Citation: 2008TCC241
Date: 20080430
Docket: 2007-3531(IT)I
BETWEEN:
BERNARD FAIBISH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
[1] The only issue presented
at the hearing was whether, in his 2005 taxation year, the Appellant incurred
deductible moving expenses as those expenses are defined in paragraph 62(3)(e)
of the Income Tax Act (the “Act”). The amount claimed and denied
was $4,552.
[2] Paragraph 62(3)(e)
defines a “moving expense” to include “the taxpayer’s selling costs in respect
of the sale of the old residence”.
[3] There is no dispute
that the Appellant relocated his residence and was allowed to deduct moving
expenses incurred in 2005 in respect of that relocation since it was admitted
that the relocation was an “eligible relocation” as defined in section 248 of
the Act.
[4] The taxpayer
testified that he entered into an Offer to Purchase a new residence on July 2,
2005 and thereupon prepared to list his old residence for sale.
[5] He was aware of
some mold in an upstairs bathroom of his old residence which he believed would
adversely affect, indeed might prevent altogether, the sale of his old residence.
A contractor was retained to attend to the problem.
[6] The uncontested
evidence of the Appellant was that: the apparent mold appeared minor to the
naked eye; on removing wallboard around the bathroom window and bathroom tub
area, significant mold was discovered; and, remedial work was required to rid
the affected area of that problem.
[7] The Appellant
testified that in the course of the remedial work, damage was done to a
plumbing stack which caused a water leak which caused water damage to the bathroom
floor which in turn caused damage to the ceiling of the room below which gave
way to water damage to the floor of the room below the bathroom.
[8] The mold correction
work, and water damage repairs were completed in a short time (weeks) of the
time of entering into the Offer to Purchase the new residence and flowed from his
relocation. The total cost of the mold detection and remedial work and the water
damage repairs was the $4,552 amount which the Appellant claimed as a moving
expense under paragraph 62(3)(e).
[9] The Appellant
estimated that the cost of the work relating to the bathroom (mold and bathroom
water damage) was some $1,100 plus the cost of flooring tiles for the bathroom
and that the balance related to the repairs to the room below which included
repairing the ceiling and replacing damaged carpets with hardwood floors. The
Appellant said that the hardwood was not more expensive to put in than a replacement
carpet would have been.
[10] The Appellant argued
that the total of these costs were incurred for remedial work required to be
undertaken by reason of his relocation and were incurred for the sole purpose
of selling his old residence. As such, they were selling costs of the old
residence and deductible as a moving expense. He argued that it would be
impossible to sell a residence with an apparent mold problem and remedying that
problem, including the resultant costs arising from that remedial work, was a
necessary outlay directly related to and resulting from his relocation.
[11] He argued that the
general language used in paragraph (e) (that allowed the deduction of
“selling costs in respect of the sale of the old residence”) should be
interpreted broadly to ensure that its evident purpose was given effect. He
cited a notable author of taxation materials as authority for the proposition
that all expenditures would qualify as “moving expenses” if they qualified
under a general understanding of that phrase. This comment derives from the
fact that the definition of “moving expenses” is expressly stated to “include”
the enumerated list in subsection 62(3) which includes the selling costs
referred to in paragraph (e). This language clearly suggests that the
list is not exhaustive and that other expenses could and should be included if
as a matter of general understanding they would be considered to be “moving
expenses”.
[12] The Appellant also
introduced as evidence materials from the Web site of Canada Mortgage and
Housing Corporation (CMHC) and the U.S. Department of Housing and Urban Development
each of which identified the health problems of mold and the need to rectify
them.
[13] There was also a
letter from the Appellant’s real estate agent that indicated that the mold
problem would have substantially impaired the sale of the house even to the
point of preventing the sale.
[14] Respondent’s counsel
argued that the expenditure was made to increase the value of the old residence
or to prevent a decrease in its value and was not a necessary expense incurred
in order to sell the old residence. The remedial and repair work were not
directly related to the move but were incurred in connection with the
move to preserve or enhance value. He cited John G. Critchley v. The
Minister of National Revenue, a decision
of the Tax Review Board, as authority for the proposition that moving expenses
embraced only those expenditures directly related to the sale of the old
residence and not all expenses or costs incurred in connection with its
sale.
[15] That case also cites
Marvin R.V. Storrow v. Her Majesty the Queen,
a Federal Court decision where it was found that the words “moving expenses”
must be construed in their ordinary and natural sense in their context. Arguably,
remedial work on a residence is not a moving expense as much as it is preparatory
work which is a distinguishable category of expenditure in the ordinary and
natural sense. This distinction was noted in another case referred to by
Respondent’s counsel; namely Merton A. Collin v. The Minister of National
Revenue.
[16] In that case Bonner
J. of the Tax Court of Canada contrasted improvements preparatory to a sale such
as painting, which were not moving expenses, with a cost of changing the terms
of a mortgage to facilitate a sale which was a moving expense. Counsel argued
that the remedial and repair work done in the case at bar were improvements
preparatory to sale and not deductible moving expenses.
Analysis
[17] The Appellant has a number
of problems that will result in the failure of his appeal at least as to a
substantial part of it. Firstly, I do not accept that the mold problem would
have prevented the sale of the residence altogether. There may have been a serious
liability issue if the problem was covered up or not disclosed and turned out
to be a health hazard. As it was, it was visible and an inspection to determine
the extent and cost of remedial work would have likely been required at some
point in the sale of the home. That it was wise to address the problem in
advance, does not make the work done either a necessary cost or a cost of sale.
In this regard, the Appellant has a problem with his construction of the
general understanding of what a cost of sale is in the context of the subject
provision.
[18] Indeed, applying his
own argument, that a general understanding of what a moving expense is, should
establish that his expenditures for the most part are non-deductible. I say
this for two reasons. Firstly, the word “expense” does not, as a matter of
general understanding, denote capital expenditures for repairs or improvements.
Secondly, applying the construction doctrine ejusdem generis, there is
nothing in the list of inclusions in the definition of moving expenses that
could remotely be construed as including expenditures that are repairs or
improvements to an old residence undertaken because of a relocation.
[19] Another problem faced
by the Appellant is that most of the expenditures related to remedial work were
related to damage caused by faulty workmanship by the person retained to clean
up the mold problem. The nexus between the sale of the old residence and
resolving this problem is quite remote. That expense is not even as closely
related to the sale as the cost of painting which Bonner J. suggested in Collin
would not qualify as a moving expense.
[20] The only portion of
the expenditure incurred that might reasonably be considered as qualifying as a
selling expense in respect of the sale of the old residence is what I might
refer to as the inspection portion of the expenditure.
[21] The Appellant
testified that an inspection alone would have included taking wallboard down
under the bathroom window and around the bathtub. That would have revealed the
unexpected extent of the problem which then required remedial work. In my view,
the cost of the inspection would be deductible either as a non-enumerated item
under subsection 62(3) or as a cost of selling under paragraph 62(3)(e).
The cost of the remedial work that the inspection would give rise to is not
deductible.
[22] On being confronted
by me with this view and being asked to suggest an amount to allocate as an
inspection cost, the Appellant testified that he thought the cost of the
inspection alone would have been in the order of some $300 to $500. That is, of
the $1,100 that he estimated was the cost of the work to the bathroom, which
included the cost of determining the extent of the mold problem, he said some $300
to $500 of that would be allocable to the determination of the problem, i.e.
the cost attributable to an inspection.
[23] At this point, I
have to express my frustration with the performance of Respondent’s counsel at the
hearing. When I asked the Appellant what he thought an inspection allocation
might be, Respondent’s counsel objected to my question on the basis that the
Appellant was not an expert. When I indicated that I was going to proceed with
the question in spite of his objection and that I would consider what weight to
give his answer, Respondent’s counsel insisted, with what I might call a
disturbing persistence, on pursuing the objection for what he said was “for the
record”.
[24] The objection, as
framed, suggested that the question posed could only be answered by an expert. It
is trite law, however, that matters of common or general understanding do not
require expert witness testimony.
Indeed, such expert testimony is not admissible. I believe it fair to say that it
is not admissible because of its tendency to distract or overwhelm where the
trier of fact (such as a jury) might be encouraged to defer to that expert
opinion. It should be excluded unless it is of such a nature to be necessary to
enable the trier of fact to make a correct finding. On the other hand, the
admission is harmless where the trier of fact, subsequent to admission,
determines that there is no need for the assistance offered. The evidence will
simply be given no weight. The impact of that determination is no different, in
my view, than where a Judge alone hears evidence and reserves on the question
of admissibility.
[25] Giving counsel some
benefit of the doubt, I assume he might have meant to object on the basis that
I was asking for “opinion evidence” which was not admissible. That is, on the question of the cost of
ripping down wallboard below the Appellant’s bathroom window and around the
bathtub, the point of the objection was not whether the Appellant was
qualified as an expert, but was meant to be on the basis that the Appellant’s
lay opinion was irrelevant and unreliable and should not be allowed. On this basis counsel objected,
for “the record”, to my willingness to hear, and presumably consider, “opinion
evidence”.
[26] It is trite law,
historically at least, that a lay person’s opinion, on a matter of common
understanding or otherwise, is irrelevant or suffers reliability concerns and
is, subject to some judicial discretion, not admissible. Again, however, I
venture to say that the admission is harmless where the trier of fact needs no
reminder of its lack of probative value. Again, the evidence will, or can be, given
no weight.
[27] These observations are
reflective of the modern application of
rules of evidence which is to “admit the evidence and discuss its weight”. This
“modern” rule was first observed in R v. Birmingham Overseers in 1861. Judicial latitude
eroding the strict rule against opinion evidence has gradually grown and has
become increasingly permissive of granting the trial Judge a large measure of
discretion as noted in the Supreme Court of Canada decision in R. v. Graat.
[28]
The relaxation of the rule against
opinion evidence has evolved largely around the practical notion of giving
witnesses leeway to give evidence on matters they have personal knowledge of in
the form of an opinion. It is a method of conveying evidence in a form that
might be more accurately, or more easily or readily, conveyed by a witness. A very simplistic example
is the case before me. The witness has first hand knowledge of the ingredients
necessary to estimate a reasonable allocation of a cost. He knows the size of
the area inspected, how the inspection was conducted, the contractor who
performed it and the rate at which the contractor charged for the work. An
opinion as to cost might well reflect the composite of this personal knowledge
and might be given some weight, or not, by the Judge depending on that Judge’s
perception of whether the witness is in a better position to form the opinion
and whether it was formed in a way that is consistent with the way in which the
trier of fact would or should have formed it.
That translates to the weight the Judge will give to such evidence expressed as
an opinion.
[29] Accordingly, I confirm my ruling. I am satisfied that
the objection was not particularly well thought-out whether made, “for the
record” or otherwise. I do not mean by this to discourage objections “for the
record”. Consideration, however, needs to be given to the circumstances of each
case. Where it is sufficient to argue whether any weight should be given to
opinion evidence (particularly where the presiding Judge directs counsel to
raise that issue in argument and counsel still has the opportunity to
cross-examine the witness to elicit testimony pertaining to the weight to be
given to that evidence), no objection “for the record” should be required. That
is, a failure to make such an objection would not prohibit an argument on weight or relevance. It is
a separate question as to whether in any given case such an argument should be
made. In the case at bar, that argument might approach being ludicrous. An estimate of a
few hundred dollars of expenditure to wallboard removal is neither space
science nor a distraction which would prevent a Judge from making a reasonable
allocation of the cost in question. Counsel’s persistent objection which took
umbrage with such estimate being made, was, in my view, in this case, a display
of inappropriate showmanship.
[30] This is all the more
the case given that this is an appeal under the Informal Procedure. Subsection 18.15(3)
of the Tax Court of Canada Act provides that this Court, in appeals
under such procedure, is not bound by any legal or technical rules of evidence.
Ignoring this statutory prescription contributes considerably to the difficulties
inherent in the adversarial approach to informal tax appeals of self-represented
persons. Indeed, counsel for the Department of Justice who ignore this statutory
prescription, in circumstances such as those in this appeal, need to re-think
their role.
[31] The role of a
Justice lawyer is not to win every appeal.
The role of a Justice lawyer is not to prosecute his client’s case in a zealous
manner. The role of a Justice lawyer, particularly in a self-represented
Appellant case and, again, particularly in an Informal Procedure matter, is to
assist Judges in determining the correctness of an assessment.
[32] In any event, it is
my view that it is reasonable in the case at bar to make an allocation of the
expenses incurred for what I would refer to as the inspection portion of the
expenditure incurred by the Appellant. While I give no particular deference to
the Appellant’s estimate, I find that an estimate of $300 is not an unreasonable
allocation. It is the amount that I will allow as a moving expense deductible
by the Appellant. In my view, the inspection of a mold problem is an expense of
the type contemplated in subsection 62(3). It is not, in the context of that
subsection, the kind of enduring expenditure that might be considered to be an
improvement or value maintaining expenditure. While I find that in the
circumstances of this case it was a necessary expense, I note that the subject
provision makes no reference to an expense being necessary. An expense
reasonably incurred and directly related to putting a home up for sale is
clearly a cost of selling and is a moving expense within the meaning of those
words as used in subsection 62(3). I agree with the Appellant that he incurred
such an expense. It was not unreasonable for him, as a vendor who is about to
put his home on the market, to identify the scope of a mold problem that might
seriously impact on the sale of that home. I am satisfied that a portion of his
expenditure ($300) was a cost directly related to identifying that very
problem. To that extent it is deductible under the subject provision as
claimed.
[33] Accordingly, the appeal
is allowed to the extent of $300, without costs.
Signed at Ottawa, Canada, this 30th day of April, 2008.
“J.E. Hershfield”
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