On September 27, 2024 in Yavari,1 the Ontario Divisional Court determined that the Ontario Minister of Finance was unreasonable in denying Ms. Nasrin Yavari relief from non-resident speculation tax ("NRST") under the Land Transfer Tax Act2 (the "LTTA"). Ms. Yavari was a visitor to Canada when she purchased her home in Toronto and paid NRST in 2017.3 Ms. Yavari could have been entitled to a rebate of the $510,000 NRST paid,4 but she was 10 days late in meeting the permanent residency requirement for the rebate.5 Under the LTTA, the Minister has the discretionary power to accept a lower amount of tax than what would otherwise be payable.6 The Minister refused to exercise its discretion and grant Ms. Yavari such relief. The Divisional Court determined that the Minister's refusal was unreasonable, in part because the Minister did not adequately consider the effects of COVID-19 on Ms. Yavari's circumstances.
Discretion to Accept Less NRST
The NRST, which imposes a very high tax rate,7 is intended to increase housing affordability by discouraging "non-resident foreign entities from purchasing property who do not intend to live in the property".8 For this reason, the NRST regulation9 provides that the Minister may pay a rebate to a non-resident who paid the tax and later satisfies certain conditions. A number of these conditions must be met within a certain period of time, including that:
- The taxpayer must become a permanent resident of Canada within four years after purchasing the home.10 If the taxpayer becomes a permanent resident even one day late, technically they may not be entitled to the rebate.
- The taxpayer must apply for the rebate within 181 days of becoming a permanent resident.11
Since the timing in the rebate provision is very strict, it is good news for taxpayers that section 20 of the LTTA gives the Minister the power to grant relief from tax when there are "special circumstances" that would render it "inequitable" for a taxpayer to pay the full amount of tax. However, this power is discretionary and it may be difficult to convince the Minister to exercise it.
The Divisional Court Decision
Ms. Yavari is not a land speculator. She lived in her home since her purchase on August 24, 2017.12 Following her purchase, she needed to become a permanent resident by August 24, 2021 in order to qualify for the NRST rebate. However, due to the COVID-19 pandemic, there was a significant delay in the language and medical test appointments required to obtain permanent residency.13 For this reason, she was not granted permanent resident status until September 3, 2021,14 which was technically 10 days too late for her to meet the rebate conditions.
Although Ms. Yavari was granted status too late to meet the rebate conditions, she was diligent in filing her rebate application on time. Had Ms. Yavari become a permanent resident 10 days earlier, her application would have been due in February 2022. Ms. Yavari filed her application on December 8, 2021.15
Since Ms. Yavari was not entitled to the rebate, she applied to the Minister for relief under section 20 of the LTTA. Ms Yavari argued that the delay in being granted permanent residence was due to "special circumstances" resulting from the pandemic, including the delayed language and medical tests.16
The Minister refused Ms. Yavari's request. The Minister argued that Ms. Yavari waited too long to apply for permanent residence,17 and that the rebate timelines provide finality.18 The Minister relied on an "Information Note" prepared in the course of considering the applicant's s. 20 claim19 which referred to blanket COVID-related relief for other timelines, but not for the timeline to become a permanent resident.20
The Court held that the Minister's decision was unreasonable,21 and that the Minister's interpretation of "special circumstances" was too narrow.22 It was unreasonable for the Minister to only consider relief granted to all taxpayers without considering how the pandemic affected Ms. Yavari's individual circumstances.23 The Court quashed the Minister's decision and returned it to the Minister for a fresh review.24 We have been advised that the Minister has not sought leave to appeal the decision.
Key Takeaways
By finding that the Minister's decision was unreasonable, the 3 judges who rendered the decision provide an important indication of how courts perceive relief to taxpayers where the revenue authority relies on technicalities to defeat legislative purpose.
The reasoning of the Divisional Court supports the conclusions that:
- Being disqualified from a rebate due to technical requirements of the statute, such as a difference of only 10 days, is enough to elicit sympathy. The Court referred to Ms. Yavari only being disqualified by "10 days" many times, including at the beginning and end of its reasons.
- On its face, it is unreasonable for a taxpayer to be disqualified from relief due to circumstances beyond the taxpayer's control. In Ms. Yavari's case, she could hardly be blamed for the effects of a global pandemic on the availability of appointments for language and medical tests. The Yavari decision is likely relevant to other requests for the remission of tax as a result of COVID-19.25
- The purpose of tax legislation is important and should be considered when the Minister provides relief. In the case of NRST, it is a tax intended for non-resident speculators. It is not a tax on immigration. Likewise in other cases where the Minister is empowered to provide relief, it is unreasonable for a taxpayer to be stuck with a burden that is contrary to the purpose of the tax.
Footnotes
1Yavari v Ontario (Minister of Finance), 2024 ONSC 5296 [Yavari].
2Land Transfer Tax Act, RSO 1990, c L6 [LTTA].
3Yavari, supra note 1, at para
4 Section 5 of OReg 182/17: Tax Payable Under Subsection 2 (2.1) of the Act by Foreign Entities and Taxable Trustees [NRST Regulation].
5 Yavari at para 1.
6 LTTA, section 20.
7 15% under subsection 2(2.1) the LTTA, and 25% under the NRST Regulation, supra note 4.
8Yavari at para 44. See also Ontario, "Ontario Passes Legislation to Help Homebuyers and Seniors" (Government of Ontario, 1 June 2017) https://news.ontario.ca/en/release/45019/ontario-passes-legislation-to-help-homebuyers-and-seniors>. Originally the NRST only applied in the Greater Golden Horseshoe Region, but section 1.2 of the NRST Regulation, supra note 4, defines "specified land" to include all of Ontario.
9 NRST Regulation, supra note 4, section 5.
10 NRST Regulation, supra note 4, paragraph 5(1)(b).
11 Or four years and 180 days after purchasing the home, if that date is earlier. See NRST Regulation, supra note 4, subsection 5(2).
12 Yavari at paras 3 and 13.
13 Yavari at para 3.
14 Yavari at para 13.
15 Yavari at para 9.
16 Yavari at para 13.
17 Yavari at para 36.
18 Yavari at para 40.
19 Yavari at para 13.
20 Yavari at paras 32-33.
21 Yavari at para 46.
22 Yavari at paras 35 and 42.
23 Yavari at paras 33 and 39.
24 Yavari at paras 46 and 48.
25 Federally, the CRA may recommend that Cabinet remits (i.e., refunds/cancels) tax under subsection 23(2) of the Financial Administration Act, RSC 1985 c F-11.
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