Date:
19991006
Dockets:
98-205(IT)G
98-206(IT)G
BETWEEN:
GIULIA
TODESCO,
GIULIA
TODESCO, THE PERSONAL REPRESENTATIVE OF
THE
ESTATE OF DANILO TODESCO (DECEASED),
Appellants,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Teskey,
J.T.C.C.
[1] The
Appellants appeal from reassessments of income tax for the 1992 taxation year,
wherein the Minister of National Revenue (the "Minister")
determined that no more than one‑half hectare of the property that
contained the Appellants' residence was necessary for the use and enjoyment of
the property as a residence by the Appellants.
ISSUE
[2] There
is no issue as to the value of the Property. The only issue is whether the
Minister properly assessed the Appellants on the basis that land, in excess of
1/2 a hectare of the Property, was not part of the Appellants'
principal residence, as it was not necessary to the Appellants' use and
enjoyment of the housing unit as a residence.
FACTS
[3] The
parties submitted an agreed upon Statement of partial facts, the pertinent ones
to these appeals are as follows:
1. On or about
January 13, 1976, the late Danilo Todesco and Guilia Todesco ("Mr. and
Mrs. Todesco") entered into an agreement for sale (the "Agreement for
Sale") to purchase for $290,000 the property situated at 375 Inglewood
Avenue, West Vancouver, British Columbia (the "Property"), more
particularly described as:
SOUTH
WEST 1/4 of
DISTRICT
LOT 1074,
GROUP
1, New Westminster District
2. A copy of the
Agreement for Sale is attached hereto at Tab 1.
3. The Agreement
for Sale was later modified to reflect changes in interest rates and payment
terms.
4. In or about
May 1991, title to the Property in fee simple was transferred to Mr. and Mrs.
Todesco as joint tenants. The transfer was registered in the Land Titles Office
on May 30, 1991. A copy of the transfer document is attached hereto at Tab 2.
5. The Property
was 1.138 hectares (or 2.813 acres), and included a single family housing unit
(the "Housing Unit"). A copy of the plan of the Property is outlined
in red at Tab 3 attached hereto.
6. Mr. and Mrs.
Todesco resided in the Housing Unit from 1976 until the Property was sold in
1992.
7. Mr. and Mrs.
Todesco subdivided the Property in June of 1991, creating two lots, a 0.275
acre lot (the "Smaller Lot") and a 2.538 acre lot on which the
Housing Unit was located (the "Larger Lot"). The Smaller Lot is
indicated in yellow on the copy of the plan attached hereto at Tab 4.
8. The new
street address of the Smaller Lot was 371 Inglewood Avenue, West
Vancouver, British Columbia. The street address of the Larger Lot remained as
375 Inglewood Avenue, West Vancouver, British Columbia.
9. Mr. and Mrs.
Todesco sold the Smaller Lot to developers on or about June 5, 1992 for
$220,000. A copy of the Vendor's Statement of Adjustments is attached hereto at
Tab 5.
10. Mr. and Mrs.
Todesco sold the Larger Lot to the same developers on or about August 14, 1992
for $1,200,000. A copy of the Vendor's Statement of Adjustments is attached
hereto at Tab 6.
11. The Housing
Unit was subsequently removed, and the entire parcel (the Smaller Lot and the
Larger Lot) was subdivided into 8 parcels. A copy of the plan showing the
Property outlined in red and the 8 parcel subdivision is attached hereto at Tab
7.
12. From the time
Mr. and Mrs. Todesco entered into the agreement for sale in January 1976 and up
to and including the sale of the Property in 1992, the Property was zoned RS-3
(residential single family zone 3), with a minimum lot size as permitted by the
City of West Vancouver of 12,000 square feet.
13. Subdivision of
the Property was legally possible at the time Mr. and Mrs. Todesco first
entered into the Agreement for Sale in January 1976, at the time of disposition
of the Property in 1992, and throughout that entire period.
…
15. Mr. Todesco
died on August 3, 1995.
[4] Schedule A
to these reasons shows the property identified as 375 Inglewood upon which
the residence was located and shows the size of the properties in the immediate
neighbourhood.
[5] Schedule B
to these reasons shows the remainder after the severance, which is still
identified as 375 Inglewood, and the severed parcel which is identified as
"Severed Parcel".
[6] Over
and above these agreed upon facts, oral testimony was received from
Giulia Todesco ("Giulia"), her daughter Sonia Sadin
("Sonia") and her one son Sergio Bill Todesco
("Sergio").
[7] Their
evidence was not challenged and established that the small existing house that
was located on the property at the time of purchase was extensively renovated
and a large addition was built turning the modest house into a luxurious large
home with a built‑in swimming pool.
[8] The
oral evidence also established that from the outset the family used
continuously the whole parcel for recreational purposes, both in the sense of
active use by the Appellants' children and just to sit and look at what Giulia
and her husband thought, was pleasing to the eye and relaxing. As far as the
three children, this was their own playground where all the neighbourhood
children would come and play with them. They would play outdoor games as well
as fishing in a large pond. They also had numerous animals, such as geese,
ducks, rabbits, peacocks and other birds, as well as two family dogs.
[9] In
1989, the property was unsuccessfully put up for sale.
[10] In 1991, a decision to sever a parcel off the property was made
for financial reasons, but it did not sell. In 1992, a sale of the severed
parcel was entered into on condition that the purchaser could buy the remaining
large parcel. Both sales were completed in 1992 and the purchaser developer
proceeded to remove the house and subdivide the entire parcel as shown on
Schedule C.
[11] Giulia and her late husband did not have plans per se to
develop the lands but did talk about their three children building their homes
on the property which undoubtedly would have required three severances.
ANALYSIS
[12] "Principal residence" is defined in section 54 of the Income
Tax Act (the "Act"), and paragraph (e) of
that definition is what is before me herein. Abbreviated, it reads:
(e) the
principal residence of a taxpayer for a taxation year shall be deemed to
include … the land subjacent to the housing unit and such portion of any
immediately contiguous land as can reasonably be regarded as contributing to
the use and enjoyment of the housing unit as a residence, except that where the
total area of the subjacent land and of that portion exceeds 1/2 hectare, the
excess shall be deemed not to have contributed to the use and enjoyment of the
housing unit as a residence unless the taxpayer establishes that it was
necessary to such use and enjoyment, and
Thus from reading
this provision, it can be seen that there are two situations that can arise.
[13] Firstly, where the parcel of land in question is less than
1/2 a hectare in size, then the test is what contiguous land "can
reasonably be regarded as contributing to the use and enjoyment of the housing
unit as a residence".
[14] Secondly, these situations deal with contiguous land that is in
excess of 1/2 a hectare. This provision deems the land over
1/2 a hectare not to have contributed to the use and enjoyment
of the housing unit as a residence, unless the taxpayer establishes that, that
is what was necessary for such use and enjoyment.
[15] The parties referred me to several decisions, which I will attempt to
summarize in chronological order.
[16] Mahoney J. of the Federal Court Trial Division, in The Queen
v. Yates, 83 DTC 5158, was dealing with a situation where the
taxpayers built a residence on a 10‑acre parcel which was the minimum
residential parcel permitted by the zoning. Mahoney held that since the
taxpayers could not legally have occupied their housing unit as residence on
less than 10 acres, then the portion in excess of the one acre (as the
statute then read) was necessary for their use and enjoyment. He said at
page 5159:
In my opinion, the critical time is
the moment before disposition. It is possible that a subjective test, involving
the actual contribution of the immediately contiguous land to the taxpayer's
use and enjoyment of the unit as a residence, may be admissible. Perhaps such factors
as are commonly taken into account in applying subsection 24(6) of the Expropriation
Act could be relevant in appropriate circumstances. However, whether or not
a subjective test is properly to be applied, an objective test surely is and
if, in its application, it is found that the taxpayer has discharged the onus
on him, it is unnecessary to consider the subjective.
[17] The next decision was a decision of my colleague Taylor J. in Rudeloff
v. M.N.R., 84 DTC 1548. There, the taxpayer sold his principal
residence and the surrounding 10 acres. The relevant zoning by‑laws
required lots at least five acres in size. He found as a fact that the excess
land was for the use of raising the taxpayer's five children and enjoyment of
the family riding horses, etc. He stated at page 5149:
I am satisfied that the entire
ten-acre parcel of land "contributed to the individual's use and enjoyment
of the housing unit as a residence . . ." (section 54(g) of the Act
S.C. 1970-71-72, c. 63 as amended), but it must be established that the excess
portion at issue was "necessary" to such use and enjoyment". I
would refer to three cases dealing with the subject: Donald Fraser v. The
Minister of National Revenue (83 DTC 148); Her Majesty, The Queen v.
William Yates (83 DTC 5158); Elmo B. Baird v. The Minister of National
Revenue (83 DTC 582).
In both, Yates (supra)
and Baird (supra) there were severances of the man, parcel of
land, leaving (according to the arguments of the appellants) a portion of the
original "principal residence" sold, and a portion of it retained,
somehow still called "principal residence". Because of the
above-noted distinction, I do not believe that either Yates (supra)
or Baird (supra) can serve as complete guidelines in this instant
appeal. Mr. Rudeloff did not divide his property at the critical date, in the
same way. Therefore to whatever degree there can be any comparison made, it
must be made to Fraser (supra) and the critical phrases therein
at pages 452 and 453:
Also, I would emphasize
that the Act is perfectly clear — the principal residence is the
housing unit — and only the housing unit — anything beyond that is
apparently a concession to practicality and reasonableness.
. . .
Certainly the family could reside
in the house without even setting foot on the garden and play area.
. . .
. . .It is important to perceive of
the excess area in dispute as indispensable in its direct relationship to the
residential properties of the housing unit, not merely in its utility and value
to the inhabitants thereof.
I am not persuaded the relevant
section of the Income Tax Act permits of the view espoused by this
taxpayer — that merely because he resided in a housing unit on the property,
and used the balance of the property in one way or another to enhance the
utility and attractiveness of that domestic living style, he can expand the
boundaries of his housing unit to the parameters of the natural domain desired
in his appeal.
[18] The next decision in line is that of my colleague Bonner J., in Watson
et al. v. M.N.R., 85 DTC 270. Therein, dealing with the statutory
definition and intended use of the extra surrounding land, he said at
page 271:
The argument that the surrounding
land was necessary having regard to the intended use of the property ignores
the statutory definition. The excess land must be shown to be necessary to the
use and enjoyment of the house "as a residence". The definition
cannot be treated as if the words "as a residence" have no meaning.
In this regard I refer to Betty Madsen v. The Minister of National Revenue.
[19] A month after the Watson case, Christie A.C.J. as he then
was, wrote the Rode et al. v. M.N.R. decision, found at 85 DTC 272.
There the taxpayers had purchased 9.3 acres of land and established their
residence thereon. They used the excess land to raise their own food and they
lived a self‑sufficient lifestyle. Christie said at page 273, 274
and 275:
Paragraph 54(g) of the Act
defines "principal residence" of a taxpayer for a taxation year. It
includes the stipulation that the geographical limits up to 1 acre (now 1/2
hectare) of a principal residence is the land subjacent to the housing unit and
such portion of any immediately contiguous land as may reasonably be regarded
as contributing to the taxpayer's use and enjoyment of the housing unit as a
residence. This means that the area encompassed by a principal residence is a
variable depending upon the pertinent circumstances. I am also of the view that
the test to be applied in determining what that area is, is flexible having
particular regard to the underlined words if the taxpayer is not contending
that the subjacent and immediately contiguous land comprising his principal
residence exceeds 1 acre. In such cases significant weight should be attached
in favour of an appellant to credible evidence that can be sensibly regarded as
making the kind of contribution described. If, on the other hand, the appellant
is contending that the parameters of his principal residence exceed 1 acre, he
is faced with a significantly altered and more difficult task. In these
circumstances the law provides that the excess shall be deemed not to have
contributed to the appellant's use and enjoyment of the housing unit as a
residence unless he establishes that it was necessary to such use and
enjoyment. The underlined words are key. The word "deemed" in
paragraph 54(g) has this consequence. Even if an appellant establishes
beyond controversy that what exceeds 1 acre did in fact make an important
contribution to his use and enjoyment of the housing unit as a residence, this
does not assist him because the fact has been nullified by the legislation
unless he proves necessity. Therefore what an appellant must do in order to
establish that his principal residence exceeds 1 acre is to prove that the
excess was "necessary" to the use and enjoyment of the housing unit
as a residence. I believe that in its context this requirement dictates that a
stringent test shall be applied in determining the acreage of a principal
residence. I am also of the opinion that what constitutes a principal residence
is to be decided throughout by objective, not subjective, testing. To determine
a lis respecting the boundaries of a principal residence on the basis of
evidence which is purely the mental perception of one of the parties to the
controversy would strike me as raising a serious question of justness although
I appreciate that the words "contribute to the taxpayer's enjoyment"
in paragraph 54(g) tend to draw one towards applying a subjective test
in this regard.
Parliament has placed two things
together contraposed. First, provision for the determination of variable
dimensions of land which may constitute the principal residence of taxpayers in
respect of which they can succeed in what they contend is the correct dimension
by meeting the application of a flexible test. This applies to an area which
has fixed lines of demarcation which must not exceed 1 acre. Second, provision
for the determination of variable dimensions of land which may constitute the
principal residence of taxpayers which are in excess of 1 acre and which have
no fixed outer limits. I believe that in this regard it was the intention of
Parliament that crossing the demarcation lines of 1 acre and the process of
expansion beyond them shall be a formidable task. This is the effect of the
injection of the word "necessary" in determining dimensions in excess
of 1 acre. Among the interpretations assigned to the word "necessary"
in the Oxford English Dictionary is: "Indispensable, requisite,
essential, needful; that cannot be done without". From this selection I
believe that the phrase "that cannot be done without" best epitomizes
what a taxpayer must meet in order to establish that his principal residence
can properly be regarded as greater than 1 acre. To my mind, the proper
approach to the determination of these appeals is to objectively consider all
of the relevant circumstances adduced in evidence which were in existence
immediately prior to the disposition of the property and in the light of that
answer this question: Have the appellants established on a balance of
probabilities that without the area of land which they contend constitutes the
subjacent and immediately contiguous land component of their housing unit they
could not practicably have used and enjoyed the unit as a residence? I say
"immediately prior to the disposition" because "the critical
time is the moment before disposition": The Queen v. Yates, 83 DTC
5158 at 5159. Decided cases signify that legal attributes attaching to land may
or may not determine the magnitude of the land component of a principal
residence. This is illustrated by reference to Yates (supra) and Watson
et al. v. M.N.R. . In Yates the taxpayers had purchased 10 acres of
vacant land on which they built a residence. This was the minimum residential
area permitted under applicable zoning laws. The effect of these laws as
described by Mahoney, J. at p. 5159 was that: "The Defendants could not
legally have occupied their housing unit as a residence on less than ten acres"
(emphasis supplied). His Lordship went on to say:
It follows that the
entire ten acres, subjacent and contiguous, not only "may reasonably"
be regarded as contributing to their use and enjoyment of their housing unit as
a residence; it must be so regarded. It also follows that the portion in excess
of one acre was necessary to that use and enjoyment.
In Watson, Bonner, T.C.J.
said:
Mr. Watson stated that
both when the property was acquired and when it was expropriated it could not
be severed. He referred, I assume, to the prohibition contained in subsection
29(2) of the Planning Act, R.S.O. 1970, Chap. 349. The argument seemed
to be that in order to use the house and in particular to have access to it the
whole parcel was necessary because it was not possible to convey the house and
a strip of land required for the driveway without, at the same time, conveying
the rest of the parcel. In my view the definition of "principal
residence" contained in paragraph 54(g) is such that considerations
as to what can lawfully and effectively be conveyed are irrelevant. The amount
of land which contributes to the use and enjoyment of a housing unit is not, by
paragraph 54(g) of the Income Tax Act, made to depend on what can
lawfully be bought and sold.
The essence of the appellants'
position is that because of the particular lifestyle which they chose to pursue
while residing on the property their principal residence, for the purposes of
paragraph 54(g) of the Act, constituted 9.3 acres at the time of
its sale in 1977, not 1 acre as asserted by the respondent. While the
appellants mode of existence was of course perfectly acceptable, some might say
commendable, it was not something that operated to their tax advantage on the
disposition of the property. On the basis of the evidence adduced, they have
failed to show that the second question previously posed should be answered in
the affirmative.
[20] Christie A.C.J., again dealing with this paragraph of the Act,
dealt with a fish pond in Cox et al. v. M.N.R., 85 DTC 320, and he
said:
… The dugout or fish pond was quite
capable of contributing to the use and enjoyment of the housing unit as a
residence, but it does not meet the test of necessity enunciated in Rode.
…
[21] In 1986, the Federal Court of Appeal confirmed Mahoney J. in Yates
(supra).
[22] Strayer J., as he then was of the Federal Court Trial Division, in Fourt v.
The Queen, [1991] 2 C.T.C. 311, dealing with a taxpayer that owned two
adjacent lots, one on which her principal residence was located and on the
other subsidiary buildings, lawn and parking space. The taxpayer sold the
subsidiary lot. The two lots together were less than 1/2 a hectare.
Strayer allowed the appeal and said at page 314:
… The word "reasonably" implies
some kind of objective test in the sense that the Court is not obliged to
indulge the most extravagant or fanciful views of a taxpayer as to how
contiguous land contributes to the use and enjoyment of her residence. But
where there is credible evidence, as there is here, of actual use and enjoyment
by the taxpayer of the contiguous land in connection with her house, and such
use and enjoyment is not of an exaggerated or unnatural sort, a great deal of
weight must be attached to it in assessing whether such use can be reasonably
regarded as contributing to the taxpayer's use and enjoyment of his residence
[In Rode v. M.N.R., above-mentioned, at 274 Christie A.C.J.T.C. made a
similar observation, although in obiter dicta.]. It is not for the
officials of the Department of National Revenue, nor for the courts, to be the
arbiters of life-styles chosen by taxpayers. We must resist the temptation to
reject too readily the taxpayer's choice of what contributes to the use and
enjoyment of his residence just because others might choose differently: in
particular we are not entitled to reject the taxpayer's claim that certain land
contributed to the use and enjoyment of his residence simply because in our
view such land was not necessary to that use and enjoyment. The latter test is
appropriate only for dispositions of holdings totalling more than 1/2 hectare.
[23] The Federal Court of Appeal dealt with a sale of 8.99 acres of property in Augart v. The Queen, 93 DTC
5205. Robertson J.A., with Heald J.A. concurring, said that a
determination regarding acres of land to be deemed a principal residence should
not be resolved by the mechanical application of a single criterion such as
minimum lot size on the date of disposition.
[24] Linden J.A. dissented and stated that the effect of
paragraph 54(g) of the Act was well summarized by
Christie A.C.J. in Rode (supra). He also said on
page 5211:
The exception described in
paragraph 54(g) is aimed only at situations where extra land beyond one
acre is necessary for the use and enjoyment of the housing unit as a residence.
One example furnished by counsel for the Crown was where more than one acre is
required for a driveway to reach the house. Another supplied by him was where a
house is built into the side of a hill and needs more than one acre to support it.
There are certainly numerous other situations akin to these.
A further situation that has been
developed in the jurisprudence is where it is impossible to occupy a residence
on a parcel of land less than one acre because of a local by-law to that effect.
In The Queen v. Yates, 83 DTC 5158(F.C.T.D.), aff'd 86 DTC 6296
(F.C.A.), …
[25] The Federal Court of Appeal again dealt with this issue two years
later, in the split decision of Carlile v. The Queen, 95 DTC 5483.
The headnote therein correctly summarized Desjardins J.A.'s reasons,
concurred in by MacGuigan, which read:
Held: The taxpayer's appeal was
allowed. A taxpayer who contends that an area in excess of a half hectare (one
acre) of the subjacent land is his principal residence must prove its necessity.
According to the case law, this is a "formidable" task. One way of
accomplishing it is by reference to what is known as an objective test. Where
the land does not qualify on the objective test, it may qualify as part of the
principal residence by recourse to a subjective test. In this case, the
taxpayer had met the objective test not only vis-a-vis the 25-acre minimum
allotment size for her property, but also for the remainder, since the local
authority would not have authorized a partition of her lot between 25 acres and
the remainder. She was, therefore, entitled to be exempted from tax on capital
gains for the whole of her parcel of land. The Minister was ordered to reassess
accordingly.
She says at
page 5484:
A taxpayer who contends that an area
in excess of a half hectare (one acre) of the subjacent land in his principal
residence must prove its necessity. The burden is on him to establish that the
excess is necessary to the use and enjoyment of the housing unit as a
residence.
[26] Desjardins J. agreed with Christie in Rode (supra),
when she went on to say:
This task, according to the case
law, is a "formidable" one. One way of establishing that land in
excess of one acre is necessary to the use and enjoyment of the housing unit as
a residence is by reference to what is known as an objective test. Where land
does not qualify on the objective test it may, however, qualify as part of the
principal residence by recourse to a subjective test.
[27] McDonald J.A., in dissent, also quotes Christie, in Rode.
McDonald J.A. disagrees in regard to what Mahoney J. decided in Yates
(supra).
[28] Since Carlile, the Tax Court has dealt with this provision in Sendher
v. The Queen, [1998] 1 C.T.C. 2709 and Rowe v. The Queen,
[1998] 4 C.T.C. 2859. Neither decision is of much help here.
[29] Based on this jurisprudence, I do not believe that recreational uses
or lifestyle uses fall within the wording of the definition and in particular
the following words:
"can reasonably be regarded as contributing to
the use and enjoyment of the housing unit as a residence".
[30] If recreational or lifestyle uses qualified, a taxpayer might argue
that his 1,000‑acre ranch in the foothills, where he or she hunted and
fished and sat on the front porch to appreciate a magnificent view, contributed
to the enjoyment of the housing unit as a residence.
[31] Herein, Giulia and her late husband purchased this large parcel
because they desired a lifestyle similar to what the husband had in Italy. He
wanted the excess land to be used by his family for their and their friends'
enjoyment and for his to sit back and enjoy
[32] Having said that, I do not find that the use of this excess land was
necessary for the use and enjoyment of the house as a residence. The larger lot
gave Giulia, her husband and their children, a lifestyle in which they desired
to live, but that lifestyle was not necessary for the use and enjoyment of
their house as a residence.
[33] I agree that an example that would qualify is where additional land is
required for a driveway to reach the residence or a 2‑hectare sewage
lagoon to handle the effluent from a large multi‑room residence.
[34] For these reasons, the appeals are dismissed, with costs to the
Respondent, with only one counsel fee for the trial.
Signed at Calgary, Alberta, this 6th day of
October, 1999.
J.T.C.C.
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