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Docket: 2001-2360(GST)I |
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BETWEEN: |
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KENT G. RUMBLES, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeal heard on May 29, 2002, at Edmonton, Alberta
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Before: The Honourable Judge E.A Bowie |
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Appearances: |
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Counsel for the Appellant: |
Gordon D. Beck and Denise Pon (Student-at-law) |
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Counsel for the Respondent: |
Margaret McCabe |
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JUDGMENT
The appeal from the assessment of goods and services tax made under the Excise Tax Act, notice of which is dated October 13, 2000, and bears number 10121242, is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant was not liable to collect and remit GST on the sale of his interest in the farm. Counsel may speak to the issue of costs if it is not agreed upon.
Signed at Ottawa, Canada, this 17th day of February, 2003,
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"E.A. Bowie" |
J.T.C.C.
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Citation: 2003TCC47 |
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Date: 20030217 |
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Docket: 2001-2360(GST)I
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BETWEEN: |
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KENT G. RUMBLES, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowie J.
[1] The Appellant and his former common-law spouse owned a farm jointly. When their relationship ended, he sold her his one-half interest in it. If she purchased it for her personal use and enjoyment, then the transaction was not subject to the goods and services tax that is levied under Part IX of the Excise Tax Act (the Act); otherwise, tax was exigible, and he was bound to collect it from her and remit it to the Receiver General for Canada. He did not do so and the Minister of National Revenue (the Minister) has now assessed him for tax on the fair market value of the interest transferred. He now appeals from that assessment under the informal procedure.
facts
[2] In September 1993, the Appellant and Leanne Chubocha bought a farm consisting of 160 acres of land, a house, a garage, a barn and a Quonset building (the "property"). The price was $143,500, and they paid GST on the basis that 48% of the price was the value of the residential portion, and 52% was for the farm land and buildings. They each held an undivided one-half interest in the property. They bought the land to farm it, and that is what they did; they operated under the name Rumlee Farms. For that purpose, the Appellant registered as a supplier under section 240 of the Act. They lived on the farm as husband and wife, and they raised crops and cattle. They owned a few head of cattle, and they raised some others under a crop-sharing agreement. The Appellant did most of the physical work on the farm, but Leanne did some of it as required from time to time. She also looked after the books and other record-keeping. They both had full time jobs elsewhere as well.
[3] In 1996, personal problems arose between the Appellant and Leanne, and they separated that summer. She went to live with her parents, but she left many of her personal belongings at the farm, and she came and went between their home and the farm as she pleased; however, she took no further part in the operation of the farm. The Appellant testified that it was not a friendly break-up. The Appellant continued to live in the farmhouse and to operate the farm on his own, and he would have been content to continue doing so. In the spring of 1999, he made an offer to Leanne to buy her interest, but she refused to sell to him, saying that the price he offered was too low. He also testified that she took the position that if they were not going to operate the farm together, then neither of them should do so. On June 1, 1999 she made a counter-offer to him to buy his share, and on June 15, he accepted it. The agreement of purchase and sale was drawn up by Leanne's solicitor, and it contained the following clause:
13 The Vendor represents and warrants to the Purchaser that:
c. this sale of the Property is an exempt supply within the meaning of the Excise Tax Act of Canada and there is no GST payable by the Purchaser with respect to this transaction.
It is a curious warranty for the purchaser to exact from the vendor, given that the question whether the supply is an exempt one turns on whether the purchaser is acquiring the farmland for her own personal use and enjoyment, and not to continue farming it, or for some other commercial purpose. If the latter had been her intention, she could hardly have asked for such a warranty from the Appellant.
[4] Under the agreement, the transaction was to close and the purchaser was to take possession on June 30, 1999, but that did not actually happen until July 5. The Appellant testified that by that time, he had moved his cattle from the farm to his father's farm, and that the crop-sharing cattle had been removed by their owner. Leanne Chubocha's testimony on this point was vague and uncertain, and I prefer that of the Appellant. There was a second hay crop on the land that had to be removed in the fall so that the land could be used for pasture the following year. The Appellant had cut the first crop before the possession date. The second crop was cut and removed by Leanne's father; he did not purchase the crop from her, but simply removed it, with her concurrence, in order to preserve the quality of the pasture for the next growing season. When Leanne sold the farm, in November 1999, her solicitor made the following representation to the Minister on her behalf in order to obtain a favourable GST ruling:
4. Upon separation, the land was transferred to the vendor [Leanne] in her name alone. Since the separation and transfer, the Vendor [Leanne] has not farmed the land nor rented it out. She has received no income from the land. The 1999 hay crop was removed from the land by the vendor's [Leanne's] father, and kept by him as a gift from the daughter (vendor) [Leanne].
[5] Although counsel for the Respondent strove to elicit evidence from Leanne that would establish that some farming activity had taken place on the land with her concurrence after the possession date, she did not succeed. Leanne's evidence as to the hay crop was as vague as her evidence as to the cattle. I find that she did no farming, and that she did not permit anyone else to do any farming on the land after she obtained possession on July 5, 1999. Her counsel accurately advised the Minister that she had neither farmed the land nor rented it out. In November 1999, Leanne sold the farm, in an arm's length transaction, for $225,000. Her purchase of the Appellant's half of their equity had been based upon a value of $230,000.
issue
[6]The issue between the parties in this appeal is an extremely narrow one. It is common ground that the Appellant was obliged to collect and remit GST on the sale of his interest in the farm to Leanne, unless the transaction comes within section 10 of Schedule V, Part I of the Act, in which case it is an exempt supply. That section reads:
10 A supply of farmland by way of sale made by an individual to another individual who is related to or who is a former spouse or common-law partner of the individual where
(a) the farmland was used at any time by the individual in a commercial activity that is the business of farming;
(b) the farmland was not used, immediately before the time ownership of the property is transferred under the supply, by the individual in a commercial activity other than the business of farming; and
(c) the other individual is acquiring the farmland for the personal use and enjoyment of that other individual or any individual related thereto.
The Respondent does not dispute that the opening words of section 10 and the requirements of paragraphs (a) and (b) are satisfied. The only issue in dispute is whether Leanne was acquiring the farmland for her personal use and enjoyment.
positions of the parties
[7] The position taken by the Minister in assessing is that Leanne acquired the Appellant's interest in the farm for the purpose of farming it. In support of that, counsel for the Respondent relied heavily on the evidence of Leanne as to the grazing of cattle after the possession date, and the cutting of the fall hay crop. Counsel for the Respondent also argued that title to the Appellant's interest in the land passed to Leanne when he accepted her offer on June 15, and that his farming of the property between then and the closing on July 5 amounted to a commercial use of the property while she was the owner, and so precluded a finding that she purchased the property for her personal use and enjoyment. Finally, counsel argued that Leanne's real purpose in acquiring the Appellant's interest in the farm was to bring about a reconciliation of their domestic differences, following which they would resume their farming operation on the farm as before.
[8] The Appellant's position is that Leanne had no intention of farming the property, or of putting it to any other use than living in the house, and that she made no commercial use of the property between the time she took possession in July 1999 and the time when she sold it in November.
decision
[9] In my view, the Appellant is entitled to succeed in his appeal. I am satisfied by the Appellant's evidence that by the closing date he had removed all his cattle from Rumlee Farms, and that he gave up possession and did not carry on any farming or other activity there after that date. Nor did Leanne or her father carry on any farming there. Leanne gave some evidence that suggested that some cattle owned by her father were on the property for some period of time during the summer or fall of 1999, but I am satisfied that there was no commercial animus to their presence there. To the extent that cattle grazed there, or that hay was cut there, after the closing date, it was for the preservation of the property. Leanne testified in that connection that if the second hay crop had not been removed from the fields then they would not have been productive in the following year.
[10] Nor can I see any merit to the argument that the Appellant was farming the property between the date of accepting Leanne's offer and the date of closing. Counsel for the Respondent relied on the judgment of Bell J. in 277287 Alberta Ltd. v. The Queen[1] for the proposition that ownership of the Rumlee Farms passed to Leanne on June 15 with the acceptance by the Appellant of her offer to purchase. However, that proposition is irrelevant to the issue in this case. The incidence of GST does not turn on the use to which the Appellant's one-half interest in the farm was being put by him during the period following Leanne becoming the owner but prior to him giving up possession. It turns entirely on the purpose for which Leanne acquired the farm, or in other words, the use to which she intended to put it after she obtained possession. Similarly, even if it were established that her father's cattle grazed there for a few days in the fall for his benefit (and I emphasize that that has not been established), there is no evidence establishing that in June or July she had formed the intention to permit that to happen.
[11] It is clear from the use of the expression "personal use and enjoyment" throughout the Act that it is intended simply to convey the concept of a use that is not commercial in nature: see subsections 169(1) and 170(1)(b) and (c); 190(2); 207(1); and 208(2). In all these provisions, a sharp line is drawn between "personal use and enjoyment" on the one hand and "commercial activity" on the other. This accords, too, with the normal meaning of the expression in everyday use. The question that must be answered in this case, then, is whether Leanne, when she made her offer to purchase the Appellant's interest, had in her mind a commercial purpose, or a personal one. Ms. McCabe argues that her intention was to farm the land again with the Appellant as they had done in the past, and she relies for that on the evidence given by Leanne. The relevant parts of her evidence are these.
Examination-in-chief
Q. After the closing date, though. I take it, you did then go to live in the farm, did you?
A. I went there, yes. I was still at my parents, and I was going through a rough time so I didn't want to be there alone all the time.
(Transcript, page 65)
Q. When did you make the decision to sell the land again?
A. Selling the land was always an option. At that time my focus was more on the relationship than on the farm. I honestly thought that - I don't know, maybe I had my head in the clouds at that time, but I honestly thought that we were going to continue farming, and even with Kent moving off, I just - I don't know, I think I put mind blocks up to that, and still thought that we would be back together and farming there still. So I didn't want to get rid of it. I can't remember exactly when. I think, you know after everything was kind of gone and -
Q. Did you continue to see Kent then, sort of during and after the close of the property? Like through July and into August of that year?
A. I don't know what you mean by "see". Like yeah, we saw each other.
Q. Did you?
A. Yeah.
Q. At the farm or other places?
A. Yeah.
Q. Both?
A. Yes, both.
Q. Okay.
A. Not often, but you know, we were both very busy people.
(Transcript, pages 67-68)
Q. So, it became clear to you, I take it, at some point that you weren't going to continue farming?
A. I think at that time, like I said, I was more focussed on the relationship and I thought maybe if I listed it for sale that - I don't know, maybe Kent would reconsider. Like it being absolutely somebody else's than just mine.
Q. So even at that time then, sort of onwards through the summer, you were still hoping for a reconciliation, hoping to continue to do what you wanted to do with him with the farming?
A. To some degree.
Q. At some point I take it you came to the conclusion that wasn't going to happen?
A. Right.
(Transcript, page 71)
Cross-examination
Q. Now, you had mentioned that after the separation, selling the land was always an option. Your focus really was on the relationship and you hoped that the two of you would get back together and farm it together, and you had no intention of farming it with your dad. Did you ever intend to farm that land on your own?
A. I'm sure I thought about it, but I don't think I could have economically done it on my own.
Q. But I guess at that time your focus was really on your relationship, is that right?
A. That's correct.
(Transcript, pages 82-83)
Re-examination
Q. You were asked about selling the land was always an option, and you were asked, did you intend to farm the land on your own and your answer was, and I'm not sure if I got you exactly, but you thought of it but you knew economically you could not. Is that correct?
A. Correct.
Q. So you did think of it?
A. Well, I was mostly thinking of farming with Kent.
(Transcript, pages 84-85)
[12] This evidence has to be read in the context of Mr. Rumbles' evidence to the effect that the break-up of their relationship had not been a friendly one, as well as the rest of Leanne's evidence. I do not detect in it anything so concrete as an intention to farm the land, either with Mr. Rumbles or alone. It is no more than the ex post facto expression of a vague romantic hope.
[13] It is quite clear that Leanne did nothing with the farm other than live in the house during the period of about four months between her taking possession of the Appellant's interest in July and her sale of it in November. Her representation to the Minister that I have reproduced at paragraph 4 above was accurate; she made no commercial use of the farm and she derived no income from it. The evidence does not support the contention that she purchased the Appellant's interest with a commercial purpose in mind. It was simply personal. She was not liable to pay GST on the purchase, and so the Appellant was not required to collect and remit it. Indeed, if Leanne had been required to pay GST on the supply to her of the Appellant's interest she would not have been able to claim an input tax credit in respect of it, as she was not a registrant, nor was she either required or entitled to become a registrant: see subsections 169(1) and 240(1) and (3) of the Act.
[14] The appeal is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant was not liable to collect and remit GST on the sale of his interest in the property. Counsel may speak to the issue of costs if it is not agreed upon.
Signed at Ottawa, Canada, this 17th day of February, 2002.
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"E.A. Bowie" |
J.T.C.C.
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CITATION: |
2003TCC47 |
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COURT FILE NO.: |
2001-2360(GST)I |
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STYLE OF CAUSE: |
Kent G. Rumbles and Her Majesty the Queen |
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PLACE OF HEARING |
Edmonton, Alberta |
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DATE OF HEARING |
May 29, 2002 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge E.A. Bowie |
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DATE OF JUDGMENT |
February 17, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Gordon D. Beck and Denise Pon (Student-at-Law) |
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Counsel for the Respondent: |
Margaret McCabe |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Gordon D. Beck |
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Firm: |
Field Atkinson Perraton |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |