REASONS
FOR JUDGMENT
Smith J.
[1]
The Minister of National Revenue (the
“Minister”) reassessed Mohammad N. Cheema (the “Appellant”) to deny his
application for a New Housing Rebate (“NHR”) in the amount of $24,000 with
respect to the purchase of a property located at 364 Stanton Avenue, Vaughan,
Ontario (the “Property”).
[2]
The Minister takes the position that the
Appellant has not met the necessary preconditions for the NHR as one of the
co-purchasers did not intend to occupy the Property as his primary place of
residence when the Agreement of Purchase and Sale was signed and did not occupy
the residence after closing, contrary to the requirements of paragraphs 254(2)(b)
and (g) of the Excise Tax Act[1]
(“ETA”).
[3]
The Appellant maintains that the co-purchaser in
question signed the Agreement of Purchase and Sale for the purpose of
facilitating the mortgage financing and acquired legal title on closing as bare
trustee for the Appellant and his spouse as beneficial owners, as confirmed by
a written trust declaration.
[4]
The issue in this appeal is whether the
expression “particular individual” excludes someone who signs an agreement of
purchase and sale and acquires legal title to a new residence as agent or bare
trustee of the beneficial owners?
[5]
For reasons set out below, the appeal is allowed
on the basis that the co-purchaser was an agent and trustee of the Appellant
and his spouse.
The Facts
[6]
The material facts are not in dispute. On March
26, 2012, the Appellant and a certain Doctor Din Mohammed Akbari (“Dr. Akbari”)
entered into an Agreement of Purchase and Sale for the purchase of a new
residential property.
[7]
The Appellant explained that he had sought the
help of Dr. Akbari, who was a friend, to assist with the mortgage financing by
co‑signing the application for credit. They were approved by the lender
and both later signed the Agreement of Purchase and Sale with the builder,
Mosaik Pinewest Inc.
[8]
According to the Appellant, it was understood
from the beginning that Dr. Akbari would have no real interest in the
Property. In other words, he would hold legal title in trust for the Appellant
and his spouse as beneficial owners and following the date of closing, they
would occupy the Property as their primary residence.
[9]
Dr. Akbari readily admitted that he had no
intention of occupying the Property as his primary residence and that he did
not do so after the date of closing. He confirmed that he did not contribute to
the down‑payment and that, following the date of closing, he did not make
any payment towards the mortgage, property taxes, insurance or utilities
expenses. All such costs were borne by the Appellant.
[10]
The transaction closed on July 26, 2013. In
accordance with instructions given to the builder, the Appellant and his spouse
acquired an undivided 99% interest in the Property and Dr. Akbari acquired an
undivided 1% interest.
[11]
The Appellant and his spouse immediately took
possession of the Property.
[12]
On the date of closing, the parties signed a
trust declaration (the “Trust Declaration”) in which Dr. Akbari was described
as the “Trustee” and the Appellant and his spouse were described as the “Beneficiary”.
[13]
Dr. Akbari acknowledged that the Appellant and
his spouse were the beneficial owners of the Property and that he was holding
the 1% interest in trust for them as beneficial owners and that he would convey
that interest on demand.
[14]
The Trust Declaration confirmed that all
expenditures in relation to the Property would be borne by the Appellant and
his spouse and included a covenant that they would indemnify “the trustee
against all costs, damages, expenses, claims, proceedings and demands in respect
of the Property”.
[15]
During cross‑examination, the Appellant
acknowledged that a copy of the Trust Declaration had not been provided to the
mortgage lender and, given the date of preparation, it is likely that it was
also not provided to the builder.
[16]
According to the Appellant, Dr. Akbari later
conveyed his 1% interest to the Appellant’s son who had been approved by the
mortgage lender.
[17]
I would emphasize that there was no issue of
credibility and that I have no difficulty believing the version of the facts
put forward by the Appellant, as corroborated by Dr. Akbari. In particular, I
have no doubt that the Trust Declaration signed on the date of closing,
accurately reflects and confirms the intention of the parties prior to the
signing of the Agreement of Purchase and Sale.
[18]
The issue is what consequences flow from that
document.
Position of the Appellant
[19]
The Appellant takes the position that Dr. Akbari
held the undivided 1% interest in the Property in trust for the Appellant and
his spouse as beneficial owners. In other words, although he held legal title
to the Property, the Appellant and his spouse were the sole beneficial owners
and Dr. Akbari was a bare trustee.
[20]
He argues that this is plain and obvious from a
reading of the Trust Declaration.
[21]
The Appellant argues that he alone was the
“particular individual” for purposes of paragraphs 254(2)(a) and (b)
of the ETA and that Dr. Akbari cannot be said to be a “particular individual”
since he was a mere nominee. If Dr. Akbari was not a “particular individual”
for purposes of paragraphs 254(2)(a) and (b) of the ETA, it
follows that he was not required to occupy the premises pursuant to paragraph
254(2)(g) of the ETA. That condition was satisfied when the Appellant
and his spouse occupied the Property as their primary place of residence after
closing.
[22]
The Appellant also points out that the terms of
the Trust Declaration were later implemented when Dr. Akbari conveyed his 1%
interest to his son. He argues moreover that there was no need to provide a
copy of the Trust Declaration to the mortgage lender or the builder and that
nothing turns on this.
[23]
In essence, the Appellant argues that he has
satisfied all the necessary conditions set out in subsection 254(2) of the ETA
and that he is entitled to the NHR.
The Respondent’s Position
[24]
The Minister’s position is that Dr. Akbari
signed the Agreement of Purchase and Sale and as such he is a “particular
individual” for purposes of subsection 254(2) of the ETA. Since he admits
that he never intended to occupy the Property as his primary place of residence
and did not do so following the date of closing, the preconditions have not
been met and the Appellant is not entitled to the NHR.
[25]
The Minister also points to subsection 262(3) of
the ETA which provides that if a supply is made to two or more individuals, the
reference in subsection 254(2) of the ETA to a particular individual must
be read as a reference to all of those individuals as a group even though only
one of those individuals may apply for the rebate. In other words, it is argued
that all the individuals must satisfy the rebate conditions.
[26]
The Minister argues that the Trust Declaration
changes nothing. As a signatory to the Agreement of Purchase and Sale, Dr.
Akbari was a particular individual and as such was required to occupy the Property
pursuant to paragraph 254(2)(g) of the ETA.
[27]
Further and in the alternative, the Minister
argues that the arrangement with Dr. Akbari is not a trust and that, in any
event, the ETA does not allow the use of a trust.
I. The Law
[28]
The statutory framework for the NHR is set out
in Part IX, Division VI of the ETA dealing with “Rebates”. Subsection 254(2)
provides as follows:
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
$6,300 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 $6,300 and 36% of the total tax paid by the
particular individual, and
B
is the total consideration.
[29]
Subsection 262(3) of the ETA provides that if a
supply is made to two or more individuals, the reference “to a particular
individual shall be read as references to all of those individuals as a group
but only one of those individuals may apply for the rebate”. The purpose of
this provision is to avoid multiple rebate applications where more than one
individual is involved in the purchase of a property.[2]
[30]
While the expression “particular individual” is
not a defined term, subsection 123(1) of the ETA does contain a definition of
“individual” and “person” as follows:
“individual” means a natural person;
“person” means an individual, a partnership,
a corporation, the estate of a deceased individual, a trust, or a body that is
a society, union, club, association, commission or other organization of any
kind;
[31]
The ETA does not contain a definition of “bare
trust” although, as will be seen below, it does refer to agents or
representatives. Subsection 123(1) of the ETA also provides a definition of
“personal trust”,[3]
but this refers to an inter vivos or testamentary trust.
[32]
I will add parenthetically that although the Income
Tax Act [4]
(the “ITA”) also does not contain a definition of “bare trust”, subsection
104(1) of the ITA located in Subdivision K, dealing with “Trusts and
Beneficiaries”, provides that, for the purposes thereof, “a trust is deemed not
to include an arrangement under which the trust can reasonably be considered to
act as agent for all the beneficiaries under the trust”. As will be seen below,
an agency relationship is another way of describing a bare trust.
[33]
Numerous provisions of the ETA, notably
subsection 168(5) which deals with the timing for the payment of GST on the
taxable supply of real property by way of sale, refer to a “recipient” but not
to a “particular individual”. The former expression is defined in subsection
123(1) as follows:
“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.
[34]
I now turn to the case law. With few exceptions,
the decisions of the Tax Court of Canada have consistently held that the NHR
must be denied where a third party co‑signs an agreement of purchase and
sale, including situations where they do so to assist with mortgage financing,
but do not occupy the premises after closing: Davidson v. The Queen,[5]
Goyer v. The Queen,[6]
Sharp v. The Queen,[7]
Al‑Hossain v. The Queen,[8]
Henao v. The Queen,[9]
and Malik v. The Queen.[10]
[35]
Only a few decisions have dealt with an
application for the NHR where it was argued that a third party was an agent or
trustee of the “particular individual” who ultimately occupied the new
residence. In Rochefort v. The Queen,[11]
a third party was registered on title to assist with the mortgage financing,
though he was not a party to the agreement of purchase and sale. Justice Miller
found that the third party was really a trustee and provided the following
analysis:
[21] From a policy perspective, the
Rocheforts are clearly who the rebate is meant to benefit, as they are the
buyers of the property, the ones liable for the GST, and they took possession
of the property after substantial completion to reside in it as their primary
residence.
(…)
[24] I conclude that in these circumstances,
Mr. Fontaine agreed to hold title solely for the benefit of the Rocheforts,
and, as a trustee of the property, was required to convey title to the
Rocheforts on demand, or to any third party at their request. That, I find, was
the deal and satisfies me Mrs. Rochefort was a beneficial owner.
[36]
However, in Sharp v. the Queen,[12]
Justice Miller found that he was unable to accommodate an appellant whose business
colleague had signed the agreement of purchase and sale to assist with
financing. He concluded as follows:
[25] (…) On the facts as I find them, I
am unable to conclude there is a trust, agency or financing arrangement that
would somehow remove Mr. Da Silva as a “particular individual” for purposes of
the rebate. This is unfortunate given the intentions of the Parties. I must,
however, dismiss the Appeal.
[37]
The existence of a trust was also discussed in
the case of Javaid v. The Queen,[13]
where a third party was added to an existing agreement of purchase and sale by
way of an amending agreement to assist with the mortgage financing. The third
party also signed a Declaration of Trust and Undertaking but in the end,
decided not to proceed with the transaction and therefor never acquired title
or took possession. Justice Woods (as she then was) refused to accept the
Minister’s argument that the third party (a certain Mr. Zia) was a “particular
individual” who had to occupy the premises on closing for purposes of the NHR.
Her analysis was as follows:
[22] It is the position of the Crown
that Mr. Zia must satisfy the rebate conditions as a “particular individual”
under s. 254(2)(a). The Crown submits that Mr. Zia was supplied the property
when he signed the agreement of purchase and sale (section 133), and he was a
“recipient,” as defined, because he was liable for the consideration under the
agreement. It does not matter that Mr. Zia backed out of the deal before
closing, it is submitted.
[23] The problem that I have with this
submission is that Mr. Zia was only acting in the capacity as an agent in
signing the agreement of purchase and sale. This is clear on the evidence as
the agency arrangement was documented in a Declaration of Trust and
Undertaking.
[24] Counsel for Mr. Javaid referred me
to an administrative position of the Canada Revenue Agency which states that an
agent is not a recipient (GST/HST Memorandum 8.1). The relevant part of
the Memorandum is reproduced below.
69. Even though the agent may appear
to be the recipient of the supply as the agent is identified on the invoice as
the customer, it is the principal who is ultimately liable to pay the
consideration thereby making the principal the recipient of the supply.
[25] Further, the rebate provisions
would not make sense if an agent who signed an agreement of purchase and sale
was required to comply with the occupancy requirements of the rebate provision.
I would be loath to support the position of the Crown on this point unless the
legislation is very clear, which it is not.
[My Emphasis.]
[38]
Since Mr. Zia had changed his mind prior to closing
and had not actually acquired title, Justice Woods was not required to
determine whether there had been “a taxable supply by way of sale” to a third
party who acts as agent. She concluded as follows:
[35] It is not necessary that I decide
this point because of my finding that Mr. Zia was only acting as an agent.
This issue can be left for another day.
[36] In the result, I would conclude
that Mr. Zia is not a “particular individual” for purposes of s.
254(2)(a), and he is not required to comply with the rebate conditions.
[39]
It is clear that the language used in subsection
254(2) of the ETA does not specifically exclude “a trust, agency or financing
arrangement” (as described in Sharp, supra, paragraph 25)
from the meaning of “particular individual”. There are no words to that effect.
[40]
I should add that GST/HST Memorandum 8.1
published by the Canada Revenue Agency (the “CRA”) contains a reference to
“agents or representatives” (as noted above, in Javaid, supra, at
paragraph 24) in the context of a registrant’s ability to claim ITC’s incurred
by an agent or representative. Although this does not refer to the rebate
provisions set out in Division VI of the ETA, it nonetheless supports the
notion that agency relationships are recognized by the CRA.
II. Was there an agency or bare trust
relationship?
[41]
The concept of a bare trust as an agency
relationship is well established. The essential components were discussed in Canpar
Developments Inc. v. The Queen,[14]
at paragraph 8:
[8] (…) Three criteria must be met in order
to establish a valid trust. These are certainty of intention, certainty of
subject matter and certainty of objects. It must be clear that the settlor of a
trust intended that the property transferred to the trustee be held in trust as
a binding obligation. The property that is the subject of the trust and the
beneficiaries of the trust must be identifiable, and the interest the
beneficiaries in the trust property must be defined.
[42]
In Pecore v Pecore,[15] the Supreme Court
of Canada addressed the meaning of beneficial ownership and acknowledged that
the distinction between legal and beneficial ownership was one that emerged
from equity considerations:
[4] (…) Equity, however, recognizes a
distinction between legal and beneficial ownership. The beneficial owner of
property has been described as “[t]he real owner of property even though it is
in someone else's name”: Csak v. Aumon (1990), 69 D.L.R. (4th) 567 (Ont.
H.C.J.), at p. 570. (…)
[43]
In De Mond v The Queen,[16] Justice Lamarre (as
she then was) explored the meaning of a bare trust:
[22] Counsel also referred to the
definitions of “bare trust” given by two authors. Professor Waters defines a
bare trust as follows:
The usually accepted meaning of
the term “bare,” “naked” or simple trust is a trust where the trustee or
trustees hold property without any further duty to perform except to convey it
to the beneficiary or beneficiaries upon demand.44 It is of course true that so long
as a trustee holds property on trust he always retains his legal duties,
namely, to exercise reasonable care over the property, either by maintaining it
or by investing it; he cannot divest himself of these duties. The reference,
however, is to duties which the settlor has enumerated. For example, the
settlor may have required that the beneficiary be maintained until he reaches
the age of majority, when he is entitled to call for capital and income. The
trustee is then bare or naked of these active duties decreed by the settlor. If
the trustee possesses his legal duties only for the purpose of guarding the
property, prior to conveyance to the beneficiary, those duties are said to be
passive.
44. Or as directed by the
beneficiaries, i.e., in favour of a third party. Every fiduciary, which
includes an agent holding the title to property for principal, is a bare
trustee of the property he holds for another.
- Waters, Law of
Trusts in Canada (1984), at p. 27.
[23] In the same vein, Professor
Oosterhoff defines the bare trust concept as follows:
The bare trust: A trust exists
whenever title to property is vested in one person to be held for the benefit
of another. The trustee is subjected to a variety
of duties, some imposed by equity, such as making the property productive and
exercising reasonable care over it; other duties are imposed by the creator of
the trust, such as applying the income for the maintenance of minors. When
the trustee no longer has active duties to perform (that is, duties imposed by
the creator of the trust), except to convey the trust property to the
beneficiaries upon demand, the trust is said to be a bare, naked, simple or
dry trust. At that point the duties imposed upon the trustee by equity
are regarded as passive duties.
- A.H. Oosterhoff,
Text, Commentary and Cases on Trusts (1992), at p. 13.
[24] Counsel stated that the appellant,
as the beneficiary, could call on himself in his capacity as trustee to convey
the property to himself at any time, and she therefore concluded that his trust
is a bare trust. Further, the Declaration of Trust does not provide that the trustee
of the husband's trust has powers or obligations which are beyond what the
normal legal duties of a trustee would be. The appellant's only function as a
trustee was to hold legal title to the property for himself as a beneficiary.
Finally, it is clear from the Declaration of Trust that the appellant is the
sole beneficiary of the husband's trust and that he has the power of revocation
at any time.
(…)
[36] (…) it has also been stated
that a bare trustee is a person who holds property in trust at the absolute
disposal and for the absolute benefit of the beneficiaries (see Halsbury's
Laws of England, 4th ed., volume 48, paragraph 641, and The Queen v.
Robinson et al., 98 D.T.C. 6232 (F.C.A.)).
[My Emphasis.]
[44]
Justice Lamarre then compared bare trustees and
agents:
[37] Bare trustees have also been
compared to agents. The existence of a bare trust will be disregarded for
income tax purposes where the bare trustee holds property as a mere agent or
for the beneficial owner. In Trident Holdings Ltd. v. Danand Investments
Ltd., 64 O.R. (2d) 65 (Ont. C.A.), Mr. Justice Morden, speaking for the
Ontario Court of Appeal, made the distinction between an ordinary trust and a
bare trust. He reproduced the following passages from Scott, The Law of Trusts,
4th ed. (1987):
An agent acts for, and on behalf of,
his principal and subject to his control; a trustee as such is not subject to
the control of his beneficiary, although he is under a duty to deal with the
trust property for the latter's benefit in accordance with the terms of the
trust, and can be compelled by the beneficiary to perform this duty. The agent
owes a duty of obedience to his principal; a trustee is under a duty to conform
to the terms of the trust [Vol. 1, p. 88].
A person may be both agent of and
trustee for another. If he undertakes to act on behalf of the other and subject
to his control he is an agent; but if he is vested with the title to property
that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation that
predominates, and the principles of agency, rather than the principles of
trust, are applicable [Vol. 1, p. 95].
[38] Mr. Justice Morden also quoted
with approval from an article by M.C. Cullity, "Liability of Beneficiaries —
A Rejoinder", (1985‑86), 7 Estates & Trusts Quarterly 35, at p.
36:
It is quite clear that in many
situations trustees will also be agents. This occurs, for example, in the
familiar case of investments held by an investment dealer as nominee or in the
case of land held by a nominee corporation. In such cases, the trust
relationship that arises by virtue of the separation of legal and equitable
ownership is often described as a bare trust and for tax and some other
purposes it is quite understandably ignored.
The distinguishing characteristic
of the bare trust is that the trustee has no independent powers, discretions or
responsibilities. His only responsibility is to carry out the instructions of
his principals --- the beneficiaries. If he
does not have to accept instructions, if he has any significant independent
powers or responsibilities, he is not a bare trustee.
[My Emphasis.]
[45]
In Avotus Corporation v. The Queen,[17]
Justice Paris heard an appeal where an agency agreement had been executed. In
finding that an agency relationship existed, he held that:
[51] However, where a written agency
agreement exists and it is not alleged that the agreement is a sham; one does
not need to examine the conduct of the parties in order to confirm the
existence of their agreement. It is only in the absence of a written agreement
that the conduct of the parties must be examined for the purpose of determining
whether an agency agreement may be implied.
[46]
In this instance, the Trust Declaration was
prepared contemporaneously with the closing of the transaction and has been
submitted as evidence. There is no allegation of a sham. As such, it is not
necessary for this Court to make any further enquiries into the conduct of the
parties or the existence of the bare trust.[18]
III. Analysis and conclusion
[47]
As indicated by the Federal Court of Appeal in Sneyd
v. The Queen,[19]
the ETA is a general taxing statute the purpose of which is to raise government
revenues and the rebate provisions are limited exceptions to that general
purpose. On that basis, I am of the view that subsection 254(2) of the ETA
should be narrowly construed notwithstanding that its purpose is to provide a
benefit to taxpayers by ensuring “that the GST does not pose a barrier to
affordable housing by effectively lowering the tax rate on most newly
constructed homes (…)”.[20]
[48]
Indeed, as the case law noted above has
abundantly demonstrated, there will be obvious cases where the NHR must be
denied, particularly where the Court is unable to conclude with any amount of
certainty whether the parties intended to distinguish between legal and
beneficial ownership. In such cases, “a supportive third party funder” (Rochefort,
supra, at paragraph 26), may be just that — and not an agent or
trustee. It is certainly not the role of the Court to re‑characterize
legal relationships on a ex post facto basis.[21]
[49]
At the same time, as stated by Chief Justice
Bowman (as he then was), “in interpreting any legislation, including the GST
provisions of the ETA (…) it is important to follow an approach that,
where possible, achieves a sensible, practical and common sense result (…) and
one that is consonant with the scheme of the Act (…)”: United Parcel Service
Canada Ltd. v. R.[22]
[50]
On the facts of this case, there is no doubt
that Dr. Akbari assumed a certain risk by signing the Agreement of Purchase and
Sale and the mortgage. But he was clearly a man of means and he agreed to
assume those risks. From a legal point of view, the question is what was his
relationship with the Appellant?
[51]
On this issue, I find that the Appellant’s
testimony was clear, unambiguous and unequivocal. His intention was to purchase
a new residence that he and his family would then occupy as their primary place
of residence and he sought the assistance of Dr. Akbari to achieve that
objective.
[52]
While it is unlikely that the parties were fully
cognizant of the distinction between legal and beneficial ownership, it is
clear to me that they had a general understanding of what they wanted to
achieve and that they relied on their legal advisors to give legal meaning to
that intention.
[53]
While it is clear, as noted above, that Dr.
Akbari assumed legal obligations vis‑à‑vis third parties including
the builder and the mortgage lender, I find that his intention was only to
assist the Appellant with the purchase. He had no interest per se in the
Property itself. He acted as an agent or trustee. While the failure to disclose
a trust relationship might raise an evidentiary problem in some instances, I
find that it is not necessarily inconsistent with an intention to create a
trust.
[54]
The notion of a bare trust as an agency
relationship is not an obscure or arcane concept of law. On the contrary, it is
well known and well established, at least in the common law jurisdictions. In
this instance, it was also clearly documented. For tax purposes, a bare trust
is considered a non-entity in the sense that a beneficiary as principal, is
considered to deal directly with property through the trustee as agent or
nominee: Leowiski (A.D.) v. Canada[23],
La Guercia Investments Ltd. v. Canada[24]
and S.E.R. Contracting Ltd. v. R.[25].
[55]
Since I have concluded that Dr. Akbari was a
bare trustee and that only the Appellant was a “particular individual” for the
purposes of subsection 254(2) of the ETA, it necessarily follows that the
Appellant was also the person “who was liable under the agreement to pay the
consideration” for the purpose of the definition of a “recipient”. The fact
that the builder may have had a legal recourse against Dr. Akbari for the
consideration changes nothing to the notion that it is the Appellant, as legal
and beneficial owner, who was ultimately liable for the consideration under the
terms of the Trust Declaration.
[56]
As noted above (Pecore, supra),
the distinction between legal and beneficial ownership is one that arises out
of equity. While the Minister has argued that the subject provision does not
allow the use of bare trusts, I am of the view that there are good reasons to
conclude that the statutory language also does not exclude it.
[57]
In the end, for the purposes of all the conditions
set out in subsection 254(2) of the ETA, Dr. Akbari was merely a conduit
or agent of the Appellant and his spouse. The Appellant is therefore entitled
to the NHR.
[58]
For all the foregoing reasons, the appeal is
allowed.
Signed at Ottawa,
Canada, this 4th day of November 2016.
“Guy Smith”
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