https://decisia.lexum.com/tcc-cci/decisions/en/item/310269/index.do
Metrogate Inc. v. The Queen (May 11, 2018 – 2018 TCC 91, Favreau J.).
Précis: This was an application under section 58 of the Tax Court of Canada Rules, General Procedure. The Ontario transitional new housing rebate is based on a percentage of completion calculation. The taxpayer was constructing a condominium complex. In its calculation it added the cost of the underlying land to both the numerator and denominator and arrive at 25.64% percentage of completion. CRA excluded the cost of the land from the calculation and arrived at 17.56% percentage of completion which meant that the taxpayer was entitled to a smaller rebate. CRA’s argument, in a nutshell, was that there was no retail sales tax (“RST”) payable on land and since the rebate was designed to compensate for the underlying RST it was illogical to include the cost of the land in the calculation. The Tax Court rejected CRA’s argument holding that on a proper construction of the Excise Tax Act and the Regulations the cost of land should be included in the rebate calculation. Thus the application of the taxpayer under section 58 was allowed with costs in any event of the cause.
Decision: The Tax Court decision is extremely thorough, however since the point is highly esoteric and probably one of interest to only a handful of taxpayers in the construction industry it will likely suffice to reproduce only a few extracts.
Whether “land” forms part of a “residential complex”:
[21] The following extract of Justice Paris’ decision concerning the definition of “residential complex” in subsection 123(1) of the ETA is particularly relevant:
37 . . . A "residential complex" (other than a mobile home or floating home) is defined in subsection 123(1) of the Act as including any land subjacent to the structure and any contiguous land necessary to the use and enjoyment of the building portion of the complex as a place of residence. Therefore, the structure of a house is only a part of a residential complex. Without land the structure could not be used as a place of residence. . . .
[22] Based on the foregoing, the applicant’s position appears to be the correct one on the textual analysis. The Regulations specifically use the term “condominium complex” and “residential complex” which are defined to include the land. The applicant’s position is the only one which is supported by case law. The land is a necessary element in any construction.
The taxpayer’s position does not lead to an absurd result:
[46] Finally, in response to the respondent’s argument that including land in the calculation produces results which has no correlation to the degree of completed construction, the applicant argues that this is not true when land is included in the interpretation of “construction”.
[47] While there is a presumption that Parliament does not intend to cause absurd results in enacting legislation (see B010 v Canada (Minister of Citizenship and Immigration), [2015] 3 S.C.R. 704; see also Grunwald v R, 2005 FCA 421), a perceived absurd result cannot be used to override clear and unambiguous wording (see R v McIntosh, [1995] 1 S.C.R. 686 (SCC); see also Mathieu c R, 2014 TCC 207). In this case, I am not convinced that the applicant’s desired result is absurd. The applicant here is not getting an 80% rebate based solely on the value of the land purchased as in the respondent’s example given at paragraph 34 of the respondent’s Memorandum of Fact and Law. Rather, it only increases the percentage completion by 8.08 percentage points.
[48] The respondent admits this much at paragraph 24 of her Memorandum of Fact and Law, where the respondent states that the 2% rate used in paragraph (b) of the definition of “estimated provincial levy” in subsection 55(1) of the Regulations equates to ¼ of the 8% RST rate in effect up to July 1, 2010. This 2% rate is used to estimate embedded RST in the construction, recognizing that many inputs such as labour of the builder’s employees were not subject to RST whereas construction materials were subject to RST.
Decision:
[55] The key question for this motion is: was the construction of the condominium complex over or less than 25% complete at July 1, 2010? This depends on whether the cost of land should be considered in the calculation.
[56] A textual analysis supports the applicant’s argument that land is an element in constructing a condominium complex. This is based on the statutory definitions of “condominium complex” and “residential complex” and case law interpreting these words. No cases supporting the contrary view has been presented. The contextual and purposive analysis is more ambiguous but I am convinced that the wording of the legislative provisions is not ambiguous enough to have any of the respondent’s arguments succeed.
[57] For these reasons, 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.
Thus the application of the taxpayer under section 58 was allowed with costs in any event of the cause.