Terrance James Lajoie v. Her Majesty the Queen, [1994] 1 CTC 2503

Sarchuk, J.T.C.C. (orally):— These are the appeals of Terance James Lajoie from assessments of his 1987 and 1988 taxation years. By these assessments the Minister of National Revenue added the amounts of $9,459.85 and $18,742.73 to the appellant’s income for the 1987 and 1988 years respectively.

These amounts were added on the basis that they constituted income from an adventure in the nature of trade being the purchase and sale of two separate properties in Whistler, British Columbia. The Minister also added the sum of $1,736 to the appellant’s income in 1988 as unreported income.

The appellant's position is that he purchased the two properties for his personal use and not for sale at a profit or as part of an adventure in the nature of trade.

Certain basic facts are not in dispute. At all relevant times the appellant was a teacher in Surrey, British Columbia and resided in White Rock. Commencing in the summer of 1986 the appellant participated in a joint venture to develop seven condominium units in Whistler. He received title to one of these condominium units, being Unit 6, 2070 Garibaldi Way, together with Ron Albertin, his co-owner in December 1986.

The appellant sold his share of Unit 6 on October 19, 1987 for a gain of $9,459.85. He did not report this transaction in his 1987 income tax return.

In or about June 1987 the appellant became involved in a second joint venture to develop another seven-unit condominium project. He purchased and received title to one of these units, being Unit 5 at 2109 Corrie Drive, Whistler, in January 1988.

In March 1988 he sold this unit for an assessed gain of $18,742.73. He did not report this second transaction in his 1988 income tax return. Prior to disposing of the second unit the appellant participated in a third joint venture in Whistler involving 32 units. He purchased and subsequently received title to this third unit at 2240 Gondola Way in April 1989. He remained owner of this unit until 1993, when it was sold.

The issues are quite straightforward. First, was the appellant’s purchase and resale of the first two units an adventure in the nature of trade with the consequence that the gains therefrom are taxable as income?

Second, can either of these units be considered a principal residence?

Third, was the gain for the 1988 taxation year properly computed by the Minister and, fourth, was the Minister correct in adding the amount of $1,736 to the appellant’s income in 1988 as unreported income?

Mr. Lajoie was not represented by counsel. He testified himself and produced a few documents in support of his assertions. However, as is so often the case with unrepresented taxpayers, the presentation of his position suffered. A number of relevant documents were not available, creating both chronological and factual gaps which were not remedied by Mr. Lajoie's sketchy recollection of events.

The gist of his evidence is that he was acquainted with Mr. Ron Albertin, another school teacher. At some point of time either late in 1985, as pleaded, or early in 1986, as the appellant vaguely recalls, he purchased a one-half share in Unit 6, Garibaldi Way. This was part of a joint venture project under development in Whistler. His co-owner, Albertin, was heavily involved in this project as well as in the subsequent two joint ventures.

The appellant and Albertin each made a $5,000 down payment and, subsequently, in December 1986 each made a further payment of $5,000. They commenced using the unit on its completion, which the appellant said was in September or October 1986, but did not receive title until December 1986. He testified that it was his intention to use this unit as his weekend home, albeit, principally for recreational purposes. And, indeed, it was so used by the appellant, is spouse, and by Albertin and his family through the winter of 1986 and the spring of 1987.

He said that disagreements arose between the families and he then realized that joint use was not feasible. The result was that he sold his interest in the unit, or rather the unit was sold and the profits were treated by the appellant as a capital gain. He also asserted that this capital gain was sheltered by his principal residence exemption, which accounts for the absence of these amounts in his return.

The profits were invested by the appellant into another unit at 2109 Corrie Drive. The balance of the purchase price of the unit on Corrie Drive, amounting to some $96,000, was borrowed from the B.C. Teachers’ Credit Union. The appellant said that construction problems led to the expenditure of more than he anticipated, however, he took possession and used this unit for recreational purposes throughout the winter and into the spring of 1988. As a result of this experience he came to the conclusion that his payment on the loan and ongoing expenses were more than he could afford.

As luck would have it, the appellant was approached by a realtor in the spring of 1988 who indicated that she had a purchaser for this unit. He said that considering his misgivings about the ongoing cost of maintaining the unit he agreed, and on or about June 1, 1988, this second unit was sold. The appellant realized a gain on this sale but it, too, went unreported on the basis that it was a capital gain which was sheltered by his principal residence exemption for that year.

A third unit was then purchased. However, the appellant said this one was smaller, less expensive and within his means. I note that no other evidence was adduced regarding its cost, the financing involved or as to the structure of the third joint venture of which this unit was part.

In summary, the appellant’s testimony is that he never had any intentions to resell and did so only because of unforeseeable and unexpected developments, that is, in the first instance: personality conflicts with his co-owner and, then; in the second cost, overruns leading to an economically impractical situation for him.

I preface my analysis with a comment that where the onus is on a party to prove something concerning his own business affairs it is incumbent on him to put a reasonably complete and thoroughly documented story before the Court. I note that the appellant had counsel at one stage of these proceedings but obviously, when they parted company, he received little or no assistance as to the mechanisms available for obtaining documents or to require the attendance of witnesses, and so forth. Thus, while ne presented some documents, it appears that others which may have been relevant were not available.

As well, the appellant’s recollection of particulars and of relevant details was, as I have noted, "sketchy at best". In some contexts Mr. Albertin's name kept cropping up, but Albertin was not called. Mr. Lajoie's inability to properly and fully marshal and present the evidence in support of his case is unfortunate in the sense that it makes the determination of the true nature of the two transactions much more difficult and, as I said earlier, it was certainly detrimental to his cause.

However I do not believe that the Court should be called upon to speculate as to what happened, and it is a pity that unrepresented taxpayers do not avail themselves of some assistance.

In any event, the central issue is whether the profit realized by the appellant from the sale of the two units is income as assessed by the Minister of National Revenue or capital gains as alleged by the appellant.

In my view, the gains were more than a simple realization of an ordinary investment. It must not be forgotten that the appellant sold the first unit at Garibaldi Way for a profit in October of 1987 within nine months of purchase. Given Mr. Albertin’s involvement in each of the three joint ventures, the reason expressed for the dissolution of their arrangement seems to be less than supportable. Furthermore, I think it is significant that the appellant entered into the second joint venture, that is the Corrie Way unit, in June of 1987 before disposing of the unit on Garibaldi Way.

He then entered into the third joint venture in September, or thereabouts, of 1987, while still involved in the second joint venture and before he received title to the second unit. The second unit, itself, that is Unit 5 on Corrie Drive, was sold in March 1988. That is essentially a sale within three months of purchase.

I think it is a fair assumption that the appellant was speculating in the Whistler real estate market. I am satisfied, given the rapidity and ease with which he was able to sell the first two units at a profit, that the market was indeed relatively volatile, as assumed by the Minister, and that he, that is the appellant, was aware of the fact at the time.

As to his assertion that unexpected added costs were the factor which motivated the sale of the second unit, it should be noted that it was the appellant who requested the majority of the cost overruns. I have difficulty with his assertion of surprise at the added burden nor do I accept that they were the principal factor which led to the sale.

I have concluded that the appellant had no real reason other than profit for the acquisition and resale of the units purchased in the first two joint ventures.

The appellant maintained that Albertin was the prime mover. It is difficult to ignore the fact that the appellant and Mr. William Janick, as well as Albertin, were involved in all three joint ventures and that they were the only three who were so involved. I have some difficulty with the appellant's assertions of limited knowledge and involvement.

In my view the Minister of National Revenue properly reassessed the appellant to include the profits from the sale of these properties in 1987 and 1988 as part of his income for those years as he was engaged in an adventure in the nature of trade when he both acquired and disposed of the properties.

The next issue is his claim of principal residence. That really is a moot point now. However, in my view, neither of those units could be regarded as principal residence since, on the facts, it would be difficult, if not impossible, to find that either was ordinarily inhabited by the appellant. And even if that were not the case, the appellant could not succeed since he failed to comply with the provisions of subparagraph 54(g)(iii) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") which required him to designate in prescribed form and manner the particular property to be his principal residence.

Finally, on the issue of the computation of the gains, there is no dispute regarding taxation year 1987. Thus, to that extent, the appeal fails. I note that this issue was squarely raised in the notice of appeal in clause (D) subparagraph (b). In her reply the respondent stated as to the 1988 taxation year that the Minister assumea that the gain was $18,742.73. There is no calculation or other information in the pleading to indicate how that number was calculated.

At trial the appellant utilized Exhibit A-2. This exhibit consists of the vendor's statement of adjustments with respect to Unit 5, 2109 Corrie Drive, and an authorization to the appellant’s solicitor regarding the disbursement of his proceeds from the sale. It also contains the purchaser’s statement of adjustments, that is, the statement of adjustments reflecting Mr. Lajoie’s acquisition of this property, and it contains the interim listing agreement which led to his sale of the property.

He referred particularly to the statement of adjustments at the time of his acquisition and the statement of adjustments at the time of sale and argued that on any analysis of the numbers contained in those two documents the gain was grossly overstated by the Minister of National Revenue. While it is fair to say that the appellant was extremely imprecise in his calculations he does seem to have a point.

On the other hand the calculation underlying the Minister’s bald assumption is unknown and frankly, counsel for the respondent was of absolutely no assistance in this regard. Nothing in the T7W-C, which essentially is an explanatory note generally accompanying the assessment, shows how the Minister made his calculation. Nor does there appear to have been the usual explanatory letter, or a proposal letter, such as is often sent by officials of the Minister to a taxpayer prior to assessment, to show how this calculation was made.

While I have some slight reservations as to the appellant’s calculations, on balance, the Minister’s calculation seems to be inconsistent with the purchase and sale prices as shown by documents submitted in evidence.

I am therefore going to allow the appeal on this issue and reduce the amount of the gain from the sale of the Corrie Drive unit to $11,615.48. This is essentially on the basis urged by the appellant, but I think my calculation is slightly different than his. I can best describe what I have done as this reflects the difference between the sale price less commission and adjustments for property taxes. And the original net cost is shown in the appellant's statement of adjustments which forms part of Exhibit A-2. An order will go to that effect.

The last issue reflects the Minister’s assumption found in paragraph 17 of the reply. The appellant argued that the amount must represent the value of work he performed personally in the construction of the unit on Corrie Drive which, in some fashion, was credited to him. It is difficult to understand exactly what the appellant was getting at. But if, indeed, it was work that he performed which saved him costs and somehow was credit to him, then I must conclude that the Minister’s assumption has not been rebutted. I state with respect to this particular issue, again, that the absence of proper marshalling of the facts acted very much to the detriment of the appellant.

Thus, the appeal is allowed with respect to the 1988 taxation year on the one issue.

There will be no costs.

Appeal allowed in part.