OPTrust Amaranth 1 Inc. v. Ontario (Finance), 2016 ONSC 3648

CITATION: OPTrust Amaranth 1 Inc. v. Ontario (Finance), 2016 ONSC 3648

COURT FILE NO.: CV-13-481389

DATE: 20160603

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

OPTRUST AMARANTH 1 INC.

Appellant

– and –

THE MINISTER OF FINANCE

Respondent

COUNSEL:

Derek Ricci and Michael Finley, for the Appellant

Lori E.J. Patyk and Jason DeFreitas, for the Respondent

HEARD: May 10, 2016

REASONS FOR JUDGMENT

GANS J.

Introduction

[1] Cases which have some element of statutory interpretation comprise part of the lustre of the job for me. That might explain why I read Professor Willis’ iconic work, Statute Interpretation in a Nutshell, at least once a year.[^1]

[2] Cases which require a judge to assess and evaluate the intersection between detailed commercial arrangements and taxing statutes are at the top of this statutory interpretation heap. It doesn’t get much better - if not more difficult - to be called upon to make a decision of this nature.

[3] Mercifully, this is not, entirely, a case of first impressions. The applicable taxing statute and the relevant sections have previously formed the subject-matter of judicial review by at least two justices of the former Ontario High Court of Justice who were ultimately elevated to the Court of Appeal.

[4] Furthermore, my plight is made somewhat easier because counsel have furnished me with not only a detailed Agreed Statement of Facts, from which I have borrowed liberally, which references a pared down Joint Book of Documents, but have each given me clearly defined written arguments which have attempted to reduce a complex commercial transaction to manageable form.

Procedural Background

[5] The Appellants, OPTrust Amaranth 2 Inc., OPTrust Amaranth 5 Inc. and OPTrust Amaranth 6 Inc. (collectively referred to as "OPTrust") are Ontario corporations. Each is an indirect subsidiary of the Ontario Public Service Employees Union (“OPSEU”) Pension Plan Trust Fund, which is a fund that holds the assets of the OPSEU Pension Plan. The Respondent, the Minister of Finance (“MOF”), is the Ontario provincial representative responsible for the administration and enforcement of the Land Transfer Tax Act (the "LTTA").[^2]

[6] In October 2009, OPTrust submitted an application for a refund of land transfer tax in the amount of $395,065.50 in connection with the tax paid in respect of the purchase of certain properties located in Amaranth, Ontario (the “Amaranth Properties”). The MOF disallowed the applications about a year later, whereupon OPTrust proceeded through a series of procedural hoops under the provisions of the LTTA which ultimately took it through to the commencement of appeals and a hearing in this court in respect of the claim for the aforesaid refund.[^3]

Factual Matrix

[7] Pursuant to a February 15, 2008, agreement of purchase and sale (the “Agreement”), OPTrust purchased the Amaranth Properties as part of a larger portfolio of properties (the “Portfolio”), all of which are located in the province. The Portfolio contains a significant number of regional shopping centres, vacant parcels of lands and other centres, in varying states of completion, all slated for current and future industrial and commercial use. Because the Agreement covered a whole array of properties and proposed developments and miscellanea, it was both long, 184 pages with schedules, and exceedingly complex, if not dense, and, as will be discussed later, bordered, in parts, on the incomprehensible.

[8] The Amaranth Properties, which formed but a small portion of the Portfolio, consist of six adjacent undeveloped parcels of land which border the northwest and northeast corners of Highway 9/County Road 109 and the 2^nd Line in the Township of Amaranth, just west of the Town of Orangeville.

[9] The Agreement insofar as it covered the Amaranth Properties, dealt with not only issues of conveyance, but spoke to, in more than modest detail, property development matters since the vendors of the five parcels (the “Vendors”), or certain of them, were charged with the right and concomitant obligation of bringing the property along the development road.

[10] Therein lies the rub, namely whether the development portion of the Agreement, in all its manifestations and iterations, and the companion development agreement (the “Development Agreement”), which was executed concurrently with the Agreement, was to form part of the calculus for purposes of determining the land transfer tax.

The Purchase Price

[11] The language in respect of the purchase price, which, because of its complexity, I have set out in part as an appendix to these reasons,[^4] covers not only the payment of cash on closing, but also the preparation and execution of a series of vendor take back mortgages (the “VTBs”); the manner in which the balance outstanding in respect of such mortgages was to be calculated from time to time; and the essence of and relationship to the proposal for the development to be undertaken by the Vendors over a period of 18 months from the date of closing.

[12] The closing of the purchase for the Amaranth Properties took place on or about March 14, 2010. At this time, OPTrust paid roughly $15.9 million for the subject lands (the “Cash on Closing”), executed the VTBs, which had a collective face amount of $26,037,700 (the “VTB Face Amount”), and executed the Development Agreement.

[13] Contemporaneously with the completion and execution of the foregoing, OPTrust also completed the requisite land transfer tax statements based on the “purchase price” for each of the separate parcels comprising the Amaranth Properties, which in the aggregate amounted to $41,937,700, being the sum total of the Cash on Closing and the VTB Face Amount. Accordingly, OPTrust paid the then calculated land transfer tax of $621,440.50 to the MOF thereby purportedly discharging its obligation under the LTTA.

The Development Agreement

[14] As previously indicated, as part of the Agreement, and occupying some 10 pages of same, OPTrust and the Vendors agreed that contemporaneously with the closing, they would execute the Development Agreement for the Amaranth Properties.[^5] The provisions in the Agreement devoted to the development of the Amaranth Properties were basically an outline of what the parties ultimately signed on or about the date of closing, the latter of which was expanded into a further 70 pages of terms and provisions. As I will expand upon later in these reasons, I find that the former is but a microcosm of the latter.

[15] Counsel are in agreement that under the terms of the Development Agreement, the Vendors were granted a right to earn and be paid varying predetermined amounts if certain development milestones or benchmarks were achieved during the currency of this Agreement, which as I said was to run for 18 months from March 2009. Without detailing the contracted for milestones, because none were achieved in the time prescribed, suffice it to say that they were intended to cover matters such as zoning, servicing and prospective leases of the Amaranth Properties (the “Milestones”).[^6] Had all the Milestones been achieved, the Vendors would have been paid $26,037,700, or the amount equal to the VTB Face Amount.

[16] If I understand the facts correctly, none of the work contracted for under the Development Agreement was ever started, and, in fact, none of the Milestones were ever reached triggering any obligation on the part of OPTrust.

[17] The Development Agreement expired in mid-September 2009 and was formally terminated by agreement shortly thereafter, at which time all the VTBs given at first instance on closing were discharged. To repeat, no services were ever provided by the Vendors under the Agreement or the Development Agreement and no monies were ever paid under the VTBs.

[18] This now takes us back to the beginning of this portion of the judgment. As a result of the termination of the development aspect of the Agreement and the Development Agreement and the discharge of the VTBs, OPTrust submitted an application for a refund of the previously paid land transfer tax of $392,065.50, which sum is the cash equivalent on the tax purportedly exigible on the VTB Face Amount.

The Issues

[19] The MOF synthesized the issues under appeal as follows:

(a) Whether the value of the consideration, within the meaning of the LTTA, includes the amount of $26,037,700 related to either the VTB Face Amount or the development of the Amaranth Properties;

(b) Whether as a consequence of such a finding, OPTrust is entitled to a refund in respect of tax calculated and paid on the amount of $26,037,700, namely the sum of $392,065.50.

Position of the Parties

[20] The essence of OPTrust’s position revolves around that portion of the Agreement and the Development Agreement which permitted the Vendors to reach the Milestones, which the Appellant characterizes as a ‘contingent’ agreement, and one that it argues was subject to cancellation at OPTrust’s option. Since none of the Milestones were met, and the Development Agreement was cancelled and the VTBs were discharged, its claim for a refund is, therefore, unassailable. In addition, it argues that the value of the VTBs at all material times, as calculated under the terms of the Agreement, was zero and should not have formed part of the “value of consideration” for purposes of calculating land transfer tax notwithstanding the VTB Face Amount.

[21] Furthermore, it suggests that since the LTTA does not cover contingent agreements, per se, as a separate category of agreements, such are not intended to be captured by the language of the enabling legislation.

[22] The MOF argues, on the other hand, that when one has regard to the applicable provisions of the LTTA, distilled to its simplest, either the VTBs given on closing formed part of the “gross sale price” for land transfer tax calculation purposes or, alternatively, OPTrust assumed or undertook a contractual liability to the Vendors, either or both of which formed part of the value of consideration, as defined.

Analysis

[23] The starting point for the analysis is, of course, the applicable provisions of the LTTA and, in particular, the taxing provision, s. 2(1), itself:[^7]

Every person who tenders for registration in Ontario a conveyance by which any land is conveyed to or in trust for a transferee shall pay before the conveyance is registered,

(a) a tax computed at the rate of,

(i) one-half of 1 per cent of the value of the consideration for the conveyance up to and including $55,000,

(ii) 1 per cent of the value of the consideration which exceeds $55,000 up to and including $250,000, and

(iii) 1.5 per cent of the value of the consideration which exceeds $250,000; …

[Emphasis added.]

[24] The definition subsection further defines the highlighted terms as follows, which I have broken out into component parts where necessary:

“value of the consideration” includes

• The gross sale price or the amount expressed in money of any consideration given or to be given for the conveyance by the transferee;

• The value expressed in money of any liability assumed or undertaken by the transferee as part of the arrangement relating to the conveyance; and

• The value expressed in money of any benefit of whatsoever kind conferred by the transferee on any person as part of the arrangement relating to the conveyance.[^8]

“convey” includes the granting, assigning, releasing, surrendering, leasing or disposing of land in Ontario, agreeing to sell land in Ontario[…];

“conveyance” includes any instrument or writing by which land is conveyed.

“land” includes lands, tenements and hereditaments and any estate, right or interest therein, a structure to be constructed on land as part of an arrangement relating to a conveyance of land, a leasehold interest or estate, the interest of an optionee, the interest of a purchaser under an agreement to sell land, or goodwill attributable to the location of land or to the existence thereon of any building or fixture, and fixtures; […] [Emphasis added.]

[25] Finally, subsection 1(1.1) of the LTTA provides that “a conveyance that is an electronic document is tendered for registration when it is submitted for registration in accordance with Part III of the Land Registration Reform Act […]”. In other words, there is no dispute that in the instant case, when the Agreement and VTBs were submitted for registration, the ‘tendered for registration’ provision of the LTTA was engaged.

The VTBs

[26] The language in the Agreement in respect of the calculation of the value of the VTBs at any moment in time, on closing or thereafter, is exceedingly detailed if not unduly complex. Accordingly, because its application is fact-specific, it serves no useful purpose to set it out in these reasons. Indeed, in preparation of the case for hearing, I was unable to follow the wording of the applicable section of the Agreement and the corresponding sections of the Development Agreement on my own to the conclusion urged upon me by counsel for OPTrust, notwithstanding repeated readings of paragraphs 31-33 of the Appellants’ written argument, which even contained an ‘explanatory’ table.

[27] Suffice it to say, that once the words were parsed by Appellants’ counsel during argument, I was persuaded that at the moment the Agreement and VTBs were tendered for registration, which is the operative moment in time for LTTA purposes, no money was owed under the VTBs. I have come to this conclusion, notwithstanding that the Land Transfer Tax Statements filed with each conveyance, included the VTB Face Amount as part of the overall consideration.

[28] Furthermore, I do not believe this conclusion is altered, as was suggested by counsel for the MOF, if the operative moment in time is somehow not fixed at the instance in which the conveyance, and all its component parts, is tendered for registration. What the value of the VTBs might be after closing is, in my opinion, irrelevant to the operation and engagement of s. 2(1). Indeed, at no time after closing was any value ascribed to the VTBs because none of the Milestones were reached which would have created the monetary obligation anticipated and secured by the VTBs. As Appellant’s counsel argued, the VTBs were given merely to act as ‘placeholders’ for title purposes if and when the Milestones were reached and any payment obligation was thereupon triggered.

The Development Agreement

[29] In my opinion, the same conclusion cannot be drawn in respect of the obligations under the Development Agreement, which I find to be an integral part of the consideration given on closing under the Agreement.

[30] Much of what I have to consider in this regard was captured by McKinley J., as she then was, in Assaly v. Minister of Revenue[^9] (“Assaly”) and cited with approval by Griffiths J., as he then was, in 472601 Ontario Ltd. v. Minister of Revenue[^10] (“Kilderkin”). Although McKinley J. was faced with a fact situation which was factually and temporally different from the instant case, some of her observations are apposite to the matters in issue before me:

It is the words "arrangement relating to the conveyance" that causes substantial difficulty. Counsel for the developer takes the position that any "liability assumed" as part of the arrangement relating to the conveyance would be something akin to the assumption of a mortgage against the property or the assumption of any other liability of the vendor as part of the purchase price, apart from the actual cash paid. Similarly, any "benefit conferred" as part of the arrangement relating to the conveyance would be the transfer to the vendor of something akin to other realty or assets as part of the purchase price, apart from the actual cash paid. The problem I have with that position is that such assumption of liability or benefit conferred would constitute part of the gross sale price "for the conveyance", referred to in the first part of s. 1(1)(p) (i). Therefore, I am brought to the inescapable conclusion that any "liability assumed" or "benefit conferred as part of the arrangement relating to the conveyance" must be something different from, and in addition, to any assumption of liability or benefit conferred "for the conveyance".

The Oxford English Dictionary defines "arrangement" as "a structure or combination of things for a purpose", and defines "relate'' as "to connect, establish a relation between". Giving those words their ordinary meaning it seems to me that the building contract in this case constitutes "part of the arrangement relating to the conveyance". The agreement of purchase and sale is conditional upon the building contract being entered into. The obvious purpose of all of the dealings between the builder and the developer was to complete a condominium development, and the agreement of purchase and sale and the building contract was obviously planned in combination to effect a purpose. There was undoubtedly a strong connection between the two contracts in both form and substance.

I therefore conclude, reluctantly, that a liability was assumed by the transferee as part of the "arrangement relating to the conveyance", which was equal to the cost of the building contract. Consequently the total "value of the consideration" was that set out in the land transfer tax affidavit attached to the transfer registered on April 11, 1983. My reluctance stems from my conviction that the true transaction is not very different from the simple analogy of the purchase of land by an individual, and the subsequent building of a home on that land. I am also convinced that with appropriate tax planning such a result could be avoided.[^11] [Emphasis added.]

[31] In Kilderkin, which was a case not dissimilar to the matter before me, Griffiths J. made the following observation about the development agreement then under consideration:

On the present facts, there is a much more compelling case for imposing land transfer tax on the value of the services to be rendered by Kilderkin to the purchaser and for which the purchaser assumed a liability and conferred a benefit on Kilderkin under the terms of the agreement of purchase and sale.

In my opinion, the three parties to the agreement of sale, the appellant, Kilderkin and Rohick Holdings Inc., entered into one central agreement of purchase wherein the parties themselves expressly defined the value of the services to be part of the purchase price, the consideration for the transfers of the townhouses. Although there were separate agreements between the purchaser and Kilderkin collateral to the agreement of sale, these separate agreements did not detract from the fact that the parties clearly specified that the value of services was included in the consideration for the sale.

I conclude that the agreement of purchase and sale governing the transfers, provided for the transferee to assume a liability for the payments to Kilderkin, thereby conferring as well a benefit on Kilderkin as "part of the arrangement relating to the conveyance" within the plain meaning of those words.

Counsel for the appellant submitted there was one further factor that removed the value of the services from taxation and that is that under the agreement with Kilderkin for those services, Rohick was entitled to "terminate its right to be provided with further initial services at such time or times" as Rohick so desires.

In my view, this provision makes no difference to the rights of the parties at the time of the closing of the transaction as far as land transfer tax is concerned. It is the value of the services calculated at the time of the transfers that must govern the imposition of tax.[^12] [Emphasis added.]

[32] In my opinion, the last mentioned underscored paragraph captures the essence of the obligation created by the Agreement and fleshed out under the Development Agreement. There was nothing “conditional” or “contingent” about the Development Agreement that is different from any other development agreement where the rights of one party and concomitant obligations of the other are not set out.

[33] In any event, even if there were some form of contingent liability assumed by OPTrust, that form of arrangement is not in any respect excluded from capture under the LTTA. The decision of the Federal Court of Appeal in Daishowa-Marubeni International Ltd. v. Canada is instructive in respect of the over-all reach of taxing statutes.[^13] While dealing with the [Income Tax Act][^14], Nadon J.A. made the following observation, which I believe to be equally applicable to an interpretation of the LTTA:

Liabilities are absolute or contingent... However, the jurisprudence interpreting subsection 13(21) of the Act does not ask whether the liability assumed by the purchaser is contingent or absolute; as a matter of fact, the nature of the liability assumed by a purchaser is irrelevant. Instead, the jurisprudence seems concerned only with the value attributed by the parties, if any, to the liability assumed by the purchaser. If the parties attribute no value to a future liability, then there is nothing to be added to the seller's proceeds of disposition for the purpose of taxation.

… if the parties to an agreement attribute a value to a future liability, then the Minister is entitled to add this amount to the vendor's proceeds of disposition - whether or not the liability assumed by the purchaser is contingent or absolute.[^15]

[34] Furthermore, although such a reach might seem somewhat inequitable from OPTrust’s perspective, the law is clear that, absent some form of statutory provision in respect of same, there is no reason at law to relieve the Appellant of its obligation under some plea of equity. The MOF is correct that there is not normally an intersection of the two principles in taxing statutes.[^16]

[35] Finally, as was observed by McKinley J. in Assaly, supra, the Appellant could have created a different contractual arrangement and availed itself of certain administrative guidelines established by MOF in 2004 which, arguably, might have resulted in a deferral of the payment of land transfer tax upon the Milestones having been reached. A MOF handbook prepared for real estate practitioners, although not having the force of law as a document sanctioned by the terms of the LTTA, has established a regime which seemingly permits a purchaser to provide an undertaking to the MOF where “…the agreement between the parties may result in additional consideration to be given pending future events…”.[^17]

[36] While such an arrangement might have necessitated the preparation and registration of a series of mortgages from OPTrust in favour of the Vendors when any one of the Milestones had been reached, in this, the era of electronic filing, I cannot imagine that such would have created an undue hardship or a costly undertaking on the part of OPTrust and its solicitors which would have been more than made up by the deferral of the payment of tax over the life of the Development Agreement, if not the claims now being litigated.

[37] Furthermore, I am not persuaded that the MOF has ‘violated’ the provisions of a previously published tax bulletin, as OPTrust argues, in respect of the procedure to be followed for advancing a claim for a refund where there has been an alleged overpayment of tax.[^18] As the MOF quite rightly observed, even if the terms of the bulletin were engaged, which I do not believe factually occurred in the instant case in respect of the manner in which the Agreement was structured, I am not persuaded that an administrative practice is determinative of the issue where there is no ambiguity in the meaning of the legislation.

[38] The Supreme Court of Canada in its decision in Mattabi Mines Ltd. v. Ontario (Minister of Revenue), defined, at the expense of two of my former partners, the ambit of the use to which such directives might be put:

An Interpretation Bulletin does not, of course, have the binding effect of law (I discuss this later) but such Bulletins do have persuasive force in the event of ambiguity. […]

As already mentioned, [Interpretation Bulletins] are not authoritative sources for the interpretation of taxing statutes. As Cattanach J. put it in Southside Car Market Ltd. v. The Queen, 1982 CanLII 5229 (FC), [1982] 2 F.C. 755 (T.D.), at p. 770, "an interpretation is not law until so interpreted by a court of competent jurisdiction". The same judge noted in Stickel v. Minister of National Revenue, [1972] F.C. 672 (T.D.), at p. 684, that "[t]he Deputy Minister does not have the power to legislate". Interpretation Bulletins, however, do have some persuasive force where there is an ambiguity in the legislation.[^19]

Result

[39] The appeal will, therefore, be dismissed with costs, if demanded. In that respect, if costs of the appeal cannot be agreed upon, I may be contacted for instructions on the delivery of bills of costs and argument.

GANS J.

Released: June 3, 2016

APPENDIX

3.2 Calculation of Purchase Price

(a) Amaranth Property Purchase Price

For each Amaranth Property, the Purchase Price (the “Amaranth Property Purchase Price”) shall, subject to the adjustments contemplated in Sections 3.4 and 3.7, and subject to the parties agreement that in calculating the Amaranth Property Purchase Price, the parties shall, absent manifest error, be bound by the calculation of the acreage of such Amaranth Property set out in the Amaranth Property Acreage Certificate in respect of such Amaranth Property, be the amount set out in Schedule “J” as the Purchase Price for such Amaranth Property.

The provisions of this Section 3.2 shall survive the Closing of this Agreement.

3.3 Method of Payment of Purchase Price

On Closing, the Purchase Price shall be satisfied … as follows:

(b) as regards the Amaranth Property Purchase Prices,

(i) by payment by [OPTrust] to [the Amaranth Vendors], … by wire transfer, of an amount (the “Amaranth Properties Closing Payment”) … equal to the amount set out in Schedule “K” as the Closing payment for such Amaranth Property; and

(ii) as to the balance (the “Amaranth Property Deferred Amounts”), by [OPTrust] executing and delivering an Amaranth Property VTB Mortgage in respect of each Amaranth Property on Closing in the amount equal to the Expected Amaranth Property Deferred Amount for such Amaranth Property, as security for [OPTrust’s] payment of the Amaranth Property Deferred Amount in respect of such Amaranth Property, it being agreed that each such Amaranth Property VTB Mortgage shall provide that the amount payable by [OPTrust] thereunder shall, notwithstanding that the initial stated principal amount of such Amaranth Property VTB Mortgage, be reduced from time to time, without duplication of Section 3.2, by: …(ii) the adjustments contemplated in Section 3.7; (iii) by the payments in respect of the Amaranth Property Deferred Amount made by the Purchaser pursuant to the Development Agreement for such Amaranth Property; …

3.7 Amaranth Property Deferred Portion Amount Adjustments

Without derogating from the provisions of Section 3.4, the Amaranth Property Deferred Amount for each Amaranth Property shall, in the event that the aggregate of the Amaranth Property Deferred Portion Development Amounts for such Amaranth Property is less than the amount set out in Schedule “K” as the Expected Amaranth Property Deferred Portion Development Amount for such Amaranth Property, be reduced by the amount by which the amount set out in Schedule “K” as the Expected Amaranth Property Deferred Portion Development Amount for such Amaranth Property exceeds the aggregate of the Amaranth Property Deferred Portion Development Amounts for such Amaranth Property.

The provisions of this Section 3.7 shall survive the Closing of this Agreement.

[^1]: John Willis, “Statute Interpretation in a Nutshell” (1938) XVI Can. Bar. Rev. 1. [^2]: R.S.O. 1990, c. L.6. [^3]: Agreed Statement of Facts, paras. 5-14. [^4]: I have excerpted the language used by the Appellant in its factum rather than copy-typing the full text of the relevant sections from the Agreement. These excerpts underscore the complexity of the language. I have also repeated verbatim sections 3.2(b) and 3.7 since each was considered by me in the final analysis. [^5]: Similar such agreements were concluded with the vendors of other properties in the Portfolio, all of which included detailed provisions reflected in both in the Agreement and in separate development agreements concluded for other properties purchased on closing. [^6]: Agreed Statement of Facts, paras. 31-38. [^7]: LTTA, s. 2(1). [^8]: LTTA, s. 1(1) “value of consideration”, subclause (a). [^9]: (1986), 1986 CanLII 2662 (ON SC), 56 O.R. (2d) 30 (H.C.J.). [^10]: (1987), 1987 CanLII 4185 (ON SC), 59 O.R. (2d) 24 (H.C.J.). [^11]: Assaly, paras. 28-30. [^12]: Kilderkin, paras. 26-30. [^13]: Daishowa-Marubeni International Ltd. v. Canada, 2011 FCA 267, [2011] F.C.J. No 1351 (Daishowa), rev’d on other grounds 2013 SCC 29. [^14]: Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). [^15]: Daishowa, paras. 79-80. [^16]: 771225 Ontario Inc. v. Bramco Holdings Co. (1995), 1995 CanLII 745 (ON CA), 21 O.R. (3d) 739 (C.A.), paras. 10-13. [^17]: Guide entitled "Land Transfer Tax and the Registration of Conveyances of Land in Ontario”, June 2004, pp. 16-17. [^18]: MOF Tax Bulletin dated November 2006; Joint Book of Documents, Tab 2, p. 068. See also the Agreed Statement of Facts, p. 11 and the Appellants Factum, paras. 57-64. [^19]: Mattabi Mines Ltd. v. Ontario (Minister of Revenue), 1988 CanLII 58 (SCC), [1988] 2 S.C.R. 175, at paras. 15, 27.```