BH Parkway – Tax Court of Canada finds that a statutory penalty received by a landlord from a defaulted tenant was exempt from HST – and that a Mercedes SUV was not capped at $30K

A tenant (Trillium College) of a commercial landlord (BH Parkway) vacated the premises in breach of the terms of the lease. BH Parkway sued and there was a settlement agreement pursuant to which it received damages. Obviously, such damages were subject to ETA s. 182, so that the full amount of the damages was deemed to be inclusive of HST. However, that which is obvious may not be correct.

The heads of claimed damages of BH Parkway included $500,000 for the value of the goods removed by Trillium College of at least $250,000 together with a penalty pursuant to s. 50 of the Commercial Tenancies Act equal to 100% of such value. This penalty was intended to penalize in the situation of “a tenant in removing its goods from a premise to defeat a landlord’s ability to distrain them.”

D'Auray J found that such a penalty would be paid “as a consequence of the operation of a provincial statute rather than as a consequence of the breach of the lease.” Since the $250,000 penalty claimed represented 33% of the total amount claimed, on a pro rata basis, s. 182 applied only to 67% of the actual amount of damages received in the reporting periods in question, so that 33% of the damages were received free of HST.

D'Auray J also accepted evidence that BH Parkway had purchased a $73,000 Mercedez Benz SUV in order to permit its principal to move goods to and from business premises. On this basis, it was not an “automobile,” whose ITA definition (applicable also for ETA purposes), excluded a “van or pick-up truck, or a similar vehicle” (interpreted by CRA to include an SUV) “the use of which … is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.” Accordingly, its cost was not limited for input tax credit (or, presumably, CCA) purposes to $30,000.

Neal Armstrong. Summaries of BH Parkway Place Ltd. v. The Queen 2019 TCC 7 under ETA s. 182(1) and s. 201.