Stockman v. R., [1996] 1 CTC 3001

Hamlyn J.T.C.C.: — These appeals were heard under the Informal Procedure and relate to the Appellant’s 1990 and 1991 taxation years.

The Minister of National Revenue (the “Minister”) assessed the Appellant for the 1990 and 1991 taxation years by Notices of Assessment mailed on August 16, 1991 and May 4, 1993, respectively.

In response to a written request by the Appellant, the Minister reassessed the Appellant for the 1990 and 1991 taxation years by concurrent Notices of Reassessment to allow the Appellant to deduct rental losses in the amounts of $30,466 and $28,100, respectively, which represented a 50 per cent share of the losses incurred on four condominium apartments located at 355 Rathburn Road, Mississauga, Ontario (the “properties”). The Minister issued reassessments for the 1990 and 1991 taxation years of Giuseppe Bucci, the Appellant’s former spouse, to disallow rental losses in the amounts of $30,466 and $28,100, respectively, which represented 50 per cent of the rental losses previously claimed by Mr. Bucci with respect to the properties.

As a result of the aforesaid reassessments, Mr. Bucci served Notices of Objection for the 1990 and 1991 taxation years, arguing that the Appellant was not entitled to deduct any share of the said rental losses. After consideration, the Minister issued reassessments for the 1990 and 1991 taxation years which had the effect of allowing Mr. Bucci to claim 100 per cent of the rental losses on the properties. The Minister reassessed the Appellant for the 1990 and 1991 taxation years by way of Notices of Reassessment mailed on February 28, 1994, disallowing the deduction of the 50 per cent share of the rental losses on the properties previously allowed.

The Appellant’s counsel, from the pleadings, stated as follows:

Be advised my client wishes to follow the informal procedure in processing this appeal.... Be advised that the reasons for my client’s appeal herein arise out of the inaccurate interpretation of a judgment rendered by the Honourable Mr. Justice Patrick LeSage at Milton on the 5th day of May, 1992, wherein it was found that Giuseppe (Joseph) Bucci was holding and at all times since their acquisition in 1987 had held four MURB’S in trust for himself and Roberta Stockman (formerly Bucci) by way of a constructive trust. Further, the said decision does not accurately reflect the fact that payments relating to the said MURB’S during the said taxation years were made from a corporate account, of which corporation, the taxpayer and the said Giuseppe Bucci were the only shareholders.

Facts

The Appellant and Mr. Bucci were divorced in 1989.

The properties were acquired in 1987 - it would appear, in part, from joint funds and the balance from moneys borrowed from The Royal Bank of Canada. (The Appellant and Mr. Bucci signed promissory notes to The Royal Bank of Canada.)

For the taxation years in question, the losses that were paid were paid by a corporation of which the Appellant and her former spouse were the only shareholders. Mr. Bucci’s chartered accountant advised that the records of the corporation show any payments made by the corporation were on the account of Mr. Bucci. The Appellant, for 1990 and 1991, did not personally pay any expenses.

In filing the income tax returns for the 1990 and 1991 taxation years, Mr. Bucci claimed 100 per cent of the losses incurred with respect to the properties and the Appellant made no claim or otherwise indicated an interest in the properties when filing the income tax returns for the 1990 and 1991 taxation years.

On April 10, 1992, the Appellant obtained an Order of the Ontario Court (General Division) which had the effect of granting her an equal constructive trust interest in the properties.

Issue

The issue is whether the Appellant was entitled to deduct a 50 per cent share of the rental losses incurred with respect to the properties in the 1990 and 1991 taxation years.

Analysis

In most circumstances, income and loss from the rental of real property must be taken to be the income and loss of the person or persons who own the property.

The aforesaid Ontario Court (General Division) formal judgment, dated May 5, 1992, of Mr. Justice Patrick LeSage reads in part as follows:

1. THIS COURT ORDERS AND ADJUGES that the respondent, Giuseppe Bucci, shall pay to the petitioner, Roberta Bozica Bucci the sum of $149,168, representing the equalization payment, (on the finding that the respondent husband holds the four condominium units at 355 Rathburn Road, Mississauga in constructive trust for the parties), withheld mortgage payments and interest, withheld salary cheques and interest, occupation rent and interest less deductible expenses, and for her one- half interest in the matrimonial home.

What Mr. Justice Patrick LeSage said, in his Reasons for Judgment on April 10, 1992 was as follows:

In this case I am satisfied, as was Justice Dunnett in Amsterdam, that all of their properties, as of the date of separation were beneficially jointly owned and that the husband held the four Toronto properties in a constructive trust for himself and his wife. To hold otherwise, would be to deny the source of the funds used to purchase these properties, which were joint family funds to which each party contributed equally. In addition, part of the source of the funds for the purchase of these condominiums, was the sale of other properties, which the parties treated as being jointly owned.

On that basis, the Appellant comes to this Court and says 50 per cent of the losses claimed by her husband for 1990 and 1991 on the rental of the properties in question were, because of the finding of Mr. Justice LeSage, her losses; therefore they should be attributed to her.

From the Law Society of Upper Canada Special Lectures 1993 [1] :

(f) A constructive trust comes into existence: Rawluk v. Rawluk, [1990] 1 S.C.R. 70, 23 R.F.L. (3d) 337, 71 O.R. (2d) 480, 36 E.T.R. 1 at pages 30-31, per Cory J.:

hot when the trust is judicially declared, but from the time when the unjust enrichment first arose.

Thus, this Court agreeing with the finding of Mr. Justice Patrick LeSage in the judgment as well as agreeing with the Reasons for Judgment cited, and noting the principle of law cited, concludes the property was in a constructive trust from the date of separation.

Conclusion

For the taxation years in question:

1. The evidence before this Court, as before Mr. Justice LeSage, leads to the conclusion Mr. Bucci held the properties in question in a constructive trust for himself and his wife.

2. It follows, because of the constructive trust, any payments made

in the taxation years in question by Mr. Bucci or the “corporation”, upon the direction of Mr. Bucci wherein Mr. Bucci held himself out to be the sole beneficiary, were made 50 per cent on behalf of Mr. Bucci and 50 per cent on behalf of the Appellant.

Decision

The appeals are allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to deduct a 50 per cent share of the rental losses incurred with respect to the properties in the 1990 and 1991 taxation years.

Appeals allowed.