Richard Rajotte v. Minister of National Revenue, [1990] 2 CTC 2333, 90 DTC 1831

Brulé, T.C.J.:—This appeal involves the taxation years 1985 and 1987 of the appellant in which he was reassessed. In 1985 issue involves the disallowance of a terminal loss while in 1987 a request for treatment of an averaging amount was denied.

Facts

On November 26, 1985, the appellant offered to purchase from 259388 Alberta Ltd. (Go Vacations) a motor home for a consideration of $30,630. On the same date, the appellant paid a deposit of $1,000 by cheque dated November 24, 1985. The purchase agreement (on the agreed facts, the respondent states that the agreement consisted in only an offer to purchase) was subject to a condition precedent namely, that the appellant obtain financing for the remainder of the consideration owing. Such financing was obtained February 12, 1986.

On December 31, 1985, the appellant transferred the motor home to Go Vacations 84 Ltd. Partnership for shares, the value of them being $22,000.

Appellant's Position

The appellant's purpose of acquiring the motor home was to be used in a business involving the selling of vacation packages. To qualify for such an arrangement he had to transfer the motor home to Go Vacations and in the following months after the transfer he was eligible to receive revenue from rentals. Such revenue came as early as January and February of 1986 thus proving, in the appellant's mind, that the transfer had been completed in December 1985. As a result of the transfer in 1985 the appellant claimed a deduction of $8,000 as a terminal loss. It was said not to be important that the financing was not completed in 1985 as long as the purchaser of the vehicle accepted the transfer, which transfer was evidenced by a photocopy of the subscription form presented to the Court.

Respondent's Position

The respondent claimed that the appellant neither acquired nor disposed of the motor home during his 1985 taxation year and, as well, he neither used it in any business involving the selling of vacation packages nor did he sell any vacation packages during the said year resulting in the disallowance of the $8,000 deduction.

The purchase and sale of the motor home should be governed by the Alberta Sale of Goods Act and that no title to the motor home passed until at least February 1986 when financing for the purchase was completed.

As no revenue was received prior to January 1986, the appellant was not in business in 1985 and therefore no terminal loss on the disposition of the motor home was available to him prior to 1986.

Analysis

Of significance in this case is whether or not the appellant acquired the motor home in November of 1985, and disposed of it in December of 1985.

The original contract to purchase the vehicle contemplated a completion date in February 1986. This agreement was only an offer to purchase and no evidence was tendered suggesting that the appellant took possession of the vehicle although the agreement explicitly states that risks were passed to the appellant. Such is evidenced in the "insurance clause". Although legal title remained in the vendor as is usually the case when total consideration is not paid at the date of the agreement nevertheless the cases dealing with "disposition" reveal that more than the transfer of title is involved. In the case of M.N.R. v. Wardean Drilling Ltd., [1969] 2 Ex. C.R. 166; [1969] C.T.C. 265; 69 D.T.C. 5194, Cattanach, J. said at page 271 (D.T.C. 5197):

In my opinion the proper test as to when property is acquired must relate to the title to the property in question or to the normal incidents of title, either actual or constructive, such as possession, use and risk.

The question of “disposition” was dealt with in The Queen v. Compagnie Immobilière BCN Ltée, [1979] 1 S.C.R. 865; [1979] C.T.C. 71; 79 D.T.C. 5068 and in Olympia & York Developments Ltd v. The Queen, [1980] C.T.C. 265; 80 D.T.C. 6184 wherein the Courts indicated that the words "disposed of" should be given their broadest possible meaning. In the Olympia & York case Addy, J. Said at page 277 (D.T.C. 6193):

The word “acquired” [. . .] is obviously the direct opposite of "disposed" (or disposition) as used in the same section and must contain substantially the same elements viewed from the side of the person acquiring the asset as opposed to the person disposing of it.

Does the “acquisition” of a property involve the taking of possession? In the case of William A. Schultz v. M.N.R., [1979] C.T.C. 2328; 79 D.T.C. 279 the Court found that in order to claim capital cost allowance a taxpayer required at least legal possession of the property. The case was heard by the Tax Review Board and the member Tremblay said at pages 2332-33 (D.T.C. 283):

However, is that transfer of the property sufficient so that the capital cost allowance can be applied? In the Board's opinion, the application of the capital cost allowance implies by someone that he is not only to be the owner in equity of the property but also to have its legal possession. The notion of depreciation indeed is so closely related to the property itself that at least legal possession is required.

I do not believe that this statement can be made in such a categoric form. The parties obviously intended a purchase by the appellant in November of 1985, even though financing and payment was not completed, and further they intended that the appellant sell the vehicle back to Go Vacation as of December 31, 1985. This was evident by the documents contained in Exhibit R-3 wherein both parties acknowledge the transfer as of December 31, 1985 and the consideration to be paid.

Counsel for the respondent argued that the terms of the Alberta Sale of Goods Act had not been met and that title remained with the vendor until payment was made. However in this case the intention of the parties involved is clear. Both considered the contract to be binding and to constitute an enforceable contract of sale. The Sale of Goods Acts of Alberta offers guidelines for the interpretation of a contract. Section 20 which refers to the time of transfer reads:

(1) When there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at the time that the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

[Emphasis added.]

Furthermore, it seems that a stipulation as to time of payment is not of the essence of the contract of sale and should not be treated as a condition, although whether or not any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract. Therefore the buyer’s default in payment will amount to breach of warranty, and the seller is entitled to sue for damages.

As to the application of the Alberta Sale of Goods Act there is an exempt clause, section 55 which reads as follows:

Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties or by usage if the usage is such as to bind both parties to the contract.

Here we have an express agreement as of December 31, 1985 which acknowledges that the appellant owned the motor home and as of that date he sells it to Go Vacations. This is the first step to be in business to earn income from the rental of the vehicle. It was necessary to acquire a vehicle and then dispose of it to Go Vacations to be in business. This he did, and as mentioned earlier unrefuted evidence was given that one had to be in business at least in the month previous to receiving income. As the appellant received income in January of 1986 he must have been in the business at least in December of 1985. It was in this latter month that he completed his business arrangements and so is justified in claiming a terminal loss upon disposition of the motor home in 1985.

With respect to the averaging amount in the appellant's 1987 taxation year this had been calculated on the basis of $8,000 terminal loss in 1985. On reassessment the Minister's calculation was based on the disallowance of the terminal loss. In so much as this Court has now granted the terminal loss the forward averaging may be recalculated as best favours the taxpayer. The authority for this is the recent decision in the case of Robert Hunke v. M.N.R., [1990] 2 C.T.C. 2033; 90 D.T.C. 1541.

The result of this appeal therefore is that it is allowed with costs and the matter is to be referred back to the Minister for reconsideration and reassessment.

Appeal allowed.