GF Partnership – Tax Court finds that a developer “ought to have known” that a clause, purporting to make it an agent for home purchasers in incurring development levies free of GST, was defective

A housing developer implemented advice from a tax consultant (a CA) that it could avoid charging GST on the portion of the home sales prices that represented a recovery of municipal development levies, by sticking a clause (drafted by him) in the sales agreements stating that the development levies had been (or would be) paid by the developer on behalf of the purchasers.  Woods J. found that this clause was defectively drafted, so that the development levy on-charges were taxable.  However, even a well drafted clause might not have done the trick given that the development levies often were paid in advance of the sales agreements, and the concept of incurring levies on behalf of an unascertainable principal is metaphysical at best.

The effect of the increased sales consideration was to reduce the related new housing rebate on some of the sales.  Woods J. found that this gave rise to a liability of the developer under s. 254(6) on the basis that it "ought to have known" that the CA’s legal drafting was defective.

Neal Armstrong.  Summaries of GF Partnership v. The Queen, 2013 TCC 53 under ETA ss. 153(1), 154(1), 254(6) and 296(2).