The Queen v. Collin, 90 DTC 6369, [1990] 2 CTC 92 (FCTD)

Martin, J.:—The defendant taxpayer claims as a moving expense under the provisions of paragraph 62(3)(e) of the Income Tax Act, R.S.C. 1952, c. 148, as amended by S.C. 1970-71-72, c. 63, s. 1, the lump sum payment of $5,811.60 paid by him to a mortgage company in order to reduce the rate of interest to be charged by the mortgage company to the purchaser of the defendant's old residence from 25 per cent per annum to 17 per cent per annum.

On June 30, 1981 the defendant listed his house for sale for $132,500. On August 25, 1981 he entered into an agreement to sell the house to one Stasyk for $131,800, a portion of which was to be funded by a $50,000 two-year mortgage from the purchaser to First City Trust Company.

During the negotiations leading up to the completion of the agreement of sale on August 25, the purchaser had arranged for the $50,000 mortgage which was to bear interest at 25 per cent per annum. The payments required to be made by the purchaser under the terms of the mortgage, presumably with his other obligations, were beyond his financial capability and he could not proceed with the purchase of the defendant's house.

With the aid of the defendant's real estate agent and the trust company it was determined that the purchaser would qualify for the $50,000 mortgage if the rate were reduced from 25 per cent to 17 per cent. It was also determined that the lump-sum cost of doing so, by way of a pre-payment of interest, would be $5,811.60.

When this was put to the defendant taxpayer he agreed to make the payment in order to facilitate the sale of his residence and there was incorporated into the agreement the fact that $50,100 (the $100 was an error as the amount was actually $50,000) of the purchase price would be funded by a two- year term mortgage to be b[r]ought down by the defendant to 17 per cent.

It is important to note that the defendant was not asked to nor did he reduce the agreed purchase price of $131,800. That amount was the amount for which he agreed to sell the residence to Stasyk and that is the amount which Stasyk paid. It was from that amount that $5,811.60 was deducted and paid to the trust company in order to reduce the interest rate from 25 per cent per annum to 17 per cent per annum.

In fact the $5,811.60 was deducted by the trust company from the $50,000 advanced to Stasyk but in my view that is irrelevant and was done as a matter of convenience. The real nature of the transaction was that the $50,000 was advanced by the trust company to Stasyk who paid it as part of the total purchase price of $131,800 to the defendant who then paid $5,811.60 to the trust company in order to have the mortgage rate reduced as already indicated.

The fact that the payment was made by the solicitor and agents for the defendant rather than by himself and the fact that the payment shows up as an adjustment on the documentation does not alter the essential nature of the transaction and that is that it was a payment by the defendant of an obligation entered into by him under the terms of the agreement of sale without the payment of which the sale would not have taken place.

It is true that the defendant might have reduced the purchase price rather than make the lump sum interest payment but he did not do so. In fact it was never suggested to him and he never considered doing so. In this respect I find myself in complete agreement with Bonner, J. of the Tax Court of Canada, who heard this matter in the first instance ([1986] 1 C.T.C. 2603 at 2604; 86 D.T.C. 1477), when he observed:

. . . it does not follow from the fact that the appellant might have chosen to agree to a reduction in the purchase price sufficient to enable the purchaser to qualify for the mortgage that a payment made to achieve the same end by different means must be treated as if it were such a reduction. Generally speaking, taxation rests on the application of the statute to the facts as they were, not to the facts as they might have been. The evidence here supports only one finding, namely, that the appellant chose to make the payment to the mortgage lender in order to bring about the sale and that he rejected other courses of action which he might have adopted, such as reducing the purchase price.

I am also in agreement with the Tax Court judge's conclusion that the defendant's direct and immediate object in making the payment was to effect the sale and the payment was therefore properly characterized as a selling cost within the ordinary meaning of paragraph 62(3)(e) of the Income Tax Act.

The plaintiff's appeal will be dismissed with costs. Pursuant to paragraph 337(2)(b) of the Federal Court Rules, counsel for the defendant is directed to prepare a draft of the formal judgment and to submit the same to counsel for the plaintiff for approval as to its form and then to me for review and, if accepted, for entry.

Appeal dismissed.