Metrogate Inc. v. The Queen

Metrogate Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2018-05-11
Neutral citation
2018 TCC 91
File numbers
2016-421(GST)G
Judges and Taxing Officers
Réal Favreau
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2016-421(GST)G
BETWEEN:
METROGATE INC.,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion heard on June 22, 2017 at Toronto, Ontario.
Before: The Honourable Justice Réal Favreau
Appearances:
Counsel for the Applicant:
Al-Nawaz Nanji
Sameer Nurmohamed
Counsel for the Respondent:
Jack Warren
ORDER
UPON the applicant’s motion filed pursuant to section 58 of the Tax Court of Canada Rules (General Procedure);
AND UPON having heard the evidence and submissions of the parties;
In accordance with the attached Reasons for Order, this Court orders that the cost of land that forms part of the residential complex is a factor in both the numerator and denominator in calculating the degree of completion of construction of the condominium complex for purposes of determining transitional rebate entitlement.
Consequently, the motion is allowed and costs are awarded to the applicant in any event of the cause.
Signed at Ottawa, Canada, this 11th day of May 2018.
“Réal Favreau”
Favreau J.
Citation: 2018 TCC 91
Date: 20180511
Docket: 2016-421(GST)G
BETWEEN:
METROGATE INC.,
Applicant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Favreau J.
[1] Metrogate Inc. (“Metrogate”) brought a motion under Rule 58 of the Tax Court of Canada Rules (“General Procedure”) (the “Rules”) for a question of mixed law and fact (the “Question”) to be determined before the hearing of its appeal. The Question asked is:
Whether the Appellant’s cost of land should be included in the numerator and denominator of the calculation of the percentage of completion of construction of its condominium complex in respect of the Ontario transitional new housing rebate pursuant to subsection 256.21(1) of the Excise Tax Act (the “ETA”)?
[2] The issue in this appeal is the amount of the transitional new housing rebate the applicant is entitled pursuant to section 256.21(1) of the Excise Tax Act, R.S.C. 1985, c. E-15, as amended (the “ETA”) and sections 55-58 of the New Harmonized Value-Added Tax System Regulations, No. 2 SOR/2010-151 (the “Regulations”). This determination depends on the question at issue on this motion: whether the cost of the land is to be factored in to the calculation of the percentage completion of the construction of a condominium complex for the purpose of the rebate.
[3] The applicant submits that in calculating the rebate, the cost of the land should be factored in to the value of work completed and the total project budget. If the applicant is correct, the amount of the rebate will be 50%. The respondent submits that the cost of the land should not be factored in to the calculation. If the respondent is correct, the amount of the rebate will be 25%.
I. FACTS
[4] At the hearing of this motion, the parties submitted an Agreed Statement of Facts. The facts agreed upon by the parties are the following:
1. The Appellant, Metrogate Inc. (“Metrogate”) is a corporation incorporated under the laws of Ontario.
2. At all material times, Metrogate was registered under Part IX of the Excise Tax Act (Canada) (the “ETA”) for purposes of the federal harmonized sales tax under Part IX of the ETA.
3. Metrogate acquired certain real property prior to July 1, 2010 (the “Land”). The last use of the Land before Metrogate acquired it was as a site for an operating trucking transportation terminal.
4. The cost of the Land to Metrogate was $2,231,212.
5. Prior to July 1, 2010, Metrogate commenced construction of a series of condominium buildings (the “Buildings”) on the Land (collectively, the “Development”), each of which was a condominium complex, residential complex and contained residential condominium unit(s) and residential unit(s) as defined in subsection 123(1) of the ETA.
6. The Development was a specific residential complex as defined in subsection 55(1) of the New Harmonized Value-added Tax System Regulations, No. 2 (the “Regulations”).
7. As of July 1, 2010, the Development was partially completed.
8. Metrogate commissioned a report from the Altus Group concerning the completion of the Development. A copy of this report is attached as Appendix A.
9. If this Honourable Court determines that the cost of the Land is included in the value of the construction work completed on the Development as of July 1, 2010 and the total budgeted construction cost for the Development, the parties agree that:
(a) the value of the construction work completed on the Development as of July 1, 2010 was $5,835,780; and
(b) the total budgeted construction cost for the Development was $22,763,306.
10. If this Honourable Court determines that the cost of the Land is not included in the value of the construction work completed on the Development as of July 1, 2010 and the total budgeted construction cost for the Development, the parties agree that:
(a) the value of the construction work completed on the Development as of July 1, 2010 was $3,604,568; and
(b) the total budgeted construction cost for the Development was $20,532,094.
11. Metrogate determined the percentage of completion of construction of a condominium complex to be 25.64% which includes the cost of the Land in both the numerator and the denominator, completed as of July 1, 2010. The Minister of National Revenue (the “Minister”) determined the percentage of completion of construction of a condominium complex to be 17.56% which excludes the cost of the Land in both the numerator and the denominator.
12. Metrogate applied for an Ontario transitional new housing rebate (the “Transitional Rebate”) in respect of the condominium units in the Development (each a “Unit”), calculated by multiplying the amount determined under the applicable Regulations, as the “estimated provincial levy” for the unit (the “Rebate Rate”) by a percentage of 50%, on the basis that the construction of the Development was between 25% and 50% completed as of July 1, 2010.
13. The Minister assessed Metrogate by way of notices of assessment dated July 16, 2012 (eight assessments) and September 19, 2012 (collectively, the “Assessments”). The Minister reduced the rebate amounts as set out in Appendix B.
14. In assessing Metrogate’s Transitional Rebate claims, the Minister determined the amount of the Transitional Rebates to which Metrogate was entitled to in respect of each Unit by applying the 25% Rebate Rate, rather than the 50% Rebate Rate that Metrogate had used in determining the amount claimed. As a result, the amount of the Transitional Rebate allowed by the Minister was half of the amount that Metrogate had claimed.
15. The basis for the Minister’s application of the lower 25% Rebate Rate was that, in the Minister’s view, the cost of the Land should have been excluded in determining the percentage of completion of the construction of the Development as of July 1, 2010 with the result that the Minister concluded that the Development was between 10% and 25% completed as of that date.
[5] Appendix A (report of Altus Group) and Appendix B (assessments) referred to in the Agreed Statement of Facts are reproduced at the end of these Reasons for Order as Appendix A and Appendix B.
II. POSITION OF THE PARTIES
A. The Applicant
[6] The applicant provided written submissions in support of its position. A detailed summary of the arguments advanced by the applicant follows:
1. The ordinary meaning of precise words play a dominant role in statutory interpretation when interpreting tax statutes. The words of a statute are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the statute, the object of the statute and the intention of Parliament. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the statute as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words plays a dominant role in the interpretive process.
2. “Construction of the condominium complex” means forming the residential complex by putting the building and the land together:
· the language used in paragraph 57(c)(iv) of the Regulations is precise and unequivocal. Metrogate’s entitlement to the Transitional Rebate depends on the percentage completion of the “construction . . . of the condominium complex”. A condominium complex is formed by putting together the Building and the Land that is subjacent to the Building;
· the term “condominium complex” is defined in subsection 123(1) of the ETA to mean “a residential complex that contains more than one residential condominium unit”;
· the term “residential complex” is defined in subsection 123(1) of the ETA to be the relevant building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence;
· a “residential condominium unit” is defined in subsection 123(1) of the ETA as “a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit”;
· a building by itself, is not a residential complex. Land, by itself, is not a residential complex. A “residential complex” is comprised of two elements: a building and the land that is subjacent or immediately contiguous to the building that is reasonably necessary for use and enjoyment of the building. The land is an integral and necessary component of a residential complex.
3. In 1096288 Ontario Ltd. v. The Queen, 2010 FCA 332, the Federal Court of Appeal concluded that the “construction of a residential complex” means forming the residential complex by putting the building and the land together:
· the decision of the Federal Court of Appeal on the legal interpretation of “construction of a residential complex” for the purposes of the ETA is binding on this Court.
4. the Crown’s interpretation of “construction of a condominium complex” is inconsistent with the Minister’s own interpretation:
· despite the position of the Federal Court of Appeal in 1096288 Ontario Ltd., cited above, the Crown now takes the position that the percentage of completion of the “construction of a residential complex” does not take into consideration the cost of land upon which the complex is situated because land is not regarded as being constructed. The Crown relies on the Minister’s published opinion in GST/HST Info Sheets, GI-105 – How to Determine the Percentage of Completion for Purposes of the Provincial Transitional New Housing Rebates and the Transitional Tax Adjustment in Ontario and British Columbia, July 2010 (“GST/HST Info Sheet GI-105”);
· the words or expressions used in a non-legislative publication such as an information guide cannot supersede or override legislation which is clear and unambiguous in its requirements. The court is not bound by departmental practice which may only be of assistance in resolving a doubt in favour of the taxpayer, not in favour of the very department that formulated the practice;
· the GST/HST Info Sheet GI-105 did not have the benefit of the Federal Court of Appeal decision in 1096288 Ontario Ltd. as it was published before that decision was rendered;
· the Crown’s interpretation of “construction of a residential complex” is inconsistent with the Minister’s published position. The Crown says that construction refers to “creation, erection, renovation, addition or enlargement of a building or structure and costs incurred on such activities may be included in determination of percentage of completion of construction”. However, limiting the cost of construction of a residential complex to cost of activities incurred on the “creation . . . of a building or structure” is inconsistent with the following costs recognized by the Minister in the Headquarter Letter 153618, “GST/HST Interpretation – Provincial transitional new housing rebates and the degree of completion of the construction or substantial renovation of a residential complex (July 15, 2013) published as an appendix to the GST/HST Info Sheet GI-105:
(a) costs of builder’s permits and development cost charges (i.e. charges that a developer is required to pay for the infrastructure that the new development requires);
(b) costs of representations made to government authorities for the purpose of obtaining land development permits, building permits and licenses;
(c) site investigation costs (amounts paid for investigating the suitability of a site, such as the costs of soil tests, zoning investigations, environmental studies, surveying and financial feasibility studies);
(d) costs of clearing and leveling the surface of the land (including the demolition of existing structures) upon which the complex will be built;
(e) blasting and excavation costs to prepare for the construction or renovation of the complex; and
(f) landscaping costs.
· in effect, the Crown attempts to restrict the meaning of “percentage completion of the construction of the condominium complex” by limiting the costs included to those to erect the building and exclude the costs of the land to which the building is attached. By excluding the cost of the land which is a necessary element of the construction of a condominium complex, the Crown disregards the Federal Court of Appeal decision in 1096288 Ontario Ltd.
5. The phrase “construction of a condominium complex” in the Regulations has the same meaning as “construction of a residential complex” in the ETA;
· the Federal Court of Appeal decision in 1096288 Ontario Ltd interpreted the phrase “construction of a residential complex” for the purposes of the definition of “builder”. There is no material difference between the phrase “construction of a residential complex” and “construction of a condominium complex”. Both require the forming of the complex by putting together a building with the land on which the building is situated;
· where an enactment confers power to make regulations, expressions used in the regulations have the same respective meanings as in the enactment conferring the power. Thus, the interpretation of the word “construction” is applicable to the entire ETA and the Regulations (reference is made to section 16 of the Interpretation Act, R.S.C. 1985, c. I-21);
· if any ambiguity exists, it should be resolved in favour of the taxpayer.
6. the phrase “construction . . . of the condominium complex” used in section 121 of the ETA, has the same meaning as in subsection 57(4) of the Regulations:
· the wording of subsection 57(4) of the Regulations is based on the wording of subsection 121(3) of the ETA which provided a transitional federal sales tax rebate in respect of residential condominium units in a condominium complex under construction as of January 1, 1991 when the ETA became effective;
· subsection 121(3) was amended in 1993 to refer to the percentage of completion of “construction or substantial renovation”. The Technical Notes issued in February 1993 in respect of that amendment to subsection 121(3) of the ETA stated:
. . . for greater certainty, subsection 121(3) is amended to clarify that it is the degree of completion of the physical construction or renovation that is to be taken into consideration in determining the rebate.
· there is no indication in the Technical Notes that the 1993 amendment was intended to exclude the cost of the land from the calculation of the percentage completion of the construction of the condominium complex. Rather, the wording of the Technical Notes suggests an intention to exclude non-physical costs, such as marketing and sales costs;
· the meaning of “construction or substantial renovation of the complex” was examined in Hi-Grove Holdings Ltd. v. Canada (National Revenue), 1998 CanLII 14496 (CA CITT). The issue before the Canadian International Trade Tribunal (the “Tribunal”) was whether the construction of the complex was more than 25% completed on January 1, 1991 to permit a rebate under subsection 121(3) of the ETA, more particularly, the Tribunal had to determine whether the cost of the building permit and development cost charges should be included in the calculation of the percentage of completion. The Tribunal determined that the cost of the building permit and development cost charges were part of the cost of the building but if the costs were part of the land, the definition of “residential complex” in the ETA includes land.
7. Parliament specifically uses the phrase “construction of a building” where it only applies to a building:
· Parliament used the defined term “condominium complex” for the purposes of the ETA and the Regulations. Parliament could have based the Rebate Rate on the percentage of completion of the construction of the building instead of the “condominium complex”. Alternatively, Parliament could have chosen to define “condominium complex” as including only the building and not the land. Parliament did not do so.
· where Parliament wants to refer to the “construction of a building” as opposed to “construction of a condominium complex [or residential complex]”. it explicitly does so. For example, sections 68.23 and 68.26 of the ETA specifically refer to “construction of a building”.
8. The effect of the Crown’s interpretation results in a lack of consistency, predictability and fairness:
· the effect of the Crown’s interpretation would be to have the phrase “construction of a condominium complex” mean “construction of a building” for the purposes of the Transitional Rebate in the Regulations but a different meaning (that includes land) for the purposes of the Act (including for the purposes of the definition of a “builder”).
· Metrogate’s position is that the determination of the percentage completion of the construction of the condominium complex is a straight-forward bright line test: all costs involved in the construction of the condominium complex (i.e. forming the condominium complex by putting together the building and the land on which the building is situated) are to be included in the percentage completion of the construction of the condominium complex, consistent with the statutory wording;
· the Crown, on the other hand, seeks to cherry pick which costs are included and which costs are excluded in determining the percentage of completion of the construction of the condominium complex. The Crown limits the costs included in the percentage completion of the construction of the condominium complex to be only those costs relating to the “creation, erection . . . of a building or structure”. That position has no support in the ETA or the Regulations.
9. Metrogate provided a certified report as required by the Minister:
· neither the ETA nor the Regulations prescribes the manner in which the percentage of completion of the construction of a condominium complex is to be determined;
· in the GST/HST Info Sheet GI-105, the Minister published six methods that the Minister considers to be “fair and reasonable” of which the following two are relevant:
(a) Method 1 – Capital and operating costs: This method requires determining, as of July 1, 2010, the capital and operating costs incurred in the construction of the residential complex as a proportion of the total expected capital and operating costs, as of July 1, 2010.
(b) Method 6 – Certified report: This method requires determining percentage completion based on a report prepared by an engineer, architect or other professional who is qualified to certify the value or extent of work completed as of July 1, 2010.
· Metrogate commissioned the Altus Group Report to determine the percentage of completion of the construction of the condominium complex based on total costs incurred prior to July 1, 2010. The Altus Group Report included the cost of the land in determining the percentage of completion on the basis that “condominium complex” means a “building that comprises more than one residential condominium unit, together with that portion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals”. The certified report determined that the percentage completion of the construction of the condominium complex was 25.64%;
· neither the Regulations nor the Minister’s publication sets out a particular method for use in the certified report. Nevertheless, the Crown rejects the certified report because it does not reflect the Crown’s position that the cost of the land should not be included in the calculation of the percentage completion of the construction of the condominium complex.
B. The Respondent
[7] The respondent also provided written submissions to support her position. A detailed summary of the arguments advanced by the respondent follows:
1. Purpose of the Ontario Transitional New Housing Rebate (the “Transitional Rebate”)
· the Transitional Rebate was introduced to offset estimated embedded Ontario retail sales tax (“RST”) in housing construction costs prior to July 1, 2010 where the housing would be sold subsequent to June 30, 2010 and be subject to imposition of Harmonized Sales Tax (“HST”). New homes completed in whole or in part prior to July 1, 2010 would have RST embedded in the cost of the homes. For new homes that are sold after June 30, 2010 and are subject to the HST at 13%, this would amount to windfall to the taxing authorities insofar as the developer paid RST, either directly or indirectly on construction materials used in construction of the homes. The Transitional Rebate was available to provide relief from double taxation for estimated RST embedded in housing construction completed prior to July 1, 2010;
· prior to July 1, 2010, RST was generally applicable on tangible personal property and was not levied on the purchase of land;
· factoring into the calculation of percentage of completion of construction, the cost of land which has no RST embedded in it, is not in accordance with a contextual and purposive analysis of the Transitional Rebate provisions in the ETA and Regulations. Such an application of the calculation of percentage of completion of construction, where cost of land that had no RST paid on it, would result in a windfall recovery for a Transitional Rebate claimant;
· the respondent submits that the purpose of the Transitional Rebate was to offset double taxation by helping to ensure that housing at least partially constructed prior to July 1, 2010 did not contain a taxation burden of both the RST (embedded in the cost of constructing the condominium complex as of July 1, 2010) and the HST that applied on the full selling price of the condominium units within the condominium complex;
· the applicant takes the position that the Transitional Rebate has no correlation with whether RST was incurred on inputs to a condominium complex;
· the interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the ETA as a whole;
· Parliament confers tax benefits to promote specific purposes and to address specific activities and circumstances. Interpretation of a tax benefit must be consistent with the purpose of the provision relied upon;
· Courts should not turn a blind eye to the underlying facts of a case. Courts should in all cases interpret the provisions in their proper context in light of the purposes they intend to promote;
· analysis of the purpose of a taxing provision must seek to intend what outcome or purpose Parliament intended the provision to achieve;
· the statutory provision at issue, paragraph 57(4)(c) of the Regulations which refers to the calculation of percentage of completion of construction of a condominium complex for the purposes of determining the amount of the Transitional Rebate, does not provide in its text the input variables or formula used in the percentage of completion of construction calculation;
· the respondent submits that since the provision at issue does not provide direction for the calculation of percentage of completion of construction formula in its text, therefore the context and purpose of the Transitional Rebate provision must be considered in interpreting the statute and arriving at the appropriate input variables to include in the percentage of completion of construction calculation;
· new housing sold in Ontario after June 30, 2010 was subject to HST which contains 8% provincial sales tax combined with the federal Goods and Services Tax;
· the respondent submits that utilizing capital and operating costs as the proxy by which to determine percentage of completion of construction of the condominium complex is an acceptable method and in fact, one identified by the Minister in its GST/HST Info Sheet GI-105. This Info Sheet clearly states the Minister’s interpretation and application of the percentage of completion of construction calculation does not include land cost;
· in the applicant’s condominium development, land cost is the largest single pre-July 2010 input cost. To include land cost into the proxy or determiner for estimating the percentage of completion of construction for Transitional Rebate purposes, when that land input had no RST embedded in it, would produce a result which is significantly distorted from the context and purpose of the Transitional Rebate;
· this contextual and purposive analysis clearly indicates that relief from estimated embedded RST is the purpose of the Transitional Rebate. The respondent submits it is unsupportable and unconnected to the very purpose of the Transitional Rebate for the applicant to contend that consideration of the amount of RST attributable to construction prior to July 1, 2010 is irrelevant and has no correlation to the amounts that ought to be rebated;
· subsection 55(1) of the Regulations deals with the estimated provincial levy. The 2% factor (which equates to ¼ of the 8% RST rate in effect prior to July 1, 2010) set out in this subsection is an estimate or proxy of RST taxable and embedded content in the value of construction which recognizes that many construction inputs, mainly services such as labour were not subject to 8% RST;
· prior to July 1, 2010, construction materials which went into housing construction were subject to RST while construction labour was not subject to RST under the Ontario Retail Sales Tax Act. Costs of materials and labour would have been incurred and incorporated into a residential complex contemporaneously in the typical construction process as it progressed up until June 30, 2010;
· aside from the distortive impact of including land in the determination of percentage of completion of construction given that land cost that was not subject to RST, to include land at the very outset of the construction process and in any event prior to July 1, 2010, front-loads the percentage of completion of construction calculation with the largest input cost and fails to account for the incremental nature of construction (and RST embedding) of a residential complex;
· to include land cost skews upward the calculation of percentage of completion of construction as of July 1, 2010, such that all costs associated with land acquisition even though it has no embedded RST, are incorporated and available for Transitional Rebate calculation prior to July 1, 2010;
· given that prior to July 1, 2010, land cost was not subject to RST, including land into the percentage of completion of construction calculation, would introduce a variable which had no effect on the estimated embedded RST and therefore inflates and distorts the Transitional Rebate entitlement and is not in accordance with the context, purpose and intent of the Transitional Rebate.
2. applicant’s methodology produces windfall and absurd Transitional Rebate entitlement:
· the applicant’s written submissions have raised the issue that interpretation of subsection 57(4) of the Regulations concerning percentage completion of construction of a condominium complex must result in consistent, predictable and fair results;
· the applicant’s application of percentage of completion of construction of the condominium complex does not satisfy the statutory interpretation outcomes which the applicant has identified;
· the applicant’s position is that cost of land is indicative of a degree of completion of construction of a condominium complex would lead to widely inconsistent results in the calculation of the percentage of completion of construction and result in widely different findings of percentage of completion of construction based primarily on land prices. The result would be that builders who were subject to equal amounts of estimated embedded RST on construction of a condominium complex prior to July 1, 2010, could receive absurdly different amounts of Transitional Rebate to offset estimated embedded RST.
· the applicant’s application of the capital and operating costs method would provide that acquisition of a vacant undeveloped piece of land, prior to July 1, 2010, constitutes a significant percentage of completed construction of a condominium complex as of that date even where a de minimis level of construction activity may have been completed;
· specific to the applicant’s calculations, the claimed inclusion of cost of land brings the applicant to just over the 25% threshold for calculated degree of completion of construction of its condominium complex. Prior to July 1, 2010, the applicant incurred land cost of $2,231,212 and all other costs of $3,604,568;
· from the total of $5,835,780 which the applicant claims for the purpose of the Transitional Rebate as its capital and operating costs of construction incurred prior to July 1, 2010, 38% ($2,231,212/$5,835,780) of this $5,835,780 claimed costs had no embedded RST, yet the applicant claims Transitional Rebate as if all this $5,835,780 was subject to embedded RST. This calculation would produce a windfall Transitional Rebate entitlement for the applicant;
· even though the capital and operating costs method uses costs as the proxy to measure percentage of completed construction, what is being sought to be determined for the purposes of Transitional Rebate is the percentage of completed construction work, effort and activity which a condominium complex has undergone and sustained as of July 1, 2010 which as a result estimates embedded RST for rebate purposes;
· the applicant’s application of calculation of percentage of completion of construction by factoring in land cost, produces results that can have reduced and in some cases almost non-existent correlation to the level of actual completed construction. Given an equal amount of condominium complex construction activity completed, a building of a certain cost and having an amount of estimated embedded RST, utilizing a relatively expensive piece of land, would receive a higher Transitional Rebate than a condominium complex with a building of the exact same cost and having the same amount of estimated embedded RST utilizing a lower cost piece of land. The applicant’s methodology would produce inconsistent entitlements to Transitional Rebate;
· the respondent’s application of the capital and operating costs methodology which does not include cost of land, removes this distortive effect and produces a Transitional Rebate entitlement to a claimant which is correlated to the amount of estimated embedded RST in a condominium complex and provides an entitlement amount that meets the very purpose of the Transitional Rebate;
· the respondent submits if land costs are not included in the capital and operating costs method, this distortion concerning value of land on the percentage of completion of construction which has no bearing on estimated embedded RST, is removed;
· the respondent submits its methodology provides a more predictable and appropriate Transitional Rebate entitlement and is more reflective of the estimated embedded RST prior to July 1, 2010.
Legislative Provisions
[8] The relevant provisions of the ETA and the Regulations for the purpose of this motion are found at the end of the present Reasons for Order.
Analysis
[9] Subsection 123(1) of the ETA sets out the definitions applicable to this motion, namely the definitions of:
− “condominium complex”;
− “residential complex”;
− “residential condominium unit”; and
− “residential unit”.
[10] Section 256.2 of the ETA provides for the rebate in issue which is calculated pursuant to the Regulations (Part 9 – Ontario and British Columbia Real Property Transitional Rules, Division 4 – Transitional New Housing Rebates).
[11] Subsection 55(1) of the Regulations defines the expressions “estimated provincial levy” and “specific residential complex”. The prescribed circumstances to be satisfied for the purpose of the rebate for specified residential complex are listed in subsection 57(1) of the Regulations and the amount of the rebate is determined in this case by such paragraphs 57(4)(c)(iv) or (v) of the Regulations.
[12] The parties agreed that the applicant is entitled to the rebate, that the development was a “specified residential complex”, a “condominium complex” and a “residential complex” and that the development contained a “residential condominium unit” and a “residential unit”.
[13] The amount of the rebate is determined by paragraph 57(4)(c) of the Regulations. If the development is between 25% to 50% complete, the applicant is entitled to 50% of the “estimated provincial levy” pursuant to subparagraph 57(4)(c)(iv) of the Regulations. If the development is between 10% to 25% complete, then the applicant is entitled to 25% of the “estimated provincial levy” pursuant to subparagraph 57(4)(c)(v) of the Regulations.
[14] The rebate is calculated in accordance with clause B(i) of the definition of “estimated provincial levy” in subsection 55(1) of the Regulations.
A. The Statutory Interpretation Principles
[15] In Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, the Supreme Court of Canada set out a textual, contextual and purposive approach to statutory interpretation in the following terms:
10 It has been long established as a matter of statutory interpretation that "the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament": see 65302 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] 3 S.C.R. 804, at para. 50. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.
11. As a result of the Duke of Westminster principle (Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.)) that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable, Canadian tax legislation received a strict interpretation in an era of more literal statutory interpretation than the present. There is no doubt today that all statutes, including the Income Tax Act, must be interpreted in a textual, contextual and purposive way. However, the particularity and detail of many tax provisions have often led to an emphasis on textual interpretation. Where Parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayers would rely on such provisions to achieve the result they prescribe.
[16] In Mathew v. Canada, [2005] 2 S.C.R. 643, the Supreme Court of Canada has also stressed a unified approach to statutory interpretation:
43 . . . While it is useful to consider the three elements of statutory interpretation separately to ensure each has received its due, they inevitably intertwine. For example, statutory context involves consideration of the purposes and policy of the provisions examined. And while factors indicating legislative purpose are usefully examined individually, legislative purpose is at the same time the ultimate issue -- what the legislator intended.
[17] In Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] 1 S.C.R. 715 at paragraphs 21 to 24, the Supreme Court of Canada has also emphasized the textual approach where the words are clear and there is no ambiguity.
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[18] The applicant’s interpretation of the words “construction of the condominium complex” includes the land subjacent to the building. “Condominium complex” is defined in subsection 123(1) of the ETA to include a “residential complex”; the latter term is also defined in subsection 123(1) of the ETA to include the land contiguous and subjacent to the building. The definition of “residential condominium unit” in subsection 123(1) of the ETA also includes “any interest in land pertaining to . . . the unit”. Therefore, a residential complex (and therefore a condominium complex) includes both the building and the land, as set out by Parliament and the land must be considered as a necessary component in constructing the complex. Furthermore, the words “construction of a residential complex” in the Regulations has the same meaning as in subsection 123(1) of the ETA as a result of the application of section 16 of the Interpretation Act, R.S.C 1985, c. I-21 which reads as follows:
16. . Where an enactment confers power to make regulations, expressions used in the regulations have the same respective meanings as in the enactment conferring the power.
[19] The applicant relies on the decision of Justice Paris of this Court in 1096288 Ontario Ltd. v. The Queen, 2009 TCC 292, which has been affirmed by the Federal Court of Appeal, 2010 FCA 332, in support of his interpretation. In that case, the Tax Court of Canada held that the words “construction . . . of a residential complex” in subsection 123(1) of the ETA included land. The Federal Court of Appeal agreed with this interpretation:
[2] GST is payable on the sale of a "residential complex" by the builder: section 2, Part 1 of Schedule V of the Excise Tax Act, RSC 1985, c. E-15 (Act). A "builder" is defined in subsection 123(1) of the Act as a person who carries on the "construction or substantial renovation" of a residential complex. "Residential complex" is defined in the same subsection as that part of the building in which one or more residential units are located, "together with ... the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence".
[3] The word "construction" is not defined in the Act and the Judge gave it its ordinary meaning: in particular, the act of forming something by putting together parts. He reasoned that, since "residential complex" comprises the building and the land on which it stands, when the Appellant moved a house from its original lot, it ceased to be part of the previous "residential complex". By preparing the foundation on the new lot, installing the necessary services, and attaching