Background
Amir Salehi was assessed by the Canada Revenue Agency (CRA) for failing to report Harmonized Sales Tax (HST) on two homes he built in Toronto: 58 Walder Avenue and 17 Dunblaine Avenue. The core issue was whether Mr. Salehi qualified as a “builder” under the Excise Tax Act (ETA), specifically whether his activities constituted a business or an “adventure in the nature of a trade” (ANT). If deemed a builder, he would be required to charge, report, and remit HST on the properties.
For 58 Walder, the assessment considered the self-supply rules under subsection 191(1) of the ETA, which deems a builder to have sold the property as a taxable supply if they occupy it as a residence. A key exception under subsection 191(5) applies if the property was used “primarily as a place of residence.” For 17 Dunblaine, the assessment concerned its sale to a third party. Mr. Salehi argued that he built 58 Walder for personal use and was not a builder, while the Crown maintained his intent was commercial.
The Court’s Holding
The Tax Court of Canada dismissed Mr. Salehi’s appeals, finding that he was indeed a “builder” for both properties and liable for HST. Justice Ezri concluded that Mr. Salehi’s activities, particularly concerning 58 Walder, constituted an “adventure in the nature of a trade” (ANT).
The Court applied the factors from Happy Valley for determining ANT, focusing on the short length of ownership, Mr. Salehi’s extensive involvement in the redevelopment of both 58 and 60 Walder (the latter built by a relative), and the systematic nature of the construction. It rejected Mr. Salehi’s explanations for selling 58 Walder (marital issues and son’s schooling) as pretextual, noting the coincident sale of 60 Walder and continued business dealings with the co-developer. Furthermore, the Court found that his brief occupation of 58 Walder was not “primarily as a place of residence” as required by subsection 191(5) of the ETA. The occupation was characterized as “window dressing” to create the appearance of personal use, with evidence like the lack of hot water undermining claims of genuine residency.
Key Takeaways
- Individuals engaging in residential property development must carefully assess if their activities constitute a “business” or “adventure in the nature of a trade” (ANT), triggering HST obligations.
- The court considers multiple factors (nature of property, length of ownership, frequency of transactions, work expended, circumstances of sale, and motive) to determine if a project is an ANT.
- Brief occupation of a newly built home may not be sufficient to invoke the “primarily as a place of residence” exception (s. 191(5) ETA) if the primary intent remains resale.
- Failure to call a key witness, especially after indicating an intent to do so, can lead to negative inferences from the court.
Why It Matters
This decision is significant for individuals involved in residential property construction or renovation, particularly those who undertake such projects with an intent to sell. It reinforces the CRA’s position on what constitutes a “builder” and an “adventure in the nature of a trade” under the Excise Tax Act, even for those without formal construction businesses. The ruling highlights that intent to profit from property development, rather than personal use, can lead to substantial HST liabilities.
Furthermore, the case provides important judicial commentary on the limited scope of the subsection 191(5) exception, emphasizing that temporary occupation does not automatically exempt a builder from self-supply rules if the primary purpose of the property remains inventory for resale. It also serves as a reminder for litigants about the importance of credible evidence and the potential for negative inferences when key witnesses are not called to testify.