REASONS FOR JUDGMENT
As
delivered orally from the Bench on February 24, 2016
Hershfield J.
I. Issue
[1]
The Appellant was assessed a rebate adjustment
amount of $24,000, having had her application for a New Housing Rebate denied.
Subsection 254(2) of the Excise Tax Act (the “Act”)
sets out the requirements for the rebate. The rebate in this case is for
GST/HST payable for the supply of a newly‑constructed residential unit
acquired by the Appellant as evidenced in a purchase and sale agreement entered
into with the builder.
[2]
While the requirements for the rebate are
lengthy, the issue in this case is the proper construction and application of
two provisions of the Act, namely paragraph 254(2)(a) and subsection
262(3). Both these provisions speak of the rebate being available to a “particular
individual” or group of particular individuals.
[3]
The first reference to a particular individual
is in paragraph 254(2)(a). That paragraph reads as follows:
254. (2) New housing rebate [purchased home] – 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,
[4]
In the case at bar there is a question of
whether there is more than one particular individual to whom the builder has made
a taxable supply of the subject residential unit. If so, the subject provisions
of the Act must be examined in respect of each particular individual to
ensure that each one of them meets the requirements for a rebate. This is made
clear by subsection 262(3). I will set that provision out later in these
Reasons.
[5]
It is not in dispute that the Appellant would
satisfy the requirements for the rebate if she were the only particular
individual who received a taxable supply of the subject unit.
[6]
However, in the case at bar, it is not disputed
that a second person, a Ms. Richards, at the closing of the purchase and
sale of the subject unit, appeared on title as a 1% owner. She was first
introduced as a purchaser in an amended purchase and sale agreement executed shortly
before closing.
[7]
That is the basis for the Crown arguing that Ms.
Richards is a particular individual. The Crown then asserts that Ms. Richards
fails to meet certain other requirements for a rebate which vitiates the rebate
to the Appellant, the 99% owner of the acquired unit. For example, Ms. Richards
was not a relation of the Appellant and never occupied, nor intended to occupy,
the subject unit as required in paragraph 254(2)(b) which reads as follows:
254. (2) New housing rebate [purchased home] – 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,
[8]
I note here that in addition to this latter provision
being a rebate requirement that Ms. Richards does not meet, it clearly envisions
that a particular individual be a person liable to pay the builder that makes
the supply. This underlines a difficult issue that lingers on the sidelines: if
an individual goes on title on the transfer from the builder but incurs no
liability to the builder, does that person disentitle another particular
individual, who is liable and meets all other requirements, from the rebate? I
will find that the appropriate answer is “no” because that individual without
liability is not, in such circumstances, a particular individual. While this
conclusion supports my finding that Ms. Richards is not a particular
individual, there are additional and material reasons for coming to this
conclusion. As elaborated on in these Reasons, I have found that the builder
acted as the agent of the Appellant under the amended agreement, that in any
event the amended agreement has no force and effect and that she, Ms. Richards,
was not a recipient of a supply.
II. Facts
[9]
Both the Appellant and Ms. Richards testified at
the hearing. There is no doubt in my mind that their evidence was forthright
and honest. Neither is sophisticated. Both, in my view, are not only of a
character not to manipulate facts or disguise intentions but are incapable of any
such guile. This was simply a case where they would do what was said was
required of them to allow the Appellant to close her purchase of the subject
unit as she was legally committed to do. However, it was their mutual intent
that they would do so without altering the understanding between them; namely,
that the unit was being acquired by, and solely for, the Appellant.
[10]
Although the copy of the original agreement of
purchase and sale submitted by the Appellant as an exhibit was not fully
executed, it is not in dispute that it was entered into by the Appellant with
the builder with the intention of her acquiring the unit as the sole purchaser
and owner. That agreement was made in 2010 when the unit had not yet been
built. There is no evidence to suggest that it was not a binding agreement between
the Appellant alone and the builder. Indeed, the Appellant acknowledged that
the down payment shown on the original agreement of purchase and sale ($40,000)
was made by her and that she was personally committed to the balance, which was
to be financed by an institutional mortgagee. She said she would lose her down
payment if she failed to pay the balance, financed or otherwise.
[11]
The Crown also tendered as an exhibit an agreement
entered into to amend the agreement of purchase and sale. The amended agreement
was made on June 9, 2012, roughly one month before possession and title
transfer. The title transfer document was also tendered by the Crown. The
amended agreement adds Ms. Richards as a purchaser without stating the
nature or extent of the interest in the subject
property purportedly acquired by her. The title transfer document shows the
Appellant as owning a 99% interest in the subject unit and Ms. Richards as
owning a 1% interest.
[12]
The Appellant testified that as the closing drew
closer, the Credit Union that was providing the mortgage financing required
another party to be liable on the mortgage. While her credit rating was
sufficient in 2010 not to require such a guarantor, it had declined by mid-2012;
due to personal circumstances, she had no choice but to ask Ms. Richards to
co-sign on the mortgage liability. The Credit Union also required Ms. Richards
to be on title as a party to the mortgage instrument.
[13]
Both the Appellant and Ms. Richards testified
that there was never an intention as between the two of them that Ms. Richards
ever acquire an interest in the subject unit. Offering her credit rating to the
Appellant was a gesture by Ms. Richards reflective of her trust in, and
friendship with, the Appellant. They were like sisters. While Ms. Richards felt
personally in debt to the Appellant - not financially, but in every other way -
her trust and faith in the Appellant made her willing to be liable on the
mortgage, feeling confident that she would not ultimately be liable.
Accordingly, she did what she was told she was required to do. She went on title to qualify the Appellant for a mortgage. That was
her understanding of what she did. It was an understanding shared by the
Appellant. She did not want anything back from the
Appellant.
[14]
Indeed, Ms. Richards testified that she asked
the Appellant to document that there was no monetary obligation arising from the
Appellant giving her (Ms. Richards) this purported 1% interest. She wanted
this to be made certain in their Last Wills and Testaments in the event of a
death.
[15]
The mortgage is due in 2017. I am satisfied on
the evidence that Ms. Richards will not be required to co-sign on a new
mortgage and that she will, without consideration, transfer back the 1% interest
registered in her name in 2012. That is, the expectations and understandings
between them will be realized.
III. Paragraph
254(2)(a)
[16]
This paragraph requires the builder to make a
supply by sale to Ms. Richards in order for her to be a particular
individual.
[17]
I am satisfied that Ms. Richards not only
believed that she had acquired no interest in the subject unit, but I am also
satisfied that, at law, she had no beneficial interest. That is, I find this to
be a clear case of the Appellant acquiring a 100% beneficial ownership. More
importantly however I find this to be a clear case of the Appellant allowing
a 1% legal interest to be registered in Ms. Richards’ name as a financing
requirement imposed by the Credit Union.
[18]
This raises the question as to whether this allowance
(of a 1% interest transfer) is a supply made by the Appellant to Ms. Richards,
rather than a supply made by the builder.
[19]
In my view the subject supply was made by
the Appellant. The execution of the amended agreement, if it constituted a
binding or relevant agreement at all, was done at the direction and for the
benefit of the Appellant and thereby constituted a supply by the Appellant made
to Ms. Richards. That is, I am not satisfied on the evidence that the builder
was, in fact, a party to that agreement for its own account. I have no reason
to believe that the original agreement did not give the Appellant the right of
alienation or assignment of her interest in the subject unit that was acquired
by her under that original agreement as exercised by her when title was
registered. She was never in default of the original agreement and had never
lost this right. The builder had no standing to enter into that second
agreement as a vendor or to make the purported supply, except as allowed
by the Appellant. The builder was, at best, her agent. That is, the only supply
made by the builder was the supply made pursuant to the original agreement. The
supply of the 1% interest was made by the Appellant. She received consideration
for this supply in the form of a guarantee made by Ms. Richards to the
Credit Union. From Ms. Richards’ point of view, giving the guarantee was a
gratuitous act offered out of trust and love and affection.
[20]
This finding should, by itself, result in the
only “particular individual” being the Appellant. As such, the Appellant is
entitled to the New Housing Rebate and her appeal must be allowed.
[21]
Having said that, I have no intention of letting
the matter stand there. There seems to me to be much more to say to support my
conclusion that the Appellant was the only particular individual in this case.
For example, as noted near the outset of these Reasons, there is my finding that
the amended agreement has no force or effect and cannot be given any weight.
[22]
In making that particular finding, it is important
to note that the amended agreement was not complied with by the Appellant and
it seems highly unlikely that the builder intended that it needed to be
complied with. The extent and nature of the interest being purported to be
transferred is not set out in the amended agreement. It just adds Ms. Richards
as a purchaser. At law, she might be entitled to be an owner-in-common having
an undivided interest in the entire property. How then could her title be
registered as a 1% owner if the amended agreement was meant to be a binding
contract? The title registration bore no resemblance to the amended agreement.
The percentage and nature of the transfer was left entirely up to the Appellant
pursuant to her acquired right under the original agreement.
[23]
Further, I do not see that Ms. Richards paid any
consideration to the builder when she was added as a purchaser. Seen as a
whole, not only did the builder give nothing under the amended agreement that
was recognized or given effect in the title registration, but it received
nothing under it. The amended agreement does not expressly provide for any
consideration being the responsibility of Ms. Richards. The builder had already
received a promise for the full purchase price from the Appellant in the
original agreement which had not been breached. There was no fresh
consideration paid or payable to it under the amended agreement. The amended
agreement did nothing of substance. Indeed, if such an agreement had been
entered into to gain an unintended tax advantage, it might be seen as a wholly
artificial transaction – a sham. That it should stand in the way of allowing an
intended incentive, would be to allow for a re-characterization of the true
legal relationships, entitlements and obligations that exist in this case.
[24]
I have made mention of the builder’s intentions.
There is no direct evidence from the builder as to its intentions in regard to
entering into the amended agreement.
[25]
It is trite law that the express language in a
contract is not always the paramount factor in construing its effect. Rather,
it is the intentions of the parties that might, and often do, prevail.
[26]
Ms. Richards had a singular intention, which was
to give the Credit Union a guarantee of the Appellant’s mortgage obligation.
The only party, other than the Appellant, that benefited directly from the
guarantee and the title registration change was the Credit Union.
[27]
On a prima facie basis at least, all the evidence
here points to the likelihood that the builder did not intend to enter into a
binding agreement to sell a 1% interest in the subject unit to Ms. Richards.
Indeed, as stated, the evidence supports the view that the builder had no
intention to tie the Appellant’s hands in any way.
[28]
While it is not necessary to do so, I would like
to say a few more words about the operation of paragraph 254(2)(a) in the
context of this appeal.
[29]
I would like to suggest that a possible reading
of paragraph 254(2)(a) requires that a supply made by the builder to Ms.
Richards be a supply for consideration in order for her to be a particular individual.
The phrase used in that paragraph is that there be a supply “by sale”. It is curious that that paragraph refers to
a “supply by sale” when reference to a “supply” alone would have sufficed. Further, the
rebate provisions themselves not only contemplate sales for consideration, but expressly
set a limit based on the dollar value of the consideration. Further still,
paragraph 254(2)(b) clearly and expressly contemplates that the particular
individual become liable to the builder for the supply.
Having concluded that Ms. Richards should not be seen
as having incurred any liability to the builder, it strikes me that, arguably
at least (even if I had found that the builder had made a supply to Ms.
Richards), there has not been the type of supply made here that would include
her as a particular individual.
[30]
I should not omit from these reasons that the
Crown relied on Al-Hossain v The Queen,
a decision of this Court. It was cited by the Crown as one factually closest to
the one at bar. In many respects, counsel for the Crown was correct. In that
case, a second buyer, Mr. K., was added prior to closing to ensure that a
mortgage could be obtained. The interest of Mr. K. was evidenced by a
declaration made by him at the time that the application for the rebate was
signed. It declared that Mr. K. held a .01% interest in trust for Mr.
Al-Hossain who was the beneficial owner of 100% of the subject property. This
Court found that the addition of Mr. K. as a buyer disentitled the 100%
beneficial owner from receiving the rebate.
[31]
While I am not required to follow that case and
am not inclined to do so, I do note that there are distinguishing factors such
as there being no issue in that case as to the effectiveness of the sale to Mr.
K., including the related issue of the builder’s intentions. Unlike the case at
bar, the lawyer for the taxpayer in that case testified at the hearing. His
testimony was that the builder (rather than the mortgagee) took the initiative
to suggest that Mr. K. be added as a purchaser.
His testimony dictates that the parties knew that the builder was not acting as
a mere agent of the taxpayer in that case. In the instant case, I have no
evidence from the builder and the facts indicate that the two cases are not at
on all fours.
[32]
In any event, the judge in that case found as a
fact that the taxpayer was attempting to re-characterize the legal relationship
that was established by the parties at the relevant time.
[33]
I make no such factual finding in the case at
bar.
[34]
While it may be repetitive, I wish to emphasize my
initial finding that the Credit Union’s requirement that Ms. Richards be
on title was effected by the Appellant when Ms. Richards’ 1% interest was registered on title. The amended
agreement did nothing to change that. That removes Ms. Richards as a particular
individual as described in paragraph 254(2)(a).
IV. Subsection 262(3)
[35]
Subsection 262(3) ensures that all buyers of a
new home must meet the requirements of subsection 254(2). However, a good case can
be made that it does more if it serves to identify the particular individual
referred to in subsection 254(2). While I will address that question, it is not
one that dissuades me from suggesting that the following analysis should stand
alone in support of my finding that the Appellant must succeed in her appeal.
[36]
This subsection, 262(3), clearly comes into play
where there is, as argued by the Crown, more than one purchaser of a property
to which the rebate provisions apply. It might even be said that it is the
operative provision that would require Ms. Richards to satisfy the rebate
requirements. It reads as follows:
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, by 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.
[37]
The effect of subsection 262(3) is that Ms.
Richards will be required to satisfy the rebate requirements in subsection
254(2) if either a supply of a residential complex was made to her (per
paragraph 262(3)(a)), or if she and the Appellant engaged the builder to
construct a residential complex (per paragraph 262(3)(b)).
[38]
As noted by Justice Woods in Javaid v The
Queen,
the question of whether a supply has been made brings into play the definition
of “recipient” in subsection 123(1) of the Act because it is the
recipient, as defined, to whom a supply has been made. That provision reads:
123. (1) Definitions – In section 121,
this Part and Schedules V to X
[…]
“recipient” of a supply of property or a
service means
(a) where consideration
for the supply is payable under an agreement for the supply, the person who is
liable under the agreement to pay that consideration,
(b) where paragraph (a)
does not apply and consideration is payable for the supply, the person who is
liable to pay that consideration, and
(c) where no
consideration is payable for the supply,
(i) in the case of a
supply of property by way of sale, the person to whom the property is delivered
or made available,
(ii) in the case of a
supply of property otherwise than by way of sale, the person to whom possession
or use of the property is given or made available, and
(iii) in the case of a supply of a service, the person to whom the
service is rendered,
and any
reference to a person to whom a supply is made shall be read as a reference to
the recipient of the supply;
[39]
The effect of the underlined portion above is
that, in order for a supply to have been made to Ms. Richards, she must be a
“recipient”.
[40]
According to paragraph (a) of the definition,
the question is whether Ms. Richards was liable under that contract to pay
consideration for the residential complex. This assumes that the amended
agreement was a bona fide enforceable contract whereby the builder, on
its own account, had sold a 1% interest to Ms. Richards. While I rejected that proposition,
I will proceed on the basis that I had not made that finding.
[41]
Although the courts have had opportunities to
interpret liability in the definition of “recipient”,
as far as I am aware they have never done so in the context of a New Housing Rebate.
While I will refer briefly to case law, there is no doubt in my mind that the
question of whether Ms. Richards was liable to pay consideration within the
meaning of the definition must take into account the intent of the parties to
the amended contract, and the purpose behind subsection 262(3) and the rebate
provisions.
[42]
In Bondfield Construction Co (1983) Ltd v The
Queen,
Justice Campbell held that liability to pay under the definition of “recipient” required determining who was ultimately
liable to pay for the supply. In this case, Bondfield had paid a new
subcontractor to remedy the deficient work of the original subcontractor.
Though Bondfield paid the new subcontractor, it recovered this cost by reducing
the amounts paid to the original subcontractor. The question was whether
Bondfield was the entity that paid consideration to the new subcontractor, and
therefore a “recipient” of the supplies made by
the new subcontractor. This Court found that although Bondfield’s name appeared
on the new subcontractor’s invoices, it was the original subcontractor who
accepted ultimate liability for paying them.
[43]
Justice Campbell clarified this notion of
ultimate liability in General Motors of Canada Ltd v The Queen , where
she explained that her “reference to ‘ultimately liable’ in the Bondfield
decision should not be taken to mean that the definition of recipient requires
a determination of the person who ultimately receives the supply but rather to
a determination of the person who is ultimately liable under the agreements, to
pay consideration.”
[44]
Turning back to the present case, it is abundantly
clear to me that the ultimate liability to the builder (regardless of which
agreement we consider) was borne only by the Appellant. Ms. Richard’s only
liability was to the Credit Union. That was the intent of the parties (the
Appellant, Ms. Richards and the Credit Union). As noted above, no evidence
was presented to me regarding the builder’s intent. On the evidence, I am
satisfied that the Appellant would relieve Ms. Richards of any liability for
going on title to satisfy the demands of the Credit Union. The Appellant
accepted ultimate liability for payment to the builder in the unlikely event
the builder was able to make a case against Ms. Richards. The Appellant
was bound to repay Ms. Richards for any such costs incurred. In the same way
that Bondfield was not found to be a recipient, despite the fact that the new
subcontractor could sue Bondfield rather than the old subcontractor for payment,
I find that Ms. Richards is not a recipient and therefore not captured by
paragraph 262(3)(a).
[45]
While, in my findings under the previous
heading, I made it clear that the amended agreement was not sufficient to
support a finding that Ms. Richards had any liability to the builder, the test
in my view need not be that rigid. I agree with the reasoning of Justice Campbell
that it would be sufficient to only find that Ms. Richards was not ultimately
liable to pay any consideration to the builder.
[46]
In more general terms, I am satisfied that a
party to a contract of purchase and sale whose sole intent and purpose throughout
the entire series of transactions is to help the original purchaser obtain
financing and who ultimately has no liability to the builder is not a “recipient”
and not a “particular individual” under subsection 262(3) or paragraph
254(2)(a). This conclusion only helps ensure that the purpose behind the rebate
provision is given life. There is no mischief here that needs to be addressed.
The Appellant is exactly the kind of party who was intended to benefit from the
subsection 254(2) rebate.
[47]
As to whether paragraph 262(3)(b) might apply to
Ms. Richards, there is no evidence or any assumption in the Crown’s Reply that
supports a finding that the conditions in that paragraph exist in the case at
bar. Indeed, the Respondent made no such argument.
[48]
That means that under paragraph 262(3)(a), there
was no group of particular individuals. As such, the Appellant stands alone as the
only particular individual who meets all the conditions for the rebate.
IV. Conclusion
[49]
Based on the cases that Respondent’s counsel presented
to me, and relied on, it is apparent that my analysis and findings diverge from
the path taken by my colleagues, although I am not the first to employ a
purposive approach to the construction and application of the subject
provisions.
While some might argue that the language of the subject provisions is
sufficiently clear so as not to give way to a purposive analysis, that is not
my view. My view is that Parliament surely did not intend to block this
economic incentive in factual situations like the one
at bar. These situations beg for findings that support
the allowance of the incentive. While I do not believe my findings of fact and
law in this case are overly generous, if they were, it would not be
inappropriate if the result is to give effect to benefit-conferring
legislation.
[50]
In Rizzo & Rizzo Shoes Ltd. (Re), the Supreme Court of Canada
said:
Finally, with
regard to the scheme of the legislation, since the ESA [Employment Standards
Act] is a mechanism for providing minimum benefits and standards to protect
the interests of employees, it can be characterized as benefits-conferring
legislation. As such, according to several decisions of this Court, it ought to
be interpreted in a broad and generous manner. Any doubt arising from
difficulties of language should be resolved in favour of the claimant (see,
e.g., Abrahams v. Attorney General of Canada, [1983] 1 S.C.R. 2, at
p. 10; Hills v. Canada (Attorney General), [1988] 1 S.C.R. 513, at
p. 537). It seems to me that, by limiting its analysis to the plain meaning of
ss. 40 and 40a of the ESA, the Court of Appeal adopted an overly restrictive
approach that is inconsistent with the scheme of the Act.
[51]
While that case speaks of difficulties in interpreting
statutory language, the sentiment applies where there are difficulties in
making factual findings. The benefit of any doubt must be given to ensure the
conferring of intended benefits.
[52]
There is no possible policy reason to come to a
different conclusion. That adding a person to title to meet the requirements of
a mortgagee should not result in the loss of the rebate can be demonstrated by
considering what the result would be if Ms Richards were added sequentially to
title by the Appellant immediately after title was registered solely in the
Appellant’s name. In that case, the rebate would not be disallowed as there
would be but one buyer – one particular individual. The foregoing findings that
hold that Ms. Richards is not a particular individual do little more than
assure the same result – a result consistent with the objects of the Act.
[53]
Thus, in my view, the facts of this case allow
for a result that ensures the attainment of the objects of the legislation.
[54]
For all these reasons I am allowing the appeal
without costs.
Signed at Ottawa, Canada, this 2nd day of March
2016.
“J.E. Hershfield”
.
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