Cristofaro – Court of Quebec finds that a resale of a house by a renovator within one year gave rise to a capital gain
One of the taxpayers and a friend purchased a Montreal house for $1,050,000 with the intention of renovating it and renting it out. Renovation expenses escalated to $492,000. Unable to rent it out and with expenses beyond what they could handle, they sold the property for $1,700,000 a year later. Forlini, JCQ found that the taxpayer had realized a capital gain, stating that neither the taxpayer nor his friend (Mr. Stephan) were “habitual or sophisticated real estate investors” and that:
If the intention of Jaysen Cristofaro and Mr. Stephan changed after the purchase, this is attributable to the skyrocketing renovation costs and the difficulty in finding a tenant, and not because they were motivated by realizing a profit through a quick flip.
… The evidence does not establish that in the minds of Jaysen Cristofaro and Mr. Stephan, the possibility of resale was an operating motivation for the purchase.
Essentially the same findings were made respecting a somewhat similar transaction of Jaysen’s mother.
This case followed the Hickman approach of considering that once the taxpayer has made out a prima facie case, the burden of persuasion shifts to the Minister. The Hickman approach was doubted in, for example, Morrison, Lohas and in comments of Webb JA in Sarmadi. This may be an example of a case where that approach to onus mattered, i.e., the prima facie case that the high renovation costs could not be foreseen seemingly put the burden of persuasion back on the ARQ.
Neal Armstrong. Summary of Cristofaro v. Agence du revenu du Québec, 2019 QCCQ 6242 under s. 9 – capital gain v. profit – real estate.