Citation: 2013 TCC 53
Date: 20130212
Docket: 2008-2571(GST)G
BETWEEN:
GF PARTNERSHIP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
I.
Introduction
[1]
The appellant, GF Partnership, is
a developer and builder of residential subdivisions that operates under the
name Mattamy Homes. It has appealed assessments made in respect of goods and
services tax (GST) collectible from buyers of new homes. The main issue is
whether the GST that the appellant remitted took into account the entire
consideration for the homes it supplied.
[2]
In these reasons, the appellant
will be referred to as “Mattamy” and the homebuyers will be referred to as
“Purchasers.” Other defined terms will be adopted from an agreed statement of
facts (ASF) which is reproduced in part below.
[3]
Under the Excise Tax
Act (the “ETA”), the purchase of a
newly-built home is subject to GST, subject to a rebate of a portion of the
tax. In 2001, an accountant who Mattamy hired as a consultant advised that
another developer had been successful in reducing this GST. The plan involved
taking advantage of the fact that municipal development charges are not subject
to GST.
[4]
Development charges are usually
paid by developers and recovered through the purchase price of the homes, which
are taxable. The plan of the other developer was to have the development charges
paid directly by the homebuyer, and to reduce the purchase price of the home by
an equivalent amount. In effect, the development charges were unbundled from
the sale of the home. The GST saving resulted from the reduced purchase price
for the home.
[5]
Even though GST is imposed on homebuyers and not builders, Mattamy
could potentially benefit from this plan because it sold homes at a lump sum
price which included GST. Therefore, any reduction in GST could potentially go
to Mattamy’s bottom line, in whole or in part.
[6]
Mattamy decided to implement this
strategy and asked the consultant to put it into effect by modifying Mattamy’s standard
form purchase and sale agreements (“Purchase Agreements”). The plan was
instituted in mid-2001, at which time Mattamy began computing GST on the sale
of new homes on the basis that development charges were not a component of the purchase
price. The Minister has assessed Mattamy for failing to remit sufficient GST.
[7]
The principal issue is whether
Mattamy was required to remit GST on the basis that the consideration for the
homes included an amount on account of development charges.
[8]
The Crown submits that the
development charges were not paid by homebuyers but that Mattamy paid the
charges and recouped the cost through the price for the homes. Alternatively, the
Crown submits that section 154 of the ETA deems the development charges to be
part of the consideration for the homes. In the further alternative, the Crown
suggests that Mattamy should have remitted GST with respect to the development
charges because GST had been collected from Purchasers on this basis.
[9]
If Mattamy does not
succeed on the main issue, an ancillary issue
arises concerning Mattamy’s entitlement, or liability, with respect to new
housing rebates (NHRs). If the price for the homes includes the development
charges, then in some cases the NHRs claimed were too high and in other cases they
were too low.
[10]
Mattamy submits that it is not
liable where the NHR claims were too high but that it is entitled to relief
where the NHR claims were too low. The Crown’s position is the polar opposite.
It submits that Mattamy is liable for NHR claims that were too high but that it
is not entitled to relief for claims that were too low.
[11]
The period at issue is from June
1, 2001 to May 31, 2006. During this time, Mattamy developed over 50
subdivisions and sold approximately 15,000 new homes. The amount of GST at
issue exceeds $15,000,000.
[12]
Mattamy’s submissions raise the
following main issues:
(1)
Were the contractual arrangements
between Mattamy and Purchasers effective to segregate the development charges
from the consideration for the homes?
(2)
Does section 154 deem the
development charges to form part of the consideration for the homes?
(3)
If the development charges do not
form part of the consideration for the homes,
(a) is Mattamy required to remit GST on the basis that it
was collected from Purchasers, and
(b) is Mattamy entitled to an adjustment for GST collected
in error?
(4)
If the development charges do form
part of the consideration for the homes, is Mattamy entitled to relief for NHR
claims that were too low?
(5)
Is Mattamy liable for NHR claims
that were too high?
[13]
My conclusions on these questions
are as follows:
(1)
No
(2)
Not necessary to decide
(3)
Not necessary to decide
(4)
No
(5)
Yes
[14]
I would therefore dismiss the
appeal.
[15]
Before considering the first
issue, it is useful to comment on the evidence which for the most part was not
in dispute.
[16]
Since this appeal concerns several
subdivision developments and over 15,000 home sale transactions, the hearing
would have been unwieldy without good cooperation between the parties
concerning the evidence. Counsel did an excellent job on that front. They provided
a comprehensive ASF and a joint book of documents (JBD) that contained
representative documents such as municipal by-laws, subdivision agreements and
purchase and sale agreements. Other documents were also included that were
identified as not being representative. The parties presented no viva voce
evidence.
II.
Were contractual arrangements
effective to segregate development charges?
A.
Introduction
[17]
Mattamy’s position is that the
consideration it received for the homes does not include any amount for
development charges. Mattamy submits that it is free to contract with
Purchasers to pay development charges because such charges are not imposed on
any particular person. Mattamy further submits that the Purchasers agreed to be
liable for the development charges, and that when Mattamy paid the development
charges, it did so on behalf of the Purchasers.
[18]
The Crown disagrees. It submits
that the development charges were imposed on Mattamy and that Mattamy is not
free to contract with Purchasers to transfer the liability for development
charges to Purchasers. The Crown further submits that, in any event, the
Purchasers did not agree to be liable for these charges.
[19]
For the reasons below, I agree
with the Crown’s second argument that Purchasers did not agree to be liable for
the development charges. In light of this conclusion, it is not necessary that
I consider the Crown’s first argument that Mattamy is not free to contract with
Purchasers that they be liable for development charges. That issue is best left
for another day.
[20]
The relevant legislative provision
is subsection 165(1) of the ETA, which is the general charging provision imposing
GST as a percentage of the consideration for a supply. I have reproduced the
provision as it read in the relevant period.
165. (1) Imposition
of goods and services tax - Subject to this Part,
every recipient of a taxable supply made in Canada shall pay to Her Majesty in
right of Canada tax in respect of the supply calculated at the rate of 7% on
the value of the consideration for the supply.
(Emphasis added)
[21]
The discussion begins
with a description of the applicable development
and building process and the agreements between Mattamy and Purchasers.
B.
Applicable development and
building process
[22]
In Ontario, where
Mattamy conducts business, a complex system of regulation of land development
is in place for new subdivisions. This system is governed by provincial
legislation, such as the Planning Act, the Development Charges Act,
1997 and the Education Act (development charges for education costs)
and by subdivision agreements and other contractual arrangements between
developers and municipalities.
[23]
One of the main
legislative provisions regulating subdivisions is subsection 50(3) of the Planning
Act, which prohibits conveying land unless certain conditions are
satisfied. The relevant condition in this appeal is that the land must be
described in a registered plan of subdivision. This condition ensures that the
relevant municipality has approved of the planned subdivision before land is
subdivided.
[24]
The Ontario Development
Charges Act, 1997 authorises municipalities to impose development charges
against land. These charges are intended to offset increased capital costs to
deliver services required by development. Development for this purpose includes
development that requires a registered plan of subdivision. Subsection 2(1) and
paragraph 2(2)(d) of that Act provide:
Development
charges
The council of a municipality may by by-law
impose development charges against land to pay for increased capital costs
required because of increased needs for services arising from development of
the area to which the by‑law applies.
What development can be
charged for
A development charge may be
imposed only for development that requires,
[…]
(d) the approval of a plan of subdivision under section 51
of the Planning Act;
[25]
In Mississauga
(City) v Erin Mills Corp. (2004), 71 OR (3d) 397 (CA), Goudge J.A. provides
an historical backdrop to the Development Charges Act. In the excerpt
below, the judge observes that the current regime of municipal by‑laws
replaced a haphazard scheme whereby the Planning Act permitted municipalities
to levy development charges through subdivision agreements.
[8] It has long been true
that new development brings with it the need for additional roads, sewers,
police and fire protection and many other common services. All of this must be
paid for. That responsibility rests with the municipality in which the new
development takes place with whatever help it can get from others.
[9] Prior to 1989, the Planning
Act, 1983, S.O. 1983, c. 1, entitled the municipality to obtain the
financial assistance of the developer in bearing these additional
infrastructure costs by requiring the developer to enter into a subdivision
agreement with it as a condition of municipal approval of the development.
Typically, such an agreement would compel the developer to pay a levy per lot
as its contribution to the additional infrastructure costs necessitated by the
development.
[10] This regime left it to
each municipality to implement its own lot levy policy with a resulting
diversity that caused confusion and dissatisfaction across the province. In
1989, the legislature responded by passing the old DCA. It came into
force on November 23, 1989, and was designed to replace the patchwork system of
subdivision agreements with a fair and consistent regime for the obtaining of
financial contributions by developers to growth related infrastructure costs.
[11] Under the new regime, the
municipality obtained these contributions not by contracting with each
developer but by passing a development charge by-law. Thus, the new regime was
designed to operate through newly accorded municipal legislative authority
rather than by contract.
[26]
The specific development and
building processes that are relevant to this appeal are reproduced below from
the ASF.
Imposition
of Development Charges in Ontario
9.
Municipalities
in Ontario incur additional costs to support new residential development in
order to provide present and future services as part of the municipal
infrastructure, including but not limited to construction of roads, water
supply, sanitary sewage, drainage, police and fire facilities, transit
facilities, schools, libraries, recreational facilities, and other facilities
for municipal staff and operations.
10.
The Development
Charges Act 1997, S. O. 1997, Chapter 27, as amended (the "Development
Charges Act") and the Education Act, R.S.O. 1990, c.E.2 (the “Education
Act”) (the Development Charges Act and the Education Act
shall hereinafter be collectively referred to as the “Development Charges
Legislation”) authorize Ontario municipalities and school boards,
respectively, to enact bylaws to finance and, ultimately, fund such
infrastructure construction through the imposition of development charges
against the land to be developed (each such development charge shall be
hereinafter referred to collectively as the "Development Charges"
and individually as a "Development Charge").
11.
Each
region, municipality or school board in which the Appellant purchased land and
entered into purchase agreements with Purchasers with respect to the
construction of new homes (each such regional municipality, local municipality
or school board shall be hereinafter referred to collectively as the “Municipalities”
and individually as a “Municipality) passed bylaws to impose Development
Charges (the "Development Charges Bylaw") pursuant to the Developments
Charges Legislation.
12.
Prior to
enacting a Development Charges Bylaw, each Municipality calculated the cost of
the additional infrastructure that would be necessitated by all new home
construction in the area and calculated Development Charges to be imposed in
accordance with the procedures set out in the Development Charges Legislation.
13.
The
Development Charges Bylaws provided for the imposition of Development Charges
against the land to which each Development Charge Bylaw applied.
14.
The
quantum of the Development Charges levied by a Municipality on a particular lot
depended on the type of dwelling to be constructed thereon; the Development
Charges progressively increased depending on whether the dwelling was an
apartment, townhouse, semi-detached house, or fully detached house. In one
Municipality, certain Development Charges were calculated on a per hectare
basis rather than on a per lot basis.
15.
The
physical infrastructure funded by the Development Charges was not part of the
land, building and structures supplied by the Appellant to Purchasers. Access
to the infrastructure and the municipal services delivered via the
infrastructure was made available for the benefit of the community at large
including the Purchasers.
The
Appellant’s Development Process
16.
Typically,
the development, construction and sale of new homes by the Appellant involved
the following steps:
(a)
land
acquisition;
(b)
infrastructure
agreements (in some cases);
(c)
application
to the municipality for draft plan approval;
(d)
sales of
new homes to be built (following draft plan approval);
(e)
subdivision
agreements;
(f)
registration
of the plan of subdivision;
(g)
building
permit applications;
(h)
construction
of new homes; and
(i)
closing
of sale transactions, including transfers of title to purchasers.
A
small number of developments under appeal were purchased by the Appellant from
other developers after a subdivision plan had been approved or registered.
Infrastructure
Agreements
17. In some
Municipalities, in accordance with the applicable Development Charges Bylaw,
the Vendor [a bare trustee acting for Mattamy] entered into an agreement with
the Municipality (the “Infrastructure Agreement”) whereby it agreed to
provide financing for the Municipality to construct, or for the Vendor to
construct for the Municipality, certain aspects of the required infrastructure
in exchange for credits against future Development Charges once imposed and
payable (the “Development Charge Credits”). In some instances, the
Vendor provided land to the City in return for a Development Charge Credit. Where
the Infrastructure Agreement required the Vendor to construct works, the
developer was also required to post security which could be drawn upon if it
failed to complete the work required to be done pursuant to the Infrastructure
Agreement.
18.
The
Development Charge Credits given were intended to reflect the estimated cost of
the work, but the Vendor bore the risk that the actual cost of the work might
exceed the amount of the credits.
19.
Such
Development Charge Credits, once determined, were available to be applied in
full or part payment of applicable Development Charges when the Development
Charges would be imposed and became payable as described below.
20.
In some
cases, the Municipality required a Vendor to enter into a cost sharing
agreement with other adjoining developers regarding the funding of
infrastructure. Those agreements included provisions allocating Development
Charges Credits to landowners based on their respective contribution to the
funding of the infrastructure.
Draft
Plan Approval
21.
Each
Vendor made application to the Municipalities in which its land was located for
approval of a draft plan of subdivision whereby the Vendor’s land would be
subdivided into lots upon which homes would be constructed. Each draft plan of
subdivision, once approved, (the "Draft Plan Approval")
contained conditions precedent to the final release of the subdivision for
registration. The conditions precedent usually included a requirement that the
Vendor enter into a subdivision agreement with the Municipality agreeing to
satisfy all conditions of the Municipality, financial or otherwise, prior to
final approval of the plan. In some instances, the Vendor would also have
previously entered into an Infrastructure Agreement with a Municipality
agreeing to finance or provide land or infrastructure, prior to final approval
of the plan.
22.
Development
Charges were not payable upon the application for, or receipt of, Draft Plan
Approval.
Sales
of New Homes to be Built (following Draft Plan Approval)
23.
After
obtaining Draft Plan Approval from a Municipality, as described in paragraph 20
[sic] above, the Vendor began to market new homes to be built on the
lands that had received Draft Plan Approval. The Vendor then entered into
agreements of purchase and sale (the “Purchase Agreements”) with the
Purchasers.
24.
Purchase
Agreements were entered into both before and after the Vendor entered into the
relevant Subdivision Agreements with the Municipality, as defined and described
in paragraph 29 [sic] below.
[…]
29.
In each
instance (except for model homes, terminated agreements and parts of townhouse
blocks or semi-detached homes, the instances of which are not numerically
material), a Purchase Agreement was executed prior to issuance of a Building
Permit and prior to the payment of the balance of the Development Charges, as
more particularly described in paragraphs 31 and 32 below.
Subdivision
Agreements
30.
Each
Vendor and the applicable Municipality entered into one or more subdivision
agreements (collectively, the "Subdivision Agreement") in
respect of each subdivision. Subdivision agreements would typically address the
servicing and financial aspects of the proposed plan of subdivision.
31.
Development
Charges became payable in accordance with the relevant Development Charge
Bylaws and Subdivision Agreements. In many Municipalities, a portion of the
Development Charges became payable upon the execution of the Subdivision
Agreement. These Development Charges were paid by cheque or the application of
Development Charge Credits (in the manner described in paragraph 32 below) or a
combination of the two. The balance of the Development Charges became payable
at the time a building permit was issued for construction of a New Home on a Lot (the "Building Permit"), as more particularly described in paragraph
35 below. In Brampton, all of the Development Charges applicable to a Lot were paid by the Vendor at the time that a Building Permit was issued.
32.
Development
Charge Credits of the Vendor were applied against the Development Charges
imposed on the Lots in the subdivisions as they became payable in one or more
of the following three ways:
(a)
In some
cases, where the Vendor had agreed in a Subdivision Agreement to do work or
transfer land in exchange for Development Charge Credits, those Development
Charge Credits were applied to the payment of Development Charges imposed on
the Lots in that development.
(b)
In some
cases, surplus Development Charge Credits arising from the work done in one
subdivision were applied to the payment of Development Charges in other
developments that are under appeal.
(c)
In at
least one case, a developer other than the Vendor performed work and received
Development Charge Credits which were transferred with the land sold to the
Vendor pursuant to s.40 of the Development Charges Act. These
Development Charge Credits were later applied to the payment of Development
Charges in respect of Lots sold by the Vendor.
(d)
In two
instances, the Vendor made payments to another developer under a front ending
agreement pursuant to sections 44 and 52 of the DCA.
33.
GST was
neither charged nor collected by the Municipalities on the Development Charges
at the time they were paid.
Registration
of the Plan of Subdivision
34.
Once the
conditions attached to the Draft Plan Approval were satisfied, including the
execution of the Subdivision Agreement, the plan of subdivision (the "Plan
of Subdivision") was approved and registered on title.
Building
Permits
35.
Following
the registration of the Plan of Subdivision, each Vendor applied for the
issuance of Building Permits to construct New Homes on all Lots sold to
Purchasers and paid a separate fee to the Municipality in respect thereof.
Prior to issuance of a Building Permit, the Municipality provided the Vendor
with a statement of Development Charges for each Lot. In Municipalities where a
portion of the Development Charges were paid in the manner described in
paragraph 31 above at the time the Subdivision Agreement was executed, the
balance of the Development Charges were paid by the Vendor at the time of the
issuance of the Building Permit. The Development Charges were paid by cheque or
the application of Development Charge Credits or a combination of the two.
36.
At no
time during the development process described in paragraph 16 above did the
Vendors disclose to the Municipalities that they were acting as agents for the
Purchasers or that any Lots were under contract for sale.
Construction of New Homes
37.
Subsequent
to the execution of a Purchase Agreement, the registration of the Subdivision
Agreements and Plan of Subdivision and the receipt of a Building Permit from a
Municipality, the Appellant would commence and complete construction of a New
Home for the Purchaser.
[…]
Closing
Transactions, including Transfers of Title to Purchasers
39.
In order
to close a transaction of purchase and sale, the Vendor and the Purchaser,
through their respective lawyers, exchanged draft documents that would have to
be delivered by the Vendor and Purchaser on Closing, including a statement of
adjustments (the “Statement of Adjustments”). The Vendor’s lawyer
prepared the Statement of Adjustments based on an information sheet prepared by
the Vendor.
[27]
It is useful to compare
when the development charges arise and when Mattamy and Purchasers entered into
Purchase Agreements. In general development charges are incurred, and Mattamy
paid the charges, when Mattamy (or its agent) and the relevant municipality entered
into a subdivision agreement or when building permits were issued. In many
cases, development charges were payable in part on each of these transactions. Mattamy
executed Purchase Agreements both before and after it entered into subdivision
agreements, and in almost all cases before the issuance of building permits. Accordingly,
the liability for development charges can occur before or after the parties
entered into the Purchase Agreements.
C. Agreements between Mattamy and Purchasers
[28]
This section describes the
arrangements relating to the sale of homes, as set out in the ASF.
Sales of New Homes to be Built (following
Draft Plan Approval)
23.
After
obtaining Draft Plan Approval from a Municipality, as described in paragraph 20
[sic] above, the Vendor began to market new homes to be built on the
lands that had received Draft Plan Approval. The Vendor then entered into
agreements of purchase and sale (the “Purchase Agreements”) with the
Purchasers.
24.
Purchase
Agreements were entered into both before and after the Vendor entered into the
relevant Subdivision Agreements with the Municipality, as defined and described
in paragraph 29 [sic] below.
25.
Under the
Purchase Agreements, each Purchaser agreed to purchase a specified lot or part
thereof shown on the draft plan of subdivision or plan of subdivision, as
applicable, (the “Lot”) and the Vendor agreed to construct a new home on
the Lot based upon plans and specifications agreed to by the Purchaser (the Lot
and new home shall hereinafter be referred to as the “New Home” or
collectively as the “New Homes”). Pursuant to each Purchase Agreement,
the Vendor would agree to fulfill its obligations under the Purchase Agreement
and transfer the New Home to the Purchaser on closing (the “Closing”).
26.
Each
Purchase Agreement for sales of New Homes with Closings during the Reporting
Period and subject to the Development Charge GST Assessment specified a
purchase price to be paid by the Purchaser for the New Home, inclusive of
development charges (subject to paragraph 27 below) and GST (the “Purchase
Price”). […]
27.
Each
Purchase Agreement for sales of New Homes with Closings during the Reporting
Period and subject to the Development Charge GST Assessment provided for
adjustments to be made to the Purchase Price on Closing. For Purchase
Agreements entered into commencing January 2001, through to January 2002, the
Purchase Agreement provided, in part, as follows:
“It is acknowledged and
agreed that, as part of and included in the Purchase Price herein, the Vendor
has paid on behalf of the Purchaser, for all taxes, levies, imposts, building
permit fees, and all development charges including education development
charges applicable to the property. It is acknowledged and agreed that these
amounts, at the Vendor’s option, may be shown separately in the statement of
adjustments to be delivered to the Purchaser prior to Closing.”
For Purchase Agreements
entered into after January 2002, paragraph 9 provided, in part, as follows:
“The parties
acknowledge and agree that, as part of and included in the Purchase Price
herein, the Vendor has or will pay on behalf of the Purchaser, all taxes,
levies, imposts, building permit fees (for permits obtained on behalf of the
Purchaser), and all applicable development charges including education
development charges applicable to the property. The parties acknowledge and
agree that these amounts, at the Vendor’s option, may be shown separately in
the statement of adjustments to be delivered to the Purchaser prior to
Closing.”
and further provided for an increase in
the Purchase Price for any increase in the Development Charges between the date
of execution of the Purchase Agreement and the date of issuance of the Building
Permit.
28.
The
following are other material terms of the Purchase Agreements:
(a)
the
Purchasers had no right to register the Purchase Agreements on the title to the
lands;
(b)
the
Purchase Agreements were non-assignable (except to a family member), unless the
Vendor consented and the Vendor was under no obligation to so consent;
(c)
the
Purchasers’ remedies for non-performance of the agreement were generally limited
to receiving back their deposit with interest;
(d)
there
were to be no representations, warranties, collateral agreements, or conditions
affecting the agreement or the real property, except as contained in the
Purchase Agreements, and the Purchase Agreements could not be amended, except
in writing; and
(e)
the only
additional amounts that Purchasers could be required to pay after Closing were
for water, hydro, fuel and other services.
[…]
Closing Transactions, including Transfers of Title to
Purchasers
39.
In order
to close a transaction of purchase and sale, the Vendor and the Purchaser,
through their respective lawyers, exchanged draft documents that would have to
be delivered by the Vendor and Purchaser on Closing, including a statement of
adjustments (the “Statement of Adjustments”). The Vendor’s lawyer
prepared the Statement of Adjustments based on an information sheet prepared by
the Vendor.
40.
In the
Statement of Adjustments:
(a)
the
Purchase Price was referred to as the sale price and:
(i)
the
Development Charge Amounts were deducted from the sale price: and
(ii)
extras
and other charges were added to the sale price; and
(the
sale price, subject to the deductions and additions described above, was
referred to in the Statement of Adjustments as the “Total Sale Price”);
(b)
the
Development Charge Amounts were shown as an itemized amount to be paid by the
Purchaser to the Vendor, separate from the Total Sale Price;
(c)
an amount
described as the GST Amount and an amount described as the GST Rebate were
shown and were calculated based upon the Total Sale Price; and
(d)
additional
adjustments for deposits paid and other taxes and charges payable were made to
determine the balance to be paid to the Vendor on Closing.
41.
In the
Statement of Adjustments, the Vendor included in the Development Charge Amounts
of each purchaser the full amount of Development Charges assessed on the Lot sold including those cases where the amount that the Vendor paid to the Municipality
was partly satisfied by the application of Development Charge Credits, or by
another developer under a front ending agreement.
42.
Once the
Vendor and the Purchaser, through their lawyers, had finalized the documents to
be delivered on Closing, including the Statement of Adjustments, the
transaction of purchase and sale was completed by the exchange of executed
closing documents, the delivery of closing funds in accordance with the
Statement of Adjustments and the transfer of title to the New Home by the
Vendor to the Purchaser.
43.
Each
Purchaser's Land Transfer Tax Statement, registered as part of the transfer on
Closing, included the Development Charge Amounts in the “value of
consideration” for purposes of payment of Land Transfer Tax calculated under
the Land Transfer Tax Act.
D. Analysis
[29]
Mattamy submits that Purchasers
agreed to be liable for development charges by entering into Purchase
Agreements and by agreeing to the Statements of Adjustments.
[30]
I disagree with this
submission. Under the relevant Purchase Agreements, Purchasers did not agree to
be liable for development charges, qua development charges. Accordingly,
when Mattamy paid development charges, it did so on its own behalf, and not on
behalf of Purchasers.
[31]
The provision in the Purchase
Agreements that is the most relevant to determine whether Purchasers agreed to
pay development charges, qua development charges, is set out in
paragraph 27 of the ASF above. The provision that is effective for 2002 and
later years is reproduced again below.
The parties
acknowledge and agree that, as part of and included in the Purchase Price
herein, the Vendor has or will pay on behalf of the Purchaser, all taxes,
levies, imposts, building permit fees (for permits obtained on behalf of the
Purchaser), and all applicable development charges including education
development charges applicable to the property. The parties acknowledge and
agree that these amounts, at the Vendor’s option, may be shown separately in
the statement of adjustments to be delivered to the Purchaser prior to Closing.
[32]
The essential question
is whether, by this provision, Purchasers agreed to be liable for development
charges.
[33]
I note that the
provision above does not explicitly state that Purchasers are liable for
development charges. This is important because development charges are incurred
as part of the development and building process and were paid by Mattamy prior to
the sale of the homes to Purchasers. Accordingly, in the normal course
Purchasers would not expect to be liable for this type of expenditure. In these
circumstances, if Purchasers were to agree to take on this liability, the Purchase
Agreements should make this clear. The language used in the Purchase Agreements
is far from clear on this point.
[34]
Having regard to the
specific language used in the Purchase Agreements, the provision first states that
development charges are part of the Purchase Price. This implies that
development charges are paid by Mattamy on its own account and that an amount
representing the cost of the development charges is included in the
consideration for the homes.
[35]
The provision then goes
on to state that the development charges have been, or will be, paid by Mattamy
on behalf of Purchasers. This clause is ambiguous. Read in isolation, the
clause could be interpreted that development charges are paid by Mattamy as
agent for Purchasers or that the development charges are paid by Mattamy on its
own account but for the ultimate benefit of Purchasers.
[36]
At the very least, the
whole provision is quite ambiguous. But when the particular clauses are read
harmoniously, they appear to imply that Mattamy pays the development charges on
its own account, but for the ultimate benefit of Purchasers. I would conclude
that Purchasers cannot be said to have agreed to pay development charges as
development charges.
[37]
The fact that a Purchaser
might terminate a Purchase Agreement prior to closing reinforces this
conclusion. There is no suggestion that Mattamy could look to a would-be
purchaser to recover its payment of development charges if a Purchaser were to
terminate a Purchase Agreement. How can one interpret the Purchase Agreements
as providing that Purchasers agreed to be liable to pay the development charges
if Purchasers are liable only if the sale takes place?
[38]
Further, Mattamy’s
position is not assisted by the fact that Mattamy paid some development charges
prior to executing Purchase Agreements. As mentioned above, Mattamy entered
into Purchase Agreements both before and after the subdivision agreements which
often triggered the payment of a portion of the development charges.
[39]
Mattamy also relies on
the Statements of Adjustments provided on closing to support the position that
Purchasers agreed to be liable for development charges. I disagree that the
Statements of Adjustments are relevant to this inquiry. The main reason for
this is that Mattamy incurred and paid development charges no later than when building
permits were issued, which in all cases was prior to closing when the parties
agreed to the Statements of Adjustments.
[40]
I conclude that Purchasers
were not liable for development charges, as development charges. Mattamy paid
the charges on its own account and recouped them through the purchase price of
the homes.
III.
Does section 154 deem
development charges to be consideration?
A.
Introduction
[41]
Section 154 of the ETA is a deeming
provision that, if applicable, would include development charges as part of the
consideration for the homes regardless of whether the Purchase Agreements
segregated the charges from the purchase price. The Crown relies on this
provision as an alternative argument.
[42]
In light of my conclusion on the
first issue, it is unnecessary that I consider whether section 154 applies.
However, counsel provided very extensive submissions on one aspect of the
section and I will therefore comment on this particular part.
[43]
Section 154 provides:
154. (1) Meaning
of “provincial levy” - In this section, “provincial
levy” means a tax, duty or fee imposed under an Act of the legislature of
a province in respect of the supply, consumption or use of property or a
service.
(2) Levies
included in consideration
- For the purposes of this Part, the consideration for a supply of property or
a service includes
(a) any tax, duty or fee imposed
under an Act of Parliament that is payable by the recipient, or payable or
collectible by the supplier, in respect of that supply or in respect of the
production, importation, consumption or use of the property or service, other
than tax under this Part that is payable by the recipient;
(b) any provincial levy that is
payable by the recipient, or payable or collectible by the supplier, in respect
of that supply or in respect of the consumption or use of the property or
service, other than a prescribed provincial levy that is payable by the
recipient; and
(c) any other amount that is
collectible by the supplier under an Act of the legislature of a province and
that is equal to, or is collectible on account of or in lieu of, a provincial
levy, except where the amount is payable by the recipient and the provincial
levy is a prescribed provincial levy.
(3) Reference
to “recipient”
- If, under this Part, a person is deemed to be the recipient of a supply in
respect of which another person would, but for that deeming, be the recipient,
a reference in this section to the recipient of the supply shall be read as a
reference to that other person.
B. Positions
of parties
[44]
Section 154 will apply
to the development charges if the charges are:
(a)
a tax, duty or fee,
(b)
imposed under provincial
legislation, and
(c)
paid by Purchasers in respect of
the purchase of new homes.
[45]
The Crown submits that all of
these conditions are satisfied because development charges are a tax, the
charges are imposed under provincial legislation, and Purchasers have paid the charges
in respect of the purchase of new homes.
[46]
Mattamy, on the other hand,
submits that none of these conditions are met. It submits that the development
charges are regulatory charges rather than a tax, duty or fee, that the charges
are imposed under by-laws rather than under legislation, and that the charges
are not paid in respect of the purchase of new homes.
C.
Are development charges a tax?
(1) Introduction
[47]
The Crown relied solely
on development charges being a tax, rather than a duty or fee, and provided
extensive submissions on the meaning of “tax.” The arguments on the other
aspects of section 154 were quite brief. I
will therefore provide comments only on the term “tax,” and leave the other
requirements of section 154 for another day.
[48]
Mattamy submits that the
development charges are properly described as regulatory charges rather than a
tax. The Crown does not take issue with describing development charges as regulatory
charges; however, the Crown submits that they are also a tax.
[49]
I would first comment
that the relevant legislation and municipal by-laws do not refer to development
charges as taxes, except to the extent that overdue development charges are to
be enforced in the same manner as property taxes. Rather than describing
development charges as a tax, the relevant legislation refers to them as a charge
against land. Accordingly, if I find that development charges are taxes, I must
do so on the basis that they are within an appropriate meaning of the term “tax”
rather than on the basis of the label used by the legislators.
(2) Nature
of development charges for constitutional purposes
[50]
From time to time,
courts have considered the nature of development charges for purposes of the Constitution
Act, 1867. In this context, development charges were, at one point, considered
to be both a tax and a regulatory charge: Ontario Home Builders’ Association v York Region Board of Education, [1996] 2 S.C.R. 929 (“Home Builders”),
per the majority decision of Iacobucci J.
[51]
However, in more recent
decisions by the Supreme Court of Canada, it is clear that regulatory charges
are not taxes for constitutional purposes: Westbank
First Nation v British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 (“Westbank”) and 620
Connaught Ltd. v Canada (AG), 2008
SCC 7 (“Connaught”).
Although development charges were not at issue in either of these decisions,
the necessary conclusion is that if the development charges at issue are
regulatory charges, they are no longer considered taxes for constitutional
purposes. The comments in Westbank that refer to development charges as
an example of regulatory charges reinforce this conclusion.
[52]
I note that in these
decisions, the Court has developed a two-part test to determine whether a levy
is a regulatory charge or a tax. The test is set out in the excerpt below from Confédération
des syndicats nationaux v Canada (AG), 2008 SCC 68.
[72] This question of the validity of imposing
regulatory charges has come before this Court on several occasions. In
its decisions, the Court has accepted the use of regulatory charges to finance
government programs and has developed tests for identifying such special
levies. There are two steps in the identification process. First,
the existence of a regulatory scheme must be established. According to
the analytical approach adopted in Westbank First Nation v. British Columbia
Hydro and Power Authority, [1999] 3 S.C.R. 134, there must be (1) a
complete and detailed code of regulation, (2) a regulatory purpose of
influencing specific behaviour, (3) the existence of actual or properly
estimated costs of the regulation and (4) a relationship between the regulation
and the person who either benefits from it or made it necessary
(para. 44). Rothstein J. recently reiterated these criteria in 620 Connaught
Ltd. v. Canada (Attorney General), [2008] 1 S.C.R. 131, 2008 SCC 7, at
paras. 25‑26, although he reminded us that the list is not
exhaustive. Next, if the court finds that a regulatory scheme exists, it
must determine whether there is a relationship between that scheme and the
charge (Connaught, at para. 27). Revenue collection must be
related to the regulation or must in itself have a regulatory purpose of
influencing the behaviour of the persons concerned (Westbank, at
para. 44). As the Court noted in Connaught, the accumulation
of excessive surpluses may indicate that a levy is a tax and not a regulatory
charge (para. 40). However, the test is flexible, and the
characterization of a levy as a regulatory charge does not depend primarily on
the absence or the amounts of surpluses (Connaught, at
para. 40). It depends above all else on whether the collected
amounts or a substantial part thereof are allocated to the regulated activity.
[53]
In this appeal, it is
not in dispute that the development charges are regulatory charges and neither
counsel undertook the two-part analysis described above. In light of this, and
because of the similarities between the development charges in this appeal and
in Home Builders where the court accepted development charges as
regulatory charges, I accept that the development charges at issue in this
appeal are regulatory charges.
(3) Are
regulatory charges a tax for purposes of section 154?
[54]
It is evident from the
analysis above that the Crown’s position that development charges are a tax for
purposes of section 154 is not supported by either (1) the label used in the
relevant legislation, or (2) the meaning of a “tax” in a constitutional
context.
[55]
The Crown submits that
a different approach should be taken in order for the meaning of a “tax” in
section 154 to be consistent with the policy behind that section. It submits
that the proper approach is to adopt the constitutional meaning of “tax” as it
was understood before Westbank and Connaught.
[56]
The meaning of “tax”
suggested by the Crown was articulated in an earlier constitutional decision:
Lawson v Interior Tree Fruit and Vegetable Committee of Direction, [1931]
SCR 357 (“Lawson”).
[57]
I disagree with the
Crown’s approach because it would bring an undesirable element of uncertainty
into the interpretation of section 154. The object and spirit of the
legislation can best be gleaned from accepted meanings of the terms “tax, duty
and fee.” If the meaning of “tax” is not determined either by jurisprudence or
by the label that the levy has been given in the relevant legislation, what
other meaning should be adopted? There is no sound principled basis for
adopting an out-of-date meaning from a constitutional context that the courts
have rejected.
[58]
I would also note that
the issue of whether regulatory charges are a tax was not directly considered in
Lawson, and was obiter in the reasons of the majority in Home
Builders. When this issue came squarely before the court in Connaught,
the court decided that regulatory charges were not taxes for constitutional
purposes (Connaught, paras. 22 – 28).
[59]
Further, I agree with
Mattamy’s suggestion that Parliament could have used words that are broader
than “tax, duty or fee” when it drafted section 154. This supports Mattamy’s
position that the object and spirit of section 154 is not as broad as suggested
by the Crown.
[60]
I will now address some of the Crown’s
other submissions in support of a broader definition of “tax.”
[61]
Counsel for the Crown submits that I should follow a previous
decision of the Tax Court of Canada that adopted the meaning of “tax” from Lawson:
Miller v The Queen, 2005 TCC 419. This was an informal procedure case in
which the taxpayer was self-represented. Further, the facts in that case were
different and there was no discussion of Westbank or Connaught.
Therefore, Miller is of no assistance to the issue in this appeal.
[62]
In support of its broad
interpretation of “tax” in section 154, the
Crown also relies on a reference to development charges as a tax in Mississauga
(City) v Greater Toronto Airports Authority (2000), 50 OR (3d) 641 (CA) (“GTAA”),
at paras 22, 89 and 90 and in the federal Payments in Lieu of Taxes Act (formerly
Municipal Grants Act).
[63]
I am not persuaded that either of
these references should override the unambiguous conclusion of the Supreme
Court of Canada in Connaught that regulatory charges are not a tax. If
there was any confusion following Westbank and GTAA as to whether
regulatory charges could be a tax for constitutional purposes, the Connaught decision resolved this issue by clearly holding that regulatory charges could
not be a tax.
[64]
The Crown further argues that Westbank
and Connaught do not stand for the proposition that regulatory charges
are not taxes, but simply that their pith and substance is a regulatory charge
and not a tax. I disagree. These decisions acknowledge that regulatory charges
have some elements of taxation. But the point is that regulatory charges do not
have all of the required elements – in particular, the requirement that the
levy not be a regulatory charge. Quite simply, although regulatory charges were
once considered taxes for constitutional purposes (e.g. Home Builders),
they are no longer.
[65]
For these reasons, I
disagree with the Crown that the development charges are a tax for purposes of
section 154.
[66]
As mentioned earlier, because the
Crown did not argue that the development charges are a “duty or fee” and thus
are subject to section 154, I will leave this issue for another day.
IV. Is Mattamy
entitled to additional deductions for NHRs or is Mattamy liable for excessive
NHRs?
A. Introduction
[67]
Although GST is payable
by buyers of new homes, the rate is effectively reduced by means of a partial
rebate (NHR) in subsection 254(2) of the ETA. Malone J.A. describes the general
scheme in The Queen v Polygon Southampton Development Ltd., 2003 FCA 193:
[21] The
sale of a new home by a builder will normally be a taxable supply and thus
subject to GST calculated as 7% of the purchase price. However, subsection
254(2) of the Act provides a partial rebate of GST in certain situations where
a new home is purchased from a builder. This new housing rebate is equal to 36%
of the GST paid on the full purchase price of the home, although it is capped
at $8750, and is gradually phased out for homes priced at more than $350,000
and is unavailable for homes over $450,000. A resale of a home is generally
exempt from GST pursuant to section 2 in Part I of Schedule V of the Act.
[68]
As described above, the
amount of a NHR is a function of the consideration for the home. Accordingly, my
conclusion on the first issue that the development charges were part of the
consideration for the homes will, therefore, have a bearing on the amount of NHRs
to which Purchasers were entitled.
[69]
As described below, the
ETA permits builders to administer the NHRs by paying or crediting them to the
homebuyers and seeking reimbursement through a deduction from its own net tax. Mattamy
did this and, in calculating the NHRs, it took the position that the amount of
development charges was not part of the purchase price.
[70]
In light of the conclusion
above, Mattamy should have computed NHRs on the basis that the consideration
for the homes included an amount on account of development charges. If this had
been done, some Purchasers would be
entitled to greater NHRs and some would be entitled to less.
[71]
The question to be decided is whether Mattamy is entitled
to an increased deduction from net tax where the actual NHR entitlement was
greater than that determined by Mattamy, and whether Mattamy is liable for the
excess where the actual NHR entitlement was less.
B. Relevant
legislative provisions
[72]
Subsection 254(2) of the ETA sets
out a homebuyer’s entitlement to the NHR. I have reproduced s. 254(2) as it
read during the reporting periods at issue.
254. (2) New housing rebate – Where
(a) a builder of a single unit residential
complex or a residential condominium unit makes a taxable supply by way of sale
of the complex or unit to a particular individual,
(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,
(c) the total (in this subsection referred
to as the “total consideration”) of all amounts, each of which is the
consideration payable for the supply to the particular individual of the
complex or unit or for any other taxable supply to the particular individual of
an interest in the complex or unit, is less than $450,000,
(d) the particular individual has paid all
of the tax under Division II payable in respect of the supply of the complex or
unit and in respect of any other supply to the individual of an interest in the
complex or unit (the total of which tax under subsection 165(1) is referred to
in this subsection as the “total tax paid by the particular individual”),
(e) ownership of the complex or unit is
transferred to the particular individual after the construction or substantial
renovation thereof is substantially completed,
(f) after the construction or substantial
renovation is substantially completed and before possession of the complex or
unit is given to the particular individual under the agreement of purchase and
sale of the complex or unit
(i) in the case of a single unit
residential complex, the complex was not occupied by any individual as a place
of residence or lodging, and
(ii) in the case of a residential
condominium unit, the unit was not occupied by an individual as a place of
residence or lodging unless, throughout the time the complex or unit was so
occupied, it was occupied as a place of residence by an individual, or a
relation of an individual, who was at the time of that occupancy a purchaser of
the unit under an agreement of purchase and sale of the unit, and
(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
(h) where the total consideration is not
more than $350,000, an amount equal to the lesser of $8,750 and 36% of the
total tax paid by the particular individual, and
(i) where the total consideration is more
than $350,000 but less than $450,000, the amount determined by the formula
A × ($450,000 - B)/$100,000
where
A is the lesser of $8,750 and 36% of
the total tax paid by the particular individual, and
B is the total consideration.
[73]
Subsection 254(4) allows a
builder to pay or credit to a buyer an amount on account of the NHR to which
that buyer is entitled.
254. (4) Application
to builder - Where
(a) the builder of a single unit
residential complex or a residential condominium unit has made a taxable supply
of the complex or unit by way of sale to an individual and has transferred
ownership of the complex or unit to the individual under the agreement for the
supply,
(b) tax under Division II has
been paid, or is payable, by the individual in respect of the supply,
(c) the individual, within two
years after the day ownership of the complex or unit is transferred to the
individual under the agreement for the supply, submits to the builder in
prescribed manner an application in prescribed form containing prescribed
information for the rebate to which the individual would be entitled under subsection
(2) or (2.1) in respect of the complex or unit if the individual applied
therefor within the time allowed for such an application,
(d) the builder agrees to pay or
credit to or in favour of the individual any rebate under this section that is
payable to the individual in respect of the complex, and
(e) the tax payable in respect
of the supply has not been paid at the time the individual submits an
application to the builder for the rebate and, if the individual had paid the
tax and made application for the rebate, the rebate would have been payable to
the individual under subsection (2) or (2.1), as the case may be,
the
builder may pay or credit the amount of the rebate, if any, to or in favour of
the individual.
[74]
If a builder has paid or
credited the NHR to the buyer, the builder is entitled to recover that
expenditure by claiming a deduction in computing its net tax pursuant to subsection
234(1). I have reproduced s. 234(1), as it read during the relevant reporting
periods.
234. (1) Deduction
for rebate [credited by supplier to purchaser] -
If, in the circumstances described in subsection 252.41(2), 254(4), 254.1(4) or
258.1(3), a particular person pays to or credits in favour of another person an
amount on account of a rebate and transmits the application of the other person
for the rebate to the Minister in accordance with subsection 252.41(2), 254(5),
254.1(5) or 258.1(4), as the case requires, the particular person may deduct
the amount in determining the net tax of the particular person for the
reporting period in which the amount is paid or credited.
[75]
Mattamy relies on
subsections 296(2) and (2.1) for a further deduction from net tax in those
circumstances where Purchasers would have been entitled to greater NHRs.
[76]
In general, subsections
296(2) and (2.1) provide that if, in making an assessment of net tax, the
Minister determines that the taxpayer did not claim sufficient deductions in
computing net tax or rebates, the Minister is required to make the adjustment
in that assessment. I have reproduced these provisions, as they read during the
reporting periods at issue.
296. (2) Allowance of
unclaimed credit - Where, in assessing the net tax of a person for a particular
reporting period of the person, the Minister determines that
(a) an amount (in this subsection referred to as the
"allowable credit") would have been allowed as an input tax credit
for the particular reporting period or as a deduction in determining the net
tax for the particular reporting period if it had been claimed in a return
under Division V for the particular reporting period filed on the day that is
the day on or before which the return for the particular reporting period was
required to be filed and the requirements, if any, of subsection 169(4) or
234(1) respecting documentation that apply in respect of the allowable credit
had been met,
(b) the allowable credit was not claimed by the person in a
return filed before the day notice of the assessment is sent to the person or
was so claimed but was disallowed by the Minister, and
(c) the allowable credit would be allowed, as an input tax
credit or deduction in determining the net tax for a reporting period of the
person, if it were claimed in a return under Division V filed on the day notice
of the assessment is sent to the person or would be disallowed if it were
claimed in that return only because the period for claiming the allowable
credit expired before that day,
the Minister shall, unless
otherwise requested by the person, take the allowable credit into account in assessing
the net tax for the particular reporting period as if the person had claimed
the allowable credit in a return filed for the period.
(2.1) Allowance of unclaimed
rebate -
Where, in assessing the net tax of a person for a reporting period of the person
or an amount (in this subsection referred to as the "overdue amount")
that became payable by a person under this Part, the Minister determines that
(a) an amount (in this subsection referred to as the
"allowable rebate") would have been payable to the person as a rebate
if it had been claimed in an application under this Part filed on the
particular day that is
(i) if the assessment is in respect of net tax for the
reporting period, the day on or before which the return under Division V for
the period was required to be filed, or
(ii) if the assessment is in respect of an overdue amount,
the day on which the overdue amount became payable by the person,
and, where the rebate is in
respect of an amount that is being assessed, if the person had paid or remitted
that amount,
(b) the allowable rebate was not claimed by the person in
an application filed before the day notice of the assessment is sent to the
person, and
(c) the allowable rebate would be payable to the person if
it were claimed in an application under this Part filed on the day notice of
the assessment is sent to the person or would be disallowed if it were claimed
in that application only because the period for claiming the allowable rebate
expired before that day,
the Minister shall, unless
otherwise requested by the person, apply all or part of the allowable rebate
against that net tax or overdue amount as if the person had, on the particular
day, paid or remitted the amount so applied on account of that net tax or
overdue amount.
[77]
In the opposite circumstance in
which Mattamy paid or credited excessive NHRs to Purchasers, and then claimed
excessive deductions in computing its net tax, the Crown submits that Mattamy is liable for that
excess pursuant to subsection 254(6). Under this provision, if a builder has
deducted an amount to which it is not entitled pursuant to s. 234(1), the builder
may be liable to pay to the Receiver General the amount of that excess pursuant
to section 264. Subsections 254(6) and 264(1) are reproduced below.
254. (6) Joint and
several liability - Where the builder of a single unit residential complex
or a residential condominium unit pays or credits a rebate to or in favour of
an individual under subsection (4) and the builder knows or ought to know that
the individual is not entitled to the rebate or that the amount paid or
credited exceeds the rebate to which the individual is entitled, the builder
and the individual are jointly and severally liable to pay the amount of the
rebate or excess to the Receiver General under section 264.
264. (1) Overpayment of
rebate or interest - Where an amount is paid to, or applied to a liability of, a
person as a rebate under section 215.1, subsection 216(6) or this Division
(other than section 253) or as interest under section 297 and the person is not
entitled to the rebate or interest, as the case may be, or the amount paid or
applied exceeds the rebate or interest, as the case may be, to which the person
is entitled, the person shall pay to the Receiver General an amount equal to
the rebate, interest or excess, as the case may be, on the day the amount is
paid to, or applied to a liability of, the person.
C. Factual
background
[78]
The following are the pertinent
facts as described in the ASF.
New Housing Rebate
44. Each Purchase Agreement provided that the Purchaser would
credit to the Vendor all of the Purchaser’s rights to a new housing rebate
pursuant to section 254 of the ETA (the “Rebate”).
45. Prior to Closing, each Vendor calculated an amount in
respect of the Rebate on behalf of each eligible Purchaser. The Rebate amount
claimed was as set out in the Statement of Adjustments.
46. Using the Vendor’s calculation of the Rebate, each
Purchaser claiming a Rebate, executed and delivered a Rebate Application to the
Vendor on Closing.
47. Subsequent to Closing, the Vendors transmitted the Rebate
Applications executed by the Purchasers to the Minister and claimed the Rebates
stated therein as deductions from its net tax owing in its returns for the
Reporting Periods in which the sale transactions were concluded.
48. As the Development Charge Amounts had not been included in
the Total Sale Price for the New Home on the Statement of Adjustments for
purposes of determining the Rebate, the Vendors did not claim deductions from their
net tax of any rebate of GST in respect of the Development Charge Amounts.
49. The Vendors
did not pay or credit the Purchasers with any amount in excess of the amount of
GST Rebate on their Applications.
[…]
Facts Relating to
Appellant’s Knowledge and Conduct re Development Charges […]
[…]
60. In late 2000, the Appellant engaged the services of a
consultant, Eric Wegler, C.A. Mr. Wegler, met with Peter Gilgan, and Don
Walker. Mr. Gilgan was the founder and CEO of the Appellant and Don Walker
was the CFO. Both were Chartered Accountants.
61. Mr. Wegler advised Mr. Gilgan and Mr. Walker that in his
view development charges, which were GST exempt when paid to a municipality,
could be paid by the builder as agent for the purchaser of a new home, separately
reimbursed to the builder on closing and excluded from the purchase price for
purposes of GST. He also explained that in his view the development charge was
akin to a tax and that GST should not be imposed on top of other taxes.
62. Mr. Wegler further advised Mr. Gilgan and Mr. Walker that
a real estate development company (the “Development Company”) for whom he
worked had engaged in the practice of excluding development charges from the
purchase price of new homes when computing GST. The Development Company had
been subject to general GST audits by the CRA. Mr. Wegler told Mr. Gilgan and
Mr. Walker that no adjustment had been made to the Development Company’s GST in
respect of development charges.
63. In his discussions with Mr. Gilgan and Mr. Walker, Mr.
Wegler did not state one way or another whether the CRA auditor was aware of or
approved of the Development Company’s practice of excluding development charges
from the purchase price of new homes when computing GST. Mr. Wegler was not
asked by Mr. Gilgan or Mr. Walker whether the CRA auditor was aware that the
Development Company was not charging GST on development charges or whether the
auditor had expressed a view with respect to that practice.
64. The CRA audit referred to by Mr. Wegler in his discussions
with Mr. Gilgan and Walker was a general GST audit and was not
specifically directed to the application of GST on development charges. Mr.
Wegler did not draw to the CRA’s attention the fact that the Development
Company was excluding development charges from the purchase price of new homes
when computing GST, nor did Mr. Wegler know whether the CRA auditor was aware
that the Development Company was carrying on that practice. He knew only that
following the audit of the Development Company, no adjustment was made in
respect of GST on development charges.
65. To implement his recommendations, Mr. Wegler revised the
Appellant’s standard form agreement of purchase and sale and the Appellant
changed its closing practices, as set out above, with respect to all sales of
new homes to Purchasers which are subject to the Notices of Reassessment.
66. The Appellant did not seek legal advice on whether GST was
collectible on the development charge portion of the purchase price under new
contracts.
[79]
The following is a
typical provision in the Purchase Agreements dealing with NHRs (JBD, Tab 14).
28. (a) The Purchase Price includes G.S.T. at the rate
of seven per cent and has been determined taking into account the G.S.T. rebate
(the “Rebate”) contained in Section 254 of the Excise Tax Act. If G.S.T. is
included, the Purchaser assigns to the Vendor all of its rights to the Rebate
and shall reimburse the Vendor for any loss of the Rebate caused by his or her
failure to comply with the representation to be contained in the statutory
declaration or certificate or covenant referred in paragraph 28(b).
(b) Prior to closing the Purchaser shall execute
a statutory declaration or certificate or covenant in a form satisfactory to
the Vendor confirming that:
(i) the Purchaser is acquiring the
Property for use as the primary place of residence of the Purchaser, an
individual related to the Purchaser or a former spouse of the Purchaser, and
(ii) the Purchaser or a personal
related to the Purchaser will be the first individual to occupy the Property as
a place of residence.
(c) The Purchaser shall execute and deliver upon
closing an Application pursuant to sub-section 254(b) [sic] of the
Excise Tax Act in prescribed form.
(d) In
the event that the Purchaser takes any action that would disentitle it
receiving the Rebate, it shall indemnify the Vendor from any loss of such
rebate and the amount of such Rebate shall be credited to the Vendor on Closing
if discovered prior to closing, or paid to the Vendor if discovered after
Closing.
D. Is Mattamy
entitled to additional net tax deductions?
[80]
As stated above,
Mattamy relies on subsections 296(2) and 296(2.1) to recover the amount of NHRs
that it could have claimed if it had computed purchase prices as including the development
charges.
[81]
Dealing first with
subsection 296(2.1), in my view it does not apply to Mattamy. The provision
applies where “an amount … would have been payable to the person as a rebate.”
It is only the buyer of the new home that is entitled to the NHR. Mattamy’s
entitlement is simply to a deduction in computing net tax under subsection
234(1).
[82]
Mattamy’s counsel
referred in support to United Parcel Service Canada Ltd. v The Queen,
2009 SCC 20. This decision does not assist Mattamy with respect to s. 296(2.1) because
it dealt with a different legislative provision, section 261(1). The applicable
wording in the two provisions is quite different.
[83]
The other provision
relied on by Mattamy, subsection 296(2), is the relevant provision to be
considered. It applies if a builder has paid or credited an amount to a buyer
on account of a NHR but has not claimed the corresponding deduction in
computing its net tax.
[84]
Subsection 296(2)
requires the Minister to allow a deduction under subsection 234(1) when
assessing a taxpayer if that deduction would have been allowed if that taxpayer
had claimed it in a return. In order for Mattamy to qualify for this relief,
Mattamy must have paid or credited to the Purchasers an amount on account of
the unclaimed portion of the NHR pursuant to subsection 254(4).
[85]
The difficulty that I
have with the application of this provision in the circumstances of this appeal
is that Mattamy has not paid or credited the unclaimed portion of NHRs to
Purchasers. Paragraph 49 of the ASF reads:
49. The Vendors did not pay or credit the Purchasers with any
amount in excess of the amount of GST Rebate on their Applications.
[86]
In light of this agreed
fact, Mattamy does not satisfy the conditions for relief in subsection 296(2).
[87]
Mattamy suggests that relief
should be given because Purchasers are not entitled to further NHRs, having
assigned them to Mattamy. I can understand the position that Mattamy takes that
it should be entitled to relief, but no relief can be given because Mattamy has
not satisfied the legislative requirements of subsection 296(2).
E. Is Mattamy
liable for NHR claims that were too high?
[88]
I turn now to the
circumstances in which Mattamy credited Purchasers with excessive NHRs. Mattamy
has been assessed for the excess pursuant to subsection 254(6) of the ETA.
[89]
In order for subsection
254(6) to apply, Mattamy must have known, or ought to have known, that it
credited Purchasers with excessive NHRs.
[90]
The Crown submits that Mattamy
ought to have known that the NHRs were excessive because, had it exercised due
diligence, Mattamy would have known that the consideration for the homes
included the amount of applicable development charges.
[91]
The Crown suggests that
the phrase “ought to have known” brings in the notion of “due diligence.” I
agree with this; however, I would note that the test in s. 254(6) is not a
due diligence test per se.
[92]
In accordance with
judicial interpretation of the phrase “ought to have known” in other contexts,
the test is an objective one: Would a person acting reasonably know that the
NHR claims were excessive because the amount of the applicable development
charges should be included in the consideration for the homes? (See, for
example, Canada (AG) v Roy (Trustee of), 2007 FCA 410).
[93]
Applying this test to
the facts in this case, in my view Mattamy ought to have known that it credited
Purchasers with excessive NHRs. Based on the ASF above and the lack of further
evidence, Mattamy’s actions were extremely careless. Mattamy relied on
information that another developer had instituted a similar plan, and that no
adjustment had been made despite a subsequent audit. It would be unreasonable
for Mattamy to infer from this that the other developer’s plan was legally
sound. The developer may simply have won the audit lottery as a result of the
CRA not spotting the issue.
[94]
In my view, a
reasonable person in Mattamy’s circumstances would have concluded, based on
competent professional advice, that the Purchasers did not pay development
charges qua development charges. Quite simply, this is the only
reasonable conclusion that may be drawn from the Purchase Agreements. Because
the amount of a NHR is a function of the consideration for the home, it follows
that a reasonable person would have known that some of the amounts paid or credited
by Mattamy in respect of Purchasers’ NHR claims were excessive. I conclude that
Mattamy is liable for the amount of the excess.
V. Conclusion
[95]
In the result, the appeal will be dismissed,
with costs to the Crown.
Signed at Ottawa, Ontario this 12th day of February 2013.
“J. M. Woods”
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