Cheema v. R. - TCC: Bare trust did not deprive taxpayer of HST new housing rebate

Cheema v. R. - TCC:  Bare trust did not deprive taxpayer of HST new housing rebate

http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/182031/index.do#

Cheema v. The Queen (November 4, 2016 – 2016 CTC 251, Smith J.).

Précis:   Mr. Cheema enlisted the help of a friend, Dr. Akbari, to co-sign an agreement of purchase and sale for a new home as well as the mortgage on the property.  Both Mr. Cheema and Dr. Akbari testified that Dr. Akbari did not contribute to the purchase price or the maintenance of the home and did not have any interest in the property.  The Court accepted that evidence and ruled that the relationship was one of “bare trust”.  As a consequence Mr. Cheema was entitled to the HST new housing rebate on the home (which CRA had denied) and allowed the appeal.  There was no order as to costs since this was an informal procedure appeal.

Decision:   The Court accepted the evidence of Mr. Cheema and Dr. Akbari and rejected the Crown’s argument that a bare trust was not acceptable for the purposes of the new housing rebate (“NHR”):

[50]        On the facts of this case, there is no doubt that Dr. Akbari assumed a certain risk by signing the Agreement of Purchase and Sale and the mortgage. But he was clearly a man of means and he agreed to assume those risks. From a legal point of view, the question is what was his relationship with the Appellant?

[51]        On this issue, I find that the Appellant’s testimony was clear, unambiguous and unequivocal. His intention was to purchase a new residence that he and his family would then occupy as their primary place of residence and he sought the assistance of Dr. Akbari to achieve that objective.

[52]        While it is unlikely that the parties were fully cognizant of the distinction between legal and beneficial ownership, it is clear to me that they had a general understanding of what they wanted to achieve and that they relied on their legal advisors to give legal meaning to that intention.

[53]        While it is clear, as noted above, that Dr. Akbari assumed legal obligations vis‑à‑vis third parties including the builder and the mortgage lender, I find that his intention was only to assist the Appellant with the purchase. He had no interest per se in the Property itself. He acted as an agent or trustee. While the failure to disclose a trust relationship might raise an evidentiary problem in some instances, I find that it is not necessarily inconsistent with an intention to create a trust.

[54]        The notion of a bare trust as an agency relationship is not an obscure or arcane concept of law. On the contrary, it is well known and well established, at least in the common law jurisdictions. In this instance, it was also clearly documented. 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: Leowiski (A.D.) v. Canada, La Guercia Investments Ltd. v. Canada and S.E.R. Contracting Ltd. v. R.

[55]        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.

[56]        As noted above (Pecore, supra), the distinction between legal and beneficial ownership is one that arises out of equity. While the Minister has argued that the subject provision does not allow the use of bare trusts, I am of the view that there are good reasons to conclude that the statutory language also does not exclude it.

[57]        In the end, for the purposes of all the conditions set out in subsection 254(2) of the ETA, Dr. Akbari was merely a conduit or agent of the Appellant and his spouse. The Appellant is therefore entitled to the NHR.

[Footnotes omitted]

Accordingly the appeal was allowed.  There was no order as to costs since this was an informal procedure appeal.

It should be noted that this decision contains an extensive review of the case law and commentary on the topic of bare trusts which would undoubtedly be of considerable value to readers interested in pursuing the topic in greater detail.