AMENDED REASONS FOR JUDGMENT
(Back
page amended to change counsel of record.)
Woods J.
[1]
This appeal concerns the denial of a claim by
Faisal Javaid for a new housing rebate under the Excise Tax Act. The
amount of the claim is $24,000.
[2]
On June 3, 2010, Mr. Javaid entered into an
Agreement of Purchase and Sale with a builder, Monarch Corporation, to purchase
a home to be built at 2922 Elgin Mills Road East, Markham, Ontario (the “Markham Property”). The closing took
place on December 1, 2011.
[3]
The Crown disputes Mr. Javaid’s entitlement to
the rebate on two grounds.
[4]
First, the Crown submits that one of the purchasers,
Hasan Zia, did not satisfy some of the rebate conditions, such as having an
intention that the property be his primary place of residence.
[5]
Mr. Javaid agrees that Mr. Zia does not satisfy
the conditions. His position is that the rebate conditions do not apply to Mr.
Zia because the property was not supplied to him.
[6]
Second, the Crown submits that Mr. Javaid
himself failed to satisfy all the rebate conditions because he did not
establish an intention that the property be his primary place of residence.
[7]
Mr. Javaid submits that this condition has been
satisfied. There is also a question, which will be discussed below, as to
whether the Crown has raised this issue too late.
Relevant legislative provisions
[8]
It is not clear from the pleadings which section
of the Act provides the rebate in issue. Since the rebate amount is
$24,000, I have assumed that the relevant provision is the Ontario rebate
payable under section 41(2) of the New Harmonized Value-added Tax System
Regulations, No. 2 (the “Regulations”). The provision reads:
41.(2) Rebate in Ontario - If an
individual is entitled to claim a rebate under subsection 254(2) of the Act in
respect of a residential complex that is a single unit residential complex, or
a residential condominium unit, acquired for use in Ontario as the primary
place of residence of the individual or of a relation of the individual, or the
individual would be so entitled if the total consideration (within the meaning
of paragraph 254(2)(c) of the Act) in respect of the complex were less than
$450,000, for the purposes of subsection 256.21(1) of the Act, the individual
is a prescribed person and the amount of a rebate in respect of the complex
under that subsection is equal to the lesser of $24,000 and the amount determined
by the formula
A × B
where
A is 75%;
and
B is the
total of all tax under subsection 165(2) of the Act paid in respect of the
supply of the complex to the individual or in respect of any other supply to
the individual of an interest in the complex.
[9]
In order to qualify for this rebate, a person
must be a “particular individual,” as described in paragraph 254(2)(a) of the Act, and satisfy
the conditions set out in paragraphs 254(2)(b) to (g). These provisions are reproduced
below.
254.(2) Where
(a) a builder of a single unit residential complex or a
residential condominium unit makes a taxable supply by way of sale of the
complex or unit to a particular individual,
(b) at the time the particular individual becomes liable
or assumes liability under an agreement of purchase and sale of the complex or
unit entered into between the builder and the particular individual, the
particular individual is acquiring the complex or unit for use as the primary
place of residence of the particular individual or a relation of the particular
individual,
(c) the total (in this subsection referred to as the
“total consideration”) of all amounts, each of which is the consideration
payable for the supply to the particular individual of the complex or unit or
for any other taxable supply to the particular individual of an interest in the
complex or unit, is less than $450,000,
(d) the particular individual has paid all of the tax
under Division II payable in respect of the supply of the complex or unit and
in respect of any other supply to the individual of an interest in the complex
or unit (the total of which tax under subsection 165(1) is referred to in this
subsection as the “total tax paid by the particular individual”),
(e) ownership of the complex or unit is transferred to
the particular individual after the construction or substantial renovation
thereof is substantially completed,
(f) after the construction or substantial renovation is
substantially completed and before possession of the complex or unit is given
to the particular individual under the agreement of purchase and sale of the
complex or unit
(i) in the case of a single unit residential complex, the
complex was not occupied by any individual as a place of residence or lodging,
and
(ii) in the case of a residential condominium unit, the unit
was not occupied by an individual as a place of residence or lodging unless,
throughout the time the complex or unit was so occupied, it was occupied as a
place of residence by an individual, or a relation of an individual, who was at
the time of that occupancy a purchaser of the unit under an agreement of
purchase and sale of the unit, and
(g) either
(i) the first individual to occupy the complex or unit as a
place of residence at any time after substantial completion of the construction
or renovation is
(A) in the case of a single unit residential complex, the
particular individual or a relation of the particular individual, and
(B) in the case of a residential condominium unit, an individual,
or a relation of an individual, who was at that time a purchaser of the unit
under an agreement of purchase and sale of the unit, or
(ii) the particular individual makes an exempt supply by way of
sale of the complex or unit and ownership thereof is transferred to the
recipient of the supply before the complex or unit is occupied by any
individual as a place of residence or lodging,
the Minister shall, subject to subsection (3), pay a rebate to the
particular individual equal to […]
[10]
If the property is supplied to two or more
individuals, all of the individuals must satisfy the rebate conditions. At the
hearing, the parties referred to s. 262(2) of the Act, but I believe
that the correct reference is section 40 of the Regulations. (I am
grateful to author David Sherman for pointing this out in GST and HST Case
Notes, Carswell, March 2015.)
[11]
Section 40 reads:
40. Group of individuals - If a supply of a residential complex
or a share of the capital stock of a cooperative housing corporation is made to
two or more individuals, or two or more individuals construct or substantially
renovate, or engage another person to construct or substantially renovate, a
residential complex, the references in sections 41, 43, 45 and 46 and the
references in section 256.21 of the Act to an individual are to be read as
references to all of those individuals as a group, but only one of those individuals
may apply for a rebate under subsection 256.21(1) of the Act in respect of the
complex or share, the amount of which is determined under section 41, 43, 45 or
46.
[12]
For purposes of determining who has received a
supply for purposes of s. 254(2)(a), the definition of “recipient” in s.
123(1) of the Act is relevant. It provides that it is the recipient, as
defined, who has received the supply. The provision reads:
“recipient” of a supply of property or a service means
(a) where
consideration for the supply is payable under an agreement for the supply, the
person who is liable under the agreement to pay that consideration,
(b) where
paragraph (a) does not apply and consideration
is payable for the supply, the person who is liable to pay that consideration,
and
(c) where no consideration is
payable for the supply,
(i) in the case of a supply of property by way of sale, the
person to whom the property is delivered or made available,
(ii) in the case of a supply of property
otherwise than by way of sale, the person to whom possession or use of the
property is given or made available, and
(iii) in the case of a supply of a service, the person to whom
the service is rendered,
and any reference to a person to whom a supply is made shall be
read as a reference to the recipient of the supply;
[Emphasis added]
[13]
Section 133 of the Act is also relevant.
It provides that a deemed supply of property occurs upon entering into an
agreement to provide the property. The section also provides that the provision
of the property is not a separate supply and is part of the deemed supply.
Section 133 is reproduced below.
133. For the purposes of this Part, where an agreement is entered into
to provide property or a service,
(a) the entering into of the agreement shall be deemed to be a
supply of the property or service made at the time the agreement is entered
into; and
(b) the provision, if any, of property or a service under the
agreement shall be deemed to be part of the supply referred to in paragraph (a)
and not a separate supply.
Issue 1 Do rebate conditions apply to Mr. Zia?
A. Factual
background
[14]
One of the issues is whether Mr. Zia must
satisfy the rebate conditions. The rebate conditions must be satisfied by
individuals who are supplied property by way of sale and therefore are a
“particular individual” within the meaning of s. 254(2)(a).
[15]
Mr. Zia’s involvement with this transaction was
as a proposed “guarantor” of a mortgage that would finance Mr. Javaid’s purchase of the
property. The background to Mr. Zia’s involvement is set out below.
[16]
In order to finance the purchase, Mr. Javaid
needed a “guarantor” because he did not
have the financial resources to obtain a mortgage on his own. For this purpose,
it was planned that the “guarantor” would sign the agreement of purchase and sale as one of the purchasers
and be on title as co-owner. There was no evidence as to why the guarantee
arrangement was structured in this manner.
[17]
Mr. Abbas, a relative of Mr. Javaid, initially
agreed to be the guarantor but he backed out before the closing. He was
replaced by Mr. Zia, who was a friend. Mr. Zia also backed out before the
closing. His replacement was Farrukh Riaz, another friend. Mr. Riaz
actually became the “guarantor.”
[18]
The agreement of purchase and sale was initially
signed by Mr. Javaid alone. The proposed guarantors were added to the agreement
as additional purchasers in a series of amendments, but the replacement of Mr.
Zia with Mr. Riaz was never reflected in the agreement. Monarch Corporation
took the position that Mr. Riaz’ involvement had to be documented through a
lawyer as part of the closing.
[19]
In light of this, Mr. Javaid and Mr. Zia were still
named as purchasers in the agreement at the time of closing. They issued a
direction for title to be in the names of Mr. Javaid and Mr. Riaz.
[20]
Some of these details are set out in the
following assumptions of the Minister as set out in paragraphs 10(e) to (m) of
the Reply, which read:
e) the
Appellant signed a purchase and sale agreement with the Builder for the
construction of the Property on May 31, 2010;
f) the
purchase and sale agreement was amended as follows:
i) on July 4, 2010 to insert the name of the Appellant and
Raja Aneed Abas purchasers of the Property;
ii) on August 29, 2010 to insert the name of the Appellant,
Raja Aneed Abas and Hasan Ahmed Zia as purchasers of the Property;
iii) on December 8, 2010 to remove the name of Raja Aneed
Abbas from the agreement and insert the name of the Appellant and Hasan Ahmed
Zia as purchasers of the Property;
g) Hasan
Zia signed a Declaration of Trust and Undertaking on November 2, 2010 in
which he agreed to co-sign the mortgage documents relating to the Property as a
guarantor in order to assist the Appellant to meet the mortgage requirements;
h) Farrukh
Riaz signed a Declaration of Trust and Undertaking on November 3, 2011 in which
he agreed to co-sign the mortgage documents relating to the Property as a
guarantor in order to assist the Appellant to meet the mortgage requirements;
i) the
Appellant, Hasan Zia and Farrukh Riaz are the legal owners of the Property;
j) the
Property was resold on March 30, 2012;
k) at all
material times, Hasan Zia and Farrukh Riaz maintained and resided at a personal
residence other than the Property; and
l) neither
Hasan Zia nor Farrukh Riaz acquired the Property for use as their primary place
of residence or the primary place of residence of their relation; and
m) at no
time following the purchase of the Property did Hasan Zia, Farrukh Riaz,
or a relation of either Hasan Zia or Farrukh Riaz occupy the Property as a
place of residence.
[21]
The evidence supports the above assumptions,
except for paragraph 10(i). The legal owners of the property were Mr. Javaid
and Farrukh Riaz. Mr. Zia did not become a legal owner of the property.
B. Discussion
[22]
It is the position of the Crown that Mr. Zia must
satisfy the rebate conditions as a “particular
individual” under s. 254(2)(a). The Crown submits
that Mr. Zia was supplied the property when he signed the agreement of purchase
and sale (section 133), and he was a “recipient,” as defined, because he was liable for the consideration under the agreement.
It does not matter that Mr. Zia backed out of the deal before closing, it is
submitted.
[23]
The problem that I have with this submission is
that Mr. Zia was only acting in the capacity as an agent in signing the agreement
of purchase and sale. This is clear on the evidence as the agency arrangement
was documented in a Declaration of Trust and Undertaking.
[24]
Counsel for Mr. Javaid referred me to an
administrative position of the Canada Revenue Agency which states that an agent
is not a recipient (GST/HST Memorandum 8.1). The relevant part of the
Memorandum is reproduced below.
69. Even though the agent may appear to be the recipient of the supply
as the agent is identified on the invoice as the customer, it is the principal
who is ultimately liable to pay the consideration thereby making the principal
the recipient of the supply.
[25]
Further, the rebate provisions would not make
sense if an agent who signed an agreement of purchase and sale was required to
comply with the occupancy requirements of the rebate provision. I would be
loath to support the position of the Crown on this point unless the legislation
is very clear, which it is not.
[26]
Although this is sufficient to dispose of this
issue, I would also comment briefly on Mr. Javaid’s main argument.
[27]
As I understand it, Mr. Javaid submits that paragraph
(c) of the definition of “recipient” applies because no consideration is due at
the time Mr. Zia signed the agreement of purchase and sale. Mr. Zia is not a
recipient under this paragraph because he never acquired the property.
[28]
The problem with this argument is that paragraph
(c) applies only if there is no consideration payable for the supply of
property. In this case, there is consideration payable for the supply of
property. It does not matter that the consideration is not due when Mr. Zia
signed the agreement.
[29]
Mr. Javaid’s counsel refers in support to
subsection 168(5) of the Act. This provision reads:
168.(5) Sale of real property - Notwithstanding subsections (1) and
(2), tax under this Division in respect of a taxable supply of real property by
way of sale is payable
(a) in the case of a supply of a residential condominium unit where
possession of the unit is transferred, after 1990 and before the condominium
complex in which the unit is situated is registered as a condominium, to the
recipient under the agreement for the supply, on the earlier of the day
ownership of the unit is transferred to the recipient and the day that is sixty
days after the day the condominium complex is registered as a condominium; and
(b) in any other case, on the earlier of the day ownership of the
property is transferred to the recipient and the day possession of the property
is transferred to the recipient under the agreement for the supply.
[30]
Subsection 168(5) uses the term “payable” in a different sense
than in the “recipient” definition. In s. 168(5), the term “payable” is used in the context of determining the time at which tax is
payable. This provision does not assist in interpreting the definition of “recipient.” An amount can be
payable within the meaning of the “recipient” definition even if it is not presently due.
[31]
Accordingly, I do not agree that paragraph (c)
of the definition of “recipient” applies in this case.
[32]
Finally, I wish to comment that it is not clear
to me that rebate conditions apply to someone who signs an agreement of
purchase and sale and never becomes an owner of the property. At the end of the
day, Mr. Zia backed out of the deal. It is the person who is liable for the
consideration that the definition of “recipient” seeks to determine. I have trouble with the notion that an
individual must comply with rebate conditions if they back out of the
arrangement prior to closing.
[33]
From a common sense point of view, the rebate
conditions should apply to individuals who become owners. I would also note
that this interpretation is consistent with the requirement in s. 254(2)(a)
that there be a supply “by way of sale.” There was no sale to Mr. Zia.
[34]
However, I am not aware of support for this
interpretation. I note, for example, that in Rochefort v. The Queen,
2014 TCC 34, at paragraph 11, my colleague C. Miller J. comments that property
is supplied to an individual who signs an agreement of purchase and sale, and further
that property is not supplied to an owner who does not sign the agreement. I
would note that section 133(b) provides that the provision of the property is
part of the supply.
[35]
It is not necessary that I decide this point
because of my finding that Mr. Zia was only acting as an agent. This issue
can be left for another day.
[36]
In the result, I would conclude that Mr. Zia is
not a “particular individual” for
purposes of s. 254(2)(a), and he is not required to comply with the rebate
conditions.
Issue 2 - Did Mr. Javaid intend to use the property as his
primary residence?
[37]
The Crown also submits that the rebate should be
denied because Mr. Javaid did not intend to use the Markham Property as his
primary place of residence, as required by paragraph 254(2)(b) of the Act. This
provision reads:
254.(2) Where
[…]
(b) at the time the particular individual becomes liable or assumes
liability under an agreement of purchase and sale of the complex or unit
entered into between the builder and the particular individual, the particular
individual is acquiring the complex or unit for use as the primary place of
residence of the particular individual or a relation of the particular
individual,
[38]
This issue was raised by the Crown at the
commencement of the hearing and it was not mentioned as an issue in the Reply.
[39]
Counsel for Mr. Javaid informed me that the
Crown first raised this issue a couple of days before the hearing. In my view,
this simply was not enough time for Mr. Javaid to properly prepare for
trial on this issue.
[40]
The difficulty in preparing in such a short
period of time was evident at the hearing. For example, counsel for Mr. Javaid
mentioned that the Crown informed him that Mr. Javaid had the burden of proof
to establish his residency intention.
[41]
It is not correct that Mr. Javaid has this
burden of proof. The only burden that is imposed on Mr. Javaid is to disprove
the assumptions that the Minister made when determining the tax liability (Hickman
Motors Ltd. v. The Queen, [1997] 2 S.C.R. 336, 97 D.T.C. 5363, at p. 5376).
These assumptions are reflected in paragraph 10 of the Reply and they do not
deal with Mr. Javaid’s residency.
[42]
In my view, it is unfair for the Crown to raise this
issue at this late stage and I do not propose to consider it.
Conclusion
[43]
The appeal will be allowed, with costs to Mr.
Javaid in accordance with the applicable tariff.
These Amended Reasons for
Judgment are issued in substitution of the Reasons for Judgment dated April 17,
2015.
Signed at
Toronto, Ontario this 28th day of April 2015.
“J.M. Woods”
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