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Citation: 2004TCC294
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Date: 20040413
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Docket: 2002-95(IT)G
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BETWEEN:
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ESTATE OF LILY BULLARD,
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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
Campbell, J.
[1] This is an appeal of the income
tax assessment in respect to the Estate of Lily Bullard for the
1997 taxation year.
[2] The issue is simply whether the
Appellant filed a valid capital gains election form with the 1994
return which would entitle the Appellant to the capital gains
exemption pursuant to subsection 110.6(19) of the Income Tax
Act (the "Act").
[3] There were no witnesses called.
Counsel for the Appellant and Respondent submitted a Statement of
Agreed Facts and each presented legal argument in respect to the
issue. As the Statement of Agreed Facts provides the background
to this issue, I have reproduced the statement in its
entirety:
1. Lily
Bullard ("Mrs. Bullard") owned a property located at
1826 West 63rd Avenue in Vancouver, British
Columbia (the "Property") from January 1, 1972 to
October 1, 1997.
2. The
original cost to Mrs. Bullard of the Property on January 1,
1972 was $50,000.
3. The
Property was Mrs. Bullard's principal residence from
January 1, 1972 to August 31, 1990.
4. Mrs.
Bullard began renting out the Property on September 1, 1990.
5. Mrs.
Bullard reported rental revenue respecting the Property in her
1990 income tax return, and was allowed to deduct from that
revenue various claimed amounts including capital cost
allowance.
6. The
Property underwent a change in use from a principal residence to
a rental property on September 1, 1990.
7. The fair
market value of the Property on September 1, 1990 was
$348,000.
8. The fair
market value of the Property on February 22, 1994 was
$565,000.
9. Mrs.
Bullard claimed the Property as her principal residence in her
1994 income tax return.
10. Mrs. Bullard included
with her 1994 income tax return a typewritten note (the
"Note") claiming an election under
subsection 45(2) of the Income Tax Act (the
"Act") respecting the Property, with the goal of
applying the principal residence exemption to it during the years
of 1990 to 1993.
11. Mrs. Bullard included
with her 1994 income tax return a Form T2091 respecting the
Property, with the goal of claiming a principal residence
exemption under paragraph 40(2)(b) of the Act.
12. On the Form T2091, the
following was recorded respecting the Property:
(a) 22 as the total
number of years that it was designated as Mrs. Bullard's
principal residence;
(b) $50,000 as the
adjusted cost base;
(c) $546,800 as the
deemed proceeds of disposition;
(d) $496,800 as the
capital gain; and
(e) nothing as the gain
under paragraph 40(2)(b) of the Act.
13. In 1994 the prescribed
form for a taxpayer to elect to use up her remaining enhanced
capital gains deduction under subsection 110.6(19) of the
Act was the Form T664.
14. Mrs. Bullard included
with her 1994 income tax return a Form T664 respecting the
Property (the "Form").
15. On the Form, the
following was recorded respecting the Property:
(a) $50,000 as the
adjusted cost base;
(b) $546,800 as the
designated proceeds of disposition;
(c) nothing as the
elected capital gain; and
(d) $0 as the total
elected capital gains under the heading of "other
properties", which included the Property.
16. In 1994, Mrs.
Bullard's son Richard had power of attorney respecting her
affairs due to her mental condition.
17. It is presently
unknown, but probable, that Richard Bullard signed and dated the
Form on Mrs. Bullard's behalf.
18. According to the Form
the elected gain would have been $496,800 and both Mrs.
Bullard's annual gains limit and cumulative gains limit for
1994 would have been 75% of that, meaning $372,600.
19. In 1994 the balance of
Mrs. Bullard's available enhanced capital gains deduction was
$75,000.
20. Mrs. Bullard sold the
Property on October 1, 1997 for $436,996.
21. Mrs. Bullard claimed a
capital loss of $88,004 in her 1997 income tax return respecting
the Property, on the basis that:
(a) its cost was
$525,000; and
(b) the proceeds of
disposition respecting it were $436,996.
22. On June 8, 1998 the
Minister of National Revenue (the "Minister") initially
assessed Mrs. Bullard's 1997 taxation year as filed.
23. Mrs. Bullard died on
June 5, 1999.
24. In early 2001, the
Appellant claimed a net capital loss carry-forward respecting the
1997 sale of the Property in the date of death return.
25. As a result, the
Minister began an audit of Mrs. Bullard's 1997 taxation
year.
26. By the time of that
audit, the Minister no longer had Mrs. Bullard's original
1994 income tax return, with enclosures, in her possession.
27. During the course of
that audit:
(a) the Minister
advised the Appellant that the Minister did not accept the Form
as a valid election under subsection 110.6(19) of the
Act;
(b) the Minister
conducted an appraisal of the Property's fair market values
as of September 1, 1990 and February 22, 1994;
(c) the Appellant
and Minister agreed that the fair market value of the Property on
September 1, 1990 was $348,000; and
(d) on February 14,
2001, the Appellant sent to the Minister a second Form T664
respecting the Property (the "Second Form").
28. On the Second Form,
the following was recorded respecting the Property:
(a) $348,000 as the
adjusted cost base;
(b) $546,800 as the
designated proceeds of disposition;
(c) $198,800 as the
capital gain before reduction;
(d) $113,600 as the
reduction for non-qualifying real estate; and
(e) $85,200 as the
elected capital gain.
29. The Second Form was
neither dated nor signed by Mrs. Bullard or Richard Bullard.
30. On June 4, 2001, the
Minister reassessed Mrs. Bullard's 1997 taxation year to deny
the claimed capital loss respecting the disposition of the
Property in that year, and assess a gain of $88,996 on the basis
that:
(a) the fair market
value of the Property on September 1, 1990, at the time of its
change in use to a rental property, and thus its cost was
$348,000; and
(b) the proceeds of
disposition respecting the Property were $436,996.
31. On July 10, 2001, the
Appellant objected to the Minister's reassessment of Mrs.
Bullard's 1997 taxation year.
32. On October 11, 2001,
the Minister confirmed the reassessment of
Mrs. Bullard's 1997 taxation year.
The Legislation
[4] The facts of this case involve two
types of election: a subsection 45(2) election and a subsection
110.6(19) election. Where a taxpayer has disposed of capital
property in a taxation year, the capital gain, if any, is
determined in accordance with paragraph 40(1)(a) of the
Act. However, the gain on the disposition of a
taxpayer's principal residence is exempt pursuant to
paragraph 40(2)(b), provided the residence has
qualified as a principal residence and has been so designated for
the relevant years after 1971. Form T2091 is to be filed when a
taxpayer elects a principal residence exemption pursuant to
paragraph 40(2)(b).
[5] Where there is a change in use of
a property, paragraph 45(1)(a) deems there to be a
disposition of the property followed by an immediate
reacquisition at a cost equal to the property's fair market
value. Subsection 45(2) provides a means for the taxpayer to
elect and avoid this change of use rule contained in paragraph
45(1)(a), so that the property will continue as the
taxpayer's designated principal residence, without immediate
tax consequences.
[6] Subsection 45(2) of the Act
states:
For the purposes of this subdivision and section 13, where
subparagraph (1)(a)(i) or paragraph 13(7)(b) would
otherwise apply to any property of a taxpayer for a taxation year
and the taxpayer so elects in respect of the property in the
taxpayer's return of income for the year under this Part, the
taxpayer shall be deemed not to have begun to use the property
for the purpose of gaining or producing income except that, if in
the taxpayer's return of income under this Part for a
subsequent taxation year the taxpayer rescinds the election in
respect of the property, the taxpayer shall be deemed to have
begun so to use the property on the first day of that subsequent
year.
[7] Subsection 45(2) permits a
taxpayer, following a change in use of a principal residence, to
elect to deem that the change of use has not occurred and to
defer any gain to a later year. A property can qualify as a
taxpayer's principal residence for up to four taxation years
while a subsection 45(2) election remains in force.
[8] A taxpayer may make an election
under subsection 45(2) by filing a signed letter stating that the
change in use to the property is deemed not to have been made.
The letter should be filed with the taxpayer's return for the
year in which the change in use occurred. Interpretation Bulletin
IT-120R6 (July 17, 2003) states that the subsection 45(2)
election is to be made by letter filed with the taxpayer's
return. Justice Sarchuk in Lo v. Canada, [1995] T.C.J. No.
1504 confirmed that the proper way to make this election is by
signed letter.
[9] Until February 22, 1994 taxpayers
were entitled to a lifetime capital gains exemption of
$100,000.00 (expressed as a $75,000.00 deduction under subsection
110.6(3)). When this exemption was eliminated, Parliament
introduced subsection 110.6(19) which permitted taxpayers to make
a special election in respect to capital property acquired and
still owned prior to February 22, 1994. This election is
referred to as the final capital gains exemption election
("final capital gains election").
[10] The relevant portion of Subsection
110.6(19) states:
Subject to subsection (20), where an individual (other than a
trust) or a personal trust (each of which is referred to in this
subsection and subsections (20) to (29) as the
"elector"), elects in prescribed form to have the
provisions of this subsection apply in respect of
(a) a capital property (other than an interest in
a trust referred to in any of paragraphs (f) to (j)
of the definition "flow-through entity" in subsection
39.1(1)) owned at the end of February 22, 1994 by the elector,
the property shall be deemed, except for the purposes of sections
7 and 35 and subparagraph 110(1)(d.1)(ii),
(i) to have been disposed of by the elector
at that time for proceeds of disposition equal to the greater
of
(A) the amount determined by the
formula
A - B
where
A is the amount designated in respect of the
property in the election, and
B is the amount, if any, that would, if the
disposition were a disposition for the purpose of section 7 or
35, be included under that section as a result of the disposition
in computing the income of the elector, and
(B) the adjusted cost base to the
elector of the property immediately before the disposition,
and
(ii) to have been reacquired by the elector
immediately after that time at a cost equal to
[...]
(C) [...] the lesser of
(I) the designated amount, and
(II) the amount, if any, by which the fair market value
of the property at that time exceeds the amount determined by the
formula
A - 1.1B
where
A is the designated amount, and
B is the fair market value of the property
at that time;
[...]
[11] This special election allows the
taxpayer to elect to utilize any remaining amount of the lifetime
capital gains exemption so that it would not be lost for all
time. The final capital gains election requires a taxpayer to
designate a capital property and to elect a value for that
property using Form T664. The provision then deems that the
taxpayer has disposed of and reacquired the designated capital
property at that elected value. Any resulting gain from this
deemed disposition will give rise to a taxable capital gain which
may be offset by the taxpayer's remaining lifetime exemption.
Since the taxpayer is deemed to have acquired the property at the
newly elected value, when there is an actual disposition of this
property in the future, the gain at that time will be offset
against the elected amount rather than the original cost and the
future gain. Therefore the tax payable will be reduced.
Limitations are placed on the elected value of the property. The
disposition value selected by the taxpayer must not be more than
the fair market value of the property on February 22, 1994 or
less than the adjusted cost base ("ACB") on February
22, 1994. If it is less than the ACB the election will be invalid
as this would create a capital loss. An election in excess of the
fair market value will be valid but may be subject to
penalties.
[12] Subsection 110.6(20) sets out three
conditions, one of which must be satisfied in order for a capital
gains election to be valid under subsection 110.6(19).
[13] The relevant portion of subsection
110.6(20) states:
Subsection (19) applies to a property or to a business, as the
case may be, of an elector only if
(a) where the elector is an individual (other
than a trust),
(i) its application to all of the properties
in respect of which elections were made under that subsection by
the elector or a spouse of the elector and to all the businesses
in respect of which elections were made under that subsection by
the elector
(A) would result in
an increase in the amount deductible under subsection (3) in
computing the taxable income of the elector or a spouse of the
elector, and
(B) in respect of
each of the 1994 and 1995 taxation years,
(I) where no part of the taxable capital gain
resulting from an election by the elector is included in
computing the income of a spouse of the elector, would not result
in the amount determined under paragraph (3)(a) for the
year in respect of the elector being exceeded by the lesser of
the amounts determined under paragraphs (3)(b) and
(3)(c) for the year in respect of the elector, and
(II) where no part of the taxable capital gain resulting
from an election by the elector is included in computing the
income of the elector, would not result in the amount determined
under paragraph (3)(a) for the year in respect of a spouse
of the elector being exceeded by the lesser of the amounts
determined under paragraphs (3)(b) and (3)(c) for
the year in respect of the spouse,
(ii) the amount designated in the election in
respect of the property exceeds 11/10 of its fair market value at
the end of February 22, 1994, or
(iii) the amount designated in the election in respect
of the business is $1.00 or exceeds 11/10 of the fair market
value at the end of February 22, 1994 of all the eligible capital
property owned at that time by the elector in respect of the
business; [...]
The Facts as They Relate to the Relevant Provisions
[14] On September 1, 1990 the
Appellant's property, which to that date had been her
principal residence, underwent a change in use when it became a
rental property (paragraph 4 of the Statement of Agreed Facts).
In her 1990 return she reported rental revenue and deducted
various claimed amounts including capital cost allowance
(paragraph 5 of the Statement of Agreed Facts).
[15] In 1994, the Appellant's accounting
firm attempted to file a subsection 45(2) election so that
this property would be the Appellant's principal residence
and the principal residence exemption would apply to it for the
years 1990 to 1993 (paragraphs 9 and 10 of the Statement of
Agreed Facts). Her 1994 tax return included a typewritten
unsigned note which claimed this election pursuant to subsection
45(2) for the property for four years (1990 to 1993).
[16] Also included with the Appellant's
1994 tax return was form T2091, which was filed for the purpose
of electing a principal residence exemption pursuant to paragraph
40(2)(b). This form contained a declaration that the
property had been used as a principal residence for 22 years,
that is, 1972 to 1994. This form listed the ACB at $50,000.00,
the deemed proceeds of disposition at $546,800.00 and the capital
gain at $496,800.00, with the gain under paragraph
40(2)(b) left blank.
[17] Included in the 1994 tax return was
another form, T664, which is the prescribed form under subsection
110.6(19). Its purpose was to permit the Appellant to elect to
use her final capital gains exemption. Form T664 listed the
ACB at $50,000.00, designated proceeds at $546,800.00, and total
elected capital gain on other properties was listed at zero. The
other designated areas on the form were left blank. The 1994
return was assessed as filed. When the property was sold in 1997,
the Appellant claimed a capital loss of $88,004.00 in her 1997
tax return. The loss was not used in 1997. Mrs. Bullard died in
1999. In 2001 the Appellant claimed a net capital loss carry
forward in respect to this 1997 sale. The Minister conducted an
audit at this point and determined the 1994 election under
subsection 110.6(19) was invalid. In February 2001, a second form
T664 was submitted pursuant to subsection 110.6(19). This
form contained revised amounts.
Position of the Appellant
[18] The Appellant's position is that it
should qualify for the election pursuant to subsection 110.6(19)
because the Form T664 filed with the 1994 return is valid and
effective.
[19] The Appellant submits that an election
under subsection 110.6(19) is valid where the following
requirements are met:
(1) one of the three conditions
contained in paragraph 110.6(20)(a) are met, and
(2) the election is filed in the
prescribed form (T664) with all substantive fields on that form
properly completed.
[20] The Appellant argues that these two
requirements are met. Firstly, the condition in subparagraph
110.6(20)(a)(i) has been fulfilled. The Appellant reviewed
the calculations involved in this provision and argued that the
two components of this paragraph were satisfied because:
(a) as the Appellant had not used any of her
available exemption, the election resulted in an increase in the
$100,000.00 capital gains exemption under subsection 110.6(3),
and
(b) as the annual gains limit and cumulative gains
limit are equal to the taxable capital gain/exemption amount, the
election does not result in the lesser of the annual gains limit
and cumulative gains limit exceeding the balance of the
exemption.
[21] The Appellant argues that the
Respondent used the erroneous ACB from the first form T664 filed
in 1994 to calculate these limits and then determined that the
Appellant did not meet the requirements of subsections 110.6(19)
and 110.6(20). If the true ACB had been used in making the
calculations pursuant to subsection 110.6(20), then the limits
and the amount calculated pursuant to
paragraph 110.6(3)(a) of the Act would be
equivalent. Where all three amounts are equivalent the
requirements of subsection 110.6(20) are met. The Appellant
argues that it is improper for the Respondent to rely on an
erroneous ACB in these calculations under paragraph
110.6(20)(a), when the Respondent has agreed with the
Appellant that the true ACB of the property is another amount.
The Appellant relied on the cases of Champagne v. R.,
[2003] 3 C.T.C. 2318 and Coastal Construction and
Excavating Limited v. Her Majesty the Queen [1996]
3 C.T.C. 2845 to argue that the Respondent's approach
here was inconsistent with the approach taken by the Minister in
these former cases and that in using an erroneous ACB the
Respondent was relying on an error in a statute barred year to
deny the Appellant the subsection 110.6(19) election in a
non-statute barred year.
[22] Secondly, the Appellant argues that the
other requirement for a valid election is fulfilled because the
taxpayer has filed the prescribed form with all of the
substantive fields properly and accurately completed. It is the
Appellant's position that subsection 110.6(19) contemplates
the inclusion of the following two key substantive components or
fields in the form T664:
(1) the amount elected by the
taxpayer, the designated proceeds, which is required for the
deemed disposition and reacquisition to occur, and
(2) the designation of property
by the taxpayer.
Changes to these substantive fields would certainly amount to
amendments to the form, not simply corrections. The remaining
fields in the form are non-substantive and changes to these
fields would be corrections only. The two substantive fields were
properly completed in the first T664 form filed in 1994. The
designated amount was listed at $546,800.00 and the property was
designated as "per T2091". However the form T664
included an incorrect ACB of $50,000.00. Because the ACB is not
an elected amount, it is a non-substantive field on the form. The
only reason the ACB is included is to prevent the taxpayer from
claiming a capital loss. The second T664 form filed in 2001
contained the correct ACB of $348,000.00. The Appellant referred
to this change on the second T664 in 2001 as
"inconsequential" because substituting the correct ACB
($348,000.00) for the incorrect ACB ($50,000.00) amounts to a
correction only and not an amendment. All non-elected amounts on
the T664 are simply calculations based on the correct ACB and the
elected designated proceeds amount. These non-substantive fields,
including the ACB amount, are simply included for the
Minister's convenience. To support this position, that all
fields on T664 are non-substantive except for the two
proposed by the Appellant, section 32 of the Interpretation
Act, R.S.C. 1985, c.11 (1st Supp.) s. 32, was
relied upon. The Appellant also referred to R. v. Langlois
(1991), 35 M.V.R. (2d) 71, which listed the factors that should
be examined when determining whether a deviation on a form
invalidates it.
[23] In summary, according to the
Appellant's argument, using the incorrect ACB in the 1994
T664 form is not a substantive deviation because it did not
affect the elected amounts under subsection 110.6(19). It is
not fatal to the validity of the form because it does not affect
the substance of the election. Substituting the true ACB in the
2001 T664 form is simply a correction to the first form and not
an amendment. The property was described and the designated
amount is clear. Therefore the two substantive fields in the 1994
form are completed and the election was made. The ACB is not part
of the election. By correcting the ACB the Appellant is not
engaging in retroactive tax planning.
Position of the Respondent
[24] The Respondent's position is that
the subsection 110.6(19) election is incomplete and invalid based
on the errors contained in the form. As a result the Appellant
does not qualify for the capital gains deduction under this
section and has therefore realized a capital gain on the 1997
sale of the property.
[25] The Respondent argues that both the
election under subsection 45(2) and the election under subsection
110.6(19) are invalid. The subsection 45(2) election is invalid
because the taxpayer made a choice to report rental income and to
claim certain deductions including capital cost allowance in 1990
and this prevents the Appellant in 1994 electing to designate the
property as a principal residence.
[26] The Respondent claims that the
Appellant's attempt to complement the subsection 45(2)
election with the 1994 T664 form under the subsection 110.6(19)
election also failed. According to the wording of subsection
110.6(19), a taxpayer elects in prescribed form to have the
subsection apply in its entirety. This is contrary to the
Appellant's argument that a taxpayer elects an amount as the
proceeds of disposition under the section. The Respondent argues
that all of the prescribed figures are necessary to calculate a
gain under the subsection. Therefore the taxpayer must include
the ACB on the form so that the Minister will know if the ACB is
greater than the designated amount. As an example the Respondent
cites clause 110.6(19)(a)(i)(B), which sets the proceeds
of disposition at the ACB, if it is greater than the designated
amount, to prevent a taxpayer from electing to trigger a loss.
This makes the ACB amount a substantive item on the form.
[27] Form T664 requires that a taxpayer
complete more than a figure for the designated proceeds of
disposition amount. The 1994 T664 form omitted a number of
amounts, including the non-qualifying real estate amount and the
elected capital gain amount. These amounts are substantive and
the failure to include them in the 1994 T664 form means the
Minister could not accept this form because it did not satisfy
the conditions of subsections 110.6(19) and (20).
[28] The second T664 form filed in 2001
contains the missing amounts and the true ACB but cannot be
accepted as it was filed beyond the date for submitting amended
forms. In addition these figures are not merely corrections, as
the Appellant contends, but amount to amendments filed beyond the
prescribed period.
[29] In summary the first form T664 was not
a proper election in prescribed form, as certain amounts are
missing and a change to the ACB amount is substantive. The second
T664 form is a failed late-filed election.
Analysis
[30] Counsel for both the Appellant and
Respondent were in agreement on the facts in this case. Counsel
also agree on the correct ACB value of the property. Whether the
correct ACB value can be used to determine the calculations
pursuant to subsections 110.6(19) and 110.6(20) depends on the
validity of the election forms. The problem here arises because
accountants clearly failed to properly complete the forms
required by these provisions. They made a decision in 1990, when
Mrs. Bullard began renting her residential property, to claim
rental income and claim certain amounts including capital cost
allowance. They continued to treat the residence as a rental unit
from 1990 to 1993, and did not file a change of use election
under subsection 45(2) to claim the principal residence
exemption. In February 1994, the accountants had a change of
heart and attempted to file this election pursuant to subsection
45(2) to insulate and protect the Appellant's gain on the
property. They filed a short unsigned typewritten note indicating
the Appellant was electing under subsection 45(2) to have the
property continue as her principal residence for the years 1990,
1991, 1992 and 1993. The accountants also included a form T2091
to calculate a claimed principal residence exemption which
included the years 1990 through 1993.
[31] This note, together with form T2091,
represent a failed attempt by the accountants to return to the
years 1990 to 1993 to claim a principal residence exemption for a
property which they quite clearly treated as a rental property.
Tab 15 of the Hearing Record contained correspondence dated April
11, 2001 from Parkes & Moysey, the accounting firm, to CCRA
which admitted:
We agree ... that the subsection 45(2) election made for this
property is not valid and a change of use occurred effective
September 1, 1990 resulting in a deemed disposition on that date
at the property's fair market value.
Quite apart from this admission, I find the attempt in 1994 to
elect pursuant to subsection 45(2) invalid and of no effect
because it was simply late filed. Subsection 45(2) refers to a
taxpayer electing in respect of a property in that
taxpayer's return of income for the year... (emphasis is
mine). This imposes a responsibility on the taxpayer to make a
choice or a decision in that year. When she did not make this
election in her return for 1990, she is prevented from doing so
at a later date due to the wording of subsection 45(2). In other
words, the Respondent contends that the Appellant is prevented
from making this election because the property was treated as a
rental between 1990 and 1993. However I conclude that this
election fails because the wording of subsection 45(2) demands
that a taxpayer make the choice and file the election for that
year and she did not. If the Appellant had properly filed an
election in 1990, to elect the property for the principal
residence exemption, but continued to treat the property as a
rental property including a claim for capital cost allowance, I
believe the election would be valid but she simply would have
been reassessed at some point and prevented from making the
rental deductions.
[32] In addition to the attempted subsection
45(2) election supported by a note and form T2091, the
accountants next attempted to file an election (Form T664) under
subsection 110.6(19). This would enable Mrs. Bullard to use up
any remaining capital gains deduction which would otherwise
disappear in 1994. I believe the accounting firm filed a form
T664 under subsection 110.6(19) because they knew that their
attempt at a subsection 45(2) election would be unsuccessful. If
it had been successful, the gain to the residence would have been
zero in 1994 and therefore completely protected.
[33] Subsection 110.6(19) refers to a
taxpayer electing in prescribed form to have the provisions of
the Act apply. According to subsection 248(1) of the
Act the term "prescribed" is defined as:
(a) in the
case of a form, the information to be given on a form or the
manner of filing a form, authorized by the Minister,
This definition implies that when a taxpayer makes the choice
to elect, the taxpayer must give information on a form authorized
by the Minister. There may be very serious tax consequences to a
taxpayer when a choice is made to elect or not elect under this
provision. In a self-assessing system, the responsibility falls
on a taxpayer's shoulder to ensure that the election is
completed to the extent that the form will readily comply with
the provision, without unnecessary second-guessing by the
Minister. It is up to the taxpayer to complete the form in such a
way that it will be clear to the Minister what the taxpayer
intends.
[34] The 1994 form T664 designated the
Appellant's property, and specified the adjusted cost base at
$50,000.00, the fair market value as at February 22, 1994 at
$546,800.00, with designated proceeds at $546,800.00. All other
areas on this form were either left blank or listed at zero
value. The question is whether this form contained sufficient
information to conclude that it was in prescribed form for the
subsection to apply, which would enable the Appellant to claim
the capital gains deduction under subsection 110.6(19). Both the
Appellant and Respondent agree that the listed ACB of $50,000.00
is the incorrect amount and they both agree that the correct
amount that should have been listed was $348,000.00. I do not
accept the Appellant's submissions that the ACB is analogous
to something as basic as a taxpayer's SIN number. The ACB is
clearly an important figure on this form and is not an
inconsequential figure as the Appellant suggests. It is part of
the substantive information required for the correct completion
of the form. While the Appellant is correct that the ACB amount
is not an elected amount which a taxpayer chooses, it is
determinative in respect to the elected capital gain amount and
may be determinative of any penalties under subsections 110.6(22)
and (28). The taxpayer's choice of the ACB figure is a vital
piece of information on this form. This is information that the
taxpayer has, not the Minister, and it is up to the taxpayer to
ensure that the correct amount is obtained and included on the
form. Tab 14 of the Hearing Record contains correspondence dated
February 14, 2001 from the accounting firm to CCRA and also
the revised T664 form. The entire correspondence is devoted to a
recalculation of the ACB of the property sold in 1997. The
calculations were based on the correct ACB and resulted in
significant changes to the figures contained in the 1994 T664
form. These changes go to the heart of the form and cannot be
characterized as anything but vital and substantive information
which must be supplied by a taxpayer to the Minister.
[35] The Appellant argued that the form
contains only two substantive fields, the property designation
and the designated proceeds. These are two of the substantive
fields but the form contemplates additional calculations which
are substantive and which are clearly not
"inconsequential". If one looks at the form and its
intent, a taxpayer is electing a capital gain against which a
capital gain's deduction may be applied. This necessarily
implies more than a property designation and an amount for
designated proceeds. For example, where the proceeds of
disposition are greater than the designated amount,
clause 110.6(a)(i)(B) sets the proceeds of
disposition at the ACB. Of course this ensures that a taxpayer
does not elect to trigger a capital loss. It is simply a logical
deduction to conclude that a taxpayer must be vigilant that the
correct ACB is included on the form so that the Minister is not
left to second-guess the tax treatment chosen by the
taxpayer.
[36] This form also left blank the amount
respecting the reduction for non-qualifying real estate.
One is left again to second guess whether the taxpayer intended
zero to apply or some other amount. How was the Minister to know
if the taxpayer intended some portion of the gain to be in
respect to non-qualifying real estate? A non-qualifying
portion is calculated with reference to the gain, multiplied by
the number of months the property was owned between
February 22, 1992 and February 22, 1994, divided by the
total number of months the property was owned. This is a
mathematical formula for which the taxpayer must supply the
figures and information. If the election form is missing some or
all of this information, the Minister cannot be expected to know
or guess at these figures. On the second form T664 filed in 2001,
there was in fact a non-qualifying portion completed with a
resulting amount of $113,800.00 included. The
non-qualifying real estate figure is clearly a substantive
item in the form because it is a significant factor in the
calculation of the elected capital gain.
[37] Some of the remaining fields on the
1994 T664 form are either left blank or completed with zero. The
Step 2 calculation of elected capital gains (both flow through
entities and other properties) is listed at zero while the Step 3
calculation of elected taxable capital gains (both flow through
entities and other properties) is listed at zero. The Respondent
pointed out that it was unclear whether the accountants were
referencing these figures to their attempted subsection 45(2)
election, which if it had been successful, would have exempted
the gain as a principal residence exemption.
[38] In the end, one is simply left to
speculate whether the Appellant meant the elected capital gain to
be zero or $496,800.00 (based on the 1994 form which included
figures of an ACB of $50,000.00 and designated proceeds of
$546,800.00).
[39] The limited information contained in
this form makes it invalid. The Minister cannot be expected to
speculate and assume. It is up to the taxpayer to elect in
prescribed form for the provisions of this subsection to apply
and that means the inclusion of sufficient and accurate
information so that the Minister knows the taxpayer's
intended tax treatment by reference to this form.
[40] Both the Appellant and Respondent
referred to section 32 of the Interpretation Act and from
my understanding of each of their references, they agree that
this section basically states that defects in form are acceptable
but defects in substance are not. They disagree however on which
information in the T664 is substantive. I firmly believe that
this section is meant to ensure that a form will remain valid
where the deficiency relates to form only. However for the
reasons given, the defects here go to the very heart of form T664
and affect it substantively. Where all or some of the necessary
and substantive elements on a prescribed form are missing, or
incorrectly stated by a taxpayer, the form will be considered
invalid and ineffective under the appropriate provision.
[41] The second T664 form filed in 2001
cannot be used to correct the substantive failures in the 1994
T664 form, quite apart from the fact that it was neither dated
nor signed. This second form was again an attempt by accountants
to amend in substantive ways their failed 1994 form. The
Appellant argued that this 2001 form merely corrected the 1994
form. The changes in the figures contained in the second form go
far beyond mere corrections. The second form used the correct ACB
of $348,000.00, contained a capital gain before reduction of
$198,800.00 (because of the mathematical calculations), contained
a figure of $113,600.00 for the non-qualifying real estate
figure, and contained an elected taxable capital gain of
$63,900.00 under Step 4. All of the above information was
different from the information contained in the first form and
all of this information is substantive. In addition, this second
form in 2001 is filed well beyond the limitation periods. As
Justice Rip pointed out in Stuart Estate v. R., [2003] 3
C.T.C. 2232 (TCC), the means to revoke or amend an election are
restrictive and rigid. The first form could not be validated by
this second form in 2001, as it attempts to make amendments, not
corrections, to the 1994 form, years after the period to do so
has expired.
[42] For these reasons, the appeal is
dismissed, with costs.
Signed at Ottawa, Canada this 13th day of April 2004
Campbell, J.
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