The Court of Québec examined whether the consideration paid for a parking space when purchasing a residential unit held in divided co-ownership must be included in the calculation of the total consideration to determine the amount of the partial sales tax rebate for new housing.
In Grands Palais du nouveau Saint-Laurent Inc. v Agence du revenu du Québec, rendered on January 31 (2020 QCCQ 281), the Court of Québec addressed the obligations of a builder of new housing who chooses to administer the partial rebate of the taxes paid by purchasers.
The Court clarified the analytical criteria to determine whether the consideration paid for a parking space when purchasing a new residential unit must indeed be included in the calculation of the partial rebate of the sales tax.
The Court also found that the builder was solidarily liable with the purchasers for the amounts paid or credited to them in excess of the rebate to which these same purchasers were entitled.
Context
In Quebec, a purchaser of new housing is normally entitled to a partial rebate of the GST and QST paid if the purchaser meets the criteria set out in section 362.2 of the Act respecting the Québec sales tax (AQST) and subsection 254(2) of the Excise Tax Act (ETA). The rebate application is made by completing a form and sending it to the Agence du revenu du Québec (ARQ). The calculation of the rebate is based on the total of all amounts paid by the purchaser to acquire the residential unit. However, the rebate is gradually reduced when the purchase price of the land and the new residential unit is greater than $350,000 for the GST and $200,000 for the QST. It becomes zero if the price is equal to or greater than $450,000 for the GST and $300,000 for the QST.
As mentioned by the Court, “[TRANSLATION] the builder of a new residential complex may elect to administer the rebate himself by paying or crediting it directly to the purchaser” (para. 4). The builder then deducts this rebate from the net tax that it is required to remit to the tax authorities. That is what Les Grands Palais du nouveau Saint Laurent Inc. did when it sold its housing project consisting of 363 residential units and 408 indoor parking spaces. Grands Palais sold all of its residential units, and 361 of the 363 purchasers chose to acquire at least one parking space with their residential unit.
In the context of this litigation, the ARQ determined that Grands Palais had received refunds greater than those to which 93 purchasers were entitled because it had failed to include the consideration paid by these purchasers for the parking space in the calculation of the total consideration.
Issues in dispute
The issues considered by the Court are as follows:
- Does the cost of the parking spaces have to be included in the calculation of the total consideration paid by the various purchasers of the residential units in the Grand Palais housing project?
- If so, is the ARQ justified, in the circumstances of this case, in holding Grand Palais solidarily liable for the rebate overpaid to some of the purchasers?
- Is the Court the appropriate forum for deciding whether or not the ARQ’s assessment is fair?
Analysis
Inclusion of the cost of the parking spaces
For a parking space to be considered part of the residential complex within the meaning of the AQST, it must be “[TRANSLATION] attributable to the residential unit and reasonably necessary for the use and enjoyment of the unit as a place of residence for individuals” (para. 20). In the words of the Court, “[TRANSLATION] a parking space must allow an individual to use the unit for residential purposes and enjoy the benefits and advantages it offers” (para. 29).
The following factors are cited by the Court to support the position that the cost of parking spaces should be included in the calculation of the total consideration for the purposes of calculating the partial rebate of the sales tax:
- A single contract of sale:
- In each of the transactions in question, the parking space was sold jointly with the residential unit under a single notarized contract of sale.
- The purchasers’ intention:
- Almost all of the purchasers of the residential units expressed their intention to purchase at least one parking space when signing the preliminary contract.
- Parking alternatives:
- Given the location of the residential complex, the purchasers had few alternatives for parking their motor vehicles.
- The prohibition to assign, lease or transfer the parking space:
- The purchasers paid a significant amount of money for their parking space with the knowledge that, in accordance with the declaration of co-ownership, they could dispose of it only to another co-owner.
In light of these factors, the Court found that, even though they constituted separate cadastral lots, “[TRANSLATION] the interdependence and interconnection of the parking spaces with the residential units are such that they could not be considered as separate components for the purposes of establishing the amount of the rebate to which the purchasers were entitled” (para. 65). Thus, the Court concluded that the parking spaces were reasonably necessary for the use and enjoyment of the units for residential purposes. As a result of this inclusion, Grand Palais overpaid the rebate to 93 purchasers who had purchased a parking space.
Builder’s solidary liability
The builder’s and the purchaser’s solidary liability for the rebate paid or credited to the purchaser is provided for in section 370 AQST. This solidary liability applies when it is shown that the builder knows or ought to know that the rebate paid or credited to the purchaser exceeds the rebate to which the purchaser was entitled. This is a test that is analyzed under the standard of a “[TRANSLATION] reasonable person in the same circumstances.”
Based on this test, the Court concluded that “[TRANSLATION] Grand Palais knew, or should have known, that the cost of the parking spaces had to be included in the calculation of the total consideration” for the purposes of the application for a partial rebate (para. 67). According to the Court, the builder’s choice to administer the rebates itself created an obligation to inquire about the applicable legislation and to verify the extent to which each purchaser was entitled to the rebate. Failure to inquire and make the appropriate verifications resulted in the builder being liable for the rebates it had unlawfully granted or for any excess amounts granted. Since several guides, publications and bulletins were available to guide Grands Palais and any other builder in the same circumstances regarding the rebates, the Court stated that Grands Palais should have been aware of the position of the tax authorities in determining which parts of the building were to be included in the residential complex within the meaning of the AQST and thus included in the calculation of the total consideration for the rebates.
Appropriate forum
The Court has only statutory jurisdiction in tax matters, given that its powers are limited to those expressly conferred by statute. Consequently, when an assessment is appealed from before the Court, the Court can only allow the appeal or vacate it, vary it or refer the assessment to the ARQ for reconsideration and reassessment in light of certain conclusions drawn by the Court.
It was on the basis of this limited statutory jurisdiction that the Court concluded that it was not the appropriate forum to decide whether or not the ARQ’s assessment is fair and, to the extent that it is in fact unfair, rectify it. More specifically, Grand Palais sought to extend the scope of the assessment to all of the real estate transactions it had completed in connection with the housing project rather than limiting it to 93 purchasers, which the Court refused to do. Moreover, the Court pointed out that, even if it had accepted Grand Palais’ request, Grand Palais would not have been entitled to any additional rebates resulting from it.
Conclusions
- A builder who chooses to administer the partial rebate of the sales tax on the sale of a residential complex must inquire about the applicable legislation and make the necessary verifications. Failure to do so may result in the builder being solidarily liable with the purchaser for any rebates the builder unlawfully grants or for any excess amounts granted.
- To determine whether a parking space forms part of a residential complex within the meaning of the AQST, one must analyze whether the parking space is reasonably necessary for the use and enjoyment of the residential unit. The existence of a single contract of sale, the purchaser’s intention, the location of the complex and parking alternatives as well as the prohibition to assign, lease or transfer the parking space are relevant factors for the purposes of this analysis.
The Court is not the appropriate forum to decide whether or not an assessment is unfair and, in the affirmative, to request that the scope of an assessment already issued by the ARQ be modified. The Court has limited statutory jurisdiction that does not confer such a power.
Jean-Guillaume Shooner is a partner in the Tax Group at Stikeman Elliott LLP. He specializes in commodity taxation (including Goods and Services Tax/Harmonized Sales Tax, Québec Sales Tax and provincial sales taxes), customs, import/export controls, excise taxes, fuel taxes and various international trade issues.