2137691 Ontario Limited. v. Lucia Pessoa Park, 2018 ONSC 4218

The Plaintiff sold to the Defendant the middle lot of a three-lot property over which a home had spread. This middle lot contained a pool house and hallway structure that connected to the rest of the home on the other two lots. The sale agreement (“APS”) required that any existing structures be demolished by the vendor, but this did not occur until 45 days after closing. The APS provided that any HST applicable to the sale was in addition to the sale price of $2,800,000. However, in order to help make the sale close, the vendor delivered a Statutory Declaration re HST that the sale qualified as an exempt sale of a used residential complex.

No HST was collected on the sale. However, a year later, the Plaintiff brought a motion for summary judgment seeking payment of HST from the Defendant on the sale of the property.

After noting (at para. 35) that “I am being asked to determine contractual issues and obligations between the Plaintiff and Defendant, and in doing so must interpret certain sections of the ETA [which] is within the jurisdiction of this court,” Coats J went on to find that, in fact, the sale was exempt from HST. Although (notwithstanding ETA s. 133) “the time of the supply is the time that the deal closes” (para. 57) and the “material time for the determination of whether the property was a ‘residential complex’ and ‘residential unit’ subject to an HST exemption is the time of closing” (para. 58), at that time the “residential complex” definition was satisfied. She stated (at paras. 63-64, 70):

[A]t the time of closing, the residence and pool structure were a complete structure which were suitable for living in. … It was clearly an appurtenance to the detached home.

… There is no requirement in ETA that the residential complex/residential unit exemption involve the transfer of an entire residential unit or a complete residency unit. This would be contrary to the “part thereof” language in section 123(1) of the ETA.

… [T]he parties’ expectations with regard to the future demolition do not change the facts on the ground at the time of closing.

The land for a large home in Oakville was divided by a corporation into three lots, so that the middle lot contained a pool house and hallway structure that connected to the rest of the home on the other two lots. The corporation then sold this middle lot to an individual purchaser coupled with a covenant that it would demolish this structure – which, however, it did not do until 45 days after closing. The sales contract provided that any HST was in addition to the sales price of $2.8M, but the vendor (the corporation) provided a statutory declaration that the property qualified for exemption as being used residential accommodation, so that no HST was collected on closing. A year later, it then brought a motion to recover HST from the purchaser.

The defendant argued that by virtue of ETA s. 224, the plaintiff was required to pay the HST on the sale (which had not been assessed by CRA) in order to have the right to sue the defendant. Although Coats J went on to find that there was not HST payable on the sale, she first stated (at para. 35):

[E]ven if I had found that HST is owing, it is within the court’s jurisdiction to determine the contractual obligations between private citizens. As stated by the Court in Rive v. Newton, 2001 CanLII 27986 (ON SC), [2001] O.J. No. 3226 (S.C.), confirmed on appeal [2003] O.J. No. 398 (C.A.), the court must determine the effect of agreements between parties.

The Plaintiff sold to the Defendant the middle lot of a three-lot property over which a home had spread. This middle lot contained a pool house and hallway structure that connected to the rest of the home on the other two lots. The sale agreement (“APS”) required that any existing structures be demolished by the vendor, but this did not occur until 45 days after closing.

After having described a submission of the plaintiff (who sought to recover HST on the sale) that referenced ETA s. 133, Coats J found that “the time of the supply is the time that the deal closes” (para. 57) and the “material time for the determination of whether the property was a ‘residential complex’ and ‘residential unit’ subject to an HST exemption is the time of closing” (para. 58).

The land for a large home in Oakville was divided by a corporation into three lots, so that the middle lot contained a pool house and hallway structure that connected to the rest of the home on the other two lots. The corporation then sold this middle lot to an individual purchaser couple with a covenant that it would demolish this structure – which, however, it did not do until 45 days after closing. The sales contract provided that any HST was in addition to the sales price of $2.8M, but the vendor (the corporation) provided a statutory declaration that the property qualified for exemption as being used residential accommodation, so that no HST was collected on closing. A year later, it then brought a motion to recover HST from the purchaser.

After finding that the sale was exempt, Coats J went on to indicate that even if the sale had been subject to HST, ETA s. 194 would preclude the vendor from charging such HST to the purchaser, stating (at paras. 121, 129 and 132):

In my view, the clear wording of s. 194 of the ETA is to protect the purchaser. If the vendor makes a mistake in the Statutory Declaration, the buyer is entitled to rely on it based on the deeming provisions. The HST is deemed to have been collected by the vendor and paid. Nowhere in s. 194 does it provide that this section only protects the buyer against the CRA.

I do not find that [the Defendant’s] reliance on the Statutory Declaration was willful blindness or that the Defendant knew or ought to have known that HST was payable, and therefore, that the exemption in s. 194 of the ETA does not apply.

[I]f Mr. Brewda’s position [of the Plaintiff] is that he did not know whether the HST was payable then it is unreasonable to find that the Defendant knew or ought to have known it was payable given the complicated facts of this case.