Crooks – Tax Court applies the “ultimate liability” doctrine to trump the bad form of the taxpayer’s agreements so that for HST purposes she was the sole recipient of a supply

An agreement for the purchase of a new condo by the taxpayer was amended shortly before closing at the insistence of the mortgage lender to add her friend as a co-purchaser (with the friend receiving a 1% ownership interest in the condo at closing). If Hershfield J had followed Al-Hossain (where the taxpayer position should have been stronger because the co-purchaser had signed a declaration of trust), he would have denied the new housing rebate to the taxpayer given that the combined effect of ETA ss. 254(2) and 262(3) was to deny the rebate if any interest (even a 1% interest) in the condo was supplied to any person who was not related to a person acquiring the condo as a primary residence.

He characterized the amended purchase agreement as instead entailing, at most, a supply of a 1% interest in the property by the taxpayer to her friend in consideration for her friend’s guarantee – and as not resulting in any interest in the condo also being supplied by the builder to the friend. In this regard, he stated:

The amended agreement did nothing of substance. Indeed, if such an agreement had been entered into to gain an unintended tax advantage, it might be seen as a wholly artificial transaction – a sham.

He didn’t stop there. He applied the “ultimate liability” Bondfield doctrine to find that because the taxpayer “accepted ultimate liability for payment to the builder in the unlikely event the builder was able to make a case against [her friend],” the taxpayer was the sole “recipient” of the supply by the builder, so that the ETA s. 123 “recipient” definition deemed the builder to supply the condo solely to the taxpayer.

Although Hershfield J provided stellar assistance to an unrepresented taxpayer, this approach of emphasizing the true intention of the parties rather than the documentary form would generate uncertainties in other contexts.

Neal Armstrong. Summaries of Crooks v. The Queen, 2016 TCC 52 under ETA s. 254(2)(a), s. 123(1) - recipient, General Concepts - Substance, and Statutory Interpretation - Benefits-Conferral Legislation.