Failure of the taxpayers to file HST returns did not mean they had “dirty hands” precluding rescission of an HST-inefficient sale

Some B.C. corporations sold land in 2011 to a start-up partnership for development. They did not charge HST because, as everyone knows, there is no HST collectible on sales of commercial real estate (assuming the purchaser is registered).

Due to a mix-up, the partnership had not been registered, and CRA assessed the corporations for their failure to charge HST.

Loo J applied the doctrine of equitable mistake to rescind the transfer, so that the lands could be resold to the partnership, which was now registered. She was not fussed by this doctrine having been judicially reversed in England.  There was no adequate legal remedy:  BC's abolition of HST before the discovery of the problem in 2013 meant that the "basic tax content" of the lands was reduced from 12% to 5% - so that the partnership would be entitled (assuming no rescission) only to a 5% ITC under ETA s. 171 upon being registered.  Finally, the corporations’ failure to file GST/HST returns (so that the problem was not discovered before the adverse B.C. change of law) did not mean they had "dirty hands."

Neal Armstrong. Summaries of 0741508 B.C. Ltd. and 0768723 B.C. Ltd. (Re), 2014 BCSC 1791 under General Concepts – Rectification and Rescission, and ETA, s. 171(1).