Background
Shadi Asadi bought a mid-town Toronto property in 2012 for $1.35 million while seeking work in Toronto. Her parents supplied the cash and mortgage payments. Although Asadi testified that she initially expected only minor improvements, she did not obtain a pre-purchase inspection and soon engaged a construction company to demolish the existing house and build a substantially larger, luxurious residence. Construction cost approximately $1.36 million plus HST.
Asadi worked in British Columbia, never occupied the Toronto property, and listed it for sale several times beginning in April 2013. It ultimately sold in October 2015 for $3.845 million. The Minister reassessed her for HST on the sale and imposed failure-to-file penalties. Asadi appealed, arguing that she was not a “builder” under the Excise Tax Act and, alternatively, that she should receive an input tax credit for the HST paid on the real estate commission.
The Court’s Holding
The Tax Court dismissed the appeal. It found that resale of the rebuilt property at a profit was at least a secondary operating motivation when Asadi acquired it, making the transaction an adventure in the nature of trade. The court relied on the rapid purchase despite uncertain Toronto employment, the absence of an inspection, the circumstances surrounding the decision to demolish, the scale and luxury of the replacement house, the repeated listings, and the fact that Asadi never occupied the property. It gave little weight to her evidence about her subjective intentions because testimony concerning material facts was vague or inconsistent and because her parents functionally controlled the major decisions.
Asadi was therefore a “builder,” and HST was payable on the sale. She could not claim an input tax credit for the HST on the sales commission because she was neither registered nor required to register for GST/HST during the relevant reporting period. The CRA’s issuance of a business number for assessment purposes did not establish registration. Nor was a rebate available: the commission tax did not form part of the property’s “basic tax content.” The reassessments and penalties remained in place, with costs awarded to the Crown.
Key Takeaways
- A home sale may be an adventure in the nature of trade when profitable resale was an important secondary motivation at acquisition, even if possible personal occupancy was also contemplated.
- Builder status under the Excise Tax Act can make HST collectible on the sale of a newly constructed residence that the owner never occupied.
- A CRA business number issued to assess a transaction does not, by itself, prove GST/HST registration or create eligibility for input tax credits.
Why It Matters
The decision illustrates how the Tax Court assesses intention from the taxpayer’s entire course of conduct rather than accepting stated plans for personal occupancy at face value. Financing arrangements, decision-making by family members, the nature of construction, employment circumstances, listing history, and credibility can collectively establish a profit-making secondary intention.
It also highlights an important GST/HST asymmetry for one-off real estate ventures: a non-registrant may owe HST as a builder while remaining unable to claim an input tax credit for transaction expenses such as a broker’s commission.