Seller Entitled to Collect GST From Buyer, Notice Given After Transaction Closed #312

By Gerry Neely
B.A., LL.B.

There have been a number of decisions across Canada in the past year or so concerning a seller’s right to recover from the buyer of real property the GST paid by the seller that should have been paid by the buyer. The question in each case was whether notice that GST was payable on the transaction had been given by the seller to the buyer as required by the GST legislation. Some decisions were based upon the view that the legislation was designed to protect consumers who were entitled to know the cost of the purchase. Therefore, notice had to be given by the seller before the transaction completed. Other decisions were based upon the mandatory obligation of the buyer to pay GST, and that it was irrelevant whether notice was given before or after the date of closing.

A recent BC case involved a buyout of a shareholder of a company through the sale to the shareholder of a lot valued at $130,000. Fifteen months after the transaction closed, Revenue Canada demanded payment of GST from the company. A written demand by the company for payment setting forth the amount that was due, was rejected by the buyer.

The Judge’s opinion was that the demand letter was sufficient notice by the seller to comply with the GST legislation and ordered repayment of the amount of the GST to the seller. The company failed to recover penalties and interest because the seller has a mandatory obligation to pay the GST on time despite the buyer’s failure to do so.¹

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Column 309 referred to the personal liability of a director of a company for the breach of the statutory trust provisions contained in the Alberta Condominium Property Act. We now have similar reasons for judgment in a British Columbia case dealing with breaches of trust provisions of the Builders Lien Act. The Act creates a trust of funds received by a contractor or sub-contractor on account of the contract price for the benefit of among others, workers and material suppliers.

A limited company carried on a landscaping business. The directors were three brothers, one of whom was the "operating mind" of the company. When they found that they couldn’t pay their bills, they started a new company. A supplier of turf and soil to the first company sued both companies and the three brothers. The monies received from their various projects were put into the general account of the company, from which all debts and draws to the shareholders were paid. This was done in complete disregard of the trust priorities available to workers and material suppliers.

The brother, as the "operating mind" of the company, was held to be personally liable for 100 per cent of the amount due to the turf and soil supplier. The other two brothers, who had benefited from the breaches of trust through their draws, were liable to the turf and soil supplier in the amounts they had received.

In addition, the latter two brothers had used part of the funds they received to pay down mortgages on several properties they owned. Since it was possible to trace the monies they received to the trust fund, the turf and soil supplier was able to file liens against their properties to secure payment of the amount due to it.²

	1.	Leong v. Princess Investments Ltd., SCBC Victoria, Reasons for Judgment, August 27, 1999.
	2.	Instant Lawns Turf Farm (1994) Ltd. v. B&D Landscaping and Maintenance Service Ltd., SCBC Vancouver, Reasons for Judgment, September 8, 1999.

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