As a prospective lender was unwilling to refinance debt owing by the appellant, the appellant transferred real property to its two individual shareholders (who were not registered) in order to secure a loan to them from the lender. It failed to charge or collect GST on this transfer. The appellant was unsuccessful in arguing that it retained beneficial ownership of the property because, inter alia, there had been no certainty of intention to create a trust. Likewise, the appellant could not avoid GST obligations under s. 134 because the property had not been transferred to secure a debt or the performance of an obligation to the shareholders.
Paris J. found, however, that the appellant' conduct was not grossly negligent. He stated (at para. 21):
I accept that Mr. Parmar and Mr. Canning [the shareholders] believed that GST would not become payable until the property was disposed of to an arm's length party. I also accept that they believed that the Appellant maintained some interest in the property given that it continued to pay the expenses related to it. Although that belief was incorrect in law, it appears to me that Mr. Parmar maintained that subjective belief and I infer Mr. Canning did as well. I believe they were negligent in not seeking legal advice.