March 26th, 2024
Rental property owner
If you have failed to self-assess GST/QST for a self-supply of a residential real property and you decide to file a GST/QST return to remit GST/QST, you could be penalized compared to someone who does nothing and is audited by ARQ.
Context
When you own the land at the time a contract is awarded for the construction of a residential rental property, you are considered a “builder” for GST/QST purposes and are required to remit the applicable GST/QST on the self-supply of your residential real property at its fair market value.
Decision of the Court of Québec on Héroux v. Agence du revenu du Québec, February 1, 2023.
Mr. Héroux decided, on his own initiative and before the ARQ began an audit of his file, to correct his tax situation. Thus, he:
a) self-assessed for the self-supply of real property;
b) claimed rebates for new rental properties; and
c) claimed reimbursements for construction costs;
The ARQ refused claims for the new rental property rebate and the construction cost rebate on the grounds that the required forms were filed with ARQ more than two years after the self-supply dates.
According to the ARQ, since Mr. Héroux filed his new rental property rebate application before the notice of assessment for self-supply was issued, he was not eligible for this rebate. This means that if he had waited to be audited by the ARQ before filing the rebate applications and his return to pay the GST/QST on the self-supply, the ARQ would have granted him the rebates.
Relying on the judgments in Villa Sainte-Rose, Humber College (2013 TCC 146) and United Parcel Service du Canada Ltée (2009 SCC 20), the Court of Québec reiterated the importance of interpreting tax statutes in light of the modern method, i.e. “in their entire context, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” The Court of Quebec concluded that the reimbursements could not be discredited by the ARQ, even though they were requested more than two years after the self-supply of the residential rental real property.
Despite the case law, ARQ continues to refuse reimbursements for new rental properties in the same context.
To go against decisions of the Court of Quebec, the Tax Court of Canada, and the Federal Court of Appeal, in addition to charging penalties and interest, in order to follow an internal ARQ policy which ensures that a taxpayer who tries to comply with current laws by being proactive and correcting his file is at a serious disadvantage compared to another taxpayer who undergoes a tax audit, seems abusive to us, especially given that the ARQ’s published vision is to be “Fair for all”.
