REASONS
FOR JUDGMENT
Lyons J.
[1]
The issue in this appeal is whether the
appellant is entitled to a New Housing Rebate in the amount of $27,240.24 (the
“Rebate”) under the Excise Tax Act with respect to the property
located at 3 Gwillimbury Drive, Bradford, Ontario, L3Z OB3 (the "property").
I.
Facts
[2]
On May 13, 2010, the appellant signed an
agreement of purchase and sale (the “Agreement”) to acquire the property from
Brookfield Homes Ontario Limited (the "Builder") for consideration of
$361,288.62 with a deposit of $25,000. The closing date was scheduled for July
12, 2010.
[3]
From the outset, the appellant realized that he
would have difficulty obtaining financing to close the transaction. He had four
days to decide if he wished to proceed with the transaction and, if not, could
have obtained his full deposit, without penalty, from the Builder. Instead, he
wanted to proceed and Refath Khandaker, his friend, agreed to assist the
appellant.
[4]
The appellant and Mr. Khandaker (“both”) met a
mortgage broker from the Bank of Nova Scotia Mortgage Development Managers who
explained that the simplest way was for Mr. Khandaker to be added as a co-owner
of the property to satisfy Scotiabank’s requirement (the “Lender”).
[5]
A commitment notification, dated June 4, 2010, was
issued by the Lender to both individuals approving a five-year term first
mortgage loan with respect to the property (“Commitment”) and requiring them to
execute a Personal Credit Agreement for the mortgage loan (“Credit Agreement”).
The same day, both individuals executed the Credit Agreement promising to pay
the mortgage loan and acknowledging receipt of the Cost of Borrowing Disclosure
Statement. They executed the Commitment on June 8, 2010.
[6]
Mr. Kasman, the appellant’s lawyer, testified that
he had explained to both that if they wanted to close the deal that Mr. Khandaker
would need to be a co‑purchaser and be placed on title to the property as
a co-owner to satisfy the Lender’s requirement. Mr. Kasman informed the
Builder’s lawyer that the appellant had informed him of the Builder’s awareness
of the Lender’s requirement. The Builder’s lawyer suggested that Mr. Khandaker
be added as a purchaser to the Agreement.
[7]
On June 22, 2010, a document described as an Amendment
to the Agreement was signed by Mr. Khandaker, the Builder’s representative and
the same witness that had signed the May 13, 2010 Agreement. The Amendment added
him to the Agreement as a purchaser. Mr. Kasman stated that the June 22, 2010
document (“amended Agreement”) formed part of the May 13, 2010 document and
that Mr. Khandaker understood what he was signing. The amended Agreement also acknowledges
that it was understood and agreed between the Builder and the appellant that
this change be made to the agreement signed by the appellant on May 13, 2010. The
appellant testified that he was aware that the amended Agreement had been
signed and did not express any concerns nor take steps to instruct Mr. Kasman
to withdraw or contact the Builder nor indicate it should not be part of the agreement
of purchase and sale.
[8]
An application for the Rebate in respect of the
property was signed by the appellant on July 9, 2010 and shows both individuals
as owners of the property. The Minister of National Revenue (the "Minister")
disallowed the Rebate.
[9]
On July 9, 2010, the Statutory Declaration, prepared
by Mr. Kasman, was signed by both. It states “We are the purchasers of the
above noted property”, it is being acquired as the primary place of residence for
the appellant who is the 100% beneficial owner of the property and Mr.
Khandaker holds a 0.01% interest in trust for the appellant to accommodate the
requirement of the Lender.[1]
[10]
On July 9, 2010, the appellant signed a one-page
document entitled Acknowledgement indicating that he indemnifies Mr. Khandaker from
all liability under the mortgage to the Lender and would make his best efforts
to relieve Mr. Khandaker from personal liability under the mortgage by
having his father replace Mr. Khandaker as a covenantor/guarantor on the
mortgage and on title.
[11]
On July 10, 2010, Mr. Khandaker signed the Acknowledgement
indicating he holds a 0.01% interest in the property solely as trustee for the
appellant and to assist the appellant to obtain a mortgage from the Lender.
[12]
A Statement of Adjustments, dated July 12, 2010,
addressed to both as purchasers of the property was sent to them by Mr. Kasman.
[13]
The appellant testified that he occupied the
property as his principal place of residence from July 12, 2010 to April 2012
when it was sold.
II.
Analysis
[14]
All references to provisions that follow will be
to the Excise Tax Act. Paragraphs 254(2)(b) and (g) are relevant
provisions which read:
254(2) New Housing
Rebate - Where
…
(b) at
the time the particular individual becomes liable or assumes liability under an
agreement of purchase and sale of the complex or unit entered into between the
builder and the particular individual, the particular individual is acquiring
the complex or unit for use as the primary place of residence of the particular
individual or a relation of the particular individual,
…
(g) either
(i) the
first individual to occupy the complex or unit as a place of residence at any
time after substantial completion of the construction or renovation is
(A) in the case of a single unit residential complex, the particular
individual or a relation of the particular individual, and
(B) in the case of a residential condominium unit, an individual,
or a relation of an individual, who was at that time a purchaser of the unit
under an agreement of purchase and sale of the unit, or
(ii) the
particular individual makes an exempt supply by way of sale of the complex or
unit and ownership thereof is transferred to the recipient of the supply before
the complex or unit is occupied by any individual as a place of residence or
lodging,
the Minister shall,
subject to subsection (3), pay a rebate to the particular individual equal to
…
[15]
Paragraph 254(2)(b) requires the Minister
to pay a rebate to a particular individual where a builder makes a supply by
way of sale of a complex or unit and at the time the particular individual
becomes liable or assumes liability under the agreement of purchase and sale in
acquiring the unit for use as a primary place of residence.
[16]
Under subsection 262(3), a particular individual
includes all purchasers as a group. It reads:
262(3) Group of
individuals - If
(a) a
supply of a residential complex or a share of the capital stock of a
cooperative housing corporation is made to two or more individuals, or
(b) two
or more individuals construct or substantially renovate, or engage another
person to construct or substantially renovate, a residential complex,
the references in
sections 254 to 256 to a particular individual shall be read as references to
all of those individuals as a group, but only one of those individuals may
apply for the rebate under section 254, 254.1, 255 or 256, as the case may be,
in respect of the complex or share.
[17]
Where a supply is made to the particular
individual as a group, subsection 254(2) applies so that each individual in the
group must meet the criteria in paragraph 254(2)(b).
[18]
The particular individual that becomes liable or
assumes liability qualifies to receive the rebate assuming that individual
meets all of the other requirements under subsection 254(2). The wording
stipulates that liability fixes to the particular individual who executes an
agreement of purchase and sale with the builder.
[19]
The appellant argued that he executed the
agreement of purchase and sale and was the exclusive, real and the 100%
beneficial owner of the property with all the responsibility. Mr. Khandaker was
added as a co-purchaser to satisfy the Builder because of the Lender’s
requirement that he be on title as an owner and he was merely assisting the
appellant to secure financing.[2]
While that appears plausible, it conflicts with some of the evidence.
[20]
Both individuals had executed the Credit
Agreement and the Commitment, as purchasers, several weeks subsequent to the
Agreement and several weeks prior to the amended Agreement. They also appeared
on title and on the mortgage loan as owners of the property as tenants in
common.[3]
I note that the Acknowledgement signed by the appellant on July 9, 2010
indemnifies Mr. Khandaker from liability.
[21]
Upon signing the Agreement on May 10, 2010, the
appellant realized that he could not secure financing to close the transaction.
It was not until he was able to enlist Mr. Khandaker’s assistance to
become the co-purchaser and co-owner that the purchase was able to proceed.
Initially, the Builder and the appellant, as purchaser, each signed the
Agreement. Subsequently, the Builder and Mr. Khandaker, as co-purchaser,
each signed the amended Agreement, which Mr. Kasman testifed formed part of the
Agreement. As acknowledged by appellant counsel, in signing the amended
Agreement it was Mr. Khandaker’s intention to assume liability within the
meaning of paragraph 254(2)(b).[4]
[22]
Since the appellant executed the Agreement, Mr.
Khandaker executed the amended Agreement and the Builder executed both, I find
that both individuals are the particular individual and both assumed liability.
Each must therefore meet the requirements in paragraphs 254(2)(a) to (g).
[23]
In Rochefort v Canada, 2014 TCC 34,
[2014] GSTC 8, C. Miller J. noted it was Mr. and Mrs. Rochefort who had signed
the agreement of purchase and sale and not their nephew who was merely a co-signatory
and thus he was not a particular individual to which liability attaches. Unlike
the nephew in that case, Mr. Khandaker had executed the amended Agreement
being fully aware of what he was doing and the nature of his involvement in
signing as a co-purchaser and in being placed on title and on the mortgage as
an owner and not merely as a co‑signatory. I agree with respondent
counsel that the appellant is seeking to re‑characterize the legal
relationship that was established between the parties at the relevant time. It
is well established in the jurisprudence that the court must look at the legal
relationships that were entered into by private and contract law and tax
consequences flow from those relationships.
[24]
Paragraph 254(2)(b) requires that the residential
unit be purchased for use as the primary place of residence of the owner or a
qualified relative.
[25]
When the amended Agreement was executed, neither
the appellant nor Mr. Khandaker intended the property to be used or lived
in by Mr. Khandaker as his primary place of residence nor did he have any interest
in buying a home. This was corroborated by Mr. Kasman in his fax cover sheet in
stating that “Only Riyadh Hossain will be occupying the property as his
personal residence.”[5]
I find that Mr. Khandaker fails to satisfy this requirement.
[26]
In Davidson v Canada, [2002] GSTC 25, Ms.
Waterhouse had provided financial assistance to and became a joint tenant with
Mr. Davidson and each had signed the agreement of purchase and sale and the
mortgage and thus she was a particular individual. However, McArthur J. denied
the rebate on the basis that since Ms. Waterhouse did not intend to use the
complex as her principal place of residence and she was not a qualified
relative, she did not meet the requirements of subsection 254(2). He dismissed,
as non-issues, the notions of bare trustees and beneficial owners.[6]
[27]
Turning briefly to appellant counsel’s assertion
that the evidence supports that the appellant is the true beneficial owner and
Mr. Khandaker was a bare trustee holding a 0.01%, neither the
Acknowledgement nor the Statutory Declaration existed before the Agreement or
the amended Agreement. The creation of a trust must be properly documented
containing the requisite elements of a trust, dated, signed and in existence
prior to or contemporaneous with the matter that is the subject of the trust
arrangement. Based on the evidence, I find that no trust arrangement was in
existence at the relevant time and, therefore, it is unnecessary for me to
consider this further.
[28]
Pursuant to paragraph 245(2)(g), a
particular individual is required to occupy the unit after substantial
completion. Mr. Khandaker had never been an occupant of the property nor was he
a qualified relative. I find that Mr. Khandaker also fails to satisfy this
requirement.
[29]
I accept Mr. Kasman’s evidence that Mr.
Khandaker understood the nature of his involvement and that he was signing as a
co-purchaser and co-owner and that the appellant was aware that in structuring
the transaction in the manner he did that there would be a risk that he would
be disentitled to the Rebate.
[30]
I conclude that since the legislative
requirements under paragraphs 254(2)(b) and (g) have not been
satisfied by the particular individual, the Minister was correct and the
appellant is not entitled to the Rebate.
[31]
The appeal is dismissed. There will be no order
as to costs.
Signed at Edmonton, Alberta, this 30th
day of December 2014.
“K. Lyons”
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