Executive Summary: Key Legal and Evidentiary Issues

• Solution Assur 3D inc. appealed a GST reassessment concerning a September 28, 2016 sale of a building under construction to its two shareholders.
   
• Central to the dispute was whether the property qualified as an exempt supply of "farmland" under section 12, Part I of Schedule V to the Excise Tax Act.
   
• Justice Gagnon found the evidence credible and sufficiently convincing to establish that the couple's permaculture venture constituted a farming business.
   
• Whether input tax credits from reporting periods preceding the assessed quarter could be claimed under subsection 296(2) of the ETA was a second live issue.
   
• Textual, contextual, and purposive analysis led the Court to conclude that subsection 296(2) applies only to ITCs arising within the particular reporting period under assessment.
   
• Two related decisions, Pawlak and Byrnes, were distinguished as not squarely addressing the question of ITCs from prior periods.
   

Facts of the case

Solution Assur 3D inc. was registered for GST purposes since December 10, 2014, though it had originally been intended for an unrelated business. Its two shareholders, Anaïs Archambault and Kevin Bouchard — spouses and parents of three preschool-age children — redirected the corporation toward a permaculture venture involving small fruits and organic vegetables after Bouchard sold his insurance business in December 2015. On September 30, 2015, the corporation acquired a vacant lot (lot 4 568 114 of the Cadastre du Québec, at 355 rue des Celtes, Saint-Calixte) for $37,000 and began constructing a building on it in March 2016. By the end of summer 2016, difficulties forced the couple to abandon the project. On September 28, 2016, the corporation sold the building under construction to Archambault and Bouchard personally for $231,500, excluding GST and Quebec sales tax, in exchange for a demand promissory note. The parties treated the sale as an exempt supply and did not collect GST. On January 17, 2022 [the Joint List of Admissions and Facts at paragraph 15 states this determination occurred January 7, 2022; the judgment's header, paragraph 1, and paragraph 78 all state January 17, 2022 — this inconsistency exists in the source and is not resolved here], the Minister assessed the corporation for $11,023.81 in net tax adjustments, plus $3,282.56 in arrears interest and a $385.82 penalty for failure to file, for a total of $14,692.19, while allowing $0.00 in input tax credits. The corporation objected, then appealed to the Tax Court.

Policy and legislative provisions at issue

The core provision was section 12, Part I of Schedule V to the Excise Tax Act, which exempts a sale of farmland to an individual shareholder where, immediately before the transfer, substantially all of the vendor's property is used in a commercial activity that is a farming business, the individual is a shareholder actively engaged in the business, and, immediately after transfer, the land is for the individual's personal use. The parties agreed that only the "farming business" language in subparagraph 12(a)(i), along with subparagraphs 12(a)(iii) and 12(b), were contested; the "all or substantially all" element of subparagraph 12(a)(i) was not disputed. Also relevant were the definitions of "supply," "taxable supply," "commercial activity," and "business" under subsection 123(1) of the ETA. On the input tax credit question, the appellant relied on subsection 296(2), which allows the Minister to credit an "allowable credit" not previously claimed where it would have qualified as an ITC or deduction for the particular reporting period being assessed. The Court also examined subsection 169(1), which ties an ITC's creation to the specific period in which GST becomes payable or is paid, and subsection 225(1), which sets out the net tax formula distinguishing ITCs for the particular period from ITCs for a preceding period.

Reasoning and analysis

On the exemption question, Justice Gagnon found the term "farmland" was not statutorily defined but should be read alongside the English Income Tax Act usage and the Larousse definition of agriculture. He concluded that land meeting the "commercial activity that is a farming business" requirement in 12(a)(i) necessarily qualifies as farmland, making a separate farmland analysis unnecessary. The judge found the evidence credible and convincing on a balance of probabilities that the property was used in a business connected to agriculture, noting the parties' joint admission that permaculture is an agricultural activity and that the corporation's stated commercial activities involved mixed fruit and vegetable cultivation. The project's immaturity did not preclude characterizing it as a commercial activity, a conclusion reinforced by the Crown's own admission of an ITC. The Court was also satisfied that the shareholders used the property for personal purposes immediately after the transfer, given the project's abandonment.

On the input tax credit question, the Court undertook a detailed textual and purposive analysis of subsection 296(2), concluding that Parliament's use of "allowable credit" tied exclusively to the "particular reporting period" excludes ITCs crystallized in earlier periods, since Parliament used explicit language elsewhere in the ETA (subsection 225(1)) when it intended to distinguish between ITCs for the current versus prior periods. The Court rejected commentator David Sherman's position that "deduction" in paragraph 296(2)(a) was broad enough to capture prior-period ITCs, finding this interpretation inconsistent with the harmonious reading required by the Supreme Court of Canada's approach in Hypothèques Trustco Canada v. Canada. The Court distinguished Pawlak v. The Queen and Byrnes v. The Queen as involving only ITCs from the assessed period itself, making them inapplicable to the broader question of prior-period ITCs.

Ruling and overall outcome

The Court allowed the appeal, without costs, and referred the matter back to the Minister for reconsideration. The sale of the building under construction was to be treated as an exempt supply under section 12, Part I of Schedule V to the ETA. The appellant, Solution Assur 3D inc., was granted an input tax credit of $1,090.78 — the amount the Respondent had already conceded at the hearing in relation to expenses incurred during the assessed quarter itself. The Court rejected the appellant's broader claim to input tax credits totaling $6,978.51 arising from invoices predating the quarter, finding that subsection 296(2) of the ETA does not extend to input tax credits crystallized in prior reporting periods.