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Citation: 2004TCC655
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Date: 20040928
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Dockets: 2000-2768(IT)G
2000-3648(GST)I
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BETWEEN:
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DOMENIC SCOPACASA,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant, Mr. Domenic
Scopacasa, appeals from a reassessment of his 1995 taxation year
in which the Minister of National Revenue determined that the
profit from the sale of a house he owned was business income. He
is also appealing an assessment pertaining to this same
transaction under Part IX of the Excise Tax Act for
unremitted Goods and Services Tax. Mr. Scopacasa's position
is that the house was his principal residence and that the
proceeds from its sale are exempt from taxation pursuant to
paragraph 40(2)(b) of the Income Tax Act. Regarding
the GST appeal, his argument is that because the house was his
principal residence, he is not a "builder" within the
meaning of subsection 123(1) of the Excise Tax Act and
accordingly, is not required to pay the GST. These appeals were
heard on common evidence.
[2] Mr. Scopacasa is a bricklayer with
a mason's diploma who immigrated to Canada from Italy in
1965. Following his marriage in Italy in 1970, he and his wife
bought a two-storey home at 33 Ontario Street in Thunder Bay,
Ontario. They have three children born in 1971, 1973 and 1980. In
1976, they built a house on Dublin Avenue where they lived until
1983 at which time Mrs. Scopacasa, who felt the children should
be educated in Italian, moved with them to Italy. After their
departure, Mr. Scopacasa moved back to 33 Ontario Street. At
some point, 33 Ontario Street was converted into three rental
units one of which was, and continues to be,
Mr. Scopacasa's apartment. It is on the second floor and
consists of a kitchen, sitting area and bedroom and shares a
common bathroom with the other upstairs apartment. The third
apartment comprises the main floor and basement of 33 Ontario
Street. Mr. Scopacasa alternates his time between Canada and
Italy: each year, he works from roughly April to November as a
bricklayer in and around Thunder Bay; when the season ends, he
travels to Italy to spend the winter with his family at their
residence.
[3] In June 1993, Mr. Scopacasa
purchased from 897551 Ontario Ltd. a lot at 105 Vintage Crescent
in a new subdivision in Thunder Bay for $55,000.00. The president
of 897551 Ontario Ltd was Frank Silvestri, a longtime friend of
Mr. Scopacasa. Mr. Scopacasa put down $300.00 cash at the
time of the offer to purchase leaving an unpaid balance of
$54,700.00. In June 1994, Mr. and Mrs. Scopacasa took out a
$40,000.00 mortgage on 33 Ontario Street. At about the same
time, they listed for sale a rental property they owned (34
Ontario Street) and that fall, Mr. Scopacasa began construction
at 105 Vintage Crescent. Because of the demands of his full-time
employment and his prolonged absence in Italy, work on the house
proceeded slowly. By May 1995, Mr. Scopacasa was able to move
some belongings into the not-yet-completed house: a toaster oven,
a microwave, a mattress. Meanwhile, he continued to maintain his
apartment at 33 Ontario Street. In June 1995, he arranged for the
water to be connected for 105 Vintage Crescent. He testified that
he completed a form to have his mail forwarded by Canada Post
from 33 Ontario Street to 105 Vintage Crescent but had no
documentation to substantiate this claim. During the spring and
summer of 1995, Mr. Scopacasa was working as a bricklayer in
Marathon, Ontario, some 3½ hours from Thunder Bay. Each
week, he would leave Sunday afternoon returning the following
Friday.
[4] In August 1995 came the event that
changed completely Mr. Scopacasa's plans for 105 Vintage
Crescent. He had purchased the house, he said, in anticipation of
the return to Canada of his eldest son, then 23 and studying
medicine in Italy. According to Mr. Scopacasa, his son's
dream was to practice medicine in Northern Ontario. Hoping to
have the family together again and knowing that 33 Ontario Street
was too small to accommodate them, he decided to build a bigger
home. In August, he learned that his son and the rest of the
family would be staying in Italy. Approximately two months later
in October 1995, he sold the house to Cheryl Yamashita and Alfred
Guerin for $175,000.00.
[5] To succeed in his argument that
the gain from the disposition of 105 Vintage Crescent should not
be taxable, Mr. Scopacasa has the onus of proving wrong the
Minister's assumption that "...the land was
purchased and the home built by [Mr. Scopacasa] for the
purpose of resale..."[1]. In considering the evidence presented, the
Court must apply the test in The Minister of National Revenue
v. Taylor[2] and Happy Valley Farms Ltd. v. The
Queen[3]:
1. The nature of the property sold.
- The property sold, the home at 105 Vintage Crescent,
was equally capable of being capital or the subject of trade;
that is the very question under consideration.
2. The length of period of
ownership. - 105 Vintage Crescent was sold in October 1995,
more than two years after Mr. Scopacasa bought the vacant lot.
Because of Mr. Scopacasa's absences on the job and in
Italy, it took longer than the three or four months normally
required to complete the construction of a house. Of greater
significance is the five months between his occupying the house
in May 1995 and its sale in October of that year. I use the word
"occupying" because on the evidence presented, it is
difficult to accept Mr. Scopacasa's characterization of
this action as "moving in". He brought to the house
what can only be described as the bare necessities for his use
while he worked on the house on the rare occasions he was in
Thunder Bay. Meanwhile, most of his furnishings and personal
items remained at 33 Ontario Street. The water was not
connected until mid-June 1995. No telephone was ever installed
during his time there. On the other hand, Mr. Scopacasa
maintained telephone service at 33 Ontario Street. His reason for
doing so, he said, was that he was installing a bathroom to
enhance the chances of selling the house and needed a telephone
while on site. It strikes me as odd that a telephone would be
necessary for his use at the location of a small renovation
project but not necessary at the home construction site where,
presumably, more of his time would be spent. Taken as a whole,
the evidence points to a short ownership period consistent with
"flipping" the property.
3. The frequency or number of other
similar transactions by the taxpayer. - The 105 Vintage
Crescenttransaction was an isolated event.
4. The work expended on or in
connection with the property realized. - Although Mr.
Scopacasa expended a lot of work on the property, the evidence
tends to show that his efforts were geared to enhancing the
marketability of the property rather satisfying his personal
tastes. There is nothing to suggest that Mr. Scopacasa took
any particular interest in the design of 105 Vintage Crescent; he
built the house from borrowed blueprints after having made only
small unspecified changes to the roof and windows. At the time of
the sale, the house was not yet completed. Carpets had not been
chosen, never mind installed; this is consistent with the real
estate practice of making newly constructed houses more appealing
to prospective buyers by leaving such decisions to them. I do not
accept Mr. Scopacasa's explanation that he had deferred this
decision pending his wife's return from Italy. In her testimony,
Mrs. Scopacasa could not even remember the name of the street
where her husband was apparently labouring to build a home for
her about-to-be reunited family.
The other aspect to be considered under this heading is
whether the taxpayer made any "special efforts to find or
attract purchasers". On this point, Mr. Scopacasa was
less than forthcoming in his testimony. I accept that he never
formally listed the house for sale. Whether he took any other
action is less clear. He testified that, until his son's
unforeseen decision not to return to Canada, he had never once
thought of selling 105 Vintage Crescent. Only when he learned of
the sudden change in plans in August 1995 did he mention his
interest in selling to Frank Silvestri in case "anyone was
looking for a house". He denied any knowledge as to how the
purchasers came to know the lot was for sale. The house was
"open" and he speculated that they might have seen it
on their own in the winter when he was in Italy, or in the summer
when he was working in Marathon, or perhaps through
Frank Silvestri who was "always in the
subdivision". That Mr. Scopacasa would have such a
casual attitude to being saddled with a debt of nearly
$100,000.00 for a suddenly unnecessary piece of real estate does
not fit with the man I saw in the witness box. He was experienced
in real estate purchase and rental. He had expressed concerns
about the financial strain caused by the $40,000.00 mortgage and
the cost of the land. In my view, his lack of concern is more
consistent with his always having intended to sell
105 Vintage Crescent: that he was relying on his friend of
30 years, Frank Silvestri, the developer who was
"always in the subdivision" to keep his eyes open for
buyers while Mr. Scopacasa built the house; that
Mr. Scopacasa was able to pay a mere $300.00 towards the
purchase price of the lot because it was understood that the lot
would be resold as soon as possible after the house was
inhabitable; and that Mr. Scopacasa would immediately pay the
outstanding balance to Mr. Silvestri as soon as the house was
sold. I am satisfied that through Frank Silvestri and from the
moment he bought the lot, Mr. Scopacasa was making special
efforts to find and attract purchasers for 105 Vintage
Crescent.
5. The circumstances that were
responsible for the sale of the property.-
Mr. Scopacasa testified that he had always intended to live
with his family in the house he was building at 105 Vintage
Crescent. Yet in the Transfer/Deed of Land[4] transferring 105 Vintage Crescent to
Yamashita and Guerin, Mr. Scopacasa certifies by his
signature that "[t]he property transferred is not ordinarily
occupied by me and my spouse who is not separated from me, as our
family residence". His first thought of selling the
property, he said, came in August 1995 when he learned that his
son would not be returning to Canada: his son's change of
heart was the "sudden emergency" that triggered the
sale of the house he had acquired as capital property. Yet on
cross-examination, Mr. Scopacasa admitted that he had written to
the CRA auditor[5]
listing his inability to afford the $40,000.00 mortgage and the
cost of the lot as well as his concerns about leaving the house
vacant for the winter as his reasons for the sale. His
explanation for these conflicting statements - that he did not
want to disclose his family situation to the auditor - was not
convincing. I am of the view that none of these reasons is the
real one; namely, that he had always intended to sell the house
as soon as he could get it finished and/or Frank Silvestri could
find a buyer.
6. The motive or intention of the
taxpayer at the time of acquiring the asset. - In addition to
the taxpayer's direct evidence of his intentions when he
acquired the property, the Court may also draw inferences from
the surrounding circumstances[6] including, as stated in Happy Valley, the
taxpayer's "whole course of conduct while in possession
of the asset"[7]. Having reviewed the evidence as set out above, I am
unable to satisfy myself that, on a balance of probabilities, Mr.
Scopacasa acquired the property for use as his principal
residence. I find that it was always his intention to buy the
lot, build a house on it and sell 105 Vintage Crescent as soon as
possible. This is sufficient to make the sale of 105 Vintage
Crescent "an adventure in the nature of trade" thus
giving rise to business income that is taxable under the
Income Tax Act. It also means that Mr. Scopacasa was a
"builder" within the meaning of the Excise Tax
Act and is liable for unremitted GST generated by the
disposition of the property.
[6] Accordingly, both appeals are
dismissed, without costs.
Signed at Ottawa, Canada, this 28th day of September,
2004.
Sheridan, J.
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