Section 254

The taxpayer (“Libfeld”) claimed the $24,000 Ontario new housing rebate on his purchase in 2018 of an unoccupied and sparsely-furnished home. He provided indirect evidence that the individual vendor was a builder of the home, including a Toronto Life promotional article (admitted to be hearsay) titled “House of the Week: $7 million for a newly built mini-mansion in Forest Hill” and explaining that the vendor had torn down a pre-existing house and built this one in its place.

In finding that Libfeld had not established that the vendor was a builder, Smith J noted (at para. 44) that “the Court does not have the benefit of any direct evidence from the Vendor or other independent witness as to the frequency of similar transactions, what her intention was when she acquired the Property or what her motive was for selling” and that, on the closing of the purchase, Libfeld had accepted the sworn declaration of the vendor that the sale was not a taxable supply, so that the s. 254(2)(a) test, that the vendor be a builder, was not satisfied. There also was not much evidence to establish, as required by ss. 254(2)(f) and (g), that the vendor had not, at some point, occupied the “new” home prior to its sale.

Smith J further found that the purchase did not satisfy the s. 254(2)(d) test that the purchase price included HST, noting that the purchase agreement merely provided that the purchase price included HST “if” the sale was subject to HST.

An individual (the “Assignor”) who was the employer of the appellant and a personal friend of the appellant’s uncle agreed in 2011 to purchase a new condo from the corporate builder (“West Harbour”), but in March 2014 the Assignor and the taxpayer signed an assignment agreement, pursuant to which the appellant reimbursed the Assignor for the payments she had made to date, and moved into the condo shortly after the interim occupancy date in April 2014. The appellant had not give timely notice to the West Harbour of the assignment as required by the purchase agreement. Nonetheless, West Harbour accepted a direction from the appellant to transfer title to the condo to the appellant on the closing of the purchase in March 2015.

In rejecting the Crown’s position that the appellant was not entitled to the rebate because he had acquired the condo from the Assignor (who was not the “builder”) rather than from West Harbour, Jorré DJ stated (at paras 23, 24):

Given that there was no sale from West Harbor to the Assignor, given that the Appellant made all the payments due to West Harbour under the purchase agreement arising after he signed the assignment agreement, … given the … emails showing acceptance by West Harbor of a direction coming from the office of the Appellant’s lawyer that title would be in the Appellant’s name and given the land registry records showing the transfer from West Harbor to the Appellant, it is clear from its conduct that the vendor, West Harbor, waived any unfulfilled conditions regarding the assignment, accepted the assignment and sold the property to the Appellant.

As a consequence, the Appellant took over from the Assignor and became the purchaser from the vendor, West Harbour, under the agreement of purchase and sale of 22 May 2011.

The appellant agreed in 2010 to purchase an (as yet, unconstructed) condo unit and in 2012, one month before closing and as a result of a deterioration in her credit rating, was required by the mortgage lender (the “Credit Union”) to find an additional party with a better credit rating to be liable on the mortgage. As a result, an amended purchase and sale agreement executed before closing added a friend (Ms. Richards) as a purchaser (without stating the nature or extent of her interest), and the title transfer documents on closing showed Ms. Richards as becoming a 1% owner. CRA denied the new housing rebate to the appellant on the basis that a 1% interest in the condo was acquired by an unrelated particular individual (Ms. Richards) otherwise than for use as a residence.

Hershfield J. found that Ms. Richards was not a “particular individual”, stating (at paras. 16, 17 & 19):

[S. 254(2)(a)] requires the builder to make a supply by sale to Ms. Richards in order for her to be a particular individual.

… Ms. Richards not only believed that she had acquired no interest in the subject unit, but…at law, she had no beneficial interest…

[T]he only supply made by the builder was the supply made pursuant to the original agreement. The supply of the 1% interest was made by the Appellant. She received consideration for this supply in the form of a guarantee made by Ms. Richards to the Credit Union.

Hershfield J. further stated (at para. 29):

[A] possible reading of paragraph 254(2)(a) requires that a supply made by the builder to Ms. Richards be a supply for consideration in order for her to be a particular individual. …Further, paragraph 254(2)(b) clearly and expressly contemplates that the particular individual become liable to the builder for the supply. Having concluded that Ms. Richards should not be seen as having incurred any liability to the builder, it strikes me that, arguably at least (even if I had found that the builder had made a supply to Ms. Richards), there has not been the type of supply made here that would include her as a particular individual.

He went on to apply (at paras. 44-46) the “ultimate liability” Bondfield doctrine to find that because the taxpayer “accepted ultimate liability for payment to the builder in the unlikely event the builder was able to make a case against [her friend],” the taxpayer was the sole “recipient” of the supply by the builder, so that the s. 123 “recipient” definition deemed the builder to supply the condo solely to the taxpayer.

Smith J found that the appellant was not entitled to the New Housing Rebate for a new condo unit purchased by him given that after agreeing to the unit, he entered into a lease agreement with two tenants on March 23, 2012 for a one-year term commencing at around the closing date for the condo closing. Smith J stated (at para 9):

… [W]hile the Appellant and his spouse may have initially intended to occupy the Property as their primary place of residence, … such intention was vitiated when they entered into the lease agreement.

The appellant (“Qun”), of Richmond Hill, Ontario was asked by her older sister (“Yu-Lian”) and Yu-Lian’s ex-husband (“Kwong”), both of the Vancouver area, to search for a house in the Toronto area, which would be a place for their daughter (“Lucy”) to reside at once she moved to Toronto to attend university over a year later. At the request of Yu-Lian and Kwong, Qun signed the purchase agreement for a home to be constructed in the Markham area, as Kwong, the intended purchaser, was in China on business. Yu-Lian and Kwong funded the $40,0000 deposit. Two weeks later Kwong was available and promptly had his name added as a named purchaser to the purchase agreement, but the developer refused to delete Qun ‘s name. Kwong entered into a mortgage on the Markham property and title was taken solely in his name. Although the developer prepared an Ontario new home rebate application form in the name of Qun and got her to sign it, at the closing Kwong, as purchaser, was credited with the $24,000 Ontario rebate. Although Kwong made a written appointment of Qun as his attorney, this was not signed until four days after the closing and its scope was restricted to the sale and management of the property, rather than its purchase. The availability of the Ontario rebate turned on whether it was applied for by a “particular individual” as per s. 254(2)(b) of the ETA. The Minister denied the rebate on the basis that Qun acquired the new home for the use only of Lucy, who was a "relation" of Kwong but not of Qun.

Notwithstanding the absence of written authorization of Qun as agent of Kwong at the closing of the acquisition, Russell J found that the rebate was available on the basis of an implied agency, and that the appeal should be allowed, stating (at paras 30, 32, 34-35):

Qun, was acting on the directions of and for the benefit of her former brother-in-law and his ex-wife, being the Appellant’s older sister, in being able to arrange suitable accommodation in Toronto for those two ex-spouses’ university student daughter. … In respect of Fourney, control of Qun was “manifested in the authority” Kwong and Yu-Lian gave her in buying and eventually selling the Markham property for them. ...

An implied agency simply reflects existence of an agency relationship in the absence of formal or explicit documentation identifying that agency relationship. … Actual conduct rather than existence of formal agency agreement normally governs [a finding of implied agency]. …

It was Kwong who obtained the benefit of the Rebate. …

The Rebate application was not made by Qun...on her own behalf but rather by her in her capacity as agent for...Kwong…he being titular owner of the Markham property … .

The Appellant and his wife were U.K. citizens and passport holders who sold their U.K. home, moved to Canada in 2011 with the status of visitors, and had all of their personal possessions shipped to Canada after they arrived. The Appellant entered into an agreement of purchase and sale for a new home in December 2011 in Markham, Ontario, which closed a year later, after which they occupied the home as their only residence. CRA denied his rebate application on the basis that the home could only be considered as a secondary place of residence since his status while in Canada when he agreed to buy it and when he moved in was that of a visitor. In rejecting this position and finding that the rebate was available, Boyle stated (at paras 18, 19):

[T]he requirement to be satisfied… is whether the housing unit was occupied as a place of residence. That is very distinct from either the buyer’s residence status in Canada for income tax law purposes, which is a characterization of the person’s status, or whether the buyer is lawfully present or resident in Canada for immigration law purposes….

… The use of the word “habituelle” in French…makes it even more clear and certain that the use of the word “primary” to qualify “place of residence” in English is not to suggest that the new housing rebate is only available to those who also have at least a second home also used as a place of residence.

He further stated (at para 32) that it was irrelevant that the Appellant’s established intention to have the home occupied as his family’s residence might have been rendered ineffectual by a deportation order.

Because of lender requirements respecting the taxpayer’s purchase of a new home, on the closing of the purchase, a friend of the taxpayer (Dr. Akbari) acquired an undivided 1% interest in the home, with the taxpayer and his spouse acquiring the remaining undivided 99% interest. On the date of closing, the parties also signed a trust declaration in which Dr. Akbari acknowledged that he was holding the 1% interest in trust for them as beneficial owners and that he would convey that interest on demand (which subsequently occurred to their son with the mortgage lender’s approval).

In finding that the taxpayer was entitled to the new housing rebate (“NHR”) notwithstanding that Dr. Akbari (who never occupied the property) was a legal purchaser, Smith J. stated (at paras 54-55):

The notion of a bare trust as an agency relationship…is well known and well established, at least in the common law jurisdictions. … For tax purposes, a bare trust is considered a non-entity in the sense that a beneficiary as principal, is considered to deal directly with property through the trustee as agent or nominee… .

… Since I have concluded that Dr. Akbari was a bare trustee and that only the Appellant was a “particular individual” for the purposes of subsection 254(2) of the ETA, it necessarily follows that the Appellant was also the person “who was liable under the agreement to pay the consideration” for the purpose of the definition of a “recipient”. The fact that the builder may have had a legal recourse against Dr. Akbari for the consideration changes nothing to the notion that it is the Appellant, as legal and beneficial owner, who was ultimately liable for the consideration under the terms of the Trust Declaration.

The appellant signed a conditional pre-habitation [“préoccupation”] agreement with a home builder on September 1, 2011, and subsequently acquired title at the closing of the purchase. In finding that the relevant time for determining whether the appellant satisfied the test in s. 254(2)(b) that she was “acquiring the complex…for use as the primary residence of [her] or a relation” was September 1, 2011, Smith J stated (at para. 22, TaxInterpretations translation):

[T]he expression “aux termes du contrat de vente” [“under an agreement of purchase and sale”] in the French version of paragraph 254(2)(b) of the ETA must be interpreted broadly to include a promise to purchase or, to refer to the wording of Article 1785 of the Civil Code, “a preliminary contract by which a person promises to buy the immovable.” This interpretation accords a common meaning to the two versions of the provision. Given this conclusion, we must now examine the evidence from the time of signing the promise to purchase.

Smith J went on to find that, in any event, the appellant was not entitled to the rebate, stating (at para. 33) that “at best, her occupation of the house was temporary and sporadic” (i.e., at most, occupying for several weekends, or perhaps also alone for a few days without her children, before she moved back in with her husband and rented out the house).

The appellant acquired a new home in Toronto pursuant to an agreement of purchase and sale which provided that if the sale was subject to HST, such tax was to be included in the purchase price. The vendors (two individuals) through their solicitor claimed that the sale was exempt from HST, so that it was evident that they were not treating the sales price as including HST and that they would not complete the builder-required portion (“Section D”) of the form for the new housing rebate.

In fact, it was apparent to the appellant that the home had never been occupied (e.g., various appliances had not been used). Furthermore, the evidence presented (including by one of the vendors called by the Crown), including the high degree of leverage used to construct the building and the short time of ownership after major construction problems had been finally resolved, indicated that the construction and sale of the home had occurred as an adventure in the nature of trade – so that they were builders, and the sale was subject to HST. Accordingly, the appellant had established that the purchase was subject to HST.

Regarding Section D, Sommerfeldt J found that the required particulars in Section D could be waived as it was not possible for the appellant to obtain them.

In finding that the purchaser of a new condo had satisfied the requirement in s. 25(2)(d) notwithstanding that he had paid at closing only a net amount as reduced by the assignment under s. 254(4) to the builder of the new housing rebated, Jorré DJ stated (at para. 32):

[A]s a result of paragraph 254(4)(b), the HST must not necessarily have been paid; it need only have been paid or be payable. That is the case here and so the condition has been met.

Whether the appellant was eligible for the rebate depended in part on whether a relation of hers was the first occupant of the Quebec condominium in question, which had been purchased in her name. A daughter (“NR”) was born of a relationship which her father had had with Érika Lachance, who was not a spouse or common-law partner of him. The taxpayer maintained that, following the purchase date, the property was occupied by her relations (Érika Lachance and NR), as required by s. 254(2)(g).

Smith J found that, as Érika Lachance was not married to the taxpayer’s father and that they did not have a conjugal relationship, she was not the taxpayer’s stepmother. (para 30). However, Smith J found that NR was the taxpayer’s half-sister and therefore her relation within the meaning of the ETA, stating (at para 34).

[I]t appears to be accepted that the definition of brother and sister includes half-sisters and half-brothers born of a common parent. This principle was recognized… in Huntley… 2010 TCC 625, at paragraph 17.

After referring to s. 158 of the Civil Code of Quebec, which provided that “an act that may be performed by a minor alone may also be validly performed by his representative,” Smith J further found that, in light of the age of NR, the acts of NR (e.g., home occupation) could be performed by her representative (Érika Lachance).

However, Smith J found that the appellant had failed to establish that NR and Érika Lachance were the first occupants.

The appellant was not entitled to the rebate as “at best, her occupation of the house was temporary and sporadic:” at most, following acquisition, she occupied the new home for several weekends, or perhaps also alone for a few days without her children, before she moved back in with her husband in the family home and rented out the new house to a third party.

Lafleur J indicated that a builder cannot deduct from net tax for the amount of new housing rebates credited to its home purchasers in a reporting period unless it submits the signed prescribed forms of the purchasers to the ARQ (or CRA, as applicable) in that month. Here, the builder not only failed to transmit the signed forms as required by s. 254(5)(a), but also failed to get the forms signed by the purchasers on a timely basis as required under s. 254(4)(c).

The appellant agreed in July 2016 to purchase a new home for $413,847, but by the time of the closing in March 2018, he had lost his source of employment income and broken up with his partner. He nonetheless closed with financial assistance from his parents and from a private mortgage. He did not consume any meals at the residence, and only stayed there for approximately two nights per week. The only housekeeping items on the premises were a mattress, sheets and pillows and a table. He had occupational home insurance for the residence, as well as internet and natural gas for the stove and for heat. He eventually sold the residence for $455,000.

Rossiter CJ, in rejecting the Crown’s argument that s. 254(2)(g) required the appellant to have occupied the property as his primary place of residence, stated (at para. 22):

[I]t must be presumed Parliament intentionally chose to make a distinction when it used the words “primary place of residence” in paragraph (b) and “place of residence” in paragraph (g).

Rossiter CJ went on to find that, although the appellant satisfied the requirement under s. 254(2)(b) that, at the time of agreeing to purchase, he had intended to occupy the residence as his primary place of residence, he had not satisfied the requirement under s. 254(2)(g) that he had in fact occupied the residence as a place of residence, stating (at para. 24):

[O]ccupancy is something more than simply having a mattress with a set of sheets and pillowcases and a table on the premises. Although the Appellant did some measure of staying at the premises in question, two nights per week, this certainly could not classify one as occupying the premises.

Rossiter CJ went on to note that the appellant continued to live most of his time with his parents, where he kept most of his personal effects and mailing address. He accepted (at para. 26) the “frustrating event” doctrine from Sazio (2018 TCC 258), but stated (at para. 26):

To invoke frustration, the surrounding circumstances must make the frustrating event unforeseeable, beyond the buyer’s control, and deny the buyer any alternative pathway to having the property be their primary residence … .

Although the appellant pointed to the need to obtain a private mortgage, he did not establish that this interfered with an ability to occupy the residence.

Accordingly, the rebate was denied because s. 254(2)(g) was not satisfied.

The taxpayer credited the new housing rebate to the purchasers of its newly-constructed homes but did not obtain the prescribed form from them due to being unaware of this requirement. When this deficiency emerged on audit, it promptly obtained signed copies of the form from most of the purchasers and provided the forms to the ARQ. However, this occurred after the two-year period referenced in ETA s. 254(4)(c).

In confirming the assessments of the taxpayer for the amounts of the rebates previously claimed by the taxpayer, Lafleur J stated (paras. 43 and 52, TaxInterpretations translation):

The Court is of the view that the formalities provided under the ETA are imperative in the context of our system of self-assessment in matters of sales tax. The scrupulous respect of the rules and formalities prescribed by the ETA is essential to the proper functioning of the system. …

[T]he builder simply cannot grant the credit without having already received the prescribed form of the purchaser as described in paragraph 254(4)(c). It is not until the form is received within the prescribed two-year period from the transfer of the property that the builder is permitted to grant the credit to a purchaser and claim a deduction in the computation of its net tax under subsection 234(1) for the reporting period of the builder for which the credit is granted.

After indicating that there was an imperative requirement in the wording of s. 254(5)(a) that the builder forward the purchaser forms with its return claiming the rebate amount, she stated (at para. 64):

Consequently, the builder who has not conformed with the requirements of s. 254(5)(a) cannot deduct an amount in this regard in the computation of its net tax … .