Contracting out of GST?
By Lisa Handfield, Moodys Gartner Tax Law LLP
The British Columbia Supreme Court, Yoshizawa, N. et al. vs. Beaton, recently heard a case relating to goods and services tax (GST), which is Canada's version of the VAT. As a rule, Canada imposes GST at a rate of 5 % to most goods and services sold/rendered within the country. However, there are exceptions including used residential property.
The Yoshizawas (the "Sellers") sold lands which consisted of a home and a nursery business (the "Property") to the Beatons (the "Purchasers"). There was an addendum to the sale agreement which stated that the Purchasers would pay GST related to the transaction. On closing, the Sellers provided the Purchasers with a GST exemption certificate (the "Certificate") which stated that no GST was payable on the transaction as this was a sale of used residential property. After closing, concerns about GST arose resulting in the Sellers suing for the recovery of GST paid.
Section 194 of the Act Excise Tax Act (Canada), R.S.C. 1985, c. E-15, as amended (the "Act"), states that when property is sold and a seller certifies that the supply is an ''exempt supply", the supplier is responsible for payment of GST from the sale proceeds. However, if the purchaser knows or ought to know that the supply is not an "exempt supply", then the purchaser is responsible for the GST.
The Court noted Section 194 of the Act, but held that the Certificate did not override the Purchasers' agreement to pay GST and there was no misrepresentation by the Sellers as to what was sold. Unless the Court implicitly held that the Purchasers knew or ought to have known the supply was not an exempt supply, the Court essentially allowed the parties to contract on a basis different from the legal treatment of GST in the Act. lt is of course arguable whether the Sellers ought to have known of the taxable status of the supply of the property. This raises the more interesting question of what evidence a party needs to produce in order to demonstrate that the other party should not have relied on an exemption certificate.
Moodys Gartner Tax Law LLP, Calgary, Canada
T: 403 693 51 00
Lisa Handfield is a tax lawyer with Moodys Gartner Tax Law LLP in Calgary, where she focuses an dispute resolution matters. Lisa spent a number of years in the CRA appeals division and the Tax Court of Canada and has acquired extensive knowledge of the resolution procedure, the negotiations process and has a good sense of the probability of success. Insight like this is critical to an efficient and effective dispute resolution outcome.
Moodys Gartner Lawyers and Chartered Accountants provide strategic tax advice to individual and corporate clients that have interests in Canada, the USA or both.
published: May 2014