Section 194


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

purchaser could not rely on a vendor’s GST exemption certificate where he knew of the property’s commercial use

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.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 224 no entitlement to recover interest under s. 224 272

2137691 Ontario Limited. v. Lucia Pessoa Park, 2018 ONSC 4218

purchaser entitled to rely on Statutory Declaration of the Vendor as to exempt status

The land for a large home in Oakville was divided by a corporation into three lots, so that the middle lot contained a pool house and hallway structure that connected to the rest of the home on the other two lots. The corporation then sold this middle lot to an individual purchaser couple with a covenant that it would demolish this structure – which, however, it did not do until 45 days after closing. The sales contract provided that any HST was in addition to the sales price of $2.8M, but the vendor (the corporation) provided a statutory declaration that the property qualified for exemption as being used residential accommodation, so that no HST was collected on closing. A year later, it then brought a motion to recover HST from the purchaser.

After finding that the sale was exempt, Coats J went on to indicate that even if the sale had been subject to HST, ETA s. 194 would preclude the vendor from charging such HST to the purchaser, stating (at paras. 121, 129 and 132):

In my view, the clear wording of s. 194 of the ETA is to protect the purchaser. If the vendor makes a mistake in the Statutory Declaration, the buyer is entitled to rely on it based on the deeming provisions. The HST is deemed to have been collected by the vendor and paid. Nowhere in s. 194 does it provide that this section only protects the buyer against the CRA.

I do not find that [the Defendant’s] reliance on the Statutory Declaration was willful blindness or that the Defendant knew or ought to have known that HST was payable, and therefore, that the exemption in s. 194 of the ETA does not apply.

[I]f Mr. Brewda’s position [of the Plaintiff] is that he did not know whether the HST was payable then it is unreasonable to find that the Defendant knew or ought to have known it was payable given the complicated facts of this case.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Residential Complex exemption applied to the sale of a portion of a large home 376
Tax Topics - Excise Tax Act - Section 224 registrant could bring a motion for declaration that HST was owing to it without complying with s. 224 272
Tax Topics - Excise Tax Act - Section 133 supply of land occurred at the closing 135

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 25

extension of s. 194 to non-residents

Respecting the application of s. 194 where the vendor is a non-resident, CRA stated:

Where the non-resident supplier erroneously states or certifies in writing that the supply is an exempt supply described in any of sections 2 to 5.3, 8 or 9 of Part I of Schedule V, unless the recipient knows or ought to have known that the supply is not an exempt supply, section 194 applies and the recipient is not liable for failing to have self-assessed the GST/HST payable on the supply. Nonetheless, the non-resident supplier is considered to have collected an amount of tax, as set out in section 194, and remains liable for remittance of that tax.