The issue in this appeal is whether the Appellant
is entitled to input tax credits (“ITCs”) in the
amount of $685.68 in respect of HST paid by a company named SVO-Phase Two
Management Inc. (“SVO”) during the Appellant’s
reporting period from April 1, 2013 to June 30, 2013. According to the Appellant,
SVO was at all times acting as its agent or bare trustee and the HST paid by
SVO related to the Appellant's own commercial activities.
The Minister of National Revenue (the “Minister”) disallowed the claim on the grounds that
the Appellant did not provide proof of the agency or trust relationship between
SVO and the Appellant.
The Appellant’s shareholder, Mr. Donald AC Stewart,
was the only witness at the hearing. He testified that the Appellant was the
owner of two commercial rental buildings which formed part of a 16 building
common–law strata complex constructed in the mid-1980s. The other buildings in
the complex were owned by various individuals or companies, and certain common
areas were owned together by all of the owners as tenants-in-common. The
buildings were the subject of a co-tenancy agreement between all of the owners.
The original co‑tenancy agreement was entered into in or around 1986, and
a revised agreement was signed by the owners in October 2007.
Mr. Stewart produced a copy of an unsigned
management agreement in respect of all of the buildings and common property
dated May 6, 1986 between the owners and Collins Barrow Consultants Ltd. The
evidence showed that Collins Barrow Consultants Ltd. subsequently changed its
name to SVO-Phase Two Management Inc. and that the management agreement has
continued in force between the parties up to the present.
According to the management agreement, SVO
agreed to manage the maintenance and upkeep of all of the exterior elements of
the buildings in the complex, as well as the common areas including the parking
area, as agent for all of the owners. The owners paid their proportionate share
of all of the expenses incurred by SVO on their behalf, including HST, and also
paid a management fee to SVO.
Mr. Stewart testified that SVO was not set up to
make a profit and that any excess funds it had at the end of the year formed
part of a reserve fund belonging to the building owners. Mr. Stewart also
testified that SVO was not a registrant under the Excise Tax Act and
therefore had never claimed any ITCs for GST or HST paid in respect of any of
the services that it contracted for on behalf of the owners. It was reimbursed
by the owners for the GST or HST along with the actual cost of the services.
The owners, such as the Appellant, then claimed ITCs relating to GST or HST
reimbursed to SVO.
The relationship between SVO and the owners was
complicated, at least for the purposes of this appeal, by the fact that SVO
had, in or around 1995, acquired the parking area that formed part of the
complex. Prior to this point, the parking area was owned by the original
developer of the complex. The developer also owned two of the buildings. By the
early 1990s, the developer was in financial difficulties and the remaining
owners decided it would be in their interest to acquire the parking area from
him. It was agreed that SVO would buy the property with funds contributed by
the owners. Mr. Stewart says that a trust agreement was drawn up providing that
SVO would hold legal title and that the owners would have beneficial ownership
of the property. Unfortunately, he was unable to locate a copy of the trust
agreement for this hearing.
Mr. Stewart also testified that SVO was
responsible for the upkeep and maintenance of the parking areas along with the
rest of the common property and building exteriors. I infer from his testimony
that the expenses incurred by SVO in relation to the maintenance and upkeep of
the parking areas were treated in the same fashion as the other expenses
incurred on behalf of the owners.
The Respondent argues that there is insufficient
evidence as to the existence of a bare trust or agency relationship between SVO
and the owners, and that therefore it cannot be said that the expenses incurred
by SVO were related to the commercial activities of the owners including the Appellant
rather than of SVO itself.
I disagree. I accept that the management
agreement produced by the Appellant at the hearing was in effect during the
reporting period in issue and that it created an agency relationship between
the owners (including the Appellant) and SVO. The agreement specifically states
(at paragraph 2) that SVO “agrees as an agent of the Owners to enter into such
contracts as are necessary for the upkeep and maintenance of the buildings and
common property.” SVO was also entitled to be fully reimbursed for the amount
it expended on behalf of the owners. As I indicated at the hearing, it is
regrettable that the Appellant was not able to provide a copy of the agreement
to the Respondent before the hearing. However I have no concerns about the
authenticity of the agreement that was finally produced.
With respect to the question of whether a bare
trust exists in relation to the parking area acquired by SVO, I am prepared to
except Mr. Stewart's testimony that the trust agreement was entered into at the
time the parking area was purchased. I find it more likely than not that the
owners only intended SVO to acquire legal title, given that they, the owners,
provided the funds for the purchase. Again it is unfortunate that Mr. Stewart
has been unable to find a copy of the agreement but I accept his testimony
concerning the existence of the agreement.
The Respondent argued that the Appellant has not
shown that the trust was a bare trust, and suggested that the degree of control
and discretion that SVO exercised over the parking area was inconsistent with a
bare trust arrangement.
To my mind, however, SVO did not have any
discretion, independent power or control over the parking area that would
negate existence of a bare trust. The operation of the parking area was subject
to the control of the owners, as evidenced in the management agreement which
set out the responsibilities of SVO. The description of the property subject to
the agreement is set out in the first paragraph of the agreement, and includes
the parking area. Thus, any management duties or responsibilities that SVO may
have had concerning the parking area flowed from the management agreement and
not the trust agreement.
The following passage from Scott, The law of
Trusts, 4th ed. 1987, as cited by Lamarre J. (as she then was) in De
Mond Jr. v. The Queen, 1999 CanLII 466 at paragraph 37, describes the
situation where a party acts as a trustee as well as agent, and is, I think
applicable to the facts here.
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].
In this case, I find that the agency
relationship between SVO and the owners, including the Appellant, predominates
and that SVO was acting as the owners’ agent in entering into the contracts for
maintenance and upkeep of the building exterior and common areas including the
parking areas. Therefore I find that the HST giving rise to the ITC in issue
related to the commercial activities of the Appellant. For these reasons the
appeal is allowed and the matter is referred back to the Minister for
reassessment on the basis that the Appellant is entitled to ITCs of $685.68 for
the reporting period from April 1 2013 to June 30, 2013.
Signed at Ottawa,
Canada this 9th day of June 2017.