Swift v. HMK – Test for HST Builder Cases

DECISION HERE

The Swift v. The Queen, 2020 TCC 115 decision from the Tax Court of Canada addresses whether Thomas Swift, a long-time construction industry participant and owner of Tom Swift Construction Ltd. (TSC), was liable for GST/HST under the self-supply rules of the Excise Tax Act (ETA) when he built and sold his personal residence.

Key Facts:

  • Mr. Swift, through his company TSC, had a history of building and selling homes, but after 1997, all business activities were conducted through TSC, not personally.
  • In 2009, Mr. Swift and his spouse purchased a lot (the JDF Lot) and built a custom home (the JDF House), moving in with their family in 2010.
  • They lived in the JDF House for about 3.5 years before selling it in 2013 due to financial difficulties, not as part of a business or profit-motivated plan.
  • The Minister assessed Mr. Swift for GST/HST on the basis that he was a “builder” under subsection 123(1) of the ETA and did not qualify for the personal-use exception in subsection 191(5).

Legal Issues:

  1. Was Mr. Swift a “builder” as defined in subsection 123(1) of the ETA?
  2. If so, did the personal-use exception in subsection 191(5) apply, exempting him from the self-supply rule in subsection 191(1)?

Analysis and Findings:

  1. Builder Status and Adventure in the Nature of Trade:

    • The Court applied the six-factor test from Happy Valley Farms to determine if Mr. Swift’s activities constituted an “adventure in the nature of trade” (i.e., a business or profit-seeking activity).
    • Factors included the nature of the property, length of ownership, frequency of similar transactions, work expended, circumstances of sale, and motive/intention.
    • The Court found that the JDF House was built as a personal dream home, with custom features for family enjoyment, and was not intended for sale at the time of acquisition or construction.
    • The sale was prompted by financial hardship, not a pre-existing intention to profit.
    • The frequency of home sales (five over 23 years) was not high enough to suggest a business or trading pattern.
    • The Court concluded that Mr. Swift did not build the JDF House in the course of a business or adventure in the nature of trade, and thus was not a “builder” under the ETA for this property.

  2. Personal-Use Exception:

    • Even if Mr. Swift had been a “builder,” the Court found he would have qualified for the personal-use exception in subsection 191(5) of the ETA.
    • The evidence showed the JDF House was used primarily as a place of residence for Mr. Swift and his family, and not as inventory or for business purposes.
    • Mr. Swift did not claim input tax credits (ITCs) on the construction, satisfying another requirement of the exception.

Conclusion:

  • The appeal was allowed, the assessment was vacated, and costs were awarded to Mr. Swift.
  • The Court held that Mr. Swift was not a “builder” for GST/HST purposes in respect of the JDF House, and even if he were, the personal-use exception would have applied to exempt him from the self-supply rule.

Significance:

  • The decision provides a detailed application of the “adventure in the nature of trade” test in the context of personal home construction and sale.
  • It clarifies that the personal-use exception in the ETA is available where the primary use of the property is as a residence, even if the owner has a construction background or history of home sales, provided the facts support a personal, not business, purpose.

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