|
Citation: 2003TCC171
|
|
Date: 20030326
|
|
Docket:2000-1805(IT)G
|
|
BETWEEN:
|
|
ESTATE OF MYRTH MAY STUART,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Rip, J.
[1] In 1994 the late Myrth May Stuart
transferred her principal residence which, her executors claim,
consisted of her housing unit and 3.255 acres (1.31726 hectares),
more or less ("Property"). Mrs. Stuart died on July 26,
1995. The Minister of National Revenue ("Minister")
assumed the sale of the Property occurred in 1994 and assessed
the Estate of Myrth May Stuart for 1994. In assessing, the
Minister considered, among other things, that 45 per cent of the
Property (0.592767 hectares) subjacent to Mrs. Stuart's
housing unit was her principal residence, as defined in paragraph
54(e) of the Income Tax Act
("Act"), and no area of land in excess of 45 per
cent of the Property contributed to Mrs. Stuart's use
and enjoyment of her housing unit as a residence; the taxpayer
had not established to the Minister's satisfaction that the
excess land was necessary for the use and enjoyment of the
housing unit. Accordingly, the Minister considered that Mrs.
Stuart had a capital gain of $701,083 on disposition of the
portion of the Property that he did not consider to be part of
the appellant's principal residence.
[2] The definition of "principal
residence" in paragraph 54(e) of the Act
provides that:
|
the principal residence of a taxpayer for a taxation
year shall be deemed to include . . . the land subjacent to
the housing unit and such portion of any immediately
contiguous land as can reasonably be regarded as
contributing to the use and enjoyment of the housing unit
as a residence, except that where the total area of the
subjacent land and of that portion exceeds 1/2 hectare, the
excess shall be deemed not to have contributed to the use
and enjoyment of the housing unit as a residence unless the
taxpayer establishes that it was necessary to such use and
enjoyment,
|
la résidence principale d'un contribuable
pour une année d'imposition est
réputée comprendre [...] le fonds de terre
sous-jacent au logement ainsi que la partie du fonds de
terre adjacent qu'il est raisonnable de
considérer comme facilitant l'usage du logement
comme résidence; toutefois, dans le cas où la
superficie totale du fonds de terre sous-jacent et de cette
partie excède un demi-hectare, l'excédent
n'est réputé faciliter l'usage du
logement comme résidence que si le contribuable
établit qu'il était nécessaire
à cet usage,
|
[3] The Minister also assessed a late
filing penalty because neither Mrs. Stuart nor the trustee of her
estate filed a tax return for 1994.
[4] The parties agreed on the
following facts:
1. Myrth Mae Stuart (the
"Taxpayer") was born in 1900.
2. The Taxpayer was born in North
Dakota, USA.
3. The Taxpayer was married to Charles
Anderson Stuart ("Stuart") in 1921.
4. On or about March 3, 1947 Stuart
acquired a lot at what eventually became 2570 152nd
Street, Surrey, BC (the "Property").
5. Stuart died in 1954. The Taxpayer
was the Executrix of his Estate.
6. On or about February 26, 1957 the
Taxpayer purchased the Property from Stuart's Estate for
$6,000.
7. As of February 26, 1957, the
Property consisted of 3.5 acres (1.41641 hectares), more or
less.
8. The Municipality of Surrey
("Surrey") expropriated two portions of the Property in
1987 and 1990.
9. After the expropriation in 1990,
the Property consisted of approximately 3.255 acres (1.31726
hectares), more or less. Attached as Tab 1 are copies of various
diagrams of the Property.
10. The V-Day value of the Property was
$60,800.
11. From 1947 to April 8, 1994 the Taxpayer lived
in a house on the Property (the "House").
12. The House was situated approximately 80-120
feet East of 152nd Street and approximately 15-20 feet
North of the South boundary of the Property.
13. The House was approximately 960 square feet in
size, and had 6 rooms, including 3 bedrooms.
14. As of both August 30, 1992 and April 8, 1994
there was no road access leading from King George Highway onto
the Property and the driveway access was from 152nd
Street.
15. As of both August 30, 1992 and April 8, 1994
the Property had trees on it as shown in the tree map in Tab 1.[1]
16. The City of Surrey sewer line ran across the
front of the Property but was not connected to the Property and
the Property relied on a well and a septic field.
17. At all relevant times Mr. Peter Burnet
("Mr. Burnet") was the husband of Charliss Allison
Burnet, who in 1992 was the only child of the Taxpayer.
18. In the period leading up to August, 1992, Mr.
Burnet was involved in negotiating a sale of the Property to
various persons on behalf of the Taxpayer.
19. Some time prior to August 1992, Leare
Developments Ltd. ("Leare"), acting through Mr. Tim
Earle, introduced Mr. Burnet to First Allied Development
Corporation ("First Allied") as a potential purchaser
of the Property. Attached [. . .] is the Invoice from Leare.
20. The Taxpayer executed an Offer to Sell the
Property for $1.8 million on August 28, 1992, which offer was
accepted by First Allied on August 30, 1992.
21. The Offer to Sell was modified by a letter
from First Allied to Mr. Burnet dated August 31, 1992.
22. The Offer to Sell as modified by the August 31
letter contained all the terms of the contract (the
"Contract") between the Taxpayer and First Allied in
respect of the sale of the Property.
23. At the time the Contract was entered into the
Property was zoned R-F Single Family Residential, which zoning
was defined by Part XVIII of Surrey By-Law 5942.
24. BL 5942 required any land development on the
Property to comply with Surrey Subdivision and Development
By-Law, 1986, No. 8830 (the "Surrey Subdivision and
Development By Law"-copy of which as it read on September
28, 1992 . . .).
25. On November 27, 1992 First Allied applied to
Surrey to have the Property re-zoned from R-F Single Family
Residential to RM-2 Multi-Family Residential.
26. As discussed in Tab 7, First Allied's
application was made in conjunction with a similar re-zoning
application for the property immediately to the South of the
Property.
27. The conditions in paragraphs 9.01.01 and
9.01.02 of the Contract were satisfied or waived by First Allied
on or about November 27, 1992 and under covering letter dated
November 27, 1992 First Allied paid $50,000 to the Taxpayer's
solicitors in trust.
28. By letter dated July 8, 1993 First Allied
reported to Mr. Burnet as to the progress of its re-zoning
application.
29. Under covering letter dated August 16, 1993
First Allied exercised its right under the Contract to pay three,
$5,000 payments to the Taxpayer for an extension of the period
needed to obtain re-zoning of the Property.
30. On September 13, 1993 BL 5942 was replaced by
By-Law 12000. Under BL 12000 the Property was zoned RF Single
Family Residential, which zoning was defined by Part 16 of BL
12000. Pursuant to Part 2(B)(1) of BL 12000, any development
on the Property as permitted by Part 16(B) of BL 12000 would
have to be in accordance with the Surrey Subdivision and
Development By Law.
31. Under covering letter dated November 22, 1993
First Allied exercised its right under the Contract to pay three,
$5,000 payments to the Taxpayer for an extension of the period
needed to obtain re-zoning of the Property.
32. First Allied's application to re-zone the
Property was allowed on or about February 7, 1994.
33. As required by the Contract, under covering
letter dated February 7, 1994 First Allied paid the
Taxpayer's solicitors $75,000 in trust.
34. By letter dated March 25, 1994 First Allied
notified Mr. Burnet that it had assigned its interest in the
Property to a corporation called Metroland Development
Corporation ("MDC").
35. By letter dated April 6, 1994 MDC's
solicitors forwarded to the Taxpayer's solicitors a
Vendor's Statement of Adjustments, Form A Freehold Transfer
and a GST Exemption Form and notified the Taxpayer that MDC had
assigned its interest in the Property to
Metroland-152nd Street (No. 1) Development
Corporation ("Metroland No.1").
36. The Taxpayer executed the Vendor's
Statement of Adjustments, Form A Freehold Transfer and GST
Exemption Form on April 8, 1994 and caused her solicitors to
return them to Metroland No.1's solicitors on that date.
37. Under covering letter dated April 8, 1994
Metroland No.1's solicitors paid $1,595,302.04 (being the
balance of the purchase price of the Property) to the
Taxpayer's solicitors in trust.
38. The $50,000 referred to in paragraph 27 above
was deposited by the Taxpayer's solicitors in trust for her
(see copy of Authorization for interest earning account dated
November 27, 1992 . . .). The $75,000 referred to in paragraph 33
above was deposited into the same trust account in trust for the
Taxpayer (see copy of Authorization dated February 9, 1994 . .
.). The $1,595,302.04 referred to in paragraph 37 above was
deposited into a second trust account in the Taxpayer's name
(see copy of Authorization dated April 8, 1994 . . .). There
is no indication as to why a second trust account was used. The
first trust account of $125,000 (plus interest of $3,000.59) and
the second trust account (including interest of $655.59) were
closed on April 11, 1994 and the total funds (less $3000.59 which
was paid to First Allied reflecting the interest earned on the
initial $50,000 deposit-see copy of Trust Cheque Requisition
dated April 12, 1994 . . .) were transferred to a new trust
account in trust for the Taxpayer (see copy of Authorization
dated April 11, 1994 . . .).
39. As of April 8, 1994 the highest and best use
of the Property was as a multi-family residential complex similar
to the complex that First Allied proposed to build in its
re-zoning application.
40. As of April 8, 1994 the Property was larger in
size than other properties in the area, which allowed for higher
densities, which allowed for greater value on a per square foot
basis in respect of potential residential complexes to be built
on the Property.
41. The Taxpayer did not report any income or gain
from the disposition of the Property and did not file a tax
return for her 1994 taxation year.
42. The last date, pursuant to subsection
110.6(26) of the Income Tax Act (Canada) (the
"Act"), on which to file an election referred to in
subsection 110.6(19) of the Act was April 30, 1997.
43. The Taxpayer died on July 26, 1995. A copy of
her Probated Will and the Distribution of Assets and Liabilities
on death are attached as Tab 20.
44. Prior to her death the Taxpayer did not claim
any part of her $100,000 Lifetime Capital Gains Exemption.
45. The Minister first contacted the Taxpayer (or
her Estate) in respect of the sale of the Property by letter
dated October 3, 1997 requesting additional information in
respect of the sale.
46. By Notice of Assessment dated March 9, 1999,
replaced by a Notice of Reassessment dated April 19, 1999, the
Minister reassessed the Taxpayer for her 1994 taxation year in
respect of the disposition of the Property.
47. In addition to reassessing the Taxpayer in
respect of the disposition of the Property, the reassessment
imposed a late filing penalty of $63,722 for the Taxpayer's
1994 taxation year under subsection 162(1) of the Act.
48. In reassessing the Taxpayer to include a late
filing penalty the Minister made no assumption as to whether the
Taxpayer was or was not duly diligent in filing or not filing her
tax return for her 1994 taxation year.
49. Had the entire gain from the Taxpayer's
disposition of the Property been deductible under paragraph
40(2)(b) of the Act, and assuming the Taxpayer had no other
taxable income for the year, the Taxpayer would have been correct
in not filing a tax return for the year.
50. The Taxpayer duly objected to the reassessment
on June 1, 1999. The Minister confirmed the reassessment on
February 2, 2000.
51. For her 1998 and 1989 taxation years, the last
years for which the Taxpayer filed tax returns, the Minister
assessed the Taxpayer as having total income of $3,886 and $3,949
respectively. These amounts did not include the amounts the
Taxpayer received from the Federal Government in those years as
shown in the next paragraph.
52. The following table shows the amounts received
by the Taxpayer form the Federal Government under various
programs:
|
Year
|
Old Age Security
|
Guaranteed Income Supplement
|
|
1994
|
$4,647
|
$5,405
|
|
1993
|
$4,586.16
|
$5,291.16
|
|
1992
|
$4,509.03
|
$5,205.48
|
|
1991
|
$4,380
|
$5,206
|
|
1990
|
$4,147.62
|
$4,916.97
|
|
1989
|
$3,949
|
$4,636
|
|
1988
|
$3,779
|
$4,398
|
[5] The appellant's counsel raised
four issues that arise out of the transaction:
(a) whether the Minister was
correct in considering that only 45 per cent, and not all, of the
area of the Property was Mrs. Stuart's principal
residence;
(b) whether the Minister assessed the
proper year; the appellant's position is that the sale of the
Property did not take place in 1994, as assessed;
(c) that if a portion of the gain on
disposition of the Property is to be included in income for 1994,
whether Mrs. Stuart was entitled to the lifetime capital gains
exemption of $100,000 in accordance with section 110.6 of the
Act, effective February 22, 1994; and
(d) whether Mrs. Stuart or the
executors of her estate exercised due diligence in failing to
file an income tax return for 1994, if so, the penalty assessed
under subsection 162(1) would be vacated.
1. Property As
Principal Residence
(a) Objective Test
[6] In the appellant's view, both
objectively or subjectively, all of the Property was Mrs.
Stuart's principal residence: she was "locked into"
the entire Property as a single parcel, so that she was required
to sell the entire Property as a single unit ("Objective
Test") and the excess land was necessary to "use and
enjoyment" of the entire Property as required by the deeming
provision of section 54 ("Subjective Test").
[7] An overall site map of the
Property is attached as an annexe to these reasons.
[8] When Mr. Earle took on the task of
selling the Property, he assumed the Property would be developed
for condominiums. He believed that the City of Surrey preferred
condominiums in the area since that was the development in the
neighbourhood. Mr. Earle did realize that the Property was zoned
single family residential at the time. He told Mr. Burnet that he
would market the Property for condominium development.
[9] In July 1992 Mr. Earle prepared a
project summary for 36 units on the Property. The project summary
was prepared before Mr. Earle approached First Allied. The
summary was based on current development Mr. Earle saw at the
time in the neighbourhood and what he thought municipal
authorities would approve. The cost of the land was projected to
be $1,950,000, not including any land tax. In June 1992 the
Surrey Planning Department published a draft plan amending the
Official Community Plan designations pertaining to the area of
the Property, called the Semiahmoo Town Centre Development. The
draft Plan anticipated a maximum density of 15 units per
acre.
[10] The draft plan was followed by the
Semiahmoo Town Centre Development concept in December 1992. The
later plan also proposed a maximum permitted density of 15 acres
per unit in the area of the Property. The published material
states that commercial and multi-family residential developments
had taken place along the 152 Street corridor and around the 24
Avenue and King George Highway intersection. According to the
development concept plan, this had resulted in "considerable
pressure for further similar developments" along
152 Street. An objective of the Plan was to recognize the
multiple family residential character in the Property area.
[11] A map attached as Schedule D to Exhibit
A-7, a policy report, with respect to the Property's area,
dated August 1991, suggests the development of garden apartments
for the Property. Mr. Earle explained that "garden
apartments" is a planning term for ground access units, that
is, each unit has a front door at ground or second floor levels.
There would be eight to ten units per acre.
[12] Mr. Earle introduced Mr. Burnet to Bob
Maderick of First Allied. Mr. Burnet informed Mr. Maderick
of his mother-in-law's asking price for the Property. That,
he said, "was my extent of the negotiations". Mr.
Burnet did accompany Mr. Maderick to see the Property and
introduced him to Mrs. Stuart.
[13] The "Offer to Sell" the
Property (sometimes referred to as the "Contract") to
First Allied was accepted on August 30, 1992. Much of the
offer originated from a previous "fatal sale" of the
Property. Mr. Burnet said that his counsel, Mr. Nitikman,
"came on just before" the Agreement was signed.
Mr. Nitikman's name appears on the Offer to Sell as a
person who was to receive a copy of any document to be delivered
under the terms of the Offer to Sell. Mr. Nitikman's
name appeared so as to impress the potential purchaser and
protect Mrs. Stuart, according to Mr. Burnet. If necessary,
he stated, he would have gone to Mr. Nitikman for
advice.
[14] It is the appellant's position
that, prior to August 30, 1992, the City of Surrey would not have
approved of a subdivision of the Property into 6,000 square
foot single family lots, notwithstanding the zoning by-laws at
the time. Any subdivision would require the approval of the
Approving Officer[2] under an application for subdivision. The application
would have been rejected by the City of Surrey because the area
including the Property was targeted for higher density
development. Also, Mrs. Stuart did not have the means to finance
a subdivision application. Therefore, she had to sell all of the
Property as a single parcel.
[15] There are at least two tax cases[3] that stand for the
proposition that even where by-laws governing a property allow
for subdivision, the Objective Test will be met if in fact
subdivision approval would not have been given or if the
economics of subdivision are unfeasible: in other words, the
taxpayer is forced to sell the entire property as a unit. In
Carlile, the majority of the Court of Appeal relied
heavily on the opinion of a planning consultant that the
appellant had only a six in ten chance of obtaining subdivision
approval in finding that necessity. This Court allowed the
BrohmanEstate appeal because of the testimony of
the chairman of the Regional District Planning Board who opined
that the property in question did not meet the physical
qualifications for subdivision and that the taxpayers could not
have legally occupied their housing unit as a residence on less
than ten acres.
[16] The appellant did not lead evidence
similar to that led in Carlile and Brohman
Estate to prove that the City of Surrey would not have
approved a subdivision application for the Property. Rather,
counsel relied on two British Columbia cases, Wylesv.
Penticton (City) and Elsomv. Delta (Corp.)
Approving Officer[4] and asked me to conclude, as I understand it, that
since the Approving Officer has the discretion to reject an
application for subdivision in the public interest, Mrs. Stuart
would not have been successful in obtaining subdivision approval
for 6,000 square foot lots.
[17] The cases of Wylesand
Elsom, supra, are not of great help to the
appellant. Their authority is for the proposition that an
Approving Officer may consider public interest in considering a
subdivision proposal. In determining public interest the
Approving Officer may consider the Official Community Plan and
current policy planning work underway in the area of the
property. However, the Approving Officer may consider these
factors; he or she is not compelled to do so and may consider
other factors as well to determine whether a subdivision is in
the public interest. There is no hard evidence before me from the
Municipality of Surrey, or some knowledgeable person, to even
suggest that the Approving Officer in Surrey would not have
approved a subdivision proposal by Mrs. Stuart. In both
Brohman and Carlile, supra, the
taxpayers produced witnesses who had experience to testify
whether or not in their views a subdivision would be approved,
the chairman of the Regional District Planning Board in the
former appeal and a planning consultant in the latter appeal. I
cannot rely on decisions of courts with respect to municipalities
different from that where the Property is situated to conclude in
the appellant's favour, even if the findings in Wyles
and Elsom assist the appellant to some degree.
Different municipalities may have different approaches and
different goals in considering subdivision applications. What may
be good for Sooke or Delta may not be good for Surrey.
[18] As far as the appellant's argument
that it was simply impossible for Mrs. Stuart to subdivide
the Property, given her age, lack of business experience and lack
of money is concerned, it is within the realm of probability that
if Mrs. Stuart had wished to sell the Property, a purchasing
developer, like First Allied, perhaps, would absorb the costs of
subdivision. There is no evidence to the contrary and in fact, it
was First Allied who was obligated under the Contract to obtain
subdivision at its cost.
(b) Subjective Test
[19] Mrs. Burnet, the executrix of her
mother's estate, recalled the time she, at age 11, moved to
the Property and resided on the Property until she went to
University. While at university and later she would visit her
mother on a "regular basis" every week or second
week.
[20] In 1947 the house on the Property was
heated by an air tight wood burner. The kitchen stove used wood
and kerosene. The wood came from maple, fir and hemlock trees on
the Property. Mrs. Stuart had no need to purchase wood for
heating and baking. When the house was renovated in the early
1950s, a wood burning fireplace was installed in the living room
and served to heat the main floor of the two-storey house. In the
1960s a gas furnace was installed in the basement of the house.
Mrs. Burnet stated her mother was frugal and made use of the gas
furnace only in "really cold" weather.
[21] Prior to 1992, Mrs. Stuart sold a
"small piece of property" to a Mr. and Mrs. Jacobson
and Mr. Jacobson cut wood for Mrs. Stuart. (See Annexe attached
to these reasons.)
[22] Mrs. Burnet also stated her mother
lived on a modest income and could function independently. She
had no interest in money. Fruit trees, apple, various plumb and
peach, and vegetables grew on the Property. Mrs. Stuart made
preserves from the fruit and daily ate the fruits and vegetables.
If there were no fruits and vegetables growing on the Property,
Mrs. Burnet testified, her mother "would have to call on
us" for financial help. Her mother considered the Property
her homestead.
[23] Appellant's counsel argues that
Mrs. Stuart's use of the Property brings her within the
subjective test. He submits that given the word
"necessary" in paragraph 54(e) of the
Act, definition of "principal residence"
modifies not only the word "use" but
"enjoyment", a less restrictive interpretation of the
word "necessary" is appropriate. Counsel referred to
the definition of the word "necessary" in
Black's Law Dictionary[5]where the authors state that the word "may
import that which is only convenient, useful, appropriate,
suitable, proper or conducive to the end sought: . . . an
adjective expressing degrees, and may express more convenience or
that which is indispensable . . . or it may mean something
reasonably useful and proper, and of greater or lesser benefit or
convenience, and its force and meaning must be determined with
relation to the particular object sought". Counsel also
finds support in Wallace Estate v. Canada
(M.N.R.).[6]
On the other hand, respondent's counsel denies that the
excess amount of the Property was necessary for the use and
enjoyment of the housing unit as a residence; he relies on the
reasons of Christie, A.C.J. (as he then was) in Rode et al. v.
M.N.R..[7]
[24] In Wallace, supra, the
property in issue was an estate manor, essentially the highest
end home in Victoria, B.C. The estate consisted of two lots, the
housing unit was located on the edge of one lot. Gardens, an
artificial beach, servant quarters, the driveway and other
luxuries surrounded the housing unit and were integrated into
both lots.
[25] The trial judge in Wallace, in
allowing the appeal, referred to the reasons for judgment
in Rode, supra, as well as those of the Federal
Court of Appeal in The Queen v. Yates.[8]
[26] In Yates, the taxpayers had no
choice at the time of purchase but to acquire a 10-acre parcel of
land if they were to live in the area in question, since
10 acres was the minimum residential parcel then permitted
by the zoning by-law. The zoning by-law was subsequently amended
to require a 25-acre minimum. The taxpayers continued to reside
on their piece of land as legal non-conforming users. They
did not actually use more than one acre for residential purposes
and rented the balance to a neighbouring farmer. In 1978, the
taxpayers sold 9.3 acres to the City of Guelph under threat
of expropriation. The trial judge held that since the taxpayers
could not legally have occupied their housing unit as a residence
on less than 10 acres, the portion in excess of one acre was
necessary to its use and enjoyment.
[27] Mahoney J. opined in Yates[9] that:
. . . It is possible that a subjective test, involving the
actual contribution of the immediately contiguous land to the
taxpayer's use and enjoyment of the unit as a residence, may
be admissible. Perhaps such factors as are commonly taken into
account in applying subsection 24(6) of the Expropriation
Act could be relevant in appropriate circumstances. However,
whether or not a subjective test is properly to be applied, an
objective test surely is and if, in its application, it is found
that the taxpayer has discharged the onus on him, it is
unnecessary to consider the subjective.
[28] The Federal Court of Appeal
acknowledged that the task of establishing that the excess land
is necessary to the use and enjoyment of the housing unit as a
residence is a "formidable" one, as stated by Christie
A.C.J., as he then was, in Rode.[10] The Court of Appeal, relying on the
above comments of Mahoney J., stated that "where land does
not qualify in the objective test it may, however, qualify as
part of the residence by recourse to a subjective test".
[29] I believe that the proper approach to
determine if land in excess of 1/2 hectare is necessary to the
use and enjoyment of a housing unit as a residence is the
approach taken by Christie A.C.J. in Rode:[11]
. . . To my mind, the proper approach to the determination of
these appeals is to objectively consider all of the relevant
circumstances adduced in evidence which were in existence
immediately prior to the disposition of the property and in the
light of that answer this question: Have the appellants
established on a balance of probabilities that without the area
of land which they contend constitutes the subjacent and
immediately contiguous land component of their housing unit they
could not practicably have used and enjoyed the unit as a
residence?
. . .
. . . Even if an appellant establishes beyond controversy that
what exceeds 1 acre did in fact make an important contribution to
his use and enjoyment of the housing unit as a residence, this
does not assist him because the fact has been nullified by the
legislation unless he proves necessity. Therefore what an
appellant must do in order to establish that his principal
residence exceeds 1 acre is to prove that the excess was
"necessary" to the use and enjoyment of the housing
unit as a residence. I believe that in its context this
requirement dictates that a stringent test shall be applied in
determining the acreage of a principal residence.
[30] The word "necessary" in the
section 54 definition of "principal residence" connotes
a term that is indispensable, not one that is convenient, useful
or suitable. Christie A.J.C., correctly in my view, adopted the
meaning assigned to the word "necessary" by the authors
of the Oxford English Dictionary, that is,
"indispensable, requisite, essential, needful; that cannot
be done without" and was of the view that the phrase
"that cannot be done without" best epitomizes what a
taxpayer must meet in order to establish that his or her
principal residence can be properly regarded as more than 1/2
hectare.[12] The
Oxford English Dictionary states that in the sixteenth and
seventeenth centuries the word "necessary" was used
frequently approaching the sense of "useful" without
being absolutely indispensable, but that meaning is today rare.
Fowler's Modern English Usage[13] assimilates the words
"essential", "necessary" and
"requisite"; all mean "needed". In discussing
the word "necessary", Fowler states that "when we
call something n, we have in mind the irrestible action of
causality or logic; the n thing is such that the other
cannot but owe its existence to it or result in it. N
doubles the parts of indispensable and
inevitable".
[31] Le Petit Robert[14] defines the word
"nécessaire" : « se dit d'une
condition, d'un moyen dont la présence ou l'action
rend seule possible une fin ou un effet. [...] dont
l'existence, la présence est requise pour
répondre au besoin (de qqn) » .
[32] It does not necessarily follow that
because it was convenient and economical for Mrs. Stuart to
live on the Property that the area of the subjacent land that
exceeded 1/2 hectare was necessary to the use and enjoyment of
the housing unit as a residence. Nor does the adoption of a
particular life-style - deliberate or not - require one to
conclude that all of the property was necessary for the use and
enjoyment of the housing unit as a residence. The appellant has
not satisfied me that the Minister erred in considering that a
portion of the Property comprising 55 per cent of the Property
was not necessary for the use and enjoyment of the housing unit
on the Property as a residence.
2. Year of Sale
[33] Counsel for the appellant argues that
Mrs. Stuart sold the Property in 1992, not 1994 as assessed by
the Minister. He explains that Mrs. Stuart and First Allied
entered into a binding agreement for the purchase and sale of the
Property on August 30, 1992, when the Contract was accepted by
First Allied.[15]
He says that the Contract contained a number of conditions
precedent, all of which could be waived by First Allied, at its
option. The conditions appellant's counsel refers to are set
out in article 9 of the Contract:
9.01.01 The Vendor shall have delivered to
the Purchaser and the Vendor hereby so covenants to deliver
within seven (7) days following the Acceptance Date:
(a) all of the Drawings, Permits and Documents relating
to the development of the Lands that are in the possession or
control of the Vendor;
9.01.02 The Purchaser shall be allowed
ninety (90) days from the date of acceptance of this Offer (the
"Initial Subject Date") in which in its sole and
absolute discretion to satisfy itself and approve of:
(a) the physical condition, the construction and the
state of repair of the Property during which time it shall be
entitled to carry out such inspections as it may deem reasonably
necessary;
b) an economic feasibility study.
9.01.03 In the event the Purchaser is
satisfied with and does approve and/or has waived the matters
referred to in Clauses 9.01.01 and 9.01.02, the Initial Deposit
shall be paid to the Vendor's Solicitor, in trust, as set out
in Clause 4.01.03, and the Purchaser shall proceed with the
rezoning of the Property. The Purchaser shall be granted a time
period of 365 days from the date of acceptance of this Offer
within which to obtain the required rezoning. In the event the
Municipality of Surrey does not grant such rezoning within the
365 days, then, at the sole option of the Purchaser, the Vendor
will grant up to 6, 30 day extension periods upon the payment of
Five Thousand Dollars ($5,000) to the Vendor for each extension
period. Such extension payments shall not be credited on account
of the Purchase Price on closing. In the event the Purchaser does
obtain third reading from the Municipality of Surrey for rezoning
the Property within 365 days from the date of acceptance of this
Offer, or during one of the extension periods, then the
Additional Deposit of Seventy Five Thousand Dollars ($75,000)
will be paid to the Vendor's Solicitor, in trust, and the
entire deposit shall become non-refundable, and the Purchaser
shall proceed with the purchase of the property.
[34] The sale of the Property closed on
April 8, 1994. Appellant's counsel is of the view that the
sale closed after the final condition precedent, re-zoning of the
Property, was waived by First Allied in a letter to Mr. Burnet on
February 7, 1994. The body of the letter, signed on behalf of
First Allied by Mr. Madiuk, reads as follows:
Dear Peter,
Pursuant to Clause 9.01.03 of our Agreement, we wish to
confirm that 3rd reading from the City of Surrey for rezoning the
above property was delivered on February 7, 1994. Accordingly, we
shall forward a cheque for the sum of $75,000 made payable to
your solicitor, Fraser Beatty, "In Trust".
Please accept this letter as our notification to
Mrs. Myrth Mae Stuart that all of our conditions to purchase
have been waived.
We, therefore, now have a binding Agreement of Purchase and
Sale and shall proceed to complete the transaction by Friday,
April 8, 1994.
Yours very truly
In these circumstances, counsel concludes, the sale of the
Property "related back" to August 31, 1992 and the
disposition of the Property occurred in 1992.
[35] The term "related back"
appears to have originated in the reasons for judgment of Jessel,
M.R. in Lysaghtv. Edwards[16]:
. . . the moment you have a valid contract for sale the vendor
becomes in equity a trustee for the purchaser of the estate sold,
and the beneficial ownership passes to the purchaser . . .
[36] James L.J.'s explained the term
"related back" in Rayner v. Preston:[17]
. . . But when the contract is performed by actual conveyance,
or performed in everything but the mere formal act of seeking the
engrossed deeds, then that completion relates back to the
contract, and it is thereby ascertained that the relation was
throughout that of trustee and cestui que trust.
That is to say, it is ascertained that while the legal estate was
in the vendor, the beneficial or equitable interest was wholly in
the purchaser.
[Emphasis added.]
[37] In other words, a vendor holds the
lands sold by way of a constructive trust for the purchaser,
which trust "relates back" to the date the agreement
was executed: Martin Commercial Fueling Inc. v. Virtanen
(1997).[18]
[38] The Ontario Court of Appeal considered
when a purchaser is not treated as being in equity an owner of
the property in Buchanan and James v. Oliver Plumbing:[19]
In Cornwall v. Henson, [1899] 2 Ch. 710 at p. 714
Cozens-Hardy J. pointed out that to state that the effect of a
contract for the sale of land was to make the owner the purchaser
of the land in equity from that moment was to state the
proposition too broadly. He expressed a qualification of that
principium in these words: "The doctrine is subject
to one obvious qualification - namely, that the contract is one
of which the Court under the circumstances will decree specific
performance. For instance, if the vendor is not in a position to
obtain a decree for specific performance, whether by reason of
some defect in title or by reason of some collateral
misrepresentation, the purchaser never was in the view of the
Court, owner in equity of the property. So, too, if by reason of
delay or other circumstances the Court declines to grant to the
purchaser specific performance, the purchaser is not treated as
being in equity owner of the property".
[39] The "relation-back" theory
describes the nature of a purchaser's interest in a property
in a specific fact situation, where the purchaser is entitled to
specific performance. When that is the case, the sale date
relates back to the earliest date the purchaser is entitled to
specific performance because the purchaser is entitled to the
property on demand, as a result of the constructive trust formed
where the vendor holds the property in trust for the purchaser.[20] The earliest
date the disposition can relate back is to the date of the
agreement of purchase and sale. And this is what the appellant
says occurred.
[40] The parties do not agree what condition
or conditions are set out in Clause 9.01.03. Clause 9.01.03
is poorly drafted and suggests several interpretations. The
appellant claims the Clause contains two conditions, that the
purchaser pursues rezoning and that upon third reading for
rezoning of the Property, the purchaser is to pay $75,000 and
proceed with the purchase of the Property. The Respondent
interprets Clause 9.01.03 to provide only one condition, that
third reading be obtained. Their interpretations, of course,
support their positions. If the appellant's view is correct,
once all conditions precedent were waived or fulfilled, the
disposition relates back to the date of the Contract. If one
accepts the respondent's position, the condition, third
reading, was satisfied on February 7, 1994, when Mr. Madiuk of
First Allied wrote to Mr. Burnet confirming third reading
had been obtained.[21] It is only from February 7, 1994 that specific
performance could have been demanded.
[41] One would normally conclude from
reading Clause 9.01.03, bearing in mind the intention of the
parties, that the condition contained in that provision should be
that rezoning of the Property be obtained, not merely pursued by
the purchaser, First Allied. Without rezoning, First Allied may
not be able to achieve its plans for the Property. Failure to
obtain rezoning of the Property may be fatal to the intentions of
the parties. Indeed, First Allied is given 365 days from date of
the Contract, plus up to six 30 days extension periods, to obtain
the rezoning. However, it is clear from the terms of the Contract
that rezoning of the Property was not necessary to complete the
transaction. Clause 5.01 of the Contract states that:
The purchase of the Property shall be completed on the first
business day that is after the expiry of sixty (60) days after
the Purchaser receiving from the Municipality of Surrey third
reading for rezoning of the Property, or such earlier date as
the Purchaser and Vendor shall agree upon in writing (the
"Closing Date"). [Emphasis added.]
[42] It is third reading that triggers the
closing of the transaction, not rezoning of the Property. The
condition in Clause 9.01.03 was to obtain third reading, then the
transaction would close, whether or not rezoning was eventually
secured. Therefore the letter of February 7, 1994, from First
Allied to Mr. Burnet only serves as notice of confirmation
from First Allied that third reading for rezoning was received
from the Municipality of Surrey and that closing would take place
on April 8, 1994. I do not know what conditions were being
waived by First Allied in that letter. Third reading for rezoning
of the Property had been obtained and the parties were bound to
close the transaction within 60 days of third reading. This is
the position of the respondent and I agree with her.
[43] Even if there were conditions in Clause
9.01.03 of the Contract that were not satisfied as of February 7,
1994, these conditions could not be waived by First Allied. In
Turney v. Zhilka,[22] the parties contracted to sell land provided
that "the property can be annexed to the village . . . and a
plan is approved by the Village Council for subdivision".
The date of completion was fixed at "60 days after
plans are approved". No party undertook to fulfill this
condition and neither reserved any power of waiver. The vendor
repudiated the Contract because the annexation condition had not
been complied with, the purchaser purported to waive the
condition on the ground it was solely for his benefit and was
severable, and sued for specific performance.
[44] Judson, J. held that:
. . . All that waiver means . . . is that one party to a
contract may forego a promised advantage or may dispose with part
of the promised performance of the other party which is simply
and solely for the benefit of the first party and is severable
from the rest of the contract.
But here there is no right to be waived. The obligations under
the contract, on both sides, depend upon a future uncertain
event, the happening of which depends entirely on the will of a
third party - the Village council. This is a true condition
precedent - an external condition upon which the existence of the
obligation depends. Until the event occurs there is no right to
performance on either side. The parties have not promised that it
will occur . . . Waiver . . . does at least presuppose the
existence of a right to be relinquished.
[45] In the appeal at bar, the condition in
Clause 9.01.03 to obtain third reading for rezoning of the
Property is not a promise to perform by either Mrs. Stuart or
First Allied. The requirement to obtain third reading depended
entirely on the will of a third party - the Municipality of
Surrey. It is a true condition precedent that cannot be waived,
as explained in Turneyv. Zhilka.[23] Until the third reading is
obtained there is no right to performance by either Mrs. Stuart
or First Allied, the parties have not promised that it will
occur. First Allied obligated itself to proceed with the rezoning
of the Property once it was satisfied with, or had waived, the
conditions in Clauses 9.01.01 and 9.01.02 of the Contract. Mrs.
Stuart promised only the delivery to First Allied of drawings,
permits and documents and to permit First Allied time to inspect
and approve the Property and to approve an economic feasibility
study, the only conditions First Allied could have waived.
[46] At all relevant times, section 54 of
the Act defined "disposition" of any property,
unless expressly otherwise provided in the Act, to include:
|
(a) any transaction or event entitling a taxpayer
to proceeds of disposition of property,
|
a) toute opération ou tout
événement donnant droit au contribuable au
produit de disposition de biens;
|
|
. . .
|
[...]
|
|
but, for greater certainty, does not include
. . .
|
il demeure toutefois entendu que le terme ne vise pas
:
[...]
|
|
(e) any transfer of property by virtue of which
there is a change in the legal ownership of the property
without any change in the beneficial ownership thereof, . .
.
|
e) un transfert de biens à la suite duquel
il y a un changement dans la propriété
légale du bien sans changement dans la
propriété effective de ce bien, [...]
|
[47] "Proceeds of disposition" of
property includes:
|
(a) the sale price of property that has been
sold.[24]
|
a) le prix de vente du bien qui a
été vendu;24
|
[48] In the "Principles of Canadian
Income Tax Law",[25] the authors write that:
[i]n sales of real property, many agreements provide a
"closing date" for the completion of the sale. This is
normally the date that beneficial ownership is intended to pass
from the vendor to the purchaser and the time the vendor is
entitled to the sale price.
[49] For a disposition of property to
occur, for tax purposes, there must be a change in the beneficial
ownership of the property. Possession, use and risk are primary
attributes of beneficial ownership. Pursuant to Clause 14 of the
Contract the Property remained at the risk of Mrs. Stuart until
closing date. And it was only on the closing date that Mrs.
Stuart was entitled to proceeds of the sale.
[50] Until such a time as Mrs. Stuart
could enforce payment of the purchase price for the Property, she
is not entitled to any portion of the sale price.[26] It was only in 1994
that she was entitled to proceeds of disposition.
[51] The disposition of the Property
took place in 1994, not 1992.
3. Eligibility for
Capital Gains Exemption
[52] Before February 23, 1994, subsection
110.6(3) of the Act provided for a lifetime capital gains
exemption to individuals of $100,000. The exemption was
eliminated with respect to dispositions of capital property after
February 22, 1994. However, individuals were permitted to make an
election in prescribed form to recognize the capital gains
accrued on property owned on February 22, 1994: subsections
110.6(19) and (24) of the Act.
[53] The purchase and sale of the Property
closed on April 8, 1994.[27] If Mrs. Stuart wished to have $100,000 of her
capital gain on the disposition of the Property exempt from tax,
she would have had to file the election in prescribed form on or
before April 30, 1995. She did not do so. And neither she nor
Mrs. Burnet, as trustee of her estate - Mrs. Stuart died on
July 6, 1995 - filed late the election pursuant to subsection
110.6(26) on or before April 30, 1997. Mrs. Stuart did not
file an income tax return for 1994.
[54] Appellant's counsel acknowledges
that the appellant is "technically" out of time under
subsection 110.6(26). Nevertheless, she should be allowed to file
the election at this late date. It was only in October 1997 that
officials of the Minister first contacted the representatives of
the appellant's estate ("representatives") in
respect of the issues in appeal. Until that time neither Mrs.
Stuart nor her representatives had reason to think an election
should be filed and by October 1997 the deadline for filing had
passed. On or about April 8, 1994 Mrs. Stuart signed a
certificate that the sale of the Property is an exempt supply for
purposes of the Goods and Services Tax ("GST") because,
among other things, the entire Property was a residential complex
within the meaning of Part IX of the Excise Tax Act. The
Canada Customs and Revenue Agency ("CCRA") did not
question her statement. Counsel submits that Mrs. Stuart
would have filed the required election if she had known or
suspected the Property was taxable. She had no reason to believe
that the sale of the Property could be subject to tax.
[55] Robertson J.A., considered the
situation where a taxpayer did not "designate" in its
return of income, pursuant to paragraph 55(5)(f), a
portion of a dividend for purposes of utilizing "safe
income" in a corporation before its sale: The Queen v.
Nassau Walnut Investments Inc.[28] Apparently the taxpayer's new
accountants did not realize an amount was to be designated.
Robertson J.A., held that the Minister only objected to the form
of the late designation and agreed that the taxpayer was not
trying to circumvent subsection 55(2). As such, he stated at
page 5060:
In
conclusion, it is my opinion that Nassau is entitled to claim the
benefit of paragraph 55(5)(f) of the Act. That right arose
once the Minister issued the notice of reassessment and invoked
subsection 55(2). In other words, the inference that Parliament
did not intend to accord relief in these circumstances has been
rebutted. Accordingly, the appeal should be dismissed with
costs.
[56] Robertson J.A. expressly
distinguished designation cases from election cases, at page
5056:
. . . First, the Minister notes that there is no provision in
the Act which provides for the late-filing of a designation. This
is to be contrasted with the legislatively permissible late
filing of "elections" made under other provisions of
the Act.
[57] And at page 5058:
Having
decided that the present situation is not analogous to the
election cases, . . .
[58] In Miller v. The Queen,[29] Mahoney, J.A.
decided that a late forward averaging election under subsection
110.4(1) of the Act was not permitted because of the
nature of that provision. To allow such a late election would be
to allow retroactive tax planning that was not meant by the
legislation. He stated at page 5037:
To
allow amendment of the election, either by the Minister as part
of the assessment process or the taxpayer after assessment,
would, in my opinion, require an inadmissible reading into the
Act of words that were not there. I would allow the appeal and
restore the assessment.
[59] Subsection 110.6(24) of the Act
permits a late election during a specific time period. The
provisions of subsections 110.6(26), (27) and (28) relating to
late and amended election and the means to revoke or amend an
election are restrictive and rigid. Section 110.6 does not
contemplate elections filed after the periods prescribed in
subsection (20). To allow a late election outside the statutorily
specified window in section 110.6 would directly contradict the
intention and purpose of Parliament in enacting the subsection,
notwithstanding potential peculiar fact situations. The appellant
is not entitled to file the election contemplated in subsection
110.6(19).
4. Late Filing
Penalty: subsection 162(1)
[60] On the bases that Mrs. Stuart was
taxable on gain from the sale of the Property in 1994 and that
she failed to file a tax return for 1994, the Minister, in
assessing, imposed a late filing penalty pursuant to subsection
162(1) of the Act. Section 162 imposes a penalty on:
[e]very person who fails to file a return of income for a
taxation year as and when required by subsection 150(1) . . .
[61] In 1994, subsection 150(1) required a
return of income for each taxation year to be filed by a
corporation and
|
. . . in the case of an individual, for each taxation
year for which tax is payable by the individual or in which
the individual has a taxable capital gain or has disposed
of a capital property, shall, without notice or demand
therefor, be filed with the Minister in prescribed form
containing prescribed information.
|
. . . dans le cas d'une société (sauf
une société qui a été, tout au
long de l'année, un organisme de bienfaisance
enregistré) et, dans le cas d'un particulier,
pour chaque année d'imposition pour laquelle un
impôt est payable ou au cours de laquelle le
particulier a un gain en capital imposable ou a
disposé d'une immobilisation:
|
[62] Mrs. Stuart disposed of a capital
property in 1994. I have held that the Minister was correct in
assessing Mrs. Stuart on the basis that a portion of the gain on
the disposition of the Property is to be included in her income
for 1994.
[63] A penalty imposed under subsection
162(1) is subject to a defense of due diligence.[30] The appellant has the onus to
show Mrs. Stuart was duly diligent, the respondent does not
have the onus, as submitted by appellant's counsel, to show
that Mrs. Stuart was not duly diligent. It is true that when
the Minister assessed the penalty, he made no assumption as to
whether Mrs. Stuart was or was not duly diligent with
respect to her failure to file her tax return for 1994. The
Minister only assumed she did not file her 1994 tax return. In
assessing, the Minister can only assume facts he knows or assumes
to be true. It would be foolhardy for the Minister to even try to
predict potential defenses or positions of taxpayers in fighting
an appeal. The respondent has no onus to show Mrs. Stuart
was not duly diligent. A failure to file a timely tax return
presumes a lack of due diligence to file the return within the
required statutory period and it is for the taxpayer to establish
the opposite. Counsel is overreaching.
[64] Mrs. Stuart was 95 years old on
April 30, 1995, the last day for filing her 1994 tax return, and
she died three months later. An official of the CCRA questioned
on discovery, acknowledged Mrs. Stuart never had a previous
dispute with the CCRA or its predecessor, Revenue Canada.
[65] There is no evidence whether
Mrs. Stuart, Mrs. Burnet or Mr. Burnet ever asked for
or received any tax advice with the sale of the Property.
Mr. Nitikman is counsel for the appellant and has appeared
in this Court on numerous occasions. He is the person who, under
the Contract, was to receive copies of material sent by the
Purchaser to the Vendor, who received at least one payment under
the Contract on behalf of Mrs. Stuart and whose firm acted for
Mrs. Stuart on her sale of the Property. When
respondent's counsel cross-examined Mrs. Burnet
concerning any legal advice she or Mrs. Stuart may have
received concerning the sale of the Property, appellant's
counsel, on his client's behalf, objected to the questioning
on the ground of solicitor/client privilege, so there is no
evidence on this point, one way or the other.[31]
[66] Appellant's counsel also stated
that Mrs. Stuart was 71 years old in 1971 when capital gains
became taxable. He claimed there is no evidence that she knew
about this change in the law. Mrs. Burnet said she doubted
her mother knew what a capital gain was. Also, there is evidence
that Mrs. Stuart never sold a capital property before 1994
that may have been subject to income tax and, therefore, counsel
suggested "it is entirely reasonable to suppose that it
never occurred to her that the sale of the Property might be
taxable". She lived on the Property for nearly 50 years and
lived off the land, counsel added. She would have thought that
the whole Property was her principal residence.
[67] Mrs. Burnet practiced Family Law
with the British Columbia government during the period 1977 to
2001. She was called to the Bar in 1961, but left practice to
raise a family. She is the sole heir of her mother's
estate.
[68] According to Mrs. Burnet, her
mother was fully aware of the transaction and "what was
happening". Mr. Burnet confirmed this. She stated that
her mother's mail was addressed to her and her husband
because her mother's mailbox was far from her mother's
house. I assume this statement relates to the fact that under the
Contract, all notices to Mrs. Stuart are to be sent to Mr.
and Mrs. Burnet.
[69] Mrs. Burnet, as trustee for her
deceased mother's estate, did not file a tax return for her
mother for 1995, the year of her death since no tax was payable.
Mrs. Burnet said she did not seek tax advice on winding up
the estate.
[70] Mrs. Burnett testified she was not
aware of the tax implications of the transaction. As a result of
"casual chatting" with people who sold houses she
believed a sale of a principal residence may not be taxable.
However, she was not involved in the transaction and did not make
any inquiries. "I had so little knowledge of the area."
Mr. Burnet had conduct of the transaction. She also
testified that receiving approximately $1,700,000 from her mother
was "not a big event in my life" since she had a
"decent income, a nice home and [was] not lacking for
anything".
[71] I was surprised at Mrs. Burnet's
testimony that she had not realized that the disposition of a
principal residence is free of tax. First of all, I found
Mrs. Burnet to be an intelligent, no nonsense person and
lawyer. I do not think she is a passive sort. She is no shrinking
violet. Secondly, respondent's counsel produced a copy of a
Notice of Appeal from reassessments issued to Mr. Burnet for 1987
and 1989. The date of the Notices is October 7, 1992. The
Minister had assessed on the basis that a loss incurred on the
sale of a property owned by both Mr. and Mrs. Burnet was not
deductible since the property had been Mr. and
Mrs. Burnet's principal residence. The principal
residence had been demolished and the land was sold. The Court,
agreeing with Mr. Burnet, held that there was a change in use of
the property to inventory - the land was not a principal
residence at time of disposition - and the loss was deductible.[32] As a result of
my impression of Mrs. Burnet I infer that since she and Mr.
Burnet owned the property subject to Mr. Burnet's appeals,
the concept of "principal residence" must have been
addressed by them as early as 1992.
[72] Although through his work at a stock
brokerage, Mr. Burnet knew what a capital gain was and the
"favourable treatment" for a principal residence, he
said he did not know of the half hectare limit. He said that he
did not discuss the tax consequences of the sale with
Mrs. Stuart because he was unaware of the consequences. If
she had asked, he "would have told her to see a tax
expert", probably a lawyer.
[73] Mr. Burnet declared that neither he,
Mrs. Burnet nor Mrs. Stuart received tax advice on the
disposition of Property and "did not think of getting tax
advice". Nobody consulted the CCRA publications on
disposition of property, he added. Nobody turned their mind to
the possible tax implications of the transaction.
[74] To impose a penalty in such
circumstances, counsel submits, is contrary to the whole purpose
of imposing a penalty, to ensure people comply with the
Act. If one cannot know in advance whether one is in
compliance with the statute, there is no point in imposing a
penalty.
[75] Mr. Nitikman argued that since it is a
question of fact as to much land in excess of 1/2 hectare is
necessary for the use and enjoyment of the housing unit as a
residence, no matter who Mrs. Stuart, or Mr. or Mrs. Burnet,
went for advice, "even if they had gone to the top tax
lawyer in Vancouver", the best they could have said is
"well, you know, the facts are kind of grey. There is no
exact precedent, we really don't know . . .". It is, he
said, putting form over substance to say you should go to an
advisor only to be told nothing can be done. In reply to my
question, counsel declared that due diligence must mean
"that you ask for competent advice which could have made a
difference to the circumstances". If the advice could not
make a difference, he asked, why insist on it.
[76] Subsection 150(1) of the Act
requires an individual who has disposed of capital property in
the year, whether at a profit or a loss, is to file a tax return
for the year.
[77] If Mrs. Stuart or the Burnets had
sought advice it is highly likely that a competent advisor would
have informed them that the Act, at subsection 150(1),
required Mrs. Stuart to file a tax return for 1994 since she
disposed of capital property in that year. If (Mrs. Stuart or her
advisers believed the disposition was in 1992, then in return
should have been filed for that year) I do not appreciate the
force of the submissions of appellant's counsel that none of
Mrs. Stuart, Mrs. Burnet or Mr. Burnet would have
received an answer from Mr. Nitikman's "top tax
lawyer" that, in the circumstances, Mrs. Stuart need
not file a tax return. A principal residence where there is no
change in use is, after all, capital property and Mrs. Stuart did
dispose of capital property.
[78] In fact, if one is to believe the
evidence of Mrs. Burnet and Mr. Burnet, no questions were asked
because no answers were wanted. When one does nothing one can
hardly be duly diligent. On the facts of this appeal there was no
due diligence by Mrs. Stuart or Mr. or Mrs. Burnet as her
representative to prevent the failure of Mrs. Stuart to file
her 1994 income tax return on time or even late.
[79] The appeal is dismissed with costs.
Because this appeal had to be adjourned on April 22, 2002, during
the testimony of Mr. Earle for failure of the appellant, among
other things, to give proper list of documents to the respondent,
costs for that day shall be on a solicitor and client basis.
Signed at Ottawa, Canada, this 26th day of March 2003.
J.T.C.C.
Email this Content