267 O'Connor – Tax Court of Canada finds that damages paid by the vendor under a failed realty sale did not generate ITCs notwithstanding some IP transferred to it

In the settlement of an action against it by a third party (“Starwood”) for a failure of a property sale agreement to Starwood to close, the appellant agreed to pay $450,000 to Starwood and Starwood agreed to provide a release and to hand over all its rezoning application plans and reports (reflecting that between the signing of the purchase agreement and the scheduled closing date, it had taken over the carriage of an OMB appeal regarding the property).

MacPhee J found that the $450,000 payment was, for the most part, compensation to Starwood for expenses incurred by it as a result of the failure of its purchase to close and that although “certain intellectual property was received pursuant to the settlement agreement” he was unable “to determine what portion of the $450,000 the Appellant paid to Starwood was for the assignment of Starwood’s rights, title and interest to Starwood’s rezoning application plans and reports.” S. 182(1) did not apply because the amount was paid by rather than to the supplier under the sale agreement.

Furthermore, the appellant had not satisfied the ITC documentary requirements in that it had not demonstrated that it had the GST registration number of the supplier (Starwood) by the time its return was filed (which “alone [was] fatal to the success of the appeal” and “there [was] not sufficient evidence to determine an amount of consideration to purchase intellectual property, nor the tax paid or payable”. Accordingly, no portion of the $450,000 payment generated an ITC to the appellant.

Neal Armstrong. Summaries of 267 O'Connor Limited v. The King, 2024 TCC 161 under ETA s. 169(1) and s. 169(4).