun, the appellants first occupied the premises on November 1, 1995;
(d) the appellants filed an application for rebate of the GST paid on their residential unit; the respondent received the application on September 28, 1998;
[13] The conditions governing entitlement to rebate of the GST are set out in subsection 256(3) of the Act; they read as follows:
Application for rebate
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) the day ownership is transferred as described in subparagraph (2)(d)(ii); and
(b) the day construction or substantial renovation of the complex is substantially completed.
[14] At the hearing, the respondent argued that the only substantial work was the work on the foundation and that the work carried out during the second phase was finishing work.
[15] This interpretation by the respondent is not supported by the evidence. Rather, the evidence has established that the second phase of the work constituted a substantial renovation that qualified for a rebate of the GST and was closely and directly related to the residential purpose of the building.
[16] Redoing the flooring, partitioning, insulation and stairs; replacing the windows and kitchen cupboards; and carrying out all the work involved in adding an addition is substantial work that cannot be described as mere finishing work. It is therefore not appropriate to accept the respondent's interpretation of the nature and extent of the second phase of the work.
[17] Nor does the respondent's interpretation correspond at all to the provisions of the Act. In subsection 123(1) of the Act, Parliament defined substantial renovation as follows:
''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;
[18] Although the first phase of the work carried out was substantial, it did not prevent the appellants from using or enjoying the premises. The evidence has established that the living conditions were essentially unchanged since there had never been a basement. The appellants therefore lived in the same conditions as those existing at the time of purchase.
[19] The initial or first phase of the work formed the basis or foundation for the subsequent work to be done. It was structural and had nothing to do with whether the residence, which in fact was moved from its original location, was habitable.
[20] The same cannot be said for the second phase of the work, which considerably affected the living conditions. I point out that the appellants replaced the partitioning, windows, flooring, wiring, plumbing, cupboards, stairs and other features. The very nature of this work makes it easy to conclude that the living space was no longer habitable. In fact, the appellants stated that they moved into the basement and, at times, had someone look after their child.
[21] In 1990, the appellants purchased a property that, by and large, was habitable seasonally since, according to their testimony, it was a cottage requiring repair and renovation.
[22] With the objective of making the cottage an appropriate residence for their family and given that they had to deal with various constraints, including limited finances and an expected child, the appellants chose to carry out their family project in phases.
[23] The appellants decided, first, to provide a basis for their project by laying a foundation on which they could eventually carry out work to make the acquired space habitable.
[24] The parties described this planning by referring to two separate stages or phases, with a lengthy period separating the first and second phases of the work.
[25] Must all the work carried out be considered an indivisible whole?
[26] If so, the appellants' application would be inadmissible. Before 1997, subsection 256(3) of the Act read as follows:
256(3) A rebate shall not be paid under subsection (2) in respect of a residential complex to an individual unless the individual files an application for the rebate within two years after the earlier of
(a) the day the complex is first occupied as described in subparagraph (2)(d)(i) or ownership is transferred as described in subparagraph (2)(d)(ii), and;
(b) the day construction or substantial renovation of the complex is substantially completed.
(Emphasis added.)
[27] Subsection 256(2)(d) reads as follows:
...
(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) the particular individual makes an exempt supply by way of sale of the complex and ...
[28] Thus, to be entitled to a rebate of the GST, the appellants should have filed their application within two years following the day they first occupied the complex after the work was begun, or the day the substantial renovation of the premises was substantially completed, the earlier of the two dates being the time limit to file an application.
[29] The appellants admitted that they occupied the property from the time the work was first begun in November 1995. The two-year period for filing an application for rebate of the GST would therefore have expired in November 1997.
[30] In Thompson v. Canada, 98 GTC 2124, [1997] TCJ 1381, Mogan J. of this Court very clearly defined the provisions of the Act concerning the time limit for applications for rebate, as follows:
... I conclude that they do not come within paragraph 256(3)(b) of the Act because they occupied the house throughout the renovation period. At no time did they move away from the dwelling while the renovations were in progress. They consolidated their furniture into those portions of the home where the contractor was not going to work; and they continued to reside in the home throughout the construction period.
12 The evidence and the Notice of Appeal confirmed that the kitchen had been renovated at a prior time and was not being renovated in 1993. Therefore, the Appellant and his wife were able to use the kitchen and also, they were storing some china cabinets and other furniture in the kitchen. Their living quarters were cramped because they had to pull the furniture from those areas of the house where the contractor was working and consolidate it in other rooms. They had a room finished in the basement under the old part of the bungalow and they had a davenport there where they were able to sleep. Therefore, they were sleeping in the basement and using the kitchen on the main floor and actually residing in the dwelling throughout the renovation period.
13 Because they were residing throughout, they interpreted the date when a person might first occupy the home after the renovation had begun as not applying to them. In the circumstances of this appeal, I construe subparagraph 256(3)(a) to mean that the date when they first occupied the home after the renovation began was April 29, 1993. I come to that conclusion by my interpretation of both the booklet published by Revenue Canada, which was the Appellant's guide, and by the legislation itself. Under sub-paragraph 256(2)(d)(i), the words are very clear: "the first individual to occupy the complex after the construction or substantial renovation is begun."
14 I look at the day when the renovation was begun which was April 28, 1993, and then ask: "Was the dwelling occupied at all on that date?". If the dwelling is occupied when the renovation begins and throughout the renovation period, then pursuant to subparagraph 256(2)(d)(i), the first individual to occupy the dwelling after substantial renovation has begun is the individual who lives there on April 28, 1993. The Appellant was occupying the dwelling on the first day after the renovation began.
...
16 The person who continues to reside in a residential complex throughout a period of substantial renovation must make the application for the new housing rebate within two years after the "substantial renovation is begun"....
[31] This decision by Mogan J. clarifies the time limit insofar as the issue of occupancy is unequivocal; this issue has been the subject of a number of important decisions, including inter alia:
- Balicki v. Canada, 97 GTC 1138, [1997] TCJ 729;
- Craig W. Warnock v. The Queen, [1996] GSTC 86;
- Hull v. Canada, 97 GTC 1174, [1997] TCJ 908;
- Wong (E) v. Canada, [1996] GSTC 73.
[32] In this case, occupancy is not at issue since the appellants admitted that they occupied their residence during the first phase of the work without being overly inconvenienced.
[33] Occupancy is also an important factor in clearly delineating the two phases of the work. As well, it establishes that the first phase of the work had no bearing on the residential purpose of the purchased property since the appellants continued to live there without major difficulties¾the work completed was carried out at another location, so to speak.
[34] Once the first phase of the work was completed, the residence was connected to the foundation, thus allowing the appellants to finish and have access to a basement as part of the living space, something that was not possible before the residence was set on the new foundation.
[35] In light of the evidence adduced, I consider that the first phase of the work was independent of the second phase of the work. Given the provisions of the Act, and specifically the provisions governing the time limit for filing applications for rebate of the GST, I believe that the appellants are not entitled to a rebate of the GST for the work on the foundation. The application for rebate was filed late. I believe that this phase of the work can be excluded from the application for rebate filed by the appellants, given that, first, the appellants continued to occupy the residential premises and that, second, if we set aside the issue of occupancy in computing the time limit, the starting date for filing an application for rebate would be the completion of the work-in which case as well, the two-year time limit had expired well before the application was filed.
[36] The same is not at all true for the second phase of the work, which constituted substantial renovation that more than adequately satisfies the requirements of subsection 123(1) of the Act, in which the expression ''substantial renovation'' is defined as follows:
''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;
[37] It is worth reproducing certain passages from the decision by Beaubier J. of this Court in Hole v. Canada, 98 GTC 2128, [1998] TCJ 332. Beaubier J. was to determine whether the following work constituted a ''substantial renovation'' within the meaning of section 123 of the Act:
10 The Appellant renovated 50% of the house within the foregoing definition by means of the basement work. On the main floor the kitchen, dining area, the living room, one bedroom, the hallway and the bathroom were completely renovated. Two bedrooms were not. Windows and the floor surfaces were replaced. The kitchen and bathroom work, in terms of quantity, nature and expense, were very substantial; in essence, everything was replaced but the kitchen plumbing fixtures.
[38] In finding that this work did constitute a substantial renovation, Beaubier J. wrote as follows at paragraphs 12 and 13:
12 The question is whether, other than the foundation, exterior walls, interior supporting walls, floors, roof and stair cases, ''essentially'' or ''really'' all of the residential complex was replaced.
... The actual value of the home after the renovations did not increase by a large percentage. However that is not a criterion in the definition. Nor is an exact square footage percentage set out in the definition. Rather it is a question whether, within the limits of the definition, substantially all of the original interior was removed or replaced. In the Court's view it was.
[39] There can be no doubt about the extent of phase two of the work; by its very nature, it constitutes a substantial renovation. During this phase, the appellants redid the flooring, partitioning, plumbing, wiring and insulation; replaced the windows and kitchen counters and cupboards; redid the stairs; and built an eight-by-sixteen-foot addition. In addition to all this work there was inherent, complementary work such as installing drywall sheets, filling joints, and doing painting. In other words, only the exterior walls were not redone.
[40] Since this substantial work was carried out in 1998, the application for rebate of the GST was filed within the time limit; as a result, the application for rebate is entirely admissible and the appellants are fully entitled to a rebate of the GST on the second phase of the work.
[41] For these reasons, I allow the appeal, in that the application for rebate of the GST on the second phase of the work, that is, the work carried out in 1998, is considered to have been filed within the time limit set out in the Act.
Signed at Ottawa, Canada this 19th day of December 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 19th day of March 2003.
Sophie Debbané, Revisor