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GST — builder of new home was not who CRA thought it was

My client was a businessman who had immigrated from Russia. He assisted another Russian businessman, who was applying to immigrate to Canada and wanted to build a new home in Toronto to live in with his family.

Since the owner did not speak English, my client took title to the property in the name of a company he owned, engaged a building contractor and had the home built, all on the owner's instructions. After the owner ran into financial difficulties, my client's company transferred the property to a foreign company owned by the owner, and it was then sold (for some $5 million).

The CRA proposed to assess my client's company for $350,000 of GST, plus interest and penalties, as the "builder" of the property.

On the surface, it looked like the company was liable for GST, having built and sold a new home; and the corporation had compounded the problem by claiming input tax credits for GST paid on the construction costs. However, as I dug into the details and extracted the facts from my client, I realized that this was a situation of a "bare trust", as approved by the Courts and CRA policy. My client was acting solely on instructions of the owner, and never became a beneficial owner of the property.

I compiled and presented a detailed case to the CRA, supported by documentation, to show that my client's company was not the "builder" of the property as defined in the GST legislation. By carefully explaining the facts and providing supporting affidavits from several individuals (including a lawyer and an architect who had been involved with the project), I was able to convince the CRA auditor that the owner had been building the property as his personal residence all along, so there was no GST to be paid beyond the GST that had already been paid on the construction costs.

Problem vanished!