February 18th - 2013

Legal Beat: Home renovation not substantial enough for rebate

After being denied a tax rebate for a home renovation, this Quebec taxpayer appealed. He had applied for a GST rebate through a program that enabled home owners to recoup some costs for work on a new residential complex or one that had undergone substantial renovation.

After being denied a tax rebate for a home renovation, this Quebec taxpayer appealed. He had applied for a GST rebate through a program that enabled home owners to recoup some costs for work on a new residential complex or one that had undergone substantial renovation.

In this case, the cost of the renovation work totalled $45,910. The taxpayer appealed after his application for a GST rebate was turned down by the province’s Ministry of Revenue. The application was denied because most of the interior of the existing part of the residence was not renovated.

The taxpayer’s appeal was also dismissed. According to court transcripts, renovations to the basement could not be considered in determining whether major renovations had been completed because the basement was only partly completed. The additions to the entrance hall and basement, even if they were considered habitable areas, did not double the surface of habitable areas of the residence and more importantly did not create a new residential complex because the residence remained mostly intact.

Work carried out during the taxpayer’s major renovations fell within ordinary meaning of the definition of substantial renovations, and for the purposes of the ecoENERGY program. However, the definition of “substantial renovation” in s. 256(2) of the Excise Tax Act (Can.) is very restrictive, since it excludes work that should theoretically be considered major, such as work to foundation, exterior walls, interior support walls, floors, roof and stairs. Work to the building was not considered sufficient enough for the building to be viewed as “all” or “substantially all” removed or renovated.

Nadeau v. Canada 2011 TCC 243

MERV’S COMMENTS
In the act, “substantial renovation” means that the renovation or alteration of a building must be completed 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.

The judge noted that for renovation work to be considered “substantial” for the purposes of the act, an existing building must be refurbished or transformed to the extent that all or substantially all (90 per cent or more) is removed or replaced, with the exception of the foundation, exterior walls, interior supporting walls, floors, roof and stairs. Don’t look for logic, or simple English, in a tax statute.

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