Citation: 2009 TCC 291
Date: 20090528
Docket: 2008-2550(IT)I
BETWEEN:
ROBERT TREMBLAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
This is an appeal for
the 2004 taxation year. The questions at issue are outlined in paragraph 9 of
the Reply to the Notice of Appeal and are as follows:
(a)
The Minister correctly established the taxable
capital gain of $14,063 incurred by the Appellant for the sale of the lot;
(b)
The Minister correctly calculated the
depreciation recapture of $6,987.
[2]
To explain and justify
the merits of the assessment, the Respondent relied on the following
assumptions of fact, as outlined in paragraph 8 of the Reply to the Notice of
Appeal:
(a)
On February 5, 1985, the Appellant purchased a
property located at 455 Jacques Bédard Boulevard, Lac Saint-Charles, in
the province of Quebec (the property);
(b)
The property was acquired for $56,000;
(c)
The property is composed of land on which a
semi-commercial building was located at the front with a garage at the back;
(d)
The building gave the Appellant the opportunity
to open his hair salon on the first floor and live on the second one;
(e)
In the notarial act:
(i)
There was no breakdown of the value attributed
to each building;
(ii)
The transaction was carried out as a whole;
(f)
With respect to the property; in 1994, the
Appellant:
(i) Did some work on the garage;
(ii) Sub-divided the lot acquired in 1985;
(iii) Rented the garage to his son for commercial
use;
(g)
The lot with the garage, once sub-divided, had
the civic address 459 Jacques Bédard Boulevard, Lac Saint-Charles (the lot);
(h)
In 2004, the Appellant sold the lot to his son
for a final price of $95,000, with a balance of sale of $15,000;
(i)
The Minister broke down the cost of the lot in
1985 as follows:
Description Amount
Land $8,600
Building $4,000
Total $12,600
(j)
Based on the valid documentary evidence provided
by the Appellant, the Minister established the final total for work carried out
on the lot at $49,000, divided as follows:
Description Amount
Work in 1994 $12,000
Work in 1997 $27,000
Work in 2003 $10,000
Total $49,000
(k)
The Minister added the amount $49,000 to the
adjusted cost base of the lot;
(l)
The Minister broke down the sale price of the
lot in 2004 as follows:
Description Amount
Land $9,400
Building $85,600
Total $95,000
(m) The Minister determined the taxable capital gain on the sale of the
lot for the 2004 taxation year to be $14,063, calculated as follows:
Description Amount
Proceeds of disposition $95,000
Less:
Adjusted cost base ($61,600)
Capital gain $33,400
Less:
Reserve ($5,274)
Capital gain $28,126
Taxable capital gain (50%) $14,063
(n)
In the period during which the Appellant owned
the lot, the Minister granted a total of $6,987 in deductions for depreciation;
(o)
The Minister calculated a depreciation recapture
of $6,987 for the 2004 taxation year, established as follows:
Description Amount
Non-amortized portion
of capital cost $46,013
Less:
whichever is less:
Capital cost $53,000
and
Proceeds of disposition $85,600 ($53,000)
Recapture ($6,987)
[3]
The Appellant admitted
that the majority of facts were true.
[4]
In support of his
appeal, as the burden of proof fell on him, the Appellant submitted three
arguments.
[5]
He submitted that the
breakdown of the cost of the lot in 1985, set at $12,600, $8,600 for the land
and $4,000 for the building, was not consistent. To support his argument, he
referenced a municipal tax account establishing a value of $17,000 in 1995, the
amount being broken down as follows:
Land $9,000
Building $8,000
Total $17,000
[6]
Basing himself on the
municipal assessment for 1995, the Appellant maintained that the portion of the
immovable for which the parameters had been defined following a subdivision had
a value of $20,000, when he purchased it, the whole building having been
acquired for the sum total of $56,000.
[7]
In this regard, the
person in charge of the file at the objection stage, Jean‑François Simard,
reiterated that value was $12,600: $8,600 for the land and $4,000 for the
building. He explained the process followed and arbitrarily concluded that this
portion represented close to 23% of the total price paid of the $56,000,
thereby refuting the Appellant’s arguments.
[8]
The Appellant also
submitted that he put $16,600 of work into the building 1994, yet only $12,000
was allowed, $27,000 was allowed for 1997 and $10,000 for 2003. For the years
1997 and 2003, the amounts allowed corresponded to the amounts invested;
however, the Appellant submitted that he did in fact spend $16,600 in 1994 and
to support this, he submitted a folder of receipts to support his claims.
[9]
The analysis of the
receipts has identified two significant gaps; the first is that several
receipts do not reference the building involved, the garage, rather the hair
salon operated by Appellant, located on the original site but not on the
subdivided land. The second observation is that, in the paperwork accompanying
the receipts in question, some elements do not represent capital expenses; they
are actually current expenses that are not relevant in determining capital
costs.
[10]
With respect to this second
issue, it is not necessary to carry out an extensive analysis with respect to
the Appellant’s submissions as the Appellant himself indirectly recognized the
consistency of the information taken into account by the Respondent. This comes
directly from the statement of results for Les Immeubles C.I.T.R., for the
period of September 1, 1997 to December 31, 1997, prepared by Service Comptable
Fontaine and signed by the Appellant himself, specifically for the item, “Cost
of acquisitions and capitalizable repairs $35,590.14”.
[11]
Finally, the last item
submitted by the Appellant is that the sale price of $95,000 is not the amount
that should have been used in the calculation the taxable capital gain.
[12]
He explained that the
amount was increased for the purpose of allowing his son, the buyer, to obtain
the required financing. He confirmed that he gave a quittance on the payment
and not on the balance of the agreed upon sale price of $15,000, but on the
payment of $3,000, a difference of $12,000. He therefore submitted that the
actual sale price was $83,000 and not $95,000.
[13]
This is an argument
that cannot be considered as a private agreement between two individuals does
not involve the Respondent, who must rely on the formal document, which is the
notarial act properly registered that is proof of its contents with respect to
the figures that must be taken into consideration when making an assessment.
[14]
If the Appellant
suffered a subsequent loss, he must complete the appropriate forms, which has
nothing to do with this case.
[15]
The evidence shows that
the work carried out by the Respondent in making the assessment subject to this
appeal produced a reasonably appropriate result.
[16]
However, the first
segment raised some questions in determining if the amount of $4,000 attributed
to the building was reasonable. The Appellant submitted that the evaluation was
unreasonable, arbitrary and unrealistic.
[17]
Even though it is a
questionable manner of meeting a burden of proof, it seems fair and just on the
strength of the same reasoning used by the auditor to accept the Appellant’s
submissions in part; as a result, I assign a value of $8,000 to the building:
an increase of $4,000 for a total evaluation of $16,600 meaning $8,600 for the
land and $8,000 for the building.
[18]
In conclusion, the
appeal is allowed in part, and
the reassessment is referred back to the Minister of National Revenue for
redetermination and reassessment on the basis that the value should have been
set at $16,600: $8,600 for the land and $8,000 for the building. All other
elements remain unchanged.
Signed at Ottawa, Canada, this 28th day of May 2009.
“Alain Tardif”
Translation
certified true
on
this 10th day of July 2009.
Bella
Lewkowicz,
Translator
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