Substantial Renovation

Russell J found that the appellant had not substantially renovated two Ontario properties, so that their sale was not made by the appellant as a “builder” and were not subject to HST under Sched. V, Pt. I, s. 2.

One property, the “Craven Road” property, was a basic bungalow with an unfinished basement. There was an extension at the back of the house containing a family room, the kitchen was moved, a plaster wall replaced with drywall, a bedroom was taken out and the main floor hardwood was covered with laminated wood. A whole second storey was added (along with internal staircase) and rooms were added to the basement (and the new rear space was storage space). In determining whether there was substantial renovation of the Craven Road property and of the second property (the “Fourth Street” property) both parties accepted the use of the second of the three methods referred to in GST/HST Technical Information Bulletin B-092 for measuring whether a renovation had been “substantial” (with 90% appearing in B-092 as the minimum percentage for a property to be considered as having been “substantially renovated”). That method was comparing the total area of renovated floor and wall spaces to the building’s total area of floor and wall spaces.

In applying this method, Russell J accepted (at para. 31) that:

“[F]looring” in the definition must mean “sub-flooring” as distinguished from whatever flooring was installed covering over the sub-flooring. … Putting down a new carpet, or new laminate wood flooring … [is not] sufficiently significant to contribute to whether a building might be said to have been “gutted.”

He went on to find that the renovations did not result in the “gutting” of the building, so that it was not substantially renovated.

The Fourth Street property was a two-storey building before and after the work, which entailed putting laminated flooring in the basement, moving the stairs, removing a partition on the main floor and the addition of three bedrooms on the second storey. Russell J found that given that some rooms were largely untouched, the 90% threshold under the chosen methodology (the second method) had not been exceeded.

The taxpayer appealed a decision of the Minister to reject his claim for a GST new housing rebate on the basis that the building “looked like new”, the CRA’s analysis was flawed, and that drywall should be excluded from consideration. The appellant renovated a one-level ranch style house over 4 and one-half years. The renovated building had new external windows and doors, and the kitchen, dining area and living room had walls removed to create a great-room, with new drywall, flooring, electrical, and kitchen cabinetry. The completely renovated space comprised just under half of the liveable floor space (excluding garage). The remaining rooms had their drywall repaired and painted and fixtures replaced, but did not have most of their drywall replaced.

In finding that the renovation work did not rise to the level of “substantial renovation,” so that the Minister correctly denied the new housing rebate, Bocock J first quoted (at para 8) the statements in B-092 that “In a major renovation project, the interior of a building is essentially gutted" and "Generally, all interior walls (e.g., drywall) throughout the subject area (at least 90% of the building) would have to be removed or replaced,” and then stated (at para 18, 20):

The test is not the appearance of the building after renovation. The test is whether … may one say that the building was renovated sufficiently enough that all or substantially all of the building has been removed or replaced: Camiré v. HMQ, 2008 TCC 82 at paragraph 11.

Even when applying the test in Lair [2003 TCC 929], widely viewed as the most favourable to the granting of rebates, the renovations carried out by Mr. and Mrs. Whittall do not match up. At best, only half the rooms were substantially renovated. Most walls, unless torn down permanently or newly constructed, were “re-smoothed” and not removed, largely due to disposal costs, but nonetheless suggesting replacement was not a necessity.

In rejecting a submission that the failure to remove much of the drywall should not be counted against the appellant because “drywall is integral to ‘interior supporting walls’ or ‘external walls’,” he stated (at para. 23):

[T]he primary purpose of gypsum wallboard is to provide a flat, stable and smooth surface for decoration. Panelling, ceiling tile and tile board are not different. Whatever load bearing strength or fire retardation qualities they contain are collateral to their main purpose.

The registrant's renovations on a house included the digging of a basement and adding a 140 square-foot entrance hall, and increased the house's municipal evaluation from $52,900 to $114,200. Nevertheless, the renovations did not meet the definition of "substantial renovations" in the ETA because the main floor remained mostly unchanged (the only substantial replacements were some windows and bathroom fixtures).

The owner renovated his home such that its square footage was doubled, and a garage and second floor were added. He conceded that he had not substantially renovated the existing premises. In confirming the Minister’s denial of the GST new housing rebate referred to in s. 256(2) (which was made on the basis that owner did not construct a residential complex as defined in s. 123(1)), Hershfield J. found (at para. 15) that the renovations did not qualify as the construction of a new home given that the existing premise were not “essentially reduced to a relatively minor aspect of that new premises.” He went on to state (at paras. 16):

Adding a double garage and doubling your living space in a home does not constitute anything more than a significant renovation. The Act does not permit a rebate on a renovation, significant or otherwise, unless virtually all of the existing premises is gutted.