1. Introduction
The title to this blog may surprise. After all, a trust is a trust, no? Well, yes and no. In the first place, just because you call something a trust does not necessarily make it one. It could be a common law gift, a bailment, a mere power, or an agency relationship. To be a valid trust, it must satisfy the three certainties, be constituted, and comply with any formalities. But even it is a trust, it may also be something else, namely, an agency relationship. In that case the agency relationship dominates and prevails. The leading Canadian case on a trust that is also an agency is Trident Holdings Ltd v Danand Investments Ltd.[1] It involved a bare trust. Danand held title to certain lands as bare trustee for certain other corporations. The agreement under which the relationship was established did not therefore impose powers or discretions on Danand. Implicitly, its sole function was to hold title to the land and it was subject to the control and mandate of the beneficiaries. The court held that in those circumstances the agency relationship predominated over the trust relationship. Consequently, the principals for whom Danand held title were liable to a contractor that supplied materials and equipment for a construction project.
A similar issue arose in the recent British Columbia case, 1084204 BC Ltd v His Majesty the King in Right of British Columbia.[2]
2. Facts
British Columbia imposes a land transfer tax on transfers of property in the province under the Property Transfer Tax Act[3] (‘PTTA’). In 2016 the province established an additional transfer tax (‘ATT’) on the sale of property in specified areas of the property by adding section 2.02 to the PTTA. The ATT adds a very substantial amount to the Property Transfer Tax (‘PTT’). The ATT seeks to discourage foreign nationals from purchasing residential property in the specified areas to address the problem of housing availability. Section 2.02(2)(b) provides that the ATT is imposed on any transferee that is ‘a foreign entity or taxable trustee, or both’. The PTTA defines ‘foreign entity’ as a ‘foreign national’, or a ‘foreign corporation’ and treats the foreign entity as a ‘taxable trustee’.
1084204 BC Ltd (‘108’) was incorporated in 2016. Hans Oeri is its sole shareholder, officer, and director. He is not a Canadian citizen but became a permanent resident of Canada after the time the issue being litigated arose. In 2019 108 agreed to purchase a residential property in Victoria. It is one of the specified areas to which the ATT applies. One day before the title was transferred, Mr Oeri and his common-law spouse, Ms Yi Sui, executed a Declaration of Bare Trust and Agency (‘Declaration’). It declared that 108 holds title to the property as nominee, agent, and bare trustee for Ms Sui, who is described in the Declaration as the ‘principal and beneficial owner’. Mr Oeri paid all the purchase money. Title was registered in the name of 108. The title does not indicate that 108 is a trustee. At the time the transaction closed, 108 filed a PTT form and declared basic PTT to be payable. It did not declare any ATT. The form declared that 108 purchased the property as trustee and that Ms Sui is the beneficiary.
In October 2019 108 was assessed for ATT on the ground that the ‘transferee is a taxable trustee.’ Mr Oeri appealed that decision. In March 2022 the office of the Minister of Finance affirmed the assessment on the ground that the statutory presumption that the registered title is conclusive evidence of the ownership of legal and beneficial interests has not been rebutted. Thus in the Minister’s view, 108 is a foreign entity because it is controlled by Mr Oeri, and even if 108 is a bare trustee, it is nonetheless a trustee that holds property in trust. As a trustee, 108 met the definition of ‘taxable trustee’ according to the PTT return and the Declaration, so that the ATT applied. 108 appealed.
3. Analysis and Judgment
Justice Murray disagreed with the Minister and allowed the appeal. In her view, the Minister failed to consider the evidence of Mr Oeri and Ms Sui and the effect of the Declaration. She noted that for a valid trust to exist the three certainties (object, property, and intention) must exist. The first two were met, since the property is defined, and Ms Sui is the beneficiary. However, with respect to the certainty of intention, the court must inquire what the settlor (Mr Oeri) intended. Did he intend to create a trust or something else? The mere use of the word ‘trust’ is not conclusive evidence of intention. It was clear from the evidence that Mr Oeri intended to make a gift to Mr Sui and did not intend to create a trust. And Ms Sui believed that she owned the property. Further, their actions confirmed their statements since they paid the PTT and the supposed trust never filed income tax returns. Moreover, the Declaration gives Ms Sui complete control over the property as ‘owner’ and makes it clear that, as undisclosed principal, she is the only person with power to direct 108 what she wants it to do with respect to the property. It is also significant that Ms Sui is not shielded from liability, as she would have been under a trust, for the Declaration exposes her to liability in contract and tort. Hence, the certainty of intention was not satisfied. This also meant that the Minister’s position that the critical time for an assessment is the time of registration could not stand, since intention precedes the moment of registration.
Justice Murray therefore held that the Declaration created an agency relationship that does not attract ATT. But, by reference, inter alia, to the Trident case discussed above, she went on to hold that if the Declaration creates a bare trust as well as an agency relationship, the agency principles prevail. That is clear also from Advanced Glazing v Multimetro,[4] which came to the same conclusion, and from Canada (Attorney General) v British Columbia Investment Management Corp,[5] which confirmed that when a person has sufficient control over another person who is both trustee and agent, the trust is ignored for tax purposes.
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[1] 1988 CarswellOnt 112, 49 DLR 4th 1 (CA).
[2] 2023 BCSC 2013.
[3] RSBC 1996, c 378 (‘PTTA’).
[4] 2000 BCS 804.
[5] k2019 SCC 63 at para 61.