Anand v. R. – TCC: Tax Court accepted parol evidence that the appellant was a project manager, not a general contractor – therefore, on the facts, a small supplier exempt from GST/HST

Anand v. R. – TCC:  Tax Court accepted parol evidence that the appellant was a project manager, not a general contractor – therefore, on the facts, a small supplier exempt from GST/HST

Anand v. The Queen (May 23, 2019 – 2019 TCC 119, Hogan J.).

Précis:   The taxpayer and his wife agreed to supervise the construction and decoration of a new home for a couple of wealthy doctors.  The evidence was that each was paid a flat fee of $75,000 payable at a rate of $25,000 per year over three years.  Counsel for CRA argued that the Court should not accept the parol evidence of the taxpayer and his clients and should rather look to the documentation which supported the Crown’s argument that the taxpayer was a general contractor and purchased supplies for his own account.

The Court rejected that Crown’s argument, accepted the evidence of Mr. Anand and allowed the appeal, vacating the assessment.  Costs were awarded to Mr. Anand.

Decision:   This appears to have been a case of the Crown resorting to an overly narrow interpretation of the rules dealing with parol evidence:

[53]  The inconsistencies noted above allow me to conclude that the contract is ambiguous even under the more conservative textualist approach. Looking at the broader factual matrix of the agreement (as mandated by the contextualist approach) yields additional sources of ambiguity, the result of which is that I agree with the Appellant’s position that parol evidence proffered by Dr. Gupta, his wife and himself is admissible because of the patent ambiguity in the contract noted above.

[54]  In determining specifically what parol evidence is admissible, even after the further liberalization of the parol evidence rule for tax cases in Henco, it remains the case that evidence cannot be brought forward to purely elaborate on the subjective intentions of parties. Within the tax context, this was recently reiterated by the Federal Court of Appeal in the Club Intrawest v. R decision (which, coincidentally, was also an agency case), where the court indicated that testimony from the alleged principal that he did not know that the appellant was holding itself out as his agent was inadmissible and contrary to the parol evidence rule.

[55]  In contrast, the evidence brought forward by the Appellant, his wife and Dr. Gupta in the present case, concerns objective facts, which, as confirmed to by Justice Rothstein in Creston Moly Corp., is now regarded as being acceptable evidence.

[56]  As noted in Henco, tax is not assessed in a vacuum. Parol evidence is often considered to determine the true legal relationship of contracting parties. Justice Miller provides numerous examples of this in Henco, including, as noted above, the determination of whether someone is an employee or an independent contractor, which is highly analogous to the determination of whether an agency relationship exists. 

[57]  In the instant case, the Respondent’s position appears to be manifestly unfair. The Respondent invites me to ignore the Appellant’s parol evidence in interpreting the agreement. It is clear, when I consider the factual context in which the Agreement was negotiated and the parties’ subsequent conduct, that the Agreement does not accurately reflect their true intent. While they were careless in documenting their arrangement, there are enough inconsistencies in the agreement to render its interpretation difficult without consideration of the parol evidence adduced by the Appellant.

[63]  When I consider the parol evidence, I am of the opinion that the Appellant did not agree to act as a general contractor. Instead, he acted as a project manager. In this capacity, he represented the Homeowners when he hired, paid and supervised subcontractors on their behalf, as well as when he purchased materials used in the Home Construction Project. In both cases, the Appellant was reimbursed for these expenses by the Homeowners. In other words, an implied agency relationship existed as the Appellant acted as a conduit between the suppliers and the Homeowners.

[64]   Because he was a small supplier under section 166 of the Act, the Appellant was not obligated to register under the Act and collect GST/HST with respect to his $75,000 project management fee.

[Footnotes omitted]

Thus the taxpayer’s appeal was allowed with costs.