Diamond Stacking Co. Ltd. v Zuo, 2019 BCSC 1849

The Defendant purchased from the Plaintiffs for a purchase price of $2.7 million an 18-acre B.C. property, which included 16 acres devoted to blueberry production, and a 5800 square foot residence, and immediately leased back the farming operations. The sale agreement was silent as to GST. The Defendant’s lawyer prepared a certificate that the entire property was used residential property, which the Plaintiff executed.

Following a CRA audit, the Plaintiffs demanded that the Defendant pay GST of $135,000, plus interest and penalties in the amount of $6,028.84 respecting the sale. The Plaintiffs ultimately paid CRA’s claimed amount on the sale, and brought this action for recovery.

In finding that s. 194 did not apply, Saunders J stated (at para 25):

The Defendant has admitted that he knew the Property was comprised, in part, of a blueberry farm. The Defendant possessed knowledge of fact which, through taking the appropriate advice a reasonable person would seek on those facts, would have indicated that GST would apply to the sale. He in fact had legal advice. … [T]hese are circumstances where the Defendant clearly ought to have known that the deeming provisions of s. 194 did not apply.

A vendor certified that an 18-acre property was an exempt residential property and, when it was assessed by CRA for failure to charge GST on the 16-acre portion of the property that was used as a blueberry farm, sued the purchaser for the GST thereon, plus interest. Saunders J found that the purchaser knew of the property’s use as a blueberry farm, and stated that the purchaser thus “possessed knowledge of fact which, through taking the appropriate advice a reasonable person would seek on those facts, would have indicated that GST would apply to the sale” (para. 25). Accordingly, since the contract was silent on GST, the vendor was entitled under ETA s. 224 to recover its GST assessment from the purchaser. Saunders J went on to state (at para. 39):

… Leong … held that a purchaser’s liability in such claims is limited to the GST amount only, as “penalty and interest liabilities only exist because of the vendor’s failure to collect and remit the GST, and not because of the purchaser’s failure to pay it” (quoting Len’s Construction at p. 6115). In the present case I find that reasoning applies to the interest of $6,028.84 claimed in the Plaintiffs’ demand letter. Thereafter, however, the additional interest that accumulated was due not only to the Plaintiffs’ conduct, but also to the Defendant’s failure to pay a demand that had been properly made. … The Defendant will therefore be liable for the additional interest charges ultimately paid by the Plaintiffs… .