Date: 19971124
Docket: 96-4162-GST-I
BETWEEN:
ADRIAN REGINALD TURTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario, on September 3, 1997)
Mogan, J.T.C.C.
[1] The issue in this appeal concerns a new housing rebate of goods and services tax provided in section 254 of the Excise Tax Act. Unless I specifically indicate some other statute, the sections I refer to hereafter shall be part of the goods and services tax legislation in that Act.
[2] In the spring of 1995, the Appellant and his wife contracted to buy a new house in Sunderland, Ontario. The Appellant applied for the new housing rebate but it was denied. The issues in this appeal concern whether he was fairly treated and if he has the right to the new housing rebate. There were many documents entered as exhibits but I shall refer to only those which I regard as relevant.
[3] Exhibit R-1 is the Agreement of Purchase and Sale entered into between Ivy Turton and Reginald Turton (the Appellant), as purchasers, and Maple Lane Homes Incorporated, as vendor, for the amount of $156,500 which is called the purchase price in Exhibit R-1. The purchase price for the new home in Exhibit R-1 was advertised by the vendor as being GST-included, meaning that the goods and services tax would be included in the purchase price. The Appellant was aware of this at the time he and his wife entered into the purchase transaction. Apparently, the original agreement was executed by the Appellant and his wife on or about April 1, 1995. However, an agent for the vendor attended at the home of the Appellant and his wife in Rexdale, Ontario on April 11, 1995, and indicated that she was making some relatively minor amendments to the agreement. The end result was that a binding agreement was executed on April 11, 1995 by both the Appellant and his wife, as purchasers, and the agent for the vendor.
[4] In mid-June, the Appellant attended at the office of his lawyer, Ronald Swain, to sign documents connected with the proposed purchase transaction which was scheduled to close on June 30, 1995. At that time, he was requested to sign a statutory declaration indicating that he was the purchaser of a single unit residential complex; that he was an individual eligible to apply for the new housing rebate; and lastly, that he was assigning all of his right to receive the new housing rebate to the builder. The Appellant objected to this since he was of the opinion that he should have the benefit of the new housing rebate to reduce the purchase price. His lawyer advised him that if he did not sign this declaration he may lose his $10,000 deposit which he had paid on or about the time he signed the Agreement of Purchase and Sale (Exhibit R-1). The Appellant claims that he was under great pressure at this time because his wife was seriously ill with heart problems. She was in the hospital requiring constant care and she would not be discharged from the hospital in order to be of any assistance to him when he moved to the new home on June 30, 1995.
[5] The Appellant executed the statutory declaration (Exhibit A-4) and wrote in above his signature the words "signed under protest”. On June 30, 1995, the Appellant was preparing to move to the new house at Sunderland when he received a telephone call from his lawyer’s office in Lindsay, Ontario, advising him that the vendor would not accept the assignment of the goods and services tax (by way of statutory declaration) executed under protest. The Appellant then telephoned his daughter who was a schoolteacher in Lindsay and who had a power of attorney from the Appellant. She went to the lawyer’s office on June 30 and executed an amended assignment of the GST new housing rebate to the vendor builder. The amended assignment executed by Iris Sider as attorney for the Appellant was entered as Exhibit R-3. Upon the daughter executing the amended assignment on behalf of the Appellant, the transaction was completed on June 30, 1995. The evidence, however, indicates that the actual Deed may not have been registered until July 2, 3 or 4, 1995. For all practical purposes, however, the purchase of the house was completed on June 30, 1995.
[6] The Appellant testified that later in the year, sometime in November, the Appellant called the Royal Canadian Mounted Police (RCMP) and suggested that there was a fraud involved in the way the goods and services tax new housing rebate was handled. An RCMP officer met with the Appellant and, thereafter, met with Revenue Canada. Subsequent to those meetings, the supervisor of that investigating officer wrote to the Appellant on January 23, 1996 stating that they did not regard the situation as a criminal fraudulent matter and that, if there was a dispute, the matter was civil to be worked out between the Appellant and Revenue Canada. That letter was entered as Exhibit A-2 signed by a Staff Sergeant Kossatz at the Bomanville Commercial Crime Centre for the RCMP.
[7] The Appellant requested a determination of the goods and services tax rebate and an assessment issued by Revenue Canada gave rise to this appeal. The Appellant has set out his claim in a booklet (Exhibit A-1) containing a number of schedules. The Appellant’s claim is based on the fact that, if he paid $156,500 for the new home and GST of 7% was included in that amount, the GST portion of that amount should be 7/107 multiplied by that amount because the pre-tax purchase price (excluding GST) would be a lesser amount. One of the schedules contained in Exhibit A-1 shows that, if the GST of 7% was included, then the pre-tax purchase price (excluding GST) would have been the amount $146,261. In other words, the amount of GST was $10,239.
[8] In accordance with paragraph 254(2)(i) of the Act, the rebate to which a new home purchaser is entitled is 36% of the goods and services tax paid. Therefore, the rebate at 36% on GST of $10,239 would be $3,685 which is the amount the Appellant claims he is entitled to receive as a consequence of this transaction. He is of the opinion that the amount payable by him to the vendor should be $156,500 less the $3,685 GST credit, resulting in a net amount of $152,815, which he thinks should be his cost of the new home. If the Appellant is right in his thinking, then the goods and services tax on this transaction (before any rebate) would have been $10,239 which means that the proceeds of disposition available to the vendor as the real selling price of the house (excluding tax) would have been $146,261.
[9] The vendor takes a different view of the transaction and its view is supported by Revenue Canada. The Appellant subpoenaed a number of witnesses including (i) the woman who is president of the vendor company who sold the house to him; (ii) Mr. Swain, the lawyer who represented him on the transaction; and (iii) Mr. Swain’s legal secretary who completed most of the documentation in connection with this transaction and who had a number of discussions with the Appellant.
[10] The position taken by the vendor is illustrated in a schedule contained in Exhibit A-1. It is complicated because the vendor has taken into account not only the fact that the goods and services tax was purported to be included in the selling price, but the vendor also claims to have taken into account the fact that there was a new housing rebate available on this transaction. The rebate is equal to 36% of the amount of goods and services tax. The vendor’s computation is calculated as follows: the goods and services tax is 7%; the new housing rebate is 36% of the goods and services tax (36% of 7%) which is 2.52%. Therefore, the net tax is 7% less 2.52% being 4.48%. In other words, after the rebate the vendor will have received from the purchaser as tax 4.48% rather than 7% on the new house sale price. The vendor then proceeded to calculate the purchase price with GST included as follows:
$156,500
104.48 x 100 = $149,789 = selling price
$149,789 x 7% GST = $10,485 = GST before rebate
$149,789 + $10,485 = $160,274 = selling price plus full GST
$10,485 x 36% = $3,774 = amount of GST rebate
$160,274 - $3,774 = $156,500 = selling price plus net GST
after rebate
The vendor states that the actual selling price was $149,789; the goods and services tax of 7% increased the price to $160,274; the new housing rebate of $3,774 brought the price back down to $156,500 for the purchaser to pay. The vendor claims that it is not misleading to say that the purchase price of $156,500 is GST-included because that amount includes the net goods and services tax after the rebate.
[11] It appears to me that when the vendor and the Appellant signed the Agreement of Purchase and Sale (Exhibit R-1), they were interpreting the purchase price very differently. The Appellant was of the opinion that the $156,500 was a consolidated amount representing the actual sale proceeds to the vendor plus 7% GST which produced the Appellant’s actual purchase price of $146,261. The vendor claims that the purchase price was a consolidated amount comprising his real proceeds from the sale of the house plus the net GST being the amount of goods and services tax reduced by the new housing rebate. He therefore sees his actual selling price as $149,789.
[12] Which of the above positions is more reasonable? Was the Appellant misled as a purchaser in this transaction? The Appellant is a senior citizen and a sophisticated and intelligent person judging by the documentation he produced in Court, his personal submissions to the Court, and the astute manner in which he measured the transaction at the time. This is not an ex post facto cogitation on his part. He was aware from the time he embarked upon this transaction that the goods and services tax rebate would have an impact on the transaction. Against that background, the question comes down to what the parties to this transaction could reasonably expect having regard to the documents which were involved. I am influenced most by Exhibits R-1, R-3 and R-4.
[13] Exhibit R-1 is the Agreement of Purchase and Sale signed on April 11, 1995. As stated, it identifies the purchasers and the vendor and the purchase price of $156,500. On page 1 of the agreement there are nine unnumbered typed paragraphs of special terms and conditions. The seventh paragraph contains the following statement: “The Purchaser acknowledges that the Purchase Price includes the GST, and that the Purchaser will assign the rebate to the vendor”. The eighth paragraph states: “Schedule “A” hereto attached forms a part of this agreement”. Schedule “A” is entitled “Goods and Services Tax” and includes the following provisions:
1. The Vendor agrees to pay any GST required to be paid by the Purchaser in respect of the purchase of the Property and to remit the same following closing in accordance with the provisions of the legislation to be enacted by the Federal Government of Canada governing the imposition, collection and payment of GST (the “Act”). In consideration for the payment by the Vendor of the GST the Purchaser agrees that any rebate, refund or remission of such GST in whole or in part (the “Refund”) shall belong to and be the sole property of the Vendor.
2. In the event that the Refund will, pursuant to the Act, be paid to the Purchaser, it is agreed that an amount which the Vendor shall reasonably estimate to be equal to the Refund shall be charged to the Purchaser on closing and form an adjustment in the statement of adjustments (which amount the Vendor and Purchaser hereby undertake to readjust in the event that the refund actually received shall differ from the amount so estimated) and such Refund when received by the Purchaser may be retained by the Purchaser notwithstanding the provisions of paragraph 1 above.
3. In the event that the Refund will, pursuant to the Act, be paid in any other manner (whether to the Vendor and Purchaser jointly or otherwise) the provisions of paragraph 1 above shall apply and the Purchaser agrees to do such acts and to complete and deliver to the Vendor at any time before, on or after closing, and within ten (10) days of the Purchaser’s receipt of the Vendor’s written request therefor such documents as the Vendor may reasonably require including, without limitation, a power of attorney, to enable the Vendor to obtain payment of the Refund.
Having regard to the Appellant’s claim that he expected to get a reduction in his purchase price, on an objective reading of the Agreement of Purchase and Sale, I find that he had no basis to expect a reduction because he had assigned the GST rebate to the vendor.
[14] I am supported in my interpretation of the Agreement of Purchase and Sale by Exhibit R-3, the New Housing Application For Rebate Of Goods And Services Tax signed by Iris Sider, the daughter of the Appellant, as his authorized attorney. This is a government form prepared by Revenue Canada and it includes the usual information such as the name of the homeowner, the address and location of the home, and the type of application filed, namely, a general application through the builder. The reverse side of the application sets out the computation of the housing rebate where the GST was paid on a new home as follows:
Total GST Paid $ 10,485.23
Purchase Price/ Fair Market Value
(does not include GST) $149,789.00
GST x 36% $ 3,774.68
When I add the GST of $10,485 to the purchase price of $149,789, the aggregate is $160,274. When I subtract 36% of the GST amount of $10,485 which is $3,774 from the aggregate of $160,274, I obtain a total of $156,500 which is the purchase price the Appellant agreed to pay. The Appellant cannot claim he was misled as to what the goods and services tax was because his attorney, as authorized agent, signed the document which discloses that the purchase price/fair market value of the home was $149,789.
[15] My view of the matter is confirmed by Exhibit R-4, the Statement of Adjustments. The sale price listed thereon is $149,789 which is the same amount that appears in Exhibit R-3 (the New Housing Application For Rebate Of Goods and Services Tax). Below that Sale Price is an item called Net GST and the amount shown is $6,710. Therefore, when the net GST of $6,710 is added to $149,789 the total purchase price credited to the vendor is $156,500. (I note the $1.00 discrepancy.) In other words, the vendor has taken into account the rebate in calling it the Net GST. The Statement of Adjustments also indicates a credit in favour of the purchaser for GST in the amount of $3,774 and, immediately thereafter, an assignment of the GST rebate to the vendor of $3,774. Therefore, those two amounts neutralize one another. After examining the Statement of Adjustments, I am of the view that the Appellant cannot come to Court and say: “I did not understand what was going on. I thought I was going to get a rebate. I thought I would not have to pay $156,500 or, if I did pay that amount, I would get something back in the future”.
[16] The amount due on closing in the Statement of Adjustments takes into account the two GST credits. Therefore, the Appellant has not been deceived and there has been no misrepresentation to him. The documents indicate clearly what was going on. The Appellant should have known what was going on, and his claim that he might receive a rebate of approximately $3,500 to reduce his purchase price is a conclusion which cannot, in my view, be reasonable.
[17] Since the introduction of the goods and services tax, every adult in Canada knows that there is an additional 7% tax payable on most goods and services. There is nothing to prevent any vendor from advertising a product for sale and saying that the GST is included in the price. If it is a $100 item with GST included, then the buyer knows that he does not have to pay 7% on the $100. He knows that the GST is buried in the price. But as a matter of common sense, that buyer should know that if it is $100 with GST included, something in the range of $93 or $94 will go to the vendor as the genuine proceeds of sale and the other $6 or $7 is going to go to Revenue Canada as the goods and services tax.
[18] Any mature buyer of a product with a price advertised as GST-included knows that there is a tax buried in the price. The same applied to this transaction with respect to the new house. Because it was advertised as GST-included, the Appellant knew that there was a tax amount buried in the price. The difference here is that the Appellant claims that the tax amount was a true 7% so that the genuine proceeds of disposition available to the vendor ought to have been the sale price divided by 107 times 100. If it were not for the new housing rebate, that would be a reasonable conclusion.
[19] However, when the new housing rebate was an integral part of the Agreement of Purchase and Sale (Exhibit R-1) and when it was clearly spelled out in the Statement of Adjustments (Exhibit R-4), any intelligent buyer should have known from those documents that the vendor (the drafter of most of the documents) had his eye on the net GST which is really the 4.48% that will be payable to Revenue Canada after the 36% GST reduction in section 254 of the Act. The Appellant argued that the administration of the GST rebate is a kind of Machiavellian scheme by the Canadian Home Builders Association to fool buyers of new homes. I look on it as a pragmatic attempt to implement the net GST that will be collected on new houses which, as a result of section 254 of the Act, is reduced from 7% to 4.48%. It is, for whatever reason, a decision by Parliament to reduce the impact of the goods and services tax on new housing by about 2½%. It was effected in this transaction in such a way that a house that might otherwise have sold for $160,274 if the tax on this particular house had been 7%, in fact sold for $156,500; and the buyer obtained the benefit of the reduced rate of tax from 7% to about 4½%.
[20] I asked the Appellant in argument what relief he would expect if he were to succeed in this appeal. He had some difficulty articulating his answer but indicated that if he received a rebate based on his calculation in his schedule which is $3,685, he would be getting the amount he thought he had bargained to get. I cannot give him that relief because, on the documents before me which he admits are valid and binding contracts, he has assigned that rebate to the vendor and the indication is that the vendor has received the rebate. I cannot find that the Minister of National Revenue has done anything inappropriate in this transaction.
[21] The documents which are before me, namely, Exhibit R-1 (the Agreement of Purchase and Sale), Exhibit R-3 (the application for the GST rebate) and Exhibit R-4 (the Statement of Adjustments) are documents that flow in the world of commerce as a result of transactions entered into by citizens negotiating freely. I cannot see how the Minister of National Revenue is involved nor how I, as a judge in this Court, can interfere with what happened as a consequence of the Appellant’s purchase transaction. I cannot determine any amount of relief that might be available to the Appellant. The appeal is dismissed.
[22] Although the question was not raised in Court, I ask myself whether the Respondent might have moved to strike out the Notice of Appeal for failing to disclose a cause of action.
"M.A. Mogan"
J.T.C.C.
Ottawa, Canada,
November 24, 1997.