http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/109132/index.do 
Malik v. The Queen (April 15, 2015 – 2015 TCC 83, Graham J.).
Précis: This decision is the latest of a number of Tax Court decision involving a disallowance of the GST/HST New Housing Rebate where an accommodation party joins the agreement of purchase and sale and subsequently takes title, in whole or in part, to the property without any intention of actually occupying the property. Here Mr. Malik signed the agreement of purchase and sale in 2010. When he discovered he could not get financing he arranged for his wife’s uncle, Mr. Sheikh, to be added as a co-purchaser under an assignment agreement. The mortgage lender insisted that Mr. Sheikh take sole title to the property, which he did in May of 2011. The Court accepted that Mr. Malik paid all of the expenses associated with the property, including the mortgage payments. Mr. Malik and his family were the sole occupants of the property after closing; Mr. Sheikh had never intended to occupy the home and never did. The Tax Court held that there was a supply to both Mr. Malik and Mr. Sheikh under the assignment agreement and they did not qualify for the rebate since Mr. Sheikh did not intend to occupy the home. Section 134 of the
Excise Tax Act (the “ETA”) did not operate to deem there to be no supply; the vendor of the home was not agreeing to convey it to Mr. Malik and Mr. Sheikh in order to secure any debt or obligation of the vendor. The appeal was accordingly dismissed.
Decision: The facts followed a familiar pattern in these “accommodation party” cases:
[5] On March 5, 2010, Mr. Malik entered into a contract of purchase and sale to purchase a house from a developer (the “Developer”). He made an initial deposit but was unable to make the subsequent deposits when they were due. As a result of these late deposits, the Developer told Mr. Malik that, if he did not provide proof that he could obtain financing to close the purchase, the Developer would consider him to be in default. Remarkably, it was only at this point that Mr. Malik began looking into financing.
[6] Mr. Malik and his wife had made poor financial choices in 2005 that resulted in each of them declaring personal bankruptcy in 2006. Not surprisingly, Mr. Malik soon learned that this credit history made it impossible for him to obtain conventional bank financing. No conventional lender would lend money to him alone nor would they lend money against the property if he were going to be on title. To further complicate matters, the Developer would allow someone else to be added to the Purchase Agreement but would not allow Mr. Malik to be removed.
[7] Mr. Malik sought help from his family members. He was unable to obtain any assistance from his own family. As a result, he reluctantly turned to his wife’s family. His wife’s uncle, Mr. Sheikh, agreed to help.
[8] Mr. Malik and Mr. Sheikh agreed that Mr. Sheikh would finance the closing using a mortgage in his name alone and would secure that mortgage by taking sole title to the house at closing. Mr. Malik, his wife and their two children would live in the house. Mr. Sheikh was able to convince his bank to overlook the fact that Mr. Malik was a party to the Purchase Agreement so long as Mr. Malik was not on title to the property.
[9] Because of the Developer’s concerns about Mr. Malik’s ability to close, the Developer insisted that Mr. Sheikh be added to the Purchase Agreement. On January 20, 2011, Mr. Malik, Mr. Sheikh and the Developer entered into an Assignment of Agreement of Purchase and Sale (the “Assignment Agreement”). Pursuant to that agreement, Mr. Malik assigned all of his rights under the Purchase Agreement to Mr. Sheikh and himself and Mr. Malik and Mr. Sheikh jointly assumed all of Mr. Malik’s obligations under the Purchase Agreement. The Developer’s role under the Assignment Agreement was essentially limited to consenting to the assignment and confirming that if the transaction collapsed the Developer would return the deposits to Mr. Sheikh and Mr. Malik jointly.
[10] The purchase of the house closed in early May 2011[1]. As had been arranged, title to the house was registered in Mr. Sheikh’s name and Mr. Malik and his family moved into the house.
The Court first concluded that there was a supply to both Mr. Malik and Mr. Sheikh under the assignment agreement:
[13] Mr. Malik relies on the informal procedure decision in Rochefort v. The Queen. That case involved a third party who was added to the legal title to a property and the related mortgage in order to help the taxpayer obtain financing. Justice Campbell Miller held that the taxpayer was entitled to the new housing rebate. While that decision clearly supports Mr. Malik’s position on the second issue in this Appeal, it does not support his position on the first issue. Justice Miller noted that section 133 states that when a taxpayer enters into an agreement to provide a property, the entering into of the agreement is deemed to be the supply. Since the third party in Rochefort never became a party to the agreement of purchase and sale, Justice Miller concluded that the supply was made to the taxpayer. By contrast, in Mr. Malik’s case, Mr. Sheikh clearly became a party to the Purchase Agreement.
[14] Based on the foregoing, I conclude that the supply of the house was made to both Mr. Malik and Mr. Sheikh. It is therefore necessary for me to consider the second issue.
[Footnote omitted]
Next the Court examined the potential application of section 134 of the ETA:
[15] The relevant portion of section 134 reads:
… where, under an agreement entered into in respect of a debt or obligation, a person transfers property or an interest in property for the purpose of securing payment of the debt or performance of the obligation, the transfer shall be deemed not to be a supply …
The Court concluded that the provision did not apply:
…
(i) First, for section 134 to offer Mr. Malik any relief, the section must apply to the transfer of the house, not the transfer of rights under the Purchase Agreement. Mr. Malik has been denied the new housing rebate because Mr. Sheikh was a recipient of the supply of the house, not because Mr. Sheikh was the recipient of a supply of rights under the Purchase Agreement. I acknowledge that section 133 deems a supply to have occurred when Mr. Sheikh became a party to the Purchase Agreement. However, section 133 makes it clear that the supply that is deemed to have been made is a supply of the property in question, not a supply of the rights under the agreement.
(ii) Second, it was Mr. Malik, not the Developer, who transferred his rights under the Purchase Agreement to Mr. Sheikh. The Developer merely consented to the transfer. Mr. Malik had the right to cause the Developer to sell the house to him for a certain sum. The Developer had the right to cause Mr. Malik to buy the house for a certain sum. What Mr. Sheikh ended up with was the right to cause the Developer to sell the house to him for a certain sum. He could only have acquired that right from Mr. Malik.
(d) To secure performance of the obligation: Having concluded that the third element of the test has not been satisfied, there is no need for me to consider this fourth element. However, given the number of these cases that have been coming before the Court, I think that it is worthwhile to provide some additional comments. For Mr. Malik to succeed, he had to show that the Developer transferred the house to Mr. Sheikh under an agreement for the purpose of securing Mr. Malik’s obligations under the Purchase Agreement. I fail to see how the transfer of the house from the Developer to Mr. Sheikh could ever be said to have been done for the purpose of securing performance of Mr. Malik’s obligation to buy the house. The Developer transferred the house to Mr. Sheikh because Mr. Sheikh paid for the house pursuant to his obligation to do so under the Purchase Agreement. Even if I were to conclude that the Developer merely transferred legal title to Mr. Sheikh in order to allow Mr. Sheikh to lend money to Mr. Malik so that Mr. Malik could purchase the house in satisfaction of his obligation to do so, I still fail to see how that transfer of legal title could be said to have been done to secure Mr. Malik’s obligation to purchase the house. It could be said to have been done to facilitate the fulfilment of that obligation, yes, but not to secure it. The two things happened at the same time. Payment was made in exchange for title. At the moment that the Developer transferred title it had received payment and thus there was no obligation left to secure. The fact that Mr. Malik may have arranged to have title to the house registered in Mr. Sheikh’s name in order to secure Mr. Malik’s obligation to Mr. Sheikh to pay the mortgage has nothing to do with the Developer. The security in that case was flowing from Mr. Malik to Mr. Sheikh.
[20] In summary, Mr. Malik has not demonstrated how section 134 would deem the supply of the house from the Developer to Mr. Sheikh not to be a taxable supply. I therefore find that the Developer made the supply of the house to both Mr. Malik and Mr. Sheikh. Therefore, since Mr. Sheikh did not intend to reside in the house, Mr. Malik is not entitled to a new housing rebate.
[Footnote omitted]
Finally the Court made some factual findings dealing with Mr. Malik’s argument that he was the beneficial owner of the home:
[21] The word “ownership” in paragraph 254(2)(e) means beneficial ownership rather than legal title (Rochefort). The Respondent submits that beneficial ownership of the house was not transferred to Mr. Malik. Mr. Malik submits that he was the beneficial owner of the property.
[22] Having already found for the Respondent, it is unnecessary for me to consider this third issue. However, since it is possible that Mr. Malik may appeal my decision, I feel that I should at least comment on a number of relevant questions of fact.
[23] Mr. Malik testified that he paid the deposits on the house (albeit in part with funds borrowed from family members other than Mr. Sheikh), lived in the house, paid the mortgage, paid the expenses associated with the house, determined when to sell the house and kept the profit from the sale. I found Mr. Malik to be a credible witness.
Nevertheless the appeal was dismissed since there had been a supply to Mr. Sheikh who was not a purchaser eligible for the New Housing Rebate.