Docket: A-181-17
Citation: 2019 FCA 181
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GAUTHIER J.A.
WEBB J.A.
RIVOALEN J.A.
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BETWEEN:
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HER MAJESTY THE QUEEN
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Appellant
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and
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YIN YI NGAI
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Respondent
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REASONS FOR JUDGMENT
WEBB J.A.
[1]
This is an appeal from a judgment of Justice Russell of the Tax Court of Canada (2017 TCC 79) who determined that Yin Yi Ngai was entitled to the new housing rebate under the Excise Tax Act, R.S.C. 1985, c. E-15 (ETA) and the New Harmonized Value-added Tax System Regulations, No. 2, SOR/2010-151 (the Regulations). In this appeal, the primary issue is whether Yin Yi Ngai is entitled to claim this rebate when she never had any intention of occupying the property in issue.
[2]
For the reasons that follow, I would allow this appeal.
[3]
The full text of the relevant provisions of the ETA, the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, and the Regulations is set out in the Appendix attached to these reasons.
I.
Background
[4]
Ms. Ngai was a real estate agent. In March 2012, she signed an agreement to purchase a condominium that was to be constructed by a developer. She signed as a co-purchaser solely to preserve the rights of one of her clients. However, shortly after the agreement was signed, Ms. Ngai’s client decided to not complete the purchase and she arranged to have the client’s name replaced with her nephew, Jonathon Ng, who intended to buy the condo as his place of residence.
[5]
Around April 2012, Mr. Ng was approved for a mortgage to allow him to purchase the condo when it was constructed. The closing was scheduled for early December of that year but, sometime prior to the closing, Scotiabank notified Mr. Ng that he no longer qualified for the mortgage. In order to reinstate the approval for the mortgage, Ms. Ngai and her husband, Gerald Kennedy (who was also a real estate agent), had to sign the mortgage.
[6]
The closing was held on December 6, 2012 and title to the property was acquired as follows:
Jonathon Ng – 50%
Yin Yi Ngai – 49%
Gerald Kennedy – 1%
[7]
Although Ms. Ngai stated that she informed her lawyer that she and her husband were only involved to assist her nephew in acquiring the property, no declaration of trust was prepared at that time. The developer for the condominium project prepared the application for the new housing rebate. Ms. Ngai is identified in this form as the claimant and her nephew and her husband are shown as other owners. Ms. Ngai signed this form and there is no indication that she raised any concerns about the identification of her as the claimant. It also appears that her nephew and her husband may also have signed this form. There is nothing in the record to suggest that Mr. Ng purported to assign any interest that he may have had in the rebate to Ms. Ngai. She was simply claiming the rebate as one of the owners of the property.
[8]
Mr. Ng moved into the condo on December 8 or 9, 2012 and soon realized that he did not want to live there. He first tried to lease the condo without success and then sold it. The agreement for the sale of the condo was signed January 11, 2013 and the closing was February 15, 2013.
[9]
The Minister of National Revenue (Minister) issued an assessment on March 10, 2014 denying the new housing rebate that Ms. Ngai had claimed. Following this assessment, in June 2014, a trust declaration was prepared which provided that Ms. Ngai and her husband were holding their interest in the property in trust for Mr. Ng.
[10]
Ms. Ngai filed an objection to the assessment and the assessment was confirmed by the Minister.
II.
Decision of the Tax Court
[11]
The Tax Court Judge noted, at the conclusion of the hearing, that the Minister’s reply did not plead that Ms. Ngai’s nephew was not a relation of Ms. Ngai for the purposes of the ETA. The parties did, however, provide written submissions on this point following the hearing.
[12]
The Tax Court Judge concluded that the evidence supported a finding that Ms. Ngai and her husband were acting as agents for Mr. Ng and that they held their interest in the property in trust for him. As a result, only Mr. Ng had to satisfy the occupancy requirements in paragraph 254(2)(g) of the ETA. It should be noted that this case was decided by the Tax Court before the decision of this Court in Canada v. Cheema, 2018 FCA 45.
[13]
The Tax Court Judge also concluded that, even though the application form indicated that Ms. Ngai was claiming the rebate, she was doing this as agent and bare trustee for Mr. Ng. He found that Mr. Ng satisfied the occupancy requirements of subsection 254(2) of the ETA. He therefore allowed Ms. Ngai’s appeal and referred the matter back to the Minister for reconsideration and reassessment on the basis that the new housing rebate should be granted.
III.
Issues and Standard of Review
[14]
The Crown identified four issues in this appeal:
Whether the trial judge erred in law or made a palpable and overriding error in fact in determining that there was an agency or bare trust relationship between Ms. Ngai and her nephew, Mr. Ng?
Whether the trial judge erred in law in determining that the particular individual requirements of paragraph 254(2)(b) of the Act did not apply to Ms. Ngai as she was acting as an agent or bare trustee for Mr. Ng?
Whether the trial judge erred in law in determining that Ms. Ngai was entitled to claim the rebate on the basis of her nephew’s entitlement?
- Whether the trial judge erred in law in failing to find that Ms. Ngai’s nephew was not a qualifying relation?
[15]
Although the Crown identified these four issues, the issues that pertain to the implications arising from a trust or agency relationship with respect to a claim for the new housing rebate have been addressed by this Court in Cheema. In my view, these issues would arise if Mr. Ng was the individual who had applied for the rebate and was the party in this proceeding. However, since Ms. Ngai is the individual who applied for the rebate, the only issue that needs to be addressed in this appeal is whether Ms. Ngai is eligible to claim the rebate.
[16]
The standard of review for any question of law is correctness and for any finding of fact (or question of mixed fact and law without an extricable legal question) is palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235).
IV.
Analysis
[17]
Under the ETA, tax is generally payable when a person acquires a new house. The ETA also provides that, subject to certain conditions, the purchaser of a new house is entitled to a rebate of a portion of the tax paid. The general rebate conditions in subsection 254(2) of the ETA provide for a rebate of a portion of the tax paid under subsection 165(1) of the ETA. This rebate will only be paid if the total consideration payable for the house is less than $450,000 (para. 254(2)(c) of the ETA). In determining the total consideration payable for the house, any GST or HST that is payable is not included (paragraph 154(2)(a) of the ETA).
[18]
For a new house acquired in Ontario, the Regulations provide for a separate rebate of a portion of the tax paid under subsection 165(2) of the ETA. For this rebate, there is no restriction on the amount of the consideration payable for the house but the rebate amount is limited to the lesser of $24,000 and 75% of the tax paid under subsection 165(2) of the ETA (subsection 41(2) of the Regulations). The tax rate imposed under subsection 165(2) of the ETA for Ontario is 8% (Schedule VIII of the ETA). Therefore, the maximum rebate of $24,000 for Ontario, in relation to tax paid under subsection 165(2) of the ETA, is payable for houses that cost $400,000 or more. This is the rebate that is in issue in this appeal.
[19]
Subsection 41(2) of the Regulations incorporates the requirements of subsection 254(2) of the ETA (except the total consideration) that must be satisfied in order for an individual (who is described in subsection 254(2) of the ETA as a “particular individual”
) to be eligible to receive a new housing rebate.
[20]
In paragraph 40 of his reasons, the Tax Court Judge concluded that Ms. Ngai was not a “particular individual”
for the purposes of section 254 of the ETA. However, there is no explanation of why, having made this finding, she would be entitled to claim the new housing rebate, other than the brief statement in paragraph 40 that “Ms. Ngai acted throughout as agent and bare trustee for Mr. Ng, including in making the application for the rebate”
. In my view, only an individual who is a “particular individual”
for the purposes of section 254 is eligible to apply for the new housing rebate. It was an error of law to find that a person who is not a “particular individual”
is still eligible to claim the new housing rebate, as the eligibility of a person to claim the rebate is determined by interpreting the relevant provisions of the ETA and the Regulations.
[21]
The rebate available under the Regulations is not payable under subsection 254(2) of the ETA but rather under subsection 256.21(1) of the ETA. This subsection provides that the rebate as set out in the Regulations is to be paid to a “prescribed person”
. As provided in subsection 41(2) of the Regulations, a “prescribed person”
is an individual who would be entitled to claim a rebate under subsection 254(2) of the ETA (if the total consideration was less than $450,000). Therefore, a “prescribed person”
is the “particular individual”
to whom reference is made throughout subsection 254(2) of the ETA. As a result, only an individual who is a “particular individual”
for the purposes of subsection 254(2) of the ETA may apply for and be paid the rebate. A rebate will only be paid if that person satisfies the applicable conditions.
[22]
With respect to whether Ms. Ngai is a “particular individual”
in relation to the condo, the Regulations incorporate the occupancy requirements contained in paragraphs 254(2)(b) and (g) of the ETA that must be satisfied by a particular individual. Paragraph 254(2)(b) of the ETA provides that, when a particular individual becomes liable under the agreement of purchase and sale made with the builder, such individual must be acquiring the residential complex as his or her primary place of residence or as the primary place of residence of a relation of that individual. Paragraph 254(2)(g) of the ETA provides that, subject to certain exceptions, the particular individual (or a relation of that individual) must be the first person to occupy the residential complex as a place of residence after it is substantially completed.
[23]
As a result, the occupancy requirements must be satisfied by either the particular individual or a relation of that individual. There is no dispute that Ms. Ngai did not intend to occupy the condo as her place of residence (let alone as her primary place of residence) nor did she actually occupy the condo as her place of residence.
[24]
The Tax Court Judge, at paragraph 20 of his reasons, stated that:
[20] At conclusion of oral submissions I questioned whether the Respondent could validly now raise the argument that Mr. Ng was not a relative for purposes of subsection 254(2) of the Act, as this had not been pleaded in the Reply, thus providing no notice to the self-represented and non-legally trained Appellant, in this informal procedure appeal. Written submissions on this point were filed.
[25]
The next 20 paragraphs of his reasons address the issue of whether Ms. Ngai and her husband were acting as agents and bare trustees for Mr. Ng. If Ms. Ngai and Mr. Ng are related for the purposes of the ETA, there would have been no need for any of this analysis. The occupancy requirements would have been satisfied as the property would have been acquired as a primary residence of a relation of Ms. Ngai and it would have been actually occupied as a place of residence by a relation of Ms. Ngai. The Crown did not challenge any of the findings related to Mr. Ng’s intention or occupancy of the residence.
[26]
In my view, the question of whether Mr. Ng is a relation of Ms. Ngai is critical. If Mr. Ng is a relation of Ms. Ngai and her husband, then the occupancy requirements of paragraph 254(2)(b) and (g) of the ETA will be satisfied. If Mr. Ng is not a relation then Ms. Ngai will not be entitled to claim the rebate. She will not be a “particular individual”
because she did not have the intention to occupy the condo as her primary place of residence (para. 254(2)(b)) nor did she actually occupy the condo as her residence (para. 254(2)(g)). The provisions of subparagraph 254(2)(g)(ii) do not apply because the condo was occupied as a residence before it was sold.
[27]
In this case, in paragraph 5 of the reply filed by the Minister to Ms. Ngai’s brief notice of appeal to the Tax Court set out several facts on which that the Minister was relying. Included in these facts is the statement that Mr. Ng was Ms. Ngai’s nephew and that he replaced her client as a party to the purchase agreement for the condo. The facts also included the statements that Mr. Ng “took up residence in the Property”
and that Ms. Ngai “never took up residence in the Property and never intended to”
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[28]
The grounds that the Minister relied on are set out in only one sentence:
8. [Ms. Ngai] is not entitled to receive the NHR [new housing rebate] with respect to the purchase of the Property pursuant to subsection 254(2) and 262(3) of the Act.
[29]
This paragraph provided no guidance to Ms. Ngai with respect to why she failed to satisfy the requirements for the new housing rebate. Rule 6(1)(h) of the Tax Court of Canada Rules of Procedure Respecting the Excise Tax Act (Informal Procedure), SOR/92-42, provides that the reply “shall contain a statement of … the reasons the respondent intends to rely on”
. Simply stating that Ms. Ngai is not entitled to the new housing rebate pursuant to certain provisions of the ETA is not a statement of the reasons that the respondent intends to rely on. In particular, it fails to identify the significant issue of whether Mr. Ng is a relation of Ms. Ngai. The consequence that arises if Mr. Ng is not a relation of Ms. Ngai is that if Ms. Ngai does not personally satisfy the requirements of a “particular individual”
, she is not eligible to claim the new housing rebate.
[30]
Any procedural unfairness arising from this failure to identify the issue of whether Mr. Ng is a relation of Ms. Ngai, in this particular case, has been cured by the opportunity granted to the parties to make additional written submissions. It is a question of law whether Mr. Ng is a relation of Ms. Ngai. No additional evidence is required once it is established or admitted that he is her nephew.
[31]
Subsection 254(1) of the ETA provides that an individual will be a relation of another individual if they are related to each other. Subsection 126(2) of the ETA provides that individuals will be related to each other for the purposes of the ETA if they are related to each other for the purposes of the Income Tax Act, as provided in subsections 251(2) to (6) thereof. Subsection 251(2) of the Income Tax Act states that “persons related to each other, are (a) individuals connected by blood relationship, marriage or common-law partnership or adoption…”
. Under subsection 251(6) of the Income Tax Act, “persons are connected by (a) blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other…”
. As a result of these provisions, a nephew is not related to his aunt or uncle and therefore, Mr. Ng is not a relation of Ms. Ngai.
[32]
Since, as noted above, Ms. Ngai never intended to occupy the condo nor did she actually occupy the condo as her place of residence, she is not a “particular individual”
for the purposes of subsection 254(2) of the ETA and, therefore, is not a “prescribed person”
for the purposes of subsection 41(2) of the Regulations and subsection 256.21(1) of the ETA. She was not entitled to claim the new housing rebate.
[33]
As a result I would allow the appeal, without costs, and set aside the amended judgment issued by the Tax Court on May 2, 2018. Rendering the judgment that the Tax Court should have issued, I would dismiss Ms. Ngai’s appeal from the assessment of the Minister dated March 10, 2014, without costs. As noted by the Crown, since the amount in issue under the ETA exceeds $7,000, section 18.3008 of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, is not applicable in this appeal.
"Wyman W. Webb"
| “I agree
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| Johanne Gauthier J.A.”
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| “I agree
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| Marianne Rivoalen J.A.”
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