Citation: 2009 TCC 582
Date: 20091202
Docket: 2008-1611(IT)I
BETWEEN:
ANTHONY PIGEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered from the Bench October 26, 2009,
at North Bay, Ontario
and modified for clarity and accuracy.)
Boyle J.
[1]
These are my reasons in
the informal appeal of Mr. Anthony Pigeau heard in North Bay.
[2]
Mr. Pigeau bought
a home under a bank power of sale in 1994. He paid $70,000 for it. During the
five years he and his wife lived in it they did significant renovations and
improvements to it, including a new roof, windows and siding, reparging parts
of the foundation and extending the deck and outbuilding. Inside they replaced
the kitchen, updated the bathroom, changed the interior doors and replaced
flooring. It is estimated their improvements cost in the range of $20,000.
[3]
In 1999 Mr. Pigeau
and his wife purchased a new larger home and he began to rent out their
original home on O’Brien Street.
[4]
One of the issues before
me is to determine the O’Brien Street house’s fair market value in 1999 when
Mr. Pigeau changed its use from personal use to income-producing property.
His position is that it was worth $98,500 at that time.
[5]
The only further
evidence he has is a Multiple Listing Service (“MLS”) print-out for that area
of North Bay at the time.
[6]
In 2001 Mr. Pigeau
was having unfortunate difficulties with his O’Brien Street tenants. He began
proceedings to evict them. The tenants had stopped paying rent. This left
Mr. Pigeau unable to meet his mortgage payments to the bank. The bank sent
a notice of sale to Mr. Pigeau and his wife, who were jointly registered
as legal owners although the parties agree Mr. Pigeau was the sole
beneficial owner. The bank demanded repayment in full of the mortgage. The bank
also began collecting the rent from one of the tenants.
[7]
Mr. Pigeau’s
grandfather, Antoine Pigeau, was prepared to lend Anthony Pigeau the
mortgage arrears. However the bank insisted that the entire defaulted mortgage
amount be repaid.
[8]
In June of 2001 the
grandfather purchased the property. The bank’s mortgage was paid off by the
grandfather placing a new mortgage on the property with the Caisse Populaire.
[9]
The registered Land
Titles transfer of the property is signed by Mr. Anthony Pigeau and
his wife as transferors and identifies the transferee purchasers as Mr. Antoine Pigeau
and Jacqueline Pigeau. The consideration is recorded at $58,000. At the
time the amount required to pay out the bank’s mortgage was approximately
$58,900.
[10]
Anthony Pigeau,
his wife and Antoine Pigeau used the same lawyer on this transaction. The
lawyer’s reporting letter clearly describes the sale as one from the taxpayer
and his wife to his grandfather.
[11]
It is the taxpayer’s
position that section 79 of the Income Tax Act (the “Act”) dealing
with foreclosures, et cetera, deems his proceeds of the 2001 sale to be the
approximately $58,900 owing to the bank under the mortgage. Another issue I
must decide is whether section 79 applies.
[12]
It is the Crown’s
position that the Act deems the taxpayer’s proceeds of his 2001 sale to
his grandfather to be the property’s fair market value at the time because it
was a sale to a related party for less than fair market value. That is the
third issue I must decide.
[13]
A further relevant fact
is that in 2003 the grandfather sold the O’Brien Street home to his daughter,
the taxpayer’s mother, for $77,000.
[14]
Let me first deal with
section 79. By its terms section 79 only applies if a property is
acquired by a lender as a consequence of a taxpayer’s default. That did not
happen in this case. The registered transfer of title and the lawyer’s
reporting letter are entirely clear that, notwithstanding the bank may have
commenced power of sale proceedings, the transfer was not to the bank; it was
from the taxpayer and his wife to his grandfather and his wife. I am entirely
satisfied that section 79 has no application to the taxpayer’s loss of the
O’Brien Street property in 2001.
[15]
I am satisfied that the
Crown is correct that, because the transaction was among related parties, the
taxpayer’s proceeds in 2001 will be the property’s fair market value at that
time.
[16]
With respect to the
fair market values of the O’Brien Street property in 1999 and 2001, there was
an absence of any expert or opinion evidence, or any helpful evidence beyond
the taxpayer’s cost and improvements and the 1999 MLS print-out listings for
that area of North Bay, none of which properties I noted were on O’Brien
Street.
[17]
This is unfortunate and
leaves the taxpayer in a difficult position since the Crown did file an expert
appraisal report and had its expert appraiser testify.
[18]
Mr. Pigeau’s
accountant did try to enter a recently prepared written appraisal report into
evidence. The Crown objected on a number of grounds, including a failure to
comply with the rules for notice, the failure of the report to identify the
author’s expertise as well as the author’s unavailability to testify today.
[19]
I gave the taxpayer the
choice to have the hearing adjourned in order to properly qualify the appraisal
report as expert evidence or to proceed today without it. The taxpayer opted to
proceed today.
[20]
The Canada Revenue Agency
(“CRA”)’s appraisal report was before the Court and explained by its expert
author.
[21]
The taxpayer’s
representative accepted the CRA appraiser’s credentials as an expert.
[22]
The CRA expert report
and testimony was not shown to be unsatisfactory nor otherwise flawed. It
included a number of O’Brien
Street property sales, and I
note none sold for $90,000 or more in the period right up to 2003.
[23]
According to the expert
appraisal evidence, the 1999 fair market value of the O’Brien Street property
was in the range of $70,000 to $75,000. According to the expert appraisal
evidence the 2001 fair market value of the property was in the range of $75,000
to $80,000.
[24]
I accept that those
ranges and values are the best evidence I have today. Given the significant renovations
and improvements Mr. Pigeau and his wife made to the property after buying
it and while living in it, I am prepared to assign the very top of the 1999
range, or $75,000, to be its fair market value when they moved out and it
became a rental property.
[25]
Given the 2001
situation with the tenants having damaged the property significantly, I am
prepared to assign the bottom end of the 2001 range being, $75,000, to be its
fair market value when it was transferred to the grandfather following
default to the bank.
[26]
Given that the parties
do not have a dispute regarding how the O’Brien Street property value should be
allocated between the land and the buildings, the result will be that in 2001
the taxpayer would have realized neither a terminal loss on the building nor a
capital gain on the property.
[27]
The CRA is to
reconsider and reassess Mr. Pigeau’s 2001 taxation year in accordance with
these reasons.
[28]
Thank you
Mr. Shank and Mr. Pigeau. Thank you Ms. Chua and Ms. Sproul.
Thank you Madam Registrar and Madam Court Reporter.
Signed at Ottawa, Canada, this 2nd day of December 2009.
"Patrick Boyle"
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