http://decisions.fca-caf.gc.ca/site/fca-caf/decisions/en/item/64564/index.do 
GF Partnership v. The Crown[1] (November 7, 2013) dealt with whether development charges paid by a homebuilder were paid as principal and therefore attracted GST as part of the purchase price or whether they were paid as agent for the home purchasers and therefore did not result in GST payable. The facts are best set out in the decision of the Tax Court:[2]
[1] The appellant, GF Partnership, is a developer and builder of residential subdivisions that operates under the name Mattamy Homes. It has appealed assessments made in respect of goods and services tax (GST) collectible from buyers of new homes. The main issue is whether the GST that the appellant remitted took into account the entire consideration for the homes it supplied.
[2] In these reasons, the appellant will be referred to as “Mattamy” and the homebuyers will be referred to as “Purchasers.” Other defined terms will be adopted from an agreed statement of facts (ASF) which is reproduced in part below.
[3] Under the
Excise Tax Act (the “ETA”), the purchase of a newly-built home is subject to GST, subject to a rebate of a portion of the tax. In 2001, an accountant who Mattamy hired as a consultant advised that another developer had been successful in reducing this GST. The plan involved taking advantage of the fact that municipal development charges are not subject to GST.
[4] Development charges are usually paid by developers and recovered through the purchase price of the homes, which are taxable. The plan of the other developer was to have the development charges paid directly by the homebuyer, and to reduce the purchase price of the home by an equivalent amount. In effect, the development charges were unbundled from the sale of the home. The GST saving resulted from the reduced purchase price for the home.
The issue turned on the language of the Purchase Agreements:
[29] Mattamy submits that Purchasers agreed to be liable for development charges by entering into Purchase Agreements and by agreeing to the Statements of Adjustments.
[30] I disagree with this submission. Under the relevant Purchase Agreements, Purchasers did not agree to be liable for development charges, qua development charges. Accordingly, when Mattamy paid development charges, it did so on its own behalf, and not on behalf of Purchasers.
[31] The provision in the Purchase Agreements that is the most relevant to determine whether Purchasers agreed to pay development charges, qua development charges, is set out in paragraph 27 of the ASF above. The provision that is effective for 2002 and later years is reproduced again below.
The parties acknowledge and agree that, as part of and included in the Purchase Price herein, the Vendor has or will pay on behalf of the Purchaser, all taxes, levies, imposts, building permit fees (for permits obtained on behalf of the Purchaser), and all applicable development charges including education development charges applicable to the property. The parties acknowledge and agree that these amounts, at the Vendor’s option, may be shown separately in the statement of adjustments to be delivered to the Purchaser prior to Closing.
[32] The essential question is whether, by this provision, Purchasers agreed to be liable for development charges.
[33] I note that the provision above does not explicitly state that Purchasers are liable for development charges. This is important because development charges are incurred as part of the development and building process and were paid by Mattamy prior to the sale of the homes to Purchasers. Accordingly, in the normal course Purchasers would not expect to be liable for this type of expenditure. In these circumstances, if Purchasers were to agree to take on this liability, the Purchase Agreements should make this clear. The language used in the Purchase Agreements is far from clear on this point.
[34] Having regard to the specific language used in the Purchase Agreements, the provision first states that development charges are part of the Purchase Price. This implies that development charges are paid by Mattamy on its own account and that an amount representing the cost of the development charges is included in the consideration for the homes.
[35] The provision then goes on to state that the development charges have been, or will be, paid by Mattamy on behalf of Purchasers. This clause is ambiguous. Read in isolation, the clause could be interpreted that development charges are paid by Mattamy as agent for Purchasers or that the development charges are paid by Mattamy on its own account but for the ultimate benefit of Purchasers.
[36] At the very least, the whole provision is quite ambiguous. But when the particular clauses are read harmoniously, they appear to imply that Mattamy pays the development charges on its own account, but for the ultimate benefit of Purchasers. I would conclude that Purchasers cannot be said to have agreed to pay development charges as development charges.
The Federal Court of Appeal agreed with the Tax Court and dismissed the appeal from the bench:
[4] We have not been persuaded that the Tax Court judge erred in any way in construing the purchase agreements as she did. In our view, it was open to her to hold, for the reasons that she gave (reasons, paras. 31 to 40), that the appellant did not pay the development charges as agent for the homebuyers, that the homebuyers had no direct liability for the payment of those charges and that they formed part of the purchase price of the homes.
The alternative issue on appeal dealt with New Housing Rebates and is again best set out in the Tax Court reasons:
[9] If Mattamy does not succeed on the main issue, an ancillary issue arises concerning Mattamy’s entitlement, or liability, with respect to new housing rebates (NHRs). If the price for the homes includes the development charges, then in some cases the NHRs claimed were too high and in other cases they were too low.
[10] Mattamy submits that it is not liable where the NHR claims were too high but that it is entitled to relief where the NHR claims were too low. The Crown’s position is the polar opposite. It submits that Mattamy is liable for NHR claims that were too high but that it is not entitled to relief for claims that were too low.
The Court of Appeal again accepted the Tax Court’s conclusion on this alternative argument:
[5] As to the entitlement to/or liability for additional New Home Rebates (NRSs), the Tax Court judge noted that the Appellant had to administer the NHRs by paying or crediting them to homebuyers and where appropriate seek reimbursement trough a deduction from its own net tax. The appellant did this on the basis that the development charges did not form part of the purchase price.
[6] The result of the Tax Court judge’s decision to the contrary is that some purchasers would be entitled to more NHRs and some less. The issue before us on appeal is whether the appellant is entitled to an increased deduction from net tax where the NHR entitlement was greater than it determined.
[7] The Tax Court judge held against the appellant, she noted that subsection 296(2) is the relevant provision and that in order for this provision to apply, an amount must have been paid or credited by the appellant on account of the unclaimed portion of the NHRs pursuant to subsection 254(4). The evidence in this case is that no such amount was paid or credited to the homebuyers (reasons, paras. 83 to 87).
[8] As to subsection 296(2.1), the Tax Court judge explained that this provision applies where “an amount … would have been payable to the person as a rebate”. Only the purchaser of a new home is entitled to the NHR. The appellant’s entitlement is simply to a deduction in computing net tax under subsection 234(1) (reasons, para. 81). As further explained by the Tax Court judge, the provision in issue in
United Parcel Service Canada Ltd. V. The Queen, 2009 SCC 20 (subsection 261(1)) is worded quite differently with the result that this decision is of no assistance to the appellant (reasons, para. 82).
Comment: It is interesting to speculate whether the taxpayer might have succeeded by the use of different language in the Purchase Agreement.
[1] 2013 FCA 260.
[2] 2013 TCC 53.