REASONS
FOR JUDGMENT
C. Miller J.
[1]
Mr. Soheili appeals the reassessment by the
Minister of National Revenue (the “Minister”) of
his 2010 and 2011 taxation years, in which the Minister denied Mr. Soheili’s 2009
business loss carry forwards of $29,520 in 2010 and $5,520 in 2011. The Canada
Revenue Agency (“CRA”) initially denied $35,740
of business loss carry forwards in 2010, but after an audit allowed $6,120 loss
carry forwards from 2009 into 2010. In the Minister’s Reply that allowance is
stated to be in error. The loss arises on the disposition of a residential
property, which the Minister claims was built as Mr. Soheili’s principal
residence, consequently not triggering any business losses at all.
Mr. Soheili claims, that while originally the property was intended to be
built as the family residence, after a fire at the property during
construction, circumstances changed such that the building was to be constructed
for commercial sale. Mr. Soheili claimed he no longer intended the
property for his family residence. If Mr. Soheili convinces me that the
intention did shift, he must then satisfy me that this changes the nature of
the property away from personal property and further that he incurred costs of
$1,556,800, not the $1,235,376 of costs that the Respondent’s auditor allowed.
[2]
Mr. Soheili was the sole witness for the
Appellant. He was at the relevant time a realtor and a general contractor. He
acknowledged that initially he intended to build a large eight bedroom house
meant for his family, his brother’s family and their parents. The land for this
residence was located on Abbey Drive in Surrey. Mr. Soheili acquired the land
in 2005 for $315,000. Construction commenced in February 2006. There is some
confusion as to who actually built the residence, as Mr. Soheili was the sole
shareholder of a company, Homemark, which he stated was in the construction
business. He claims to have hired Homemark to be the builder. It was never made
clear to me who in fact incurred the expenses (no receipts, no financial
records, nor any materials in connection with the construction were provided), but
given how I intend to dispose of this case, it is irrelevant.
[3]
In October 2006, while under construction, there
was a fire at the Abbey Drive property, caused by arson. Mr. Soheili
claims this caused a rift with his brother who believed that Mr. Soheili was
responsible for hiring the individual whom they suspected was the arsonist. Mr.
Soheili testified that his brother dropped out of the picture as far as the
ongoing development of the property, and he was therefore left to clear up the
mess, as he put it. He claims that at this point, as he was on his own, he made
the decision to simply build the residence to sell. He testified that he changed
plans from an eight bedroom home intended for two or three families to an
executive home with fewer bedrooms. He stated he submitted a new application to
the City of Surrey for a building permit evidencing the changes. His brother
did not testify nor did he produce a copy of any altered blueprints or the
building application. When the property was ultimately listed through
foreclosure proceedings, it showed as having eight bedrooms and eight
bathrooms.
[4]
Mr. Soheili had some difficulty with his insurer
in collecting on the insurance arising from the fire, but ultimately a
settlement was reached for an undisclosed amount. Mr. Soheili proceeded to
invest this amount in the United States. He acknowledged, however, that at this
point there was no way he could afford the Abbey Drive residence. He suggested
construction costs soared due to the upcoming Olympics. He put the overall cost
at over $1,500,000. The auditor testified that he was only provided support for
$804,741 of construction costs plus $115,000 of interest costs and $315,000 for
the acquisition of the land, totalling approximately $1,235,000. Mr. Soheili
admitted he does not know where support for the additional $300,000 expenses
can be found.
[5]
In March 2008, Mr. Soheili mortgaged the Abbey
Drive property along with his then principal residence at Glenside Court in
Surrey to Pacific Coast Mortgage for approximately $1,200,000. A few months
later, he took out a second mortgage on both properties for an additional
$300,000 with what he called a private lender, Canadian Western Trust Co. The
mortgages on both properties were registered in Mr. Soheili’s name.
[6]
By January 2009, there were over $500,000 worth
of liens against the Abbey Drive property. Mr. Soheili had Homemark register a lien
for $250,000 against the property as well, an amount he indicated was simply
arbitrary.
[7]
Mr. Soheili testified that he had an interested
buyer prepared to pay $1,600,000 for the Abbey Drive, but that foreclosure
proceedings were started and this same buyer ultimately acquired the Abbey
Drive property for $1,375,000. Mr. Soheili maintains that he allowed this sale
by foreclosure below what he believed was market value, as he felt this was the
only way he could retain his Glenside Court property. As there was a shortfall
of approximately $244,000 to the second mortgagee, Mr. Soheili borrowed from
another lender, Van City to pay out the Canadian Western Trust mortgage in
2010. He still has a considerable mortgage against the Glenside Court property.
[8]
Mr. Soheili claims he had significant business
losses on the sale of Abbey Drive in 2009, $35,740 of which he carried forward
to 2010 and $5,520 of which he carried forward to 2011. The Minister, relying
on the auditor’s determination of supportable costs, determined that Mr.
Soheili only incurred losses of $6,120 which was allowed to be carried forward
to the 2010 taxation year and reassessed accordingly. The Minister’s position
on appeal is that no amount should have been allowed, as this was a sale of a
personal property. Mr. Soheili’s position was that either he or Homemark
incurred these legitimate losses and he is entitled either to the business loss
carry forwards directly or, if Homemark incurred the costs, he is entitled to
allowable business investment losses. He further argues that he is entitled to
interest expenses on the remaining mortgage on his Glenside Court property in
2010 and 2011, as the mortgage was to pay out the original second mortgage on
the Abbey Drive property, which he claims was incurred to build the Abbey Drive
residence. He failed to provide any documentary evidence detailing any interest
costs.
[9]
I will deal first with who incurred the costs of
construction. I did not receive copies of any invoices nor saw any corporate
records, financial or otherwise. Mr. Soheili’s testimony with respect to
Homemark was, at best, sketchy. The company never filed a return after 2007 and,
according to Mr. Soheili, simply faded away. I find this was Mr. Soheili’s
project. He owned the land and the mortgages were registered in his name. Not
unlike many small businesses, there was likely little distinction to be made by
Mr. Soheili between his endeavours and that of the company. The role of
Homemark is confused to the point of being irrelevant and I treat it as such.
If there was any business or venture in the nature of trade, it was Mr.
Soheili’s.
[10]
The question is whether the Abbey Drive residence
was personal property, a property intended to be the family residence or was
part of a business venture by Mr. Soheili in his role as a general
contractor. The Respondent argues first that Mr. Soheili never intended the
Abbey Drive property to be sold commercially. Second, the Respondent relies on
the case of Solomons v Canada
to argue that because the project started off as a personal rather than
business venture, which Mr. Soheili acknowledges, then it remains such
notwithstanding circumstances, the fire, caused Mr. Soheili to switch gears, as
he could no longer afford to proceed on the basis of building the family
residence.
[11]
Dealing with the Respondent’s first position, I
have not been convinced by Mr. Soheili that in fact there was any change of intention
after the fire. My reasons for this conclusion are manyfold. First, in his
testimony in chief, Mr. Soheili claimed that he altered plans to go from
an eight bedroom home suitable for three branches of his family to a five
bedroom home, more suitable for one family wanting an executive home. The
listing of the home on foreclosure, however, showed there was indeed still
eight bedrooms, three described as master bedrooms, along with eight
bathrooms. This is more in keeping with the original plans. Mr. Soheili told me
that he could go to the City of Surrey to get copies of the building
application and blueprints which would show the changes. It is always
regrettable that Appellants do not come fully prepared for their day in court.
Mr. Soheili was well aware that an issue was the nature of the Abbey Drive
property, business or personal, and therefore the purported altered plan would
be most significant. The only credible evidence I am left with is in the
form of the listing that simply does not support Mr. Soheili’s
explanation.
[12]
Second, Mr. Soheili made no mention to the
auditor at their interview in May 2012 of any change in intention. Mr. Sandhu,
the auditor, referred to his notes which makes no reference to any such
intention for the property other than as a family residence and he recalled no
such mention.
[13]
Third, Mr. Soheili called no other family
members, his brother or any others to provide any corroboration of his story.
[14]
Fourth, in two cases where he was sued by
suppliers, the judgments, one in 2011 and another in 2013 (Dynasty Kitchen
Cabinets and Miracle 786 Flooring), both indicate that, based on Mr. Soheili’s
testimony, the property was intended for the family’s residence. The Dynasty
decision was ultimately vacated but the trial judge’s finding on this point
remains on the record.
[15]
I conclude the property retained its original
status as personal property and was not part of any business or adventure in
the nature of trade. I dismiss Mr. Soheili’s Appeal on that basis.
[16]
I wish to comment further, however, on Mr.
Soheili’s lack of proof for his expenses, even if I had found that this was a
commercial venture. As mentioned previously, there is approximately a $300,000
discrepancy between what the auditor found as costs of construction versus what
Mr. Soheili claims. The only evidence Mr. Soheili relied upon to support these
additional costs was the fact that he had to borrow so much. This is simply
insufficient proof. Again, while recognizing it can be difficult for a taxpayer
acting on his own behalf to appreciate what evidence is required to prove their
point, this case was about the quantum of expenses. Mr. Soheili knew that, yet
could provide no evidence to support his claim of costs in excess of
$1,500,000. I add this lack of corroborative evidence to his testimony that he
took insurance proceeds and invested them in the United States to confirm my
view that simply saying he borrowed so much money to go towards building the
residence falls well short of any standard for proving the issue of the amount
of construction costs. He could just have likely invested more in the United
States. No, Mr. Soheili has simply been unable to satisfy me he incurred the
costs he claims, and I could also dismiss his Appeal on that basis.
[17]
The Appeal is dismissed.
Signed at Ottawa,
Canada, this 7th day of September 2017.
“Campbell J. Miller”
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