REASONS FOR JUDGMENT
Ezri J.
[1] The appellant, Amir Salehi, was assessed for not reporting HST on two homes that he built, one at 58 Walder Avenue in Toronto and the other at 17 Dunblaine Avenue also in Toronto. The assessments are each based on a slightly different provision of the Excise Tax Act (ETA), but they turn on the same basic question: Was Mr. Salehi a builder as that term is defined in the ETA? More particularly was he building the homes in the course of a business or as an adventure in the nature of a trade (ANT)? If the answer is yes, then he was required to charge, report and remit HST on 58 Walder. He may also have been so required with respect to 17 Dunblaine subject to certain other issues that I will address.
[2] I find that Mr. Salehi was a builder for both homes.
[3] Mr. Salehi came to Canada in 2002 with a degree in physics and another degree in industrial management. He worked hard in Canada demonstrating a mastery of complex manufacturing processes combined with an ability to manage a large industrial enterprise. He later added marketing to his list of accomplishments as he built a business that manufactured metal railings which he marketed to large residential home builders as well as to individuals.
[4] In 2003, the appellant purchased a 1400 square foot 3-bedroom 2 bath condominium on Yonge Street. Mr. Salehi still owned that property and resided there as of the hearing of this appeal along with his wife, Parisa Rejal. In 2003, there had been some discussion about buying a detached home. Ms. Rejal, though initially well disposed to the idea, felt insecure when she realized that Mr. Salehi’s long work hours meant that she and her son would often be alone in the house. A condominium apartment therefore felt more secure to her.
[5] A decade later, in 2013, the appellant purchased 58 Walder and that is where our story really begins, but it is first necessary to set out the relevant legal framework that guides our consideration of the facts that follow.
I. The Statute and the Case Law
[6] The relevant law that applies to this case was recently summarized by Derksen J. in Fadali.[1] The statutory portion of the law can be summarized by saying that many cases involving the application of HST to the construction and resale of homes by individuals turn on whether the vendors are “builders”
as that term is defined in s. 123 of the ETA. If they are a builder, they cannot benefit from s. 2 of Part I of Schedule V to the ETA which exempts from HST, homes supplied by a person who is not a builder.
[7] For our purposes, a builder is a person who, at a time when they have an interest in real property, builds or engages someone to build a residential complex. There is an exception for individuals but only if they are not engaged in a business or adventure in the nature of trade (ANT).
[8] Where an individual is a builder, they usually trigger one of two provisions of the ETA. If they occupy the newly built home, “as a place of residence,”
they trigger complex self-supply rules under subsection 191(1) of the ETA which deems them to have sold the property as a taxable supply and to have collected HST equal to its fair market value.[2] If the builder sells the property without moving in then they are just like any other new home builder who sells houses; the buyer is required to pay HST.
[9] The self-supply rule will be overridden by subsection 191(5) if the builder moved into 58 Walder not merely as a place of residence but with the intent that it would be used primarily as a place of residence for himself and/or his immediate family. A primary intent to hold the property as inventory does not satisfy subsection 191(5) even if Mr. Salehi resided at the property for a time.
[10] For 17 Dunblaine, no one moved in and the unit was assessed in respect of its sale to a third party in 2017. However, the question of whether or not the property was held as inventory still must be answered.
[11] The 17 Dunblaine transaction also raises questions as to whether the appellant was liable to be assessed for HST and whether he was required to, or did, collect HST, from the purchaser, a corporation registered for the HST.
[12] Finally, returning to ANT, an ANT is an occasional transaction that is commercial in nature but not organized and structured systematically enough to constitute a business. The classic case on the subject is Taylor[3] where an individual purchased 1500 tons of lead as a one-off transaction which he later sold at a profit. Happy Valley, which references Taylor, sets out a non-exhaustive list of factors to consider in assessing the appellant’s intent so as to determine whether a real property transaction is an ANT. Those factors are:
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a)The nature of the property sold;
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b)Length of ownership;
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c)Frequency or number of other similar transactions;
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d)Work expended on the property;
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e)Circumstances leading to the sale of the property; and
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f)motive.[4]
II. 58 Walder Avenue
Nature of Property sold
[13] In July 2013 Mr. Salehi purchased a house at 58 Walder Avenue in Toronto. He did so as tenants in common with Farahnaz Emami, who was a widow and second cousin to Ms. Rejal.
[14] The lot was approved for severance and so it was divided into 58 and 60 Walder. Mr. Salehi ultimately retained 58 Walder and Ms. Emami ultimately retained 60 Walder.
[15] The appellant and Ms. Emami proceeded to demolish the one-storey-home on the site. They then built two detached homes on the property.
[16] The nature of the property sold tends to be a neutral factor in this case. The property came to the attention of Mr. Salehi because his wife’s cousin, Mr. Aryafa, with whom he was close, had been offered the property as an investment when the prior owner had gone bankrupt after getting approval to sever the property. The property came complete with building plans. The purchase of a property with the intent of demolishing it, severing it, and building two family homes is, in this case, consistent with both an intent to reside in the new home or to sell when built.
Length of Ownership
[17] I preface this section by noting, per Wall, that what is important is not just length of ownership, but in particular, the length of ownership after the property was ready to be lived in.[5] This factor goes decidedly against Mr. Salehi. The appellant apparently started to move in around July 2014, before the occupancy permit had been issued. The property was listed for sale in August 2014, some four days after the occupancy permit was issued. An agreement to sell the house was entered into on October 5, 2014. The transaction closed on October 29, 2014. In effect, the length of ownership was the minimum amount of time needed to list and sell the property.
[18] I note that Ms. Emami listed 60 Walder for sale at the same time. It is more than coincidental that both Ms. Emami and Mr. Salehi purchased a property, redeveloped it and sold the new homes almost immediately. It speaks to an intent to transact in the properties.
Frequency or Number of Similar Transactions
[19] This was Mr. Salehi’s first purchase. The respondent invites me to consider the appellant’s subsequent transactions, notably 17 Dunblaine in determining the frequency of similar transactions. I am disinclined to do so. 58 Walder may be the sale that started Mr. Salehi down a road to redeveloping properties, but it feels a bit like hindsight to reason backwards from later sales to conclude that Mr. Salehi sold 58 Walder as an ANT.
[20] I do however note that Mr. Salehi was very much involved in the redevelopment of 60 Walder.
[21] The invoices for the supply of materials show that for example, in at least one instance, there were separate invoices for lumber purchases for both 58 and 60 Walder Avenue but both invoices indicated that the lumber had been sold to the appellant. The appellant testified that Ms. Emami would simply pay him back in such instances.
[22] I am also troubled by the fact that Mr. Salehi entered into a project with Ms. Emami to begin with. She was a relative but not really someone who was close enough to the appellant to explain the decision to buy property together. Ms. Emami was the cousin of Ms. Rejal and a cousin of Mr. Aryafar. Ms. Rejal testified in cross-examination that she and Ms. Emami would see each other at holiday family gatherings. Mr. Aryafar was close to Ms. Emami, particularly after her husband, Mr. Aryafar’s cousin, passed away. Mr. Aryafar acted to protect and support Ms. Emami and her children to the extent possible. On balance, the decision to develop Walder with Ms. Emami, feels more like a business venture encouraged by Mr. Aryafar rather than a decision to construct personal dwellings with a close relative.
Work expended on Property
[23] Mr. Salehi explained that he purchased a property where all the architectural plans and permits were in place.
[24] I agree that the architectural plans were in place, but I don’t agree that the permits were in place. Mr. Salehi testified that his understanding was that the vendor of 58 Walder had obtained such permits, the best evidence on the point is the building permit application and building permit that were introduced into evidence. They both post-date Mr. Salehi’s acquisition of Walder. Specifically, the application was dated August 9, 2013 and the permit itself was issued on October 30, 2013. If a prior building permit existed, it was not adduced in evidence.
[25] Mr. Salehi was asked how he knew about structuring and organizing an undertaking of this nature, having not done anything like this before. He said that friends introduced him to tradespersons and told him what steps to do next. I reject that evidence as contrived and unsupported. Which friends? How did they know?
[26] The building permit application listed the appellant as the owner of 58 Walder but it listed a Mr. Ali Goudarzi as the applicant for the permit. Mr. Goudarzi’s name also appears on correspondence from a company called Techno Metal Post. This company designed and installed steel pilings to support the house when it was discovered that the soil was too wet and muddy to permit foundations to be constructed by simply digging a hole in the ground and pouring concrete.
[27] Mr. Goudarzi’s phone number also shows up as the contact number on appliance invoices for the property.
[28] Mr. Goudarzi’s background and qualifications were not well established by the evidence. Mr. Aryafar testified that he was very close friends with Mr. Goudarzi’s father, but the question of Mr. Goudarzi’s training and experience was not elicited. However, given that Mr. Aryafar recommended Mr. Goudarzi to the appellant to assist in the work on Walder, I surmise that Mr. Goudarzi had had some relevant experience in construction, contracting, or trades.
[29] I infer from the documents and the oral testimony that Mr. Goudarzi, who did not testify, acted as a general contractor for the project. I do not accept the explanation that the work proceeded haphazardly under the guidance of “friends”
.
[30] The construction evidence points to an organized approach to the project that is consistent with an ANT. That is especially true when considered in conjunction with Mr. Salehi’s involvement in the work on 60 Walder.
Finishings
[31] The respondent asked me to find that the style and finishings of 58 Walder were neutral and consistent with an intent to re-sell. Aron Hicks the Canada Revenue Agency (CRA) auditor who raised the assessment in respect of 58 Walder and who also assessed Ms. Emami in respect of 60 Walder, testified that plans for the house were drawn up by the architect who sold 58 Walder, rather than based on the appellant’s personal preference.
[32] The YouTube video of the listings for 58 and 60 Walder demonstrated them to be quite similar. They were like the homes of a developer who offers substantially similar models with slight variations in layout and finish. The two houses had mirror image layouts, and fairly high-end finishings, e.g., dark hardwood floors, kitchens with marble or stone countertops, well-appointed bathrooms, etc.
[33] The neutral décor was, well, neutral. Any new house would tend to look like 58 and 60 Walder even if constructed for personal use. The finishes are nice and would conceivably be attractive to a range of buyers without the need to further customize.
[34] More interesting to me is that I neither saw nor heard any evidence pointing to involvement Ms. Rejal in the development of Walder. Did she pick out appliances, finishes? The evidence is largely silent and points to her complete absence in the construction of the home. This is not consistent with the construction of a home for personal use and favours an ANT.
[35] The manner in which the property was built somewhat favours an ANT. The work was systematic and was carried out in concert with the work on 60 Walder, which was led by Mr. Salehi and produced a fairly neutral house with no real input into its design or finishes by Ms. Rejal.
Circumstances leading to sale of 58 Walder
[36] Mr. Salehi testified that the plan to live at 58 Walder fell apart almost immediately for two reasons:
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a)Ms. Rejal became suspicious that Mr. Salehi was having an affair with Ms. Emami, an allegation which Mr. Salehi vehemently denies; and
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b)the appellant’s son had second thoughts about starting in a new school while all his friends started or continued high school together.
[37] The appellant’s son did not testify, and I give no weight to the evidence that the son had any feelings about, or input regarding, 58 Walder.
[38] Ms. Rejal testified that she was deeply upset in the summer of 2014 by her concerns regarding the relationship between her husband and Ms. Emami, which seemed to go beyond simply the dealings needed to develop the two Walder properties. Matters were so bad that she testified to driving by Walder without stopping when she saw Ms. Emami at her house. This even more than the school issues raised by her son caused her to reject Walder as the family home.
[39] Ms. Rejal, and her son, moved out of 58 Walder almost immediately after having moved in. She apparently told Mr. Salehi to either choose his marriage and return home or stay where he was. Mr. Salehi did not immediately return home according to his evidence. On his version of events, Mr. Salehi continued to reside at Walder until it was sold and only then, did he return to Yonge Street.
[40] It may well be that Ms. Rejal and Mr. Salehi were having marital issues in July 2014 along the lines suggested by Ms. Rejal. Unfortunately, I tend to believe the affair allegation even if it was made back in 2014 was invoked in this litigation mostly as a pretext to explain the sale of the house. I say that for several reasons:
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a)According to Mr. Hicks, the CRA auditor, Ms. Emami listed 60 Walder for sale on the same day as Mr. Salehi.So, there was no need to sell 58 Walder, since Ms. Emami was not going to stay there.Despite repeated questioning neither the appellant nor Ms. Rejal offered any explanation as to why it was necessary to sell 58 Walder, notwithstanding that 60 Walder was listed for sale at the same time.In fact, both Mr. Salehi and Ms. Rejal studiously avoided mentioning the sale of 60 Walder, instead preferring to describe Ms. Emami as their “neighbour”
and as someone to be avoided when they drove by Walder.Both those descriptions conspicuously omitted the planned sale of 60 Walder by Ms. Emami.It was only during the respondent’s case that I heard from Mr. Hicks about the sale of 60 Walder.I also don’t really believe the story about Ms. Rejal driving by Walder without stopping when Ms. Emami was there because I have no reason to believe that Ms. Emami ever really spent time at Walder, having listed the property for sale as soon as it was built;
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b)The coincident sales of the property suggest a common intent to redevelop and flip 58 and 60 Walder;
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c)On May 4, 2015, mere months after the closing of 58 Walder, Ms. Emami along with her daughter purchased 18 Dunblaine Avenue.Two months later Mr. Salehi and/or his mother contracted to buy 17 Dunblaine.Far from severing ties with Ms. Emami, the Salehi’s were following them in lockstep.I infer from the twin purchases of 17 and 18 Dunblaine that the relationship between Ms. Emami and the Salehi’s was relatively good or Mr. Salehi would never have purchased 17 Dunblaine; and
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d)Mr. Salehi also helped Ms. Emami work on another property a few years later, 496 Hounslow.This again undercuts suggestions of significant tension between Ms. Emami, Mr. Salehi and Ms. Rejal.
[41] I must conclude that the marital issues are not the real reason why the Walder property was put up for sale.
Motive
[42] I find the motive element of the Happy Valley decision a bit redundant. After all, the above criteria are intended to establish the appellant’s motives for building and selling the property. However, there are some facts that don’t fit easily into the above categories, and they can be viewed as shedding light on the appellant’s intent.
Ownership of the Property
[43] Ms. Rejal did not hold title to the property with the appellant, her husband. She indicated that this was a matter to be dealt with later, but I am not at all convinced. Her absence from the title to a business venture makes sense, but her absence from the title to her own dream home does not.
[44] Equally odd was the mortgage arrangement. The appellant and Ms. Emami took out a single mortgage to buy the Walder property. The evidence clearly showed that the property was sold with consent to sever the lots already in place. Logically, it would have made sense to immediately sever the property by having separate ownership of 58 and 60 and by then placing separate mortgages on each part. Ms. Emami could then develop her property and Mr. Salehi and Ms. Rejal could develop 58 Walder. But that is not what happened. Mr. Salehi remained liable for a mortgage that covered a property that he was not going to own. When 58 Walder was sold, he had to pay the full mortgage out of the proceeds and then wait for Ms. Emami to sell 60 Walder so that she could reimburse her portion of the mortgage. There was no need to take that risk. It really only makes sense if Mr. Salehi and Ms. Emami were treating the building of both homes as a kind of single combined project with the plan being to then immediately sell the homes and discharge the mortgage, which is what actually happened. The arrangement to retain a liability on a property for which Mr. Salehi had no use, militates in favour of a finding that the project was an ANT and that he was a builder.
Mr. Salehi’s financial capacity and financing arrangements
[45] The respondent emphasized the appellant’s lack of financial capacity to buy the house for his own use. The mortgage on the property combined with car payments exceeded the appellant’s reported income.
[46] It is true that the appellant took only a one-year mortgage on the property and that could indicate a short-term intention regarding ownership of the property.
[47] I give less weight to the financial position of the appellant, however. If the appellant had intended to move into Walder then presumably he would have sold Yonge Street and that would have eased the financial burden. Viewed in that light, Mr. Salehi’s decision to stretch himself financially does not really move the needle on motive.
Change of Address
[48] In November 2013, shortly after obtaining the building permit for Walder, the appellant filed a notice of address change with the Ontario Ministry of Transportation listing his new address as 58 Walder. This was an untruthful registration. The new property was not yet constructed. As the auditor explained, the footings had not even passed inspection, and the appellant never asserted in his testimony that he lived at Walder prior to July 2014.
[49] The appellant testified on cross-examination that perhaps he thought he needed to show residence at Walder in order to obtain utility hook-ups. I found this to be a most curious answer. It seems to entail the proposition that one could never get a utility hook-up for a property that they were planning to build for the purpose of sale unless they lie to the utility companies and pretend to be living at the property even before it is habitable. I don’t believe that the appellant ever entertained this idea.
[50] I find that the intent behind the registration was to give the impression of a change of residence when none had in fact occurred.
The Warranty
[51] Per the November 2014 agreement to sell 58 Walder, Mr. Salehi agreed that he would warranty the house for two years. The warranty included promises that the construction conformed to the Ontario Building Code, that there were no structural defects, water penetration, defects in electrical, plumbing and HVAC work, etc. Further, Mr. Salehi agreed to permit the buyers to hold back $10,000 for one year as security for the warranty. Mr. Salehi testified that the warranty was his real estate lawyer’s idea to make the buyer happy.
[52] I find it hard to believe that a lawyer would tell his client who is ostensibly selling a house that was not built for resale, to make the buyer happy by offering a complex warranty which entails significant liabilities. Given the hearsay nature of that evidence, the failure of the real estate lawyer to testify and the peculiarity of the ‘advice’ offered by the lawyer, I prefer the simpler explanation that the purpose of the warranty was to make the house competitive on the new home market as compared to houses constructed by other builders.
III. The Occupation Evidence
[53] Subsection 191(5) of the ETA overrides the self-supply rules where the complex is used “primarily as a place of residence”
for the appellant and/or his family. The appellant, citing to the Informal Procedure case of Coates, argued that subsection 191(5) and the Happy Valley test are to be treated separately.
[54] Coates featured an appellant who sequentially built and occupied four houses on the same street. He was assessed for the third one and that assessment was vacated. The Court held that the test under subsection 191(5) is,
“a simple factual determination as to whether or not the property was used as a family home after it was substantially completed. A secondary intention to resell the property at a later date is irrelevant to the determination as to whether or not the exception applies”
.[6]
[55] I approach Coates with some caution and here is why:
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a)The quote above, leaves out the actual text of the provision.The legislation does not ask whether the property was used as a family home but rather whether the home was used “primarily as a place of residence”
and “…is not primarily used for any other purpose…”
.The focus is on the primary use of the property.The appellant and his family could use the home as a residence but it may not be primarily used as a place of residence if its primary use is, or remains, as inventory;
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b)The facts that determine primary use are invariably going to be many of the same facts that are used to determine the motivation of the appellant under Happy Valley;
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c)In the 15 years since Coates was decided, it has not attracted strong judicial support.In Swift, the Court did apply Coates but only in obiter since the primary finding was that the appellant was not a builder.[7]In Caddell, the only other case to reference Coates, Russell J. understood the case to mean simply that a person could, “live in a home primarily as a place of residence but recognize that they may (or even will) need to sell the home at some future point,”
but with respect to Coates, he cautioned that:
“I do not view the Court’s comments as indicating that subsection 191(5) allows taxpayers to construct homes with a primary aim of selling them as long as they are willing to temporarily sojourn there beforehand.”[[8]]; and
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d)In Lacina, the Federal Court of Appeal, in considering three home sales, noted that the purpose of the self-supply provisions includes ensuring that a builder does not gain an advantage from occupying a residential complex which is part of his inventory before selling it.In Lacina, the Court affirmed that the appellant’s,
“…residence in these two homes did not possess the enduring quality required to support a finding that he occupied either of them ‘primarily as a place of residence’ ”.[9]
[56] With those comments in mind, I ask the simple question required under 191(5): Was the appellant occupying Walder primarily as a place of residence or was the occupation secondary to another purpose, namely, to hold the property for resale? The answer to that question sheds light on both subsection 191(5) and on the motivation question at the core of Happy Valley.
[57] I find that the appellant did not occupy the house primarily as a place of residence for himself and persons related to him. The occupation that did occur was window dressing to convey the appearance of an intent to occupy Walder primarily as the family residence.
[58] Mr. Salehi testified that he, along with his wife and son, moved in sometime in mid-July 2014. They planned to move in slowly because they were waiting to buy new furniture. I found that evidence confusing. It seems to me that either they moved the beds from Yonge Street to Walder and lived at Walder, or they got new furniture for Walder and left the beds on Yonge Street. One cannot really be gradual about that.
[59] Ms. Rejal explained that they actually purchased new beds for the master bedroom and for their son’s room. It is clear that not all rooms were immediately furnished however.
The Water Heater
[60] There seems to have been no hot water at the residence. This matter was canvassed on direct, in cross-examination and in my own questions to the appellant. The utility bills clearly show that the first utility bill for the rental of a hot water unit was dated October 28, 2014, for the period September 25, 2014 to October 28, 2014. The appellant could not adequately explain why no prior hot water rental existed, though he was adamant that there was hot water in July and August.
[61] The appellant also called Mr. Hamidreza Afsahi, the boiler installer to testify. This evidence should have been dispositive on the issue; it turned out to be anything but.
[62] Mr. Afsahi testified in chief that he was the owner of the boiler under an arrangement whereby he contracted with Vista, a third-party company to rent it out to the appellant. He testified that he installed the boiler in July 2014, but that it was his practice not to immediately arrange the rental element of the transaction where the customer was a builder, although he later clarified that this could be any good customer. Mr. Salehi was such a client because he had contracted with Mr. Afsahi to install a fireplace and in-floor heating at Walder. Mr. Afsahi testified that he recalled the July date because that was when he got paid by the appellant. And this is where things began to unravel.
[63] In cross, Mr. Afsahi was shown a document in which he rented the boiler to the appellant as of September 12, 2014, but again Mr. Afsahi recalled being paid in July.
[64] I asked Mr. Afsahi if he was paid to install the boiler and he said no. The payment that he recalled was for the fireplace and in-floor heating. Mr. Afsahi then pulled out his phone to try and read something to help him remember the matter more clearly. We recessed so that a proper document could be provided to all parties. The document was two screen shots of the phone, prepared earlier by the appellant’s counsel. It was almost entirely redacted.
[65] The screenshots as redacted showed what may have been a two-page to-do list that was made on July 15, 2014, and apparently forwarded to Mr. Afsahi by his former spouse in preparation for this hearing. The unredacted portion of the 2nd screenshot showed the name Ali and indicated the following: “Walder radd floor $9064.00 paid 4000 cash may 27.”
[66] Counsel for the respondent wanted to know who Ali was. I thought it might be Ali Goudarzi, but one could not be sure with the redactions. I ordered a further recess so that the witness could show his phone to the respondent to ascertain whether this matter could be clarified. When we reconvened, it was explained to me that the entire message had been deleted from the phone and was no longer extant.
[67] I pause at this juncture to emphasize the importance of treating electronic communications in the same way as any other more traditional document:
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Redactions of documents should be exceptional and limited to bank accounts, dates of birth and other very narrow categories of information and only if they are not relevant to the case.Wholesale redactions of documents going into court should not be countenanced; and
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Due care should be taken to safeguard source materials in the event that they are needed.
[68] In the end, I can give little weight to Mr. Afsahi’s evidence. He could not explain how a screenshot of a May 2014 payment refreshed his memory such that he could remember installing a boiler in July for which there was to be no charge. He had no independent recollection of the installation.
[69] Despite these issues, I might have accepted the appellant’s argument that there was hot water, but for a most peculiar condition attached to the October 2014 agreement of purchase and sale by which the appellant sold 58 Walder. The relevant condition stipulated that:
“Seller agrees to complete the following tasks at their expense at least 10 days before the closing date:
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5) there should be hot water in all bathrooms (sink, tub and showers) including master bathroom shower.
[70] I infer that this condition was added because there was no hot water in those bathrooms even though the appellant had occupied the property almost three months earlier.
[71] Now it is possible there was a hot-water system in place and there was a problem with it, although Mr. Afsahi recalled no such issue. Whatever the reasons, it is clear that for some time prior to the sale of Walder, there was no hot water. I do not believe that the appellant and/or his family held a home primarily as a place of residence without hot water for bathing or other uses for weeks or months on end, particularly in the lead up to the signing of the purchase and sale agreement.
Other indicia regarding the use of the Property
[72] As already noted, Ms. Rejal and the appellant’s son moved out very soon after having moved in. Ms. Rejal testified that the appellant would come over to the Yonge Street condominium regularly while he was “living”
on Walder Avenue and then return to Walder to sleep. I don’t believe that having lived on Yonge Street for a decade, Mr. Salehi then spent months hanging out at Yonge Street while systematically sleeping at Walder.
[73] Ms. Rejal apparently gave an ultimatum to Mr. Salehi to choose whether to stay at Walder or return to Yonge Street. Assuming, without deciding that such an ultimatum was given, it would make no sense for Mr. Salehi to continue to reside at Walder under such conditions.
[74] I give little weight to the testimony of the appellant and his wife that he lived at Walder with his family. I think that the family’s occupation of Walder as a residence was minimal and intended to convey the impression that the primary purpose of the construction of the house was not for the purpose of making a supply by way of sale.
IV. Farahnaz Emami’s failure to testify
[75] Appellant’s counsel, in her opening argument, testified that the appellant indicated that he intended to call Ms. Emami, the owner of 60 Walder, as a witness.
[76] On the morning of the third day of trial, just before the cross-examination of the appellant resumed, I advised the parties that I had become aware that Ms. Emami has her own tax appeal before this Court, in court file 2022-717(HST)G, for her disposition of 60 Walder.
[77] Appellant’s counsel, who also acts as counsel to Ms. Emami in her appeal,[10] indicated in response that they had intended to alert the Court to Ms. Emami’s case during her testimony. Neither party made any further submission on the matter at that juncture, and the hearing continued.
[78] However, at the end of that third day of trial, the appellant advised that he would not be calling Ms. Emami because the probative value of her evidence would be undermined by her possible interest in the outcome of this case. I do not really understand how Ms. Emami’s evidence, which was probative enough that she was going to testify on Monday, before I knew about her own appeal, was suddenly less probative after I became aware of her own case.
[79] I draw a negative inference from the appellant’s failure to call Ms. Emami to testify after having indicated that he would do so. I infer that the cross-examination of Ms. Emami would have been damaging to the appellant’s case, presumably by highlighting the extensive involvement of Mr. Salehi in the 60 Walder work and perhaps eliciting various “unexpected”
reasons why Ms. Emami also needed to list her house for sale as soon as it was completed.
V. Conclusion on Walder
[80] The Walder property was built for resale as an ANT. Subsection 191(1) of the ETA applies.
[81] The property was purchased by the appellant together with Ms. Emami as a redevelopment project. 58 and 60 Walder have to be looked at together. The nature of the ownership and financing as well as the way work was carried out support this finding. The generic nature of the finished properties is of less importance, but there is a distinct lack of involvement in the project by Ms. Rejal, who was apparently supposed to live at 58 Walder.
[82] The minimal period of ownership followed by the sale of both properties are strong indicators of an ANT.
[83] The stated reasons for the sale of 58 Walder make no sense given that 60 Walder was also listed for sale. The subsequent conduct of the appellant and Ms. Rejal belie a serious rift between the appellant, Ms. Rejal and Ms. Emami.
[84] The saving provision in subsection 191(5) does not apply because the brief occupation of the property by the appellant and/or his family was not primarily as a place of residence. The primary use of the property remained at all times, inventory for resale.
VI. 17 Dunblaine
[85] In July 2015, less than a year after selling 58 Walder, the appellant or, according to the appellant, his mother, purchased 17 Dunblaine Avenue. He tore down the existing one storey two-bedroom house and built a two-storey four-bedroom house which was completed in December 2016, and then sold in March 2017.
[86] There is no self-supply issue in this case. No one moved into the house. Instead, HST was assessed on the sale of the property in March 2017 on the basis that the appellant was a builder.
[87] Against that backdrop, I now consider the purpose for which the house was acquired, built and sold.
Application of the Happy Valley criteria to Dunblaine
[88] I will deal with the Happy Valley criteria in this order:
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The nature of the property sold;
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Work expended on the property;
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Frequency or number of other similar transactions;
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Circumstances leading to the sale of the property; and
-
motive.
[89] I will not discuss length of ownership in detail, since it is common ground that a new home was constructed and listed for sale immediately thereafter without either the appellant or anyone else having moved in. This fact favours a finding of ANT.
Nature of Property Sold
[90] The appellant’s parents came to Canada in 2010, though they returned to Iran periodically to bring back more possessions. Initially they rented an apartment in Toronto. They did not sell their apartment in Iran. Mr. Salehi’s father, who passed away shortly before this trial began, had worked as a bank manager. Ms. Salehi had been a math teacher. Despite their education, Ms. Salehi in particular did not speak English well. This and the return trips to Iran are the reason that Ms. Salehi gave her son a power of attorney in 2014.
[91] After they received their citizenship, Ms. Salehi, and her husband Syed, wanted a home of her own. In direct examination, Mr. Salehi explained that the house should be sufficiently large to accommodate visits from the appellant’s sister in Germany and her family. In cross-examination he also mentioned that he and his family would move into Dunblaine.
[92] The family settled on the Dunblaine house because they liked the area. The existing dwelling at 17 Dunblaine was an old one-storey home with two bedrooms, a finished basement and a good-sized yard.
[93] By this point both of Mr. Salehi’s parents were retired. Ms. Salehi was around 71 years old when Dunblaine was acquired and Syed was around 84 years old at that time.
[94] Mr. Salehi testified that it was his mother who made the offer to purchase, but the signature on that offer does not match her signature on the power of attorney and no credible explanation for the discrepancy was provided, so I have doubts about the identity of the signatory. I am not convinced it was Ms. Salehi.
[95] Mr. Salehi said that the downpayment came from his mother. No evidence was adduced as to the source of the downpayment, nor as to any of the financing arrangements as between the appellant and Ms. Salehi.
[96] The appellant claims that his mother was pre-approved as the sole borrower for a mortgage with the Royal Bank of Canada, despite having no Canadian work history. Shortly before closing, the bank apparently sent an inspector into the house, and the inspector found mold in the basement, so the pre-approval was rescinded.
[97] I doubt the mold testimony, and I find it irrelevant to the appellant’s course of conduct. I find it quite unusual that a bank sent an inspector into a property after pre-approving a mortgage and so close to closing and there is no evidence on this point. No appraisal report was provided; no inspection report was tendered; no letter from RBC rescinding approval was put into evidence.
[98] The mold, if any, only matters if the existing two-bedroom house was being purchased to live in and not to be redeveloped, but a small and old two-bedroom one bath house is inconsistent with the story of buying a house for multiple generations to live in or visit. I often found that the appellant’s evidence on this point was inconsistent. He referred to having a house where his sister could visit and then he referred to moving into the house himself. At the conclusion of his evidence in answer to my questions, he testified that the house was good enough for his mom and dad and would be enough for the daughter to visit. Given the state of the house, and the equivocal testimony, I conclude that the house was acquired to be demolished and rebuilt. It follows then, that the condition of the house was not relevant to questions about its acquisition or financing, except perhaps if the appellant and his family were not being truthful with the original lender about its intended use.
[99] I also have doubts about what came next. When RBC refused to move forward, Mr. Salehi sought financing from Home Trust Company, the same lender who had financed Walder. Apparently, Ms. Salehi’s credit, though good enough for RBC, was now not good enough for a secondary lender and Mr. Salehi had to go on title as an owner with Ms. Salehi having no obligations as a borrower or owner.
[100] The appellant testified that the lender was not prepared to lend money to Ms. Salehi and wanted Mr. Salehi on title alone. Two directions regarding title were put into evidence. One of them purported to direct title 99% to Ms. Salehi and 1% to the appellant. The next one purported to direct title solely to Mr. Salehi.
[101] I prefer a simple explanation for the financing. It may be that his mother helped out on the downpayment, but the project was always Mr. Salehi’s project and he was the borrower on the project. Ms. Salehi was not on title because it was not her house. She was not on the mortgage because it was not her mortgage.
[102] In the end, the property was conveyed to Mr. Salehi alone on September 4, 2015. Mr. Salehi immediately registered a mortgage in favour of Home Trust, due within a year. That mortgage is again more consistent with an intent to hold the property for redevelopment and sale rather than for occupation.
[103] Lastly, the appellant’s father, Syed, was completely absent from any aspect of the transaction even though it was supposed to be his house too. The appellant relies on a trust declaration to show that he held the property for his mother. I will return to that document shortly. For now, it is sufficient to note that even taken at face value, that declaration says nothing about Syed Salehi being an owner of the house in which he was to live. No explanation was ever provided for this omission.
[104] Based on these facts, I do not have any reason to believe that the house was purchased by or for Ms. Salehi. Since this was the stated reason for the purchase, and I reject it, the alternative of a purchase as an ANT now looms large.
Nature of Work Performed
[105] The development and construction of Dunblaine are similar to Walder. The old house was demolished, and a large two-storey house was built.
[106] The appellant testified that his mother asked for help on the construction. He ostensibly gave her the contact information for the trades but actually, he got in touch with them. She paid the trades, but actually, he paid the trades and she paid him back, though there is no evidence of any of these financial arrangements either. When work was sufficiently advanced, he arranged for utility connections with the accounts being in his name.
[107] Again, the simple explanation is the best one: Mr. Salehi by now had a network of tradespersons from the Walder job and he engaged them to work on Dunblaine. He was responsible for making sure that the work was done correctly and that they got paid. I don’t rule out the possibility that Ms. Salehi contributed money to the work, but I don’t know on what terms this was done, and it does not change the essential nature of what happened. It was Mr. Salehi’s project and he managed it as such.
[108] As with Walder, 17 Dunblaine, when sold, included a warranty that was described in the appellant’s documents as “Tarion-like”
. It was intended to be similar to a builder’s new home warranty. Again, I heard remarkable hearsay evidence that either the appellant’s realtor or possibly his lawyer suggested offering such a warranty.
Frequency or number of other similar transactions
[109] There are several transactions that are relevant to the Happy Valley analysis.
[110] 58 Walder was sold less than a year before Dunblaine was acquired. The proximity of the two transactions and their similarity i.e. purchase and redevelopment of an old single-storey house weighs against the appellant.
[111] Next there is the 117 Poyntz transaction, a house purchased by the appellant’s father in August 2015 that was located close to the appellant’s Yonge Street apartment. The appellant says that this was his father, Syed’s transaction and had nothing to do with him. I cannot accept that evidence for these reasons:
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17 Dunblaine was supposed to be Syed’s home, but he was married to Ms. Salehi who was ostensibly purchasing Dunblaine at the same time.Syed’s purchase makes no sense except as a project to buy and redevelop the property;
-
117 Poyntz was ostensibly purchased by Syed, but again, the appellant acted for his father through a power of attorney in signing documents, notably the mortgage registered in the Land Titles Office;
-
Syed was already in his early 80s when Poyntz was acquired.He did not speak English well though he was studying the language.He had no relevant knowledge or experience related to buying and redeveloping a house in Canada.In his evidence Mr. Salehi acknowledged that he acted for his father in the same way that he acted for his mother.So, the appellant applied for building permits in respect of 117 Poyntz.The appellant got in touch with people for the contracts.
-
The appellant testified to not knowing why his father purchased 117 Poyntz.The appellant’s answers to my questions on this point were just so implausible that I have to reproduce them from the transcript:
JUSTICE: All right. Sorry, just tell me one more time why your dad bought 117 Poyntz.
A: 117 Poyntz, he want to. 117 Poyntz, I don't know. That's what, he did it for himself.
JUSTICE: You never talked to him about why he bought a house at 117 Poyntz?
A: I don't, that's his, that's his affair.
JUSTICE: You were signing his power of attorney.
A: He told me to do it for him.[11]
This answer not only undermines Mr. Salehi’s position on Dunblaine, it undermines his credibility with this Court. I don’t believe Mr. Salehi when he says that he never spoke with his father about 117 Poyntz. But more than that I don’t really believe that 117 Poyntz was his father’s project. It was the appellant’s project, and it was simply carried out in his father’s name.
[112] Next there is the 119 Poyntz transaction. Ms. Rejal purchased 119 Poyntz and then sold it on Sept 9, 2015, five days after 17 Dunblaine had closed. Again Mr. Salehi denied knowing why his own wife had purchased 119 Poyntz to begin with. He testified:
“My spouse is my spouse. She is her family. She is with – doing it for her family”.[12]
[113] Later he contradicted himself on this point and said that it was actually his father who had wanted to purchase 119 Poyntz but put it in his wife’s name to avoid merging the title with 117 Poyntz:
Q: And why was your wife's name on title for 119 Poyntz?
A: Because my father wanted to purchase it.
Q: So why didn't he purchase it?
A: Because he had the other one, and if then if two properties, we were told that two properties are next to each other when -- and one person is owner, they would be joint. They would become one property.
[114] I don’t believe that the purchase of 119 Poyntz had anything to do with the appellant’s 82-year-old father or with Ms. Rejal. It again seems to me that Mr. Salehi was the driving force behind this acquisition.
[115] I do not know whether any actual work was done on 119 Poyntz before it was sold, but the transaction reinforces my view that, by 2015, the appellant was essentially engaged in buying, redeveloping and selling houses.
[116] The respondent relied on the appellant’s participation in a number of other transactions[13] to reinforce the idea that he was engaged in real estate development. I give those transactions little weight because they occurred later in time. Further, while the projects involved persons who we have already encountered, Mr. Salehi’s role was consistent with someone knowledgeable in the real estate business, helping out those other persons. He was knowledgeable because of his work on Walder, Dunblaine and Poyntz. It is possible that Mr. Salehi’s involvement in the later projects is more than peripheral, but those properties are not the subject of this appeal and it is not really necessary to look to these other transactions to find that Mr. Salehi was redeveloping 17 Dunblaine for resale.
Circumstances Leading to the Sale of the Property
[117] The appellant testified that 17 Dunblaine was sold because the Iranian Rial had declined in value in 2016 and into 2017. As a consequence, his parents’ Iranian assets no longer held sufficient value to permit them to afford living in the house.
[118] I have already indicated that I believe that the 17 Dunblaine property was purchased and rebuilt as an ANT. It follows that I don’t accept the stated reasons offered for its ultimate sale. I don’t believe that the sale had anything to do with the decline of the Iranian Rial. The sale was the intended goal of the project from the beginning.
[119] Even setting aside that finding, there are several problems with the stated reason for the sale, namely:
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the decline in the Rial was only about 10% in 2016 and the Rial seemed stable from May 2016 to the end of that year.It remained stable until after the sale of Dunblaine.The currency fluctuation does not seem to have been significant enough or coincident enough with the sale of 17 Dunblaine to be very persuasive;
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the appellant and his family seemed to have had quite a bit of money held outside of Iran.Ostensibly the appellant’s mother was paying for the work on Dunblaine from a Canadian bank account.The family had money tied up in 117 Poyntz which, at least according to the appellant was his father’s money.There may have also been money tied up in 119 Poyntz; and
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it is true that the parents had an apartment in Tehran but there was no evidence presented that the sale of that asset would fund the cost of living at Dunblaine.The evidence presented was that the parents moved to Canada in 2010 with a plan to sell the apartment, but that currency fluctuations at that time caused them to change their mind and keep the Tehran apartment.A few years later both 117 Poyntz and 17 Dunblaine were acquired. That evidence tends to be inconsistent with a plan to sell the Tehran apartment.
[120] On balance, I don’t find that currency fluctuations of the Rial were significant in terms of the decision to sell 17 Dunblaine in 2017.
Motive
[121] I have largely covered the evidence that I think speaks to the appellant’s motives, particularly, my view that the appellant was orchestrating the purchase, redevelopment and sale of multiple properties using his mother, father and wife as cover. I do, however, want to use this heading to deal with the change of address issue.
[122] In March 2016, the appellant changed his registered address with the provincial Ministry of Transportation to 17 Dunblaine. He did this even though there was no completed house to live in. Ms. Salehi by contrast never changed her address to 17 Dunblaine.
[123] In May 2016 the appellant changed his registered address with the Canada Revenue Agency to 17 Dunblaine. Again, there was no reason to do this. He stated that the change was made because his mother had decided to build a large new home that could accommodate the appellant and his family, but I don’t accept that explanation especially since the house was still under construction, building permits having just been issued.
[124] I unfortunately must find that the address change reinforces my view that Mr. Salehi is not a particularly credible person. The CRA address change was designed to deceive the tax authority into believing that the appellant was living at 17 Dunblaine when that was not in fact the case.
Conclusion on Happy Valley Criteria
[125] The Happy Valley criteria point decisively in favour of 17 Dunblaine being an ANT. The property sold was one that cried out for redevelopment from an old one-storey building into an attractive two-storey house. There was no particular reason for the appellant’s parents to want to live in the original building, and no compelling evidence that the appellant or his family was ever going to join the parents on Dunblaine. Syed Salehi apparently had no legal or beneficial interest in the property that he was supposedly going to occupy.
[126] The construction and development of the property were similar to Walder. It was carried out by the appellant and by no one else.
[127] The transaction was one of four that occurred in a short span of time. Walder came first, followed by 117 Poyntz. As already mentioned, 117 Poyntz though nominally Syed’s project was actually the appellant’s project and was being developed in the lead up to the purchase of Dunblaine. Also, at the time, the appellant’s wife, apparently at Syed’s request, purchased 119 Poyntz. The evidence on this transaction was contradictory, and I don’t think that Ms. Rejal was really involved in the transaction.
[128] Resale was always the end goal of the acquisition and redevelopment of 17 Dunblaine. In any event, the Rial currency fluctuation presented as the reason for the sale of 17 Dunblaine was not persuasive to me.
[129] However, that is not the end of the 17 Dunblaine appeal. The appellant raised two additional issues to explain why the appellant has not been properly assessed in respect of 17 Dunblaine:
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The appellant was not the beneficial owner of Dunblaine but only a trustee; and
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The appellant was not liable to collect HST because the purchaser was a corporation registered for the HST.
VII. Appellant’s Alternate Arguments on 17 Dunblaine
The Trust Issue
No Trust Created
[130] It is sometimes the case that appellants argue that HST or income tax assessed against them is in error because they acted as a trustee for another person. In many such cases, they argue that they were ‘bare trustees’.
[131] A bare trustee is someone who holds title to property for another and has no duties to perform other than to convey the property to, or for, the beneficial owner, whereas a trustee with duties to perform is more than a bare trustee.[14] In closing argument, the appellant acknowledged that he was not a bare trustee but rather a trustee with duties to perform. As detailed above, he did everything required to acquire, redevelop, and sell 17 Dunblaine.
[132] Based on the evidence that I have outlined above, I am satisfied that 17 Dunblaine was in fact and law Mr. Salehi’s project from start to finish. His mother’s appearance in legal documents was entirely contrived to provide the appearance of her involvement.
[133] The problems with this project start with the agreement of purchase and sale to buy the Dunblaine property. As already indicated, Ms. Salehi’s signature is different from the one on the power of attorney.
[134] Mr. Salehi relies on a trust declaration signed September 4, 2015, declaring that he held Dunblaine in trust for Ms. Salehi. Here is a list of all the elements of that declaration that I find problematic:
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Mr. Salehi’s mother did not sign the declaration.Mr. Salehi signed the declaration both in his own capacity and as attorney for his mother.This may be permissible, but it precludes any direct link between the document and Ms. Salehi.It is as though the appellant was walking down the street one day and in his mind, he decided in his capacity as his mother’s attorney that he would sign a trust declaration.Did his mother know or agree to this?She did not testify and so I don’t know.I draw no negative inference from her failure to testify.She was living in Iran during the trial, her husband having just died, and I can appreciate that it might have been difficult for her to travel, but there is still a gap in the evidence;
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As mentioned earlier, Syed is completely absent from the declaration even though 17 Dunblaine was supposed to be his house too;
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The declaration is made retrospectively.It is dated September 4, but ostensibly it is, “Dated…as of the 8th day of July 2015”
and so is supposed to reflect the legal relationship between the parties as of that date.The timeline really does not work, though.According to Mr. Salehi, his mother was going to be owner and title holder of the property.It was only shortly before closing that the original lender pulled out and the arrangements changed.So, the assertion of a trust dating back to the agreement of purchase and sale does not reflect the reality of the relationship that ostensibly existed in July.There was no trust arrangement on July 8, 2015, because none was yet needed or contemplated.This declaration is, at best, a retroactive declaration and that sort of arrangement is generally not permissible in tax;
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The trust declaration is a bit of a ‘mashup’ of different documents.Instead of simply being a declaration by Mr. Salehi that he holds title as trustee, it also includes an indemnification by Ms. Salehi in respect of any liabilities incurred by Mr. Salehi, instead of by the trust.There is also no clear indication of who is settling the trust.Is the settlor Mr. Salehi who holds title or Ms. Salehi who apparently purchased the property?I mention this because Mr. Salehi testified that the document was drawn up by a lawyer but when pressed he could not remember the name of the lawyer;
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The declaration describes Mr. Salehi as the “Bare Trustee”
.Although Mr. Salehi now acknowledges that he was more than a bare trustee, his use of that designation in the declaration calls into question the nature of the relationship that the declaration was to create or reflect.No obligations, rights or responsibilities of the trustee are set out in the declaration to guide the analysis.
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The declaration had a spot for a witness to sign, but no witness did so.Again, this reinforces the idea of Mr. Salehi acting completely alone and without consulting or dealing with anyone.
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The trust declaration contains an error in that it purports to refer to the deed by which Mr. Salehi took title to the Dunblaine property, but it refers to the Land Titles Registration number of the mortgage instead of the registration number of the transfer/deed that was registered on title.The error is not material per se but speaks again to the document being completely immunized from any review or engagement process with Ms Salehi, or a lawyer or anyone else.
[135] The declaration did not create a trust relationship as of July 2015. At most, it could have reflected a pre-existing relationship, but I don’t think it did that, especially given the lack of any need for such a relationship on July 8, 2015, and the improper reference to Mr. Salehi as the “Bare Trustee”
. I find that there was no trust relationship at, or after, July 15, 2015. At best, Mr. Salehi prepared a document that he may have thought would act as a kind of magic wand to create legal relations that he had wanted to exist, but which did not exist as of July 8, 2015. Nothing that happened before or after that date is consistent with him acting as a trustee rather than on his own behalf.
Trust Claim Does Not Affect Assessment
[136] Even if a trust did exist, it is not clear how it raises a defence to the assessment. I canvassed this issue with counsel for the appellant, and the answer seemed to be that the CRA should have assessed Ms. Salehi instead of Mr. Salehi. I don’t see why this is so. Subsection 267.1(2) of the ETA requires the appellant as trustee to satisfy every obligation imposed on the trust. Subsection (3) makes the trustee jointly and severally liable with the trust for all amounts payable and remittable by the trust. On the other hand, there seems to be no provision for making the beneficiary, i.e. Ms. Salehi, liable for the trust’s obligations.
[137] It seems to me that the CRA assessed the right person for the sale of 17 Dunblaine. Mr. Salehi was liable either as the owner or as the trustee. I take the appellant’s point that the assessment might have specified the capacity in which Mr. Salehi was assessed, but I don’t see that it changes anything. Subsection 299(4) of the ETA provides that the assessment is deemed valid and binding despite any error, defect or omission. I don’t see the Minister’s understandable confusion about the nature of Mr. Salehi’s ownership interest as being sufficient to undermine the assessment.
[138] I also note that in Cheema, the majority of the Federal Court of Appeal, albeit in the context of an HST rebate claim came out against the endless searching for the “real or beneficial owner”
in the context of real property assessments. As the court put it:
[110] One of the purposes of the Excise Tax Act is to ensure administrative efficiency. Absent statutory wording to the contrary and all else being equal, an interpretation that favours administrative efficiency is more likely to have been intended by Parliament over one that does not.
[111] The interpretation I urge makes it easier than that of my colleague to verify if a person has qualified for the rebate. In the case of the two prerequisites discussed above, on my interpretation a taxpayer in response to a query need only produce the agreement of purchase and sale to show the legal acquirer of the complex and easily obtained personal documents, such as utility bills, other standard invoices, and drivers’ licences to show who is personally residing in the complex. On my colleague’s view of the matter, other documents may be necessary to go behind the agreement of purchase and sale, and perhaps even other evidence and interviews may be necessary as well to shed light on who is the “real” or beneficial owner. Suddenly a straightforward verification exercise morphs into a sprawling examination for discovery.[15]
[139] Mr. Salehi was either the real owner or the trustee for the real owner. He was the right person to assess.
[140] I turn then to the final issue, the appellant’s claim that he had no obligation to collect tax.
Appellant alleges no obligation to collect HST from corporate registrant purchaser
[141] The appellant argues, and the respondent agrees that, all things being equal, the appellant was relieved from any obligation to collect HST on 17 Dunblaine. That is because the purchaser, Heritage Seven Properties Limited was a corporation registered for HST at the time that it contracted to buy 17 Dunblaine. Such purchasers must themselves report and remit HST on real property purchases pursuant to the following paragraphs of the ETA:
221(2) A supplier(…) who makes a taxable supply of real property by way of sale is not required to collect tax under Division II payable by the recipient in respect of the supply where
(a) (…)
(b) the recipient is registered under Subdivision D and, (…)
225(1) Subject to this Subdivision, the net tax for a particular reporting period of a person is the positive or negative amount determined by the formula
A – B
where A is the total of
(a) (…)
(b) all amounts that are required under this Part to be added in determining the net tax of the person for the particular reporting period; (…)
228(4) If tax under Division II is payable by a person in respect of a supply of property that is real property or an emission allowance and the supplier is not required to collect the tax and is not deemed to have collected the tax,
(a) Where the person is a registrant and acquired the property for use or supply primarily in the course of commercial activities of the person (…)
and
(b) (…) in any other case, the person shall, on or before the last day of the month following the calendar month in which the tax became payable, pay the tax to the Receiver General and file with the Minister in prescribed manner a return in respect of the tax in prescribed form containing prescribed information.[16]
[142] However, all things are not equal here.
[143] In most real property transactions, a vendor who claims that the supply is HST exempt is called upon by the purchaser to sign a statutory declaration to that effect. If it later turns out that the vendor was wrong, s. 194 of the ETA can have application. It provides as follows:
194 For the purposes of this Part, where a supplier makes a taxable supply by way of sale of real property and incorrectly states or certifies in writing to the recipient of the supply that the supply is an exempt supply described in any of sections 2 to 5.3, 8 and 9 of Part I of Schedule V, except where the recipient knows or ought to know that the supply is not an exempt supply,
(a) the tax payable in respect of the supply is deemed to be equal to the amount determined by the formula
(A/B) × C
Where
A is
if tax under subsection 165(2) was payable in respect of the supply, the total of the rate set out in subsection 165(1) and the tax rate for the participating province in which the supply was made, and
in any other case, the rate set out in subsection 165(1),
B is the total of 100% and the percentage determined for A, and
C is the consideration for the supply; and
(b) the supplier shall be deemed to have collected, and the recipient shall be deemed to have paid, that tax on the earlier of the day ownership of the property was transferred to the recipient and the day possession of the property was transferred to the recipient under the agreement for the supply.
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194 Pour l’application de la présente partie, dans le cas où un fournisseur effectue par vente la fourniture taxable d’un immeuble et déclare erronément par écrit à l’acquéreur qu’il s’agit d’une fourniture exonérée visée aux articles 2 à 5.3, 8 ou 9 de la partie I de l’annexe V, sauf si l’acquéreur sait ou devrait savoir qu’il ne s’agit pas d’une telle fourniture, les présomptions suivantes s’appliquent:
(a) la taxe payable relativement à la fourniture est réputée égale au résultat du calcul suivant :
(A/B) × C
où :
A représente :
si la taxe prévue au paragraphe 165(2) était payable relativement à la fourniture, la somme du taux fixé au paragraphe 165(1) et du taux de taxe applicable à la province participante où la fourniture a été effectuée,
dans les autres cas, le taux fixé au paragraphe 165(1),
B la somme de 100 % et du pourcentage déterminé selon l’élément A,
C la contrepartie de la fourniture;
b) le fournisseur est réputé avoir perçu et l’acquéreur avoir payé cette taxe le premier en date du jour du transfert à l’acquéreur de la propriété du bien et du jour du transfert à l’acquéreur de la possession du bien aux termes de la convention portant sur la fourniture.
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[144] In this case, the appellant did sign such a statutory declaration affirming that:
The sale, transfer and conveyance pursuant to the Agreement constitutes an exempt supply pursuant to Part I of Schedule V to the Excise Tax Act (Canada) and amendments thereto and the Agreement does not involve a taxable supply such that Harmonized Sales Tax would be payable by the Purchaser.
[145] On a plain reading of s. 194 and the statutory declaration, I think that the appellant is deemed by paragraph 194(b) to have collected tax from Heritage Seven because it incorrectly certified that the sale of 17 Dunblaine was not subject to HST and I have now found that it was subject to HST.
[146] In closing argument, the appellant suggested that the wording of the statutory declaration does not conform to the requirements of s. 194 and so the deeming provision is not engaged. Only where the statutory declaration specifies which of sections 2 to 5.3, 8 and 9 applies to exempt the supply, is s. 194 applicable according to the appellant.
[147] I respectfully disagree with this reading of the provision. The text of the provision does not require that the statutory declaration recite the specific applicable exempting provisions of the ETA. It only requires that the supply be certified as an exempt supply. The exempt supply in turn must be one described by one of the provisions referenced in 194(b). Here, the statutory declaration certified that the property was exempt pursuant to Part I of Schedule V. That is more than sufficient.
[148] The French text of s. 194 is substantially the same as the English text but perhaps is a shade clearer if clarity is in issue. It uses the phrase, ‘visée aux’ which Google translate renders as “referred to in the…”
. So, the vendor must certify in writing that the supply is an exempt supply referred to in the various sections of Part I to Schedule V. This statutory declaration seems to do that adequately enough. The exemption that must be one referred to in the listed provisions; the certificate does not need to specify the relevant one however.
[149] I need hardly add that the appellant’s proposed reading would in effect allow a vendor to escape the consequences of its own statutory declaration as to the HST status of the supply by simply drafting the declaration in a sloppy manner that does not conform to the requirements of s. 194. I doubt very much that this is a reasonable reading of s. 194 in the context of a perfectly ordinary closing declaration.
[150] Even if s. 194 did not apply, the appellant did, in fact and law, collect HST on the supply and as such, he was required to report and remit it to the CRA.
Appellant collected HST by charging an HST inclusive price
[151] The appellant’s agreement of purchase and sale provided that if the sale was taxable, then an amount was included in the purchase price as or on account of HST and Mr. Salehi had to report and remit that amount even if it was collected in error.
[152] Both in February 2026, during the appellant’s motion to amend its pleadings to argue that he did not have to collect HST, and again during the argument of this case, I canvassed with the appellant the question of whether the appellant had inadvertently collected HST on the supply. During closing argument, I asked counsel for the appellant to explain how it was possible for the appellant to have inadvertently charged a registered corporate purchaser a price that might be HST inclusive and to then keep the HST portion rather than reporting and remitting it to the CRA. I did so because this Court is not bound by the pleadings or arguments of the parties. Its overriding obligation is to ensure that a decision is issued that is based on the law. The Federal Court of Appeal in CSX Transportation Inc. held that:
[7] A court has an obligation to decide cases on all relevant law. Thus, the Federal Court did not err in raising with the parties the question whether they had overlooked the Civil Code.
[8] However, to fulfil the obligations of procedural fairness, the Federal Court had to be more specific about its concerns or put specific propositions to the parties so that they could debate them in an informed way. To do this, it had to invite submissions on the particular issues in the Civil Code it was concerned about, including the applicability of the Civil Code under private international law and its applicability in the face of provisions of the Canada Transportation Act.[17]
[153] According to the text of the agreement of purchase and sale, the purchaser was to pay a fixed price for 17 Dunblaine. That amount would not change regardless of whether the transaction was subject to HST or not. The text of paragraph 7 of the agreement reads as follows:
7. HST: If the sale of the property (Real Property as described above) is subject to Harmonized Sales Tax (HST), then such tax shall be
included in the Purchase Price. If the sale of the property is not subject to
HST, Seller agrees to certify on or before closing, that the sale of the property is not subject to HST. Any HST on chattels, if applicable, is not included in the Purchase Price.
[154] There have been a number of cases that have considered this type of clause.
[155] The appellant referred me to the Informal Procedure case of Chandna. There the Tax Court held that a standard form contract for the sale of a condominium that provided that the sale price included any applicable HST was too vague to show that the vendor had collected tax and so no rebate could be paid.[18]
[156] More recently, the Ontario Superior Court considered a similar clause in the case of Miculinic Investment Corporation. The Court noted that the interpretation of the contract should follow the Supreme Court’s jurisprudence in Sattva.[19] The surrounding circumstances should be considered but should not be allowed to overwhelm the words of the agreement. The Court in Miculinic found that the HST inclusive pricing clause was arguably not ambiguous at all. The problem in that case was that the property was only partly subject to HST and the parties had not specified how much of the property was taxable or how to calculate that proportion.[20]
[157] Miculinic references the Stanziano decision which in turn references a number of other relevant cases. The bottom line in Stanziano and the cases cited therein is that the ‘if HST is exigible it is included’ pricing clauses are not generally ambiguous.
[158] Where HST is exigible, the purchaser, if subject to subsection 221(2) of the ETA, can insist on a reduction in the amount payable on closing equal to the included HST, which they then remit to the CRA.[21] Although the Ontario Superior Court does not say it expressly, this holding is consistent with paragraph 154(2)(a) of the ETA, which provides that “consideration”
does not include “tax under this Part that is payable by the recipient”
.
[159] I heard evidence from Gil Pangilinan, the former president of Heritage Seven, who signed the agreement of purchase and sale on behalf of Heritage Seven. I was provided with the closing documents. His description of the transaction was rather unremarkable and does not raise any issues regarding the meaning of the agreement that calls for an extensive interpretive exercise. Heritage Seven paid the full closing price to Mr. Salehi without holding back any amount for HST since they thought the sale was HST exempt.
Appellant had to report and remit amounts collected in error on account of HST
[160] If the registered purchaser does not reduce the amount tendered on closing by the included HST, and if the transaction is taxable, the vendor must account to the CRA for the amount collected as or on account of HST per s. 225 and 228 of the ETA.
[161] Subsection 225(1) of the ETA provides a definition of “net tax”
. It states that net tax is equal to A - B. A is then defined as including:
(a) all amounts that became collectible and all other amounts collected by the person in the particular reporting period as or on account of tax under Division II, and
[162] the word “tax”
in the above provision is itself a defined term under s. 123 of the ETA. Tax, “means tax payable under this Part”
.
[163] So, the definition of net tax includes tax payable under Part IX of the ETA as well as “all other amounts collected by the person in the particular reporting period as or on account of tax”
. This requires any person who collects an amount as or on account of tax, even in error, to include that amount in their net tax.[22]
[164] Subsection 228(1) of the ETA provides that a person who is required to file a return must calculate the net tax and if that net tax is a positive amount they must remit it to the Receiver General.
[165] Subsection 238(2) of the ETA requires that every person who is not a registrant, i.e. the appellant, shall file a return with the minister for each reporting period of the person for which net tax is remittable by the person within one month after the end of the reporting period.
[166] Finally, the reporting period for a non-registrant like Mr. Salehi is the calendar month per subsection 245(1) of the ETA.
[167] The purchaser, if they become aware of the payment may seek a rebate from the CRA of the amounts paid in error as or on account of tax. The above provisions work together to ensure to minimize the risk that the Fisc is not left out of pocket by paying a rebate of amounts collected in error without receiving the amounts collected in error.
[168] Under the terms of his contract with Heritage Seven, Mr. Salehi charged a price that would be HST inclusive if the supply were taxable. The supply is taxable. Heritage Seven should not have paid the HST to the appellant since it was an HST registrant. Instead, Heritage Seven should have reduced its payment to the appellant by the amount of the HST in the purchase price, and sent the HST to the CRA but it did not do so because Mr. Salehi certified that the supply was HST exempt. As a result, the purchase price included an amount of HST that was collected in error by Mr. Salehi.
[169] Even though the appellant was not required to collect HST on 17 Dunblaine, he inadvertently did collect an amount as or on account of tax equal to 13/113th of the purchase price. It was not his to do with as he pleased. He was bound to account for it by reporting it and remitting the amount to the CRA, which he did not do. There is no basis therefore upon which to allow the appeal for 17 Dunblaine under subsection 221(2) of the ETA if the supply was taxable, as I have found it to be.
VIII. CONCLUSION
[170] The appeals of the appellant from the notice of assessment dated May 19, 2019, for the period of July 1, 2014 to July 31, 2014 (Walder property) and April 1, 2017 to April 30, 2017 (Dunblaine property) are dismissed.
IX. COSTS
[171] The respondent is entitled to costs. If the parties cannot resolve the costs of this appeal, they may make submissions as follows:
-
The respondent shall have 30 days from the date of this judgment to file and serve a costs submission.The submission will be no more than 6 pages long at 1.5 spacing.In addition, the submission may include a one or two-page appendix with a breakdown of the costs and disbursements sought;
-
The appellant shall have 30 days from the day that the respondent serves his costs submissions to make a responding submission.The submission will be no more than 8 pages at 1.5 spacing.In addition, the submission may include a one or two-page appendix, with a breakdown of its position on the quantum of costs and disbursements; and
-
the respondent shall have 15 days from the day that the appellant files and serves his responding costs submissions to file an answer to the appellant’s costs submissions not exceeding two pages at 1.5 spacing and may include a one or two-page appendix, with a revised breakdown of the costs and disbursements sought in response to the appellant’s costs submission.
Signed this 28th day of July 2026.
“Michael Ezri”
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