Docket: 2011-3192(IT)I
BETWEEN:
ESTATE OF THE LATE GUNNAR BROSAMLER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard
on May 2, 2012, at Vancouver, British Columbia
Before: The Honourable
Justice Wyman W. Webb
Appearances:
|
Counsel for the Appellant:
|
Elizabeth Junkin
|
|
Counsel for the Respondent:
|
Holly Popenia
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment
made under the Income Tax Act (the “Act”) is allowed and the
matter is referred back to the Minister of National Revenue for reconsideration
and reassessment on the basis that in determining the liability of Gunnar
Brosamler, deceased, under the Act for income taxes for his final
taxation year ending April 8, 2008, the amount of taxes payable for such year
under the Act shall be reduced by the lesser of:
(a)
the amount by which the
liability for income taxes under the Act for such year would be reduced
if the capital losses realized by the Estate of the Late Gunnar Brosamler in
its year ending April 8, 2009, which, as a result of the provisions of
paragraph 164(6)(c) of the Act are deemed to be capital losses of
Gunnar Brosamler, deceased, from the dispositions of capital property by him in
his last taxation year ending April 8, 2008, were increased by the amount of $94,038;
and
(b)
$12,000.
The Respondent shall pay costs to the Appellant which
are fixed in the amount of $1,200.
Signed at Halifax, Nova
Scotia, this 12th day of June 2012.
“Wyman W. Webb”
Citation: 2012TCC204
Date: 20120612
Docket: 2011-3192(IT)I
BETWEEN:
ESTATE OF THE LATE GUNNAR BROSAMLER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
There are two taxpayers
in this appeal – Gunnar Brosamler, deceased, (who is represented by the
executrix of the Estate of the Late Gunnar Brosamler) and the Estate of the
Late Gunnar Brosamler (who is also represented by the executrix of the Estate
of the Late Gunnar Brosamler). For ease of reference in these reasons, Gunnar
Brosamler, deceased, will be referred to herein as “Brosamler” and the Estate
of the Late Gunnar Brosamler will be referred to herein as the “Estate”. This
appeal was filed under the Informal Procedure and Counsel for the Appellant
confirmed that the Appellant was electing to limit the appeal to $12,000 of
taxes assessed under the Income Tax Act (the “Act”).
[2]
Brosamler died on April
8, 2008 in Germany and at the time of his death he was a resident
of Germany. At the time of his death he owned three
rental properties in Vancouver, British Columbia, that he had acquired
several years earlier. There is no disagreement with respect to the amount of
the capital gains realized by Brosamler as a result of the deemed disposition
of these properties as provided in subsection 70(5) of the Act and
these capital gains were as follows:
|
|
West 3rd Property
|
West 16th Property
|
Allison Property
|
|
Proceeds of Disposition
(fair market value April 8, 2008)
|
$2,950,000
|
$1,500,000
|
$2,300,000
|
|
Adjusted Cost Base
|
$53,000
|
$172,500
|
$145,200
|
|
Capital Gain
|
$2,897,000
|
$1,327,500
|
$2,154,800
|
|
Total:
|
|
|
$6,379,300
|
[3]
Linda Leonard is the
sole executrix and the sole beneficiary under Brosamler’s will. As a result of
the very significant capital gains realized as a result of the deemed
disposition of the properties under the Act as well as the large
inheritance tax payable in Germany, she determined that she had to generate
approximately $3 million and therefore that she had to sell at least two of the
properties. The west 3rd property and the west 16th
property were sold within the first year following the death of Brosamler and
in each case a capital loss was realized. As the election referred to in
paragraph 164(6)(c) of the Act was made, the capital losses
realized by the Estate were deemed to be capital losses of Brosamler from
dispositions of capital property in his final taxation year which ended on
April 8, 2008. It is the amount of the capital losses that is in dispute in this
case.
[4]
Brosamler’s will was
probated in Germany. Both parties agreed that the Estate would
not be able to sell the properties to a third party unless the conveyance from
Brosamler to the Estate was registered in compliance with the Land Title Act
(British Columbia) and this could only occur if the probate was resealed in
British Columbia. Probate fees under the Probate Fee Act (British Columbia) and legal fees were incurred to obtain ancillary
probate in British Columbia.
[5]
The Estate added a
portion of the probate fees and legal fees incurred to obtain ancillary probate
in British Columbia to the adjusted cost base of the properties (which
increased the amount of the capital loss realized by the Estate on the
disposition of the properties and which, as noted above, are deemed to be
capital losses of Brosamler in his final taxation year). The Canada Revenue
Agency has reduced the adjusted cost base of the properties by the amount added
for these probate fees and legal fees. The issue in this appeal is whether a
portion of these probate fees and legal fees can be added to the adjusted cost
base of the properties that were sold or alternatively, deducted as an outlay
or expense incurred for the purpose of disposing of the properties.
[6]
The
Federal Court of Appeal in Her Majesty the Queen v. Stirling,
[1985] 1 C.T.C. 275, 85 DTC 5199, stated as follows:
… As we understand it, the word ‘cost’ in those
sections means the price that the taxpayer gave up in order to get the asset;
it does not include any expense that he may have incurred in order to put
himself in a position to pay that price or to keep the property afterwards.
The sections that are referred to
above are the sections related to the calculation of a capital gain.
[7]
Counsel for the
Respondent submitted that since the Estate had acquired an interest in the
properties under the Estate
Administration Act (British Columbia),
that ancillary probate was not required in order for the Estate to acquire an
interest in the properties. Subsection 77(1) of the Estate Administration
Act (British Columbia) provides as follows:
77
(1) Despite a testamentary disposition, if real estate is vested in a
person without a right in any other person to take by survivorship, on the
person’s death it devolves to and becomes vested in the person’s personal
representatives as if it were a chattel real vesting in them.
[8]
It also appears that, based on the
decisions of the British Columbia Court of Appeal in Forrest v. Howe, [1952]
1 D.L.R. 717 (B.C.C.A.) that the Estate may have acquired an interest in
the property without having the conveyance to the Estate registered. In that
case, the British Columbia Court of Appeal stated that:
13 But
counsel for the respondent, relying upon s. 35 of the Land Registry Act,
R.S.B.C. 1948, e. 171, submits that the unregistered conveyance held by the
plaintiff is inoperative to pass to him any estate, either legal or equitable.
However, I think it is clearly established upon the authorities that a document
executed by one having some registered title or interest in lands which
purports to transfer that title or interest to another, does vest in the
grantee or transferee an equitable title or interest in lands, even though the
same be not registered. Further, that the provisions of s. 35 of the Act
do not bar the enforcement of rights conferred by an unregistered document: vide
L. & C. Lumber Co. v. Lundgren, [1942] 4 D.L.R. 637, 58 B.C.R. 270; Davidson
v. Davidson, [1946], 2 D.L.R. 289, S.C.R. 115; Greveling v. Greveling,
[1950] 2 D.L.R. 308.
[9]
However, the interest
in the properties that was sold by the Estate (and which resulted in the
capital losses for the purposes of the Act) was not the interest in the
property that the Estate acquired under subsection
77(1) of the Estate Administration Act (British Columbia) nor was it any interest that the Estate may
have acquired from an unregistered conveyance. The interest that was sold by
the Estate was an interest in the properties that could be registered under the
Land Title Act by the purchasers of the properties and to acquire this
interest in the properties the Estate had to incur the probate fees and legal
fees. This title, that could be transferred to the purchasers and registered by
the purchasers under the Land Title Act, could only be acquired by the
Estate if it complied with the requirements of the Land Title Act which
were that probate had to be resealed in British Columbia and the appropriate probate fees had to be paid. A
portion of the probate fees and legal fees were therefore incurred to acquire
the title to the properties that was sold (which resulted in the capital losses
realized by the Estate for the purposes of the Act) and therefore can be
added to the adjusted cost base of the properties as part of the cost of the
interest in the properties that was acquired by the Estate.
[10]
It also seems clear
that, if the amount for probate fees and legal fees is not added to the
adjusted cost base of the properties, these fees were outlays or expenses incurred
for the purpose of making the dispositions of the properties. As a result such
amounts would be deductible in determining the capital losses realized by the
Estate on the disposition of such properties. Whether the appropriate amount is
included in determining the adjusted cost base of the properties or deducted as
an outlay or expense incurred for the purpose of making the disposition of the
properties, the amount of the capital losses realized by the Estate (which are
deemed to be capital losses of Brosamler) will be the same amount.
[11]
The probate fees of
$101,172 were based on the value of the assets of Brosamler in British Columbia. It seems to me that the portion of the probate fees
that can be added to the adjusted cost base of the properties that were sold
should be the same portion as the value of these properties used for probate
purposes is to the value of all of the assets of Brosamler in British Columbia used for probate purposes. The legal fees of $59,029
should be allocated to the adjusted cost base of the properties in the same proportion.
The total value of all of the assets in British Columbia as used for probate purposes is $7,250,373.
Therefore, the amount that should be added to the adjusted cost base of the
properties that were sold will be the following:
|
|
West 3rd Property
|
West 16th
Property
|
|
Value for probate fee purposes:
|
$2,836,100
|
$1,421,100
|
|
Percentage of total assets in B.C.:
|
39.1%
|
19.6%
|
|
Probate fees allocated to the cost:
|
$39,558
|
$19,830
|
|
Legal Fees allocated to the cost:
|
$23,080
|
$11,570
|
|
Total amount added to the cost:
|
$62,638
|
$31,400
|
[12]
Therefore the total
amount added to the adjusted cost base (which is the cost of the property as
adjusted in accordance with the provisions of the Act) of the two
properties that were sold is $94,038 ($62,638 + $31,400) and therefore the
total capital losses realized by the Estate but deemed to be incurred by
Brosamler in his final taxation year will be increased by this amount.
[13]
As a result the appeal
from the reassessment made under the Act is allowed and the matter is
referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that in determining the liability of Brosamler under
the Act for income taxes for his final taxation year ending April 8,
2008, the amount of taxes payable for such year under the Act shall be
reduced by the lesser of:
(a) the amount by which
the liability for income taxes under the Act for such year would be
reduced if the capital losses realized by the Estate in its year ending April
8, 2009, which, as a result of the provisions of paragraph 164(6)(c) of
the Act are deemed to be capital losses of Brosamler from the
dispositions of capital property by him in his last taxation year ending April
8, 2008, were increased by the amount of $94,038; and
(b) $12,000.
The Respondent shall pay costs to the Appellant which
are fixed in the amount of $1,200.
Signed at Halifax,
Nova Scotia, this 12th day of June 2012.
“Wyman W. Webb”
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