REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The issue in this appeal is whether the
Appellant received a taxable capital gain of $176,000 in 2008 from the sale of
real property.
[2]
The witnesses were the Appellant, who gave his
testimony through an interpreter; Erfan Eliyin, the Appellant’s son; and, James
Roque, an employee with the Canada Revenue Agency (“CRA”) who was the auditor
in this case.
[3]
According to documents registered with the Land
Title Office of British Columbia, the Appellant purchased the property at 24258 16th Avenue in Langley, British Columbia (the “Property”) on October 27, 2004 for
$648,000. He transferred the Property to Erfan Eliyin, his son, on April 8,
2008 for $1,000,000.
[4]
It was not disputed that the gain realized by
the Appellant was $352,000.
[5]
The Appellant did not report the sale of the
Property in his 2008 tax return.
[6]
It was the Appellant’s position in both his
notice of objection and his notice of appeal that the Property was his
principal residence and the gain which he realized on its disposition was
exempt from tax. However, at the hearing of the appeal, the Appellant altered
his position. He no longer argued that the Property was his principal
residence. Instead, he stated that he changed the title to the Property to his
son’s name but he remained the beneficial owner of the Property.
[7]
I will first discuss the Appellant’s position as
to whether he transferred legal and beneficial ownership of the Property to his
son and then I will discuss whether the Appellant is entitled to claim the
principal residence exemption.
Trust Agreement
[8]
According to the Appellant, the title to the
Property was transferred to his son so that he, the Appellant, could obtain his
equity in the Property. He submitted a document called “Trust Agreement” dated
April 8, 2008. It was signed by the Appellant and his son Erfan. The document
purported to make the Appellant the beneficial owner of the Property and Erfan
the registered owner of the Property. The last sentence on the document reads:
“At any time, at the request of Mahdi[1]
Eliyin, Erfan Eliyin will transfer the property located at 24258 16th ave, Langley, B.C. as directed.”
[9]
The “Trust Agreement” was not registered with
the Land Title Office. According to Erfan, this document was not disclosed to
the Bank of Montreal who gave him the mortgage loan to purchase the Property.
It was not disclosed to counsel for the Respondent until the hearing of the
appeal. The only testimony I received with respect to this document was from
the Appellant and his son Erfan and I find that their evidence was self
serving.
[10]
Furthermore, according to the transfer deed for
the Property, the Appellant transferred both the beneficial and legal title in
the Property to Erfan on April 8, 2008. In the instrument of transfer, he
acknowledged that the Freehold Estate transferred to Erfan was fee simple.
[11]
As a result, I have given no consideration to
the “Trust Agreement” in my final decision in this appeal.
Principal Residence
[12]
I heard the following evidence with respect to
whether the Property was the Appellant’s principal residence in 2008.
[13]
When the he purchased the Property, the
Appellant lived at 2295 Parkway Blvd., Coquitlam, B.C. It was his evidence that
he did not live in the housing unit on the Property in 2004 or 2005. He rented
out the Property in 2006 and he reported rental income of $38,400 and rental
expenses of $35,120.74 on his 2006 income tax return. The rental expenses
claimed by the Appellant included the entire amount of his mortgage interest,
property taxes and insurance for the year with respect to the Property. I was
not told whether the Appellant claimed capital cost allowance on the housing
unit on the Property. The Appellant also had a tenant for six months in 2007
but it was not reported on his income tax return for that year. He stated that
he and his younger son lived in the housing unit on the Property in 2007 but he
didn’t specify the length of his stay. His younger son has multiple sclerosis
and they found that the Property was too remote so they moved back to
Coquitlam. The Appellant gave no evidence that he resided in the housing unit
in 2008.
[14]
The Appellant submitted the following documents
which showed his address as the Property: a Permit dated April 14, 2008 from
the township of Langley; his notices of assessment for the 2006 and 2007 years;
a letter dated April 20, 2010 from the Township of Langley confirming that the
Appellant had completed his obligations with respect to the Permit referenced
above; and, an insurance policy dated October 29, 2004 to October 29, 2005 for
the house on the Property.
[15]
The Permit submitted by the Appellant was issued
by the township of Langley for the restoration of the housing unit and barn on
the Property. According to the Permit, damage to the housing unit and barn had
resulted from an illegal activity discovered on the Property during a Public
Safety Inspection.
[16]
It was the Appellant’s evidence that the
insurance for the period 2005 to 2007 and all utilities for the Property were
in the name of Vince Sawden who lived on the lower level of the housing unit.
According to the Appellant, Vince Sawden was not a tenant but was the caretaker
of the Property.
[17]
According to Mr. Roque, he reviewed the CRA
databases and found that in the years 2004 to 2008, none of the information
slips (T3, T4, T4A, T4E, T5, T5007 and T5008) submitted to the CRA from
independent third parties (CIBC, Work Safe BC, Government of BC and TD Green
Line) listed the Appellant’s address as the Property. The information slips
listed 3150 Dawson CRT, Coquitlam as the Appellant’s address in 2004 to 2008
inclusive.
Analysis
[18]
The Property consisted of 5 acres which
contained a 2-level house and two barns. The entire gain of $325,000 from the
sale of this Property is exempt from tax only if the Appellant has established
that the Property was his principal residence and the land in excess of
one-half hectare was necessary for his use and enjoyment of the Property as a
residence.
[19]
The question is whether the Appellant has
established that the housing unit on the Property was his principal residence.
[20]
Section 54 of the Income Tax Act (“Act”)
defines principal residence as follows:
“principal
residence” of a taxpayer for a taxation year means a particular property that
is a housing unit, a leasehold interest in a housing unit or a share of the
capital stock of a cooperative housing corporation acquired for the sole purpose
of acquiring the right to inhabit a housing unit owned by the corporation and
that is owned, whether jointly with another person or otherwise, in the year by
the taxpayer, if
(a)
where the taxpayer is an individual other than a personal trust, the housing
unit was ordinarily inhabited in the year by the taxpayer, by the taxpayer's
spouse or former spouse or by a child of the taxpayer,
[21]
In order for the Property to qualify as the
Appellant’s principal residence in 2008, the following conditions must be
satisfied:
(a) He must
have owned the Property in 2008;
(b) He must
have ordinarily inhabited the housing unit on the Property in 2008;
(c) The
Appellant must have designated the Property as his principal residence for
2008;
(d) The
Appellant’s designation of the Property as a principal residence must have been
made in his tax return for 2008.
[22]
The Appellant met only the condition in (a).
There was no evidence that he lived in the housing unit on the Property in 2008.
[23]
There was no evidence from which I could
conclude that the housing unit on the Property was the Appellant’s principal
residence in 2008. He did not designate the Property to be his principal
residence in his tax return. He did not file an election under subsection 45(3)
when he allegedly changed the use of the Property from a rental property to his
principal residence.
[24]
For all of these reasons, the appeal is
dismissed with costs to the Respondent.
Signed at Ottawa, Canada, this 14th day of May 2014.
“V.A. Miller”
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