REASONS
FOR JUDGMENT
Jorré J.
[1]
In 2010 the Appellant sold a 560 square
feet condominium which I shall refer to as the Yonge Street property. The
disposition was not reported in the Appellant’s 2010 income tax return.
[2]
The Minister of National Revenue assessed the
disposition as business income. The Appellant takes the position that the
condominium unit was his principal residence and therefore there should be no
tax on the gain.
[3]
Soheila Aliakbarli, the spouse of the Appellant,
testified on the Appellant’s behalf. Three exhibits were filed by the Respondent.
[4]
The case is essentially one of fact and turns on
whether I accept the Appellant’s evidence.
[5]
The Appellant was reassessed on September 18,
2014. He filed a notice of objection and subsequently filed a notice of appeal
in this Court on February 19, 2016.
[6]
The Appellant attached to his notice of appeal a
letter dated February 12, 2016 from the Appeals Division of the Canada
Revenue Agency. It sets out at some length the reasons for the Minister’s
decision with respect to the notice of objection. The letter itself was not a
reassessment.
[7]
Although that letter is dated February 12,
2016, it was only implemented by the reassessment dated April 18, 2016,
the reassessment in issue in this appeal.
[8]
Two matters are no longer in issue.
[9]
In the reassessment of April 18, 2016, the
second reassessment, the Minister eliminated gross negligence penalties that
had previously been assessed; the Minister also reduced the quantum of the gain
to allow for additional expenses.
[10]
The notice of appeal asks that interest be
waived; to the extent this is a reference to subsection 220(3.1) of the Income
Tax Act, that power is not one that this Court can exercise. The power in
that subsection is exercised by the Minister and has its own application
process.
[11]
In assessing the Minister made the following
assumptions of fact:
a) on
February 16, 2007 the Appellant entered into a purchase and sale agreement
to purchase 2003-5508 Yonge St (the “Condo”);
b) the
purchase price of the Condo was $211,833;
c) the
Condo was a 1 bedroom unit of 560 sq ft;
d) the
Appellant took possession of the Condo on November 3,
2009;
e) the
Appellant listed the Condo for sale on December 19,
2009;
f) the
Appellant disposed of the Condo on January 12, 2010 to an unrelated party;
g) the
Condo was sold for $277,000;
h) the
Appellant did not enter into a lease agreement to tenant the Condo;
i) the
Appellant did not report rental activities for the Condo in the 2010 taxation
year;
j) the
Appellant incurred not more than $21,283 in outlays associated with the
purchase and sale of the Condo;
k) the
Appellant did not report the sale of the Condo in his return of income for the
20l0 tax year;
1) the
Appellant’s spouse acted as a real estate agent on the sale of the Condo;
m) at
all material times, the Appellant was the owner of the Condo;
n) the
Appellant never changed his address with the Canada Revenue Agency (“CRA”) to
the address of the Condo;
o) the
Appellant did not designate the Condo as his personal residence with the CRA;
p) the
Appellant never resided at the Condo;
q) the
Appellant did not ordinarily inhabit the Condo in 2010;
r) at
no time was the Condo the Appellant’s principal residence;
s) the
Appellant and his spouse bought and sold a number of properties from 2007 to
2011;
t) the
Appellant and his spouse were co‑owners (25% each) of a property located
at 260 Spring Garden Avenue (“Spring Garden”);
u) Spring
Garden was purchased in August 2007 for $695,000 and sold in February 2010 for
$1,370,000;
v) the
Appellant purchased on October 21, 2010 a property located at 1009‑18 Holmes
Avenue, North York (“Holmes”);
w) Holmes
was sold for a profit on September 29, 2011; and
x) the Appellant
reported rental income from Holmes in 2011 and his 50% share of the taxable
capital gain on his 2011 T1 return.
[12]
The Appellant entered into an agreement of
purchase and sale for the Yonge Street property on February 16, 2007 prior
to the completion of construction of the building. The property is a one
bedroom condominium unit with approximately 560 square feet.
[13]
The Appellant took possession of the property on
May 11, 2009 and became the owner on October 30, 2009 at the time of
closing.
[14]
One and a half months later on December 16,
2009 the property was listed for sale.
[15]
At that time Ms. Aliakbarli was a real
estate agent and she was the listing agent for the sale of the Yonge Street
property. Later she gave up her licence as a real estate agent.
[16]
The property sold six days later on
December 22, 2009 and the closing date of that sale was January 12,
2010.
[17]
As I stated at the beginning the key question is
whether this was the Appellant’s principal residence.
[18]
Ms. Aliakbarli testified that the family
moved to Canada in February of 2001. Around that time they bought a condominium
unit on Lorraine Drive where she and her husband as well as their three children
lived. The unit at Lorraine Drive was approximately 980 square feet.
[19]
In 2009 the family decided to downsize because
of their financial situation. This was caused by the recession and, as best I
can understand, this was the result of difficulties relating to another
property, the Spring Garden property, which the Appellant and Ms. Aliakbarli
bought in 2007 and sold at a loss in February 2010 because of the high cost of
demolishing and rebuilding the house. The Appellant and Ms. Aliakbarli
each had a 25% interest in the Spring Garden property.
[20]
As a result the Lorraine Drive property was sold
in April 2009; the closing date was August 18, 2009.
[21]
According to Ms. Aliakbarli, the family
moved to the Yonge Street property in June 2009. At that point, the two oldest
children were no longer living at home and there was just the Appellant, Ms. Aliakbarli
and their youngest child who was a part‑time university student at the
time.
[22]
In the period from the time they moved in, in
June 2009, until they left in early January 2010, the Appellant himself was
away most of the time until December 2009 because he had had to go back to
Tehran for the death of his father. Ms. Aliakbarli had also had to travel
back and forth to Tehran during this period because her mother became ill; she
was away for perhaps one month on one occasion and perhaps two months on
another occasion.
[23]
Ms. Aliakbarli also explained that in late
2009 the two older children had decided that in order to be supportive of the
Appellant they should move back home. In order to do so, the family would need
a larger condo unit.
[24]
The family moved out of the Yonge Street
property in early January 2010. At that point they went to live with some
relatives until they moved into another condo, the Northtown property. The Northtown
property was purchased in January 2010 and they moved into it in February 2010.
[25]
For the reasons that follow, I am unable to
accept the Appellant’s evidence on the key point of whether or not the family
moved to the Yonge Street property.
[26]
Let me first mention two factors which do not
lead me to this conclusion. First, while a 560 square feet one bedroom
condo is pretty crowded for two parents and a university age son in itself, such
circumstances could arise.
[27]
Second, the Appellant, in responding to the
questionnaire which was filed as Exhibit R‑1, did not indicate that the
original reason for purchasing the Yonge Street property was as a personal
residence.
He indicated that it was an investment. I have no difficulty with the
possibility that a property purchased for one reason could subsequently be used
for another reason. Again, this particular answer on the questionnaire is not a
factor.
[28]
However, there are three items of evidence which
are impossible to reconcile with anyone in the Appellant’s family having lived
in the Yonge Street property.
[29]
First, in the same questionnaire filed as Exhibit
R-1, the Appellant is asked: “Did you reside in this property?” His answer is “no”. He is also asked for the names and ages of
people who resided with him; he leaves the answer to that question blank.
[30]
While it could be a misunderstanding on the part
of the Appellant, I find it unlikely that the Appellant would have given these
answers if the subject property had been the family residence for several
months.
[31]
Second, on the listing for the subject property,
Exhibit R-3, towards the top in the middle just below the name of the sellers,
one finds “Occup:” which clearly means occupant
or occupancy and next to it the word “Tenant”.
While this could be an error as suggested, I think it is unlikely given that
the listing agent was Ms. Aliakbarli and she would have provided the
information about the property.
[32]
If there was a tenant the family could not be living
there.
[33]
Third, Exhibit R-2 contains two electricity
bills, one dated September 24, 2009 and one dated January 22, 2010.
These are addressed to the Appellant and are in respect of the Yonge Street
property.
[34]
There is, however, something quite odd about
these bills. Both are headed “FINAL BILL”. The
first one covers the period from May 11, 2009 to July 1, 2009. The
second covers the period from December 31, 2009 to January 12, 2010.
[35]
The first bill shows electricity usage of 164 kWh
and a total bill of $179.97.
[36]
When one looks at the second, later, bill it
shows on the right side under the heading “Compare your
daily usage” the reading date of January 12, 2010 with a usage of 20 kWh
and it shows an earlier reading date of July 1, 2009 with 164 kWh
usage. In addition, on the left side four lines above the line which says in
bold letters “Total Due by Feb 10 2010”, it
shows “Amount of last bill” as $179.97.
[37]
The 164 kWh usage shown on the second bill is
exactly the same as the usage shown on the first bill; the $179.97 amount shown
as the “Amount of last bill” on the second bill
is identical with the amount of the first bill.
[38]
The only possible conclusion is that the
previous consumption and the amount of the previous bill shown on the second
bill is purely and simply the bill dated September 24, 2009 for the period
ending on July 1, 2009.
[39]
Consequently, there is either no consumption of
electricity after July 1, 2009 and before December 31, 2009 or, for
that period, someone else is paying for the electricity and that person is
being billed.
In either case it is incompatible with the Appellant’s family living at the
Yonge Street property.
[40]
Given these three items of the evidence which
are inconsistent with members of the family living at the Yonge Street
property, it is simply not probable that the Appellant or members of his family
ordinarily resided at that property.
[41]
For a dwelling to be a “principal residence”,
one of the key conditions is that it must be “ordinarily
inhabited in the year by the taxpayer, by the taxpayer’s spouse or
. . . by a child of the taxpayer”.
[42]
As the Appellant does not meet that requirement,
the appeal is dismissed.
Signed at Ottawa, Ontario, this 16th day of February 2017.
“Gaston Jorré”
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