Executive Summary: Key Legal and Evidentiary Issues

• Appellants Yun Zhang and Sheng Tan sought to enforce a settlement agreement allegedly reached with the Crown on October 14, 2025, regarding GST/HST assessments on two real property sales.

• Central dispute concerned whether an exchange of emails between counsel constituted a binding settlement, despite no signed consent to judgment or minutes of settlement being executed.

• The Court confirmed its jurisdiction under section 309 of the Excise Tax Act to enforce settlement agreements, rejecting the Respondent's argument that a signed consent to judgment under section 170 of the Rules was required.

• Objective contract formation principles under Ontario common law were applied to determine whether a matching offer and acceptance existed on all essential terms, particularly regarding the treatment of the 2014 reporting period.

• The Respondent's claim of "mutual mistake" regarding the Eldora Property's 2014 deemed self-supply assessment was rejected; the Court found only a potential unilateral mistake insufficient to void the contract.

• Settlement was found to comply with the principled settlement rule, as it did not prevent the Minister from assessing the 2014 reporting period if he chose to do so.

The parties and the properties at issue

Sheng Tan, a GST/HST-registered real estate broker, and his spouse Yun Zhang, who was not registered for GST/HST purposes, were co-owners of two properties in North York, Ontario. In November 2011, they purchased 10 Eldora Avenue (the "Eldora Property") for $770,000. After the property burned down in 2012, they reconstructed it, claiming they intended it as their primary residence. The Eldora Property was sold on February 4, 2015, for $1,695,000 without any GST/HST being collected. The couple had also purchased 234 Olive Avenue (the "Olive Property") in November 2007 for $619,000, demolished and rebuilt it beginning in the summer of 2015, and subsequently sold it on July 18, 2017, for $3,450,000, again without collecting GST/HST. The Respondent denied that the Appellants ever intended to or actually did reside in the Eldora Property, and denied that they ever intended to or actually did reside in the Olive Property after it was reconstructed, pointing to private short-term financing, late-issued occupancy permits, and early listing dates.

The assessments and the appeals

On November 24, 2021, the Minister issued assessments to each Appellant for their respective reporting periods covering the dates the Eldora and Olive Properties were disposed of. The Minister took the position that both sales were taxable supplies requiring the collection of GST/HST, and that Sheng Tan (but not Yun Zhang) was liable for gross negligence penalties as a result of his failure to report the sale of the two properties in his sales tax returns for the reporting periods in issue. The Appellants filed notices of objection, and when the Minister confirmed the assessments, they appealed to the Tax Court of Canada.

Settlement negotiations and the disputed agreement

After notices of appeal were filed, the Appellants' counsel, Bruce Laregina, engaged in settlement negotiations with the Respondent, who was at that time represented by Niloofar Sharif, a lawyer with the Department of Justice. A series of offers and counteroffers were exchanged, culminating in the Appellants' detailed 21-page "July Proposal" sent on July 3, 2025. The proposal set out that the Eldora Property sale was an exempt supply pursuant to subsection 4(b) of Schedule V, Part I of the ETA, that the Appellants were builders of the Olive Property within the meaning of subsection 123(1) of the ETA, that the $3,450,000 sale price was inclusive of GST/HST, that Mr. Tan was entitled to input tax credits of $59,102.10 and Mrs. Zhang was entitled to a rebate of $59,102.10 for the construction of the Olive Property, that Mr. Tan would not be liable for gross negligence penalties pursuant to subsection 285 of the ETA with respect to the Olive Property, and that the settlement would be on a without-costs basis. On October 10, 2025, after months of follow-up, the Respondent's counsel Jacqueline Blackett — who had taken carriage of the files on August 1, 2025 — emailed stating that, notwithstanding the expiry of the offer on October 6, 2025, the Respondent was "in agreement with the terms offered with the exception of the gross negligence penalties" and was "not willing to delete the gross negligence penalties." On October 14, 2025, Mr. Laregina responded: "We are pleased to accept your counteroffer."

The breakdown and the motions

When Ms. Blackett sent formal settlement documents on October 23, 2025, they contained significant additional terms not included in the July Proposal, including a requirement that each Appellant be assessed pursuant to subsection 191(1) of the ETA for the reporting period including the month of October 2014 in respect of the Eldora Property, along with a waiver of the right to object to those assessments. The letter also introduced, for the first time in the parties' correspondence before the Court, a reference to failure-to-file penalties with respect to Yun Zhang. Mr. Laregina responded on October 24, 2025, stating that the settlement documents "have added many additional terms [...] that were never agreed upon nor included in the July 2025 Offer." On October 27, 2025, the Respondent formally denied that the parties had reached settlement, citing the absence of executed consents to judgment or minutes of settlement, the failure to advise the Tax Court of Canada of any settlement, and the assertion that the parties had not agreed on all essential terms. The Appellants then filed motions on October 30, 2025, to enforce the settlement they claimed was entered into on October 14, 2025.

The Court's jurisdiction to enforce a settlement

Justice Rabinovitch undertook a detailed analysis of the Court's power to enforce settlement agreements in tax appeals. Relying on section 309 of the ETA and the Federal Court of Appeal's guidance in cases such as CIBC World Markets Inc. v. R. and Her Majesty the Queen v. CBS Canada Holdings Co., the Court confirmed its jurisdiction extends to enforcing binding settlements that comply with the principled settlement rule, which requires that the result of a binding settlement agreement be one which could at least possibly be arrived at following a full hearing on the merits. The Court rejected the Respondent's three arguments: that enforcement would be tantamount to granting a remedy of specific performance, which only a court of equity would have the power to do; that a signed consent to judgment under section 170 of the Rules was a prerequisite; and that a signature was legally required for any binding settlement agreement. The Court noted that section 170 is intended to afford a simple mechanism to parties who agree that a settlement has been reached to have their dispute resolved without a hearing or formal motion, and that the Rules' power over "pleadings, practice and procedure" does not include the ability to limit the jurisdiction of the Court. Multiple prior decisions — including Kumar v. R., Huppe v. R., Softsim Technologies Inc. v. R., Sifto Canada Corp. v. R., and Mandic Estate v. R. — had enforced settlements in the absence of any consent to judgment.

Whether a settlement agreement existed under Ontario contract law

Applying the five-part test from Apotex Inc. v. Allergan, Inc., the Court assessed whether all elements of a valid contract were present. On intention to create legal relations, the Court found the parties' use of terms such as "offers," "counteroffers," "expiry," and "accept" in their correspondence demonstrated a clear intention to enter into legal relations, and that the fact that no formal agreement was signed did not prevent a binding contract from having been formed. On consideration, the Court found mutual promises — the Appellants agreeing to end their litigation and accept liability to pay certain amounts, and the Respondent agreeing to drop certain claims — satisfied this requirement. On certainty of terms, the Court found neither the July Proposal nor the Respondent's email of October 10, 2025, was vague or open-ended. On matching offer and acceptance, the critical question was whether the treatment of the 2014 reporting period was an essential term on which the parties disagreed. The Court applied an objective reasonable-person standard and examined seven interpretive factors: the exhaustive nature of the 21-page July Proposal, the prominent reference to the Eldora Property sale as exempt with no reference to subsection 191(1) in the summary, the fact that 2015 and 2017 were the only reporting periods before the Court, the decision to refer to the exemption in subsection 4(b) rather than section 3 of Schedule V, the absence of any prohibitive language, the absence of any permissive language, and the reasonableness of the substantive outcome from a commercial standpoint. The Court concluded a reasonable person would interpret the agreement as leaving 2014 open — the Minister free to assess and the Appellants free to object — which aligned with the Appellants' position. There was therefore matching offer and acceptance on all essential terms.

Unilateral mistake and the principled settlement rule

The Respondent characterized the disagreement as a "mutual mistake," but the Court found this was not the correct way to analyze the question. Contract law requires that offers and acceptances be interpreted not in light of a party's subjective intentions, but rather what a reasonable person would have concluded from what they said or did. There may have been a unilateral mistake on the part of the Respondent, but under common law, a unilateral mistake as to terms is generally insufficient to cause a contract to be void unless the other party knows that the mistaken party is operating under an invalid assumption. The Respondent had not alleged that the Appellants were aware of any mistake on his part, and there was no evidence before the Court of any such knowledge or of circumstances which would make it reasonable to expect the Appellants to have known of its existence. The parties' agreement could therefore neither be avoided nor rescinded. On the principled settlement rule, the Court rejected the Respondent's argument that the settlement violated the object and spirit of the ETA. The Court held that the principled settlement rule is based on the Minister's duty to assess based on the "facts and the law," not on tax policy, and that subsection 4(b) of Schedule V of Part I of the ETA does not require an assessment to have been issued in respect of a deemed supply under subsection 191(1). The settlement did not prevent the Minister from assessing 2014 if he so desired.

The ruling and its outcome

The Appellants' motions were granted, with costs. The Court ordered that the assessments for both Yun Zhang and Sheng Tan be referred back to the Minister for reconsideration and reassessment. For both Appellants, the sale of the Eldora Property was declared an exempt supply pursuant to subsection 4(b) of Part I of Schedule V of the ETA, and the GST/HST required to be collected for the relevant reporting period was reduced by $110,175.00 each. The sale of the Olive Property was confirmed as a taxable supply with the $3,450,000 sale price treated as inclusive of GST/HST, reducing each Appellant's GST/HST obligation from $224,250.00 to $198,451.33. The Minister was directed to allow Mr. Tan an input tax credit and Ms. Zhang a rebate, each in the amount of $59,102.00, in respect of the Olive Property. Gross negligence penalties previously assessed against Mr. Tan for his reporting period ended December 31, 2017, were to be adjusted to reflect the above-mentioned changes, with no such penalties payable for his reporting period ended December 31, 2015. For Ms. Zhang, if any failure-to-file penalties were previously assessed, she would remain liable for the amount thereof; if no such penalties were previously assessed, she would not be liable for any. The Appellants were given thirty days from May 1, 2026, to make submissions on the amount of costs payable in respect of the motions, following which the Respondent would have thirty days to file a response; absent submissions, costs would be awarded to each Appellant in the amounts provided for in Schedule II of the Tax Court of Canada Rules (General Procedure). The Amended Judgment was signed on the 4th day of May 2026 by Justice Ryan P. Rabinovitch.