Elmar Augart v. Minister of National Revenue, [1989] 1 CTC 2353, 89 DTC 263

Mogan, T.C.J.: —In 1966, the appellant purchased for $50,000 a parcel of land comprising 8.99 acres on the outskirts of the City of Calgary. The land was in the form of a rectangle located on the west side of 53 Street S.W. (later renamed Sarcee Trail) with its northern border on 14 Avenue S.W. and its southern border on 17 Avenue S.W. In 1980, the City of Calgary purchased the entire parcel for $899,000 because the City needed most of the land for a proposed highway interchange at 17 Avenue S.W. and Sarcee Trail. The primary issue in this appeal is whether, upon that sale of land, all of the 8.99 acres should be regarded as the appellant's “principal residence” within the meaning of paragraph 54(g) of the Income Tax Act. All statutory provisions referred to herein are from the Income Tax Act.

If the primary issue is decided against the appellant, there are two secondary issues as to whether, for the purposes of paragraph 44(1)(a), the land was sold to a person who had given “notice of an intention to take it under statutory authority” within the meaning of subparagraph 54(h)(iv); and whether a portion of the land was "former business property" within the meaning of paragraph 44(1)(b).

At the time of purchase, there was on the property only a 3-bedroom bungalow (30 feet x 40 feet) in which the appellant resided from 1966 until the sale in 1980. The appellant described himself as an egg jobber—a person who buys eggs for resale to restaurants, stores, farmers' markets and homes. He does not produce any of the eggs but buys them from poultry farmers, He purchases eggs each weekday with a view to reselling them within 24 hours except that, on Thursday and Friday, he would try to accumulate a higher volume to supply his customers over the weekend when he could not purchase. Any eggs which were not sold and delivered at the end of a day were stored overnight in the garage which was attached to his house. At most, the appellant might have to store 40 cases (1,200 dozen) of eggs in his garage overnight.

The appellant also had a small farming operation on the nine-acre parcel where he kept some horses, calves and pigs. A number of his egg customers who operated restaurants or stores would give him leftover food which the appellant would use to feed his pigs. This was the only connection between his egg business and his small farming operation at the nine-acre site.

After 1966, the appellant acquired a number of outbuildings which he moved to or constructed on the site. These buildings included a barn made of two double garages, a shed to shelter livestock, a grainery to store feed, a well house, a tool shed and a greenhouse made of two single garages with the roof replaced by glass to permit early seeding in the spring. Although he had a garden, he did not grow any crops at this site and all excess land was used to pasture his livestock.

At the time of purchase in 1966, the land was designated as "Country Residential” ("RC") in Calgary zoning By-Law No. 4916. Under paragraph 10 of Table C in the Schedule to that by-law, any building in an area designated RC which needed a water well or septic field required a site of not less than three acres. In other words, any residential dwelling in a RC area needed at least three acres. On March 31, 1980 former By-Law No. 4916 was repealed and replaced by the new Calgary Land Use By-Law No. 2P80. In By-Law 2P80, the appellant's nine-acre parcel was designated as "Urban Reserve" ( UR ). Under section 54 of By-Law 2P80, a single detached dwelling in an area designated UR required a minimum site area of 80 acres. The appellant called a witness from the Calgary planning department who stated that the purpose of the UR designation was to protect land from premature subdivision and development in small parcels.

With respect to the primary issue concerning the question of principal residence, if I were to consider only the appellant’s actual use of the nine- acre parcel, I would be prepared to hold that he required not more than one acre for the use and enjoyment of his residence as a residence and not as a place of business. There are, however, other factors to consider.

On the primary issue, counsel for the appellant relied on the. Federal Court decision in The Queen v. Yates, [1983] C.T.C. 105; 83 D.T.C. 5158. In the Yates case, the taxpayers (husband and wife) had purchased ten acres near Guelph on which they built their home using only one acre for residen- tial purposes and renting the remaining nine acres to a farmer. Mr. and Mrs. Yates had wanted to purchase only enough land for their house but they were required to purchase ten acres because that was the minimum area required by the local zoning by-law for a detached dwelling. That by-law was subsequently amended to require at least 25 acres for a detached dwelling but it is not clear from the case whether that amendment was effected before or after 1978.

In 1978, Mr. and Mrs. Yates sold 9.3 acres to the City of Guelph under threat of expropriation retaining their home on the remaining 0.7 acres plus an adjacent 0.225 acre transferred to them by the city as part consideration for the 9.3 acres. The issue was whether the disposition of the 9.3 acres was a disposition of a “principal residence" within the meaning of paragraph 54(g). In his reasons for judgment in support of the taxpayers' position, Mahoney, J. stated [page 106] :

In my opinion, the critical time is the moment before disposition. It is possible that a subjective test, involving the actual contribution of the immediately contiguous land to the taxpayer’s use and enjoyment of the unit as a residence, may be admissible. Perhaps such factors as are commonly taken into account in applying subsection 24(6) of the Expropriation Act, R.S.C. 1970 (1st Supp.), c. 16, could be relevant in appropriate circumstances. However, whether or not a subjective test is properly to be applied, an objective test surely is and if, in its application, it is found that the taxpayer has discharged the onus on him, it is unnecessary to consider the subjective.

The defendants could not legally have occupied their housing unit as a residence on less than ten acres. It follows that the entire ten acres, subjacent and contiguous, not only "may reasonably” be regarded as contributing to their use and enjoyment of their housing unit as a residence; it must be so regarded. It also follows that the portion in excess of one acre was necessary to that use and enjoyment."

The Federal Court of Appeal confirmed both the conclusion and the reasons of the learned trial judge ([1986] 2 C.T.C. 46; 86 D.T.C. 6296). In his reasons for judgment, Mahoney, J. noted : “It was not argued that, by its very nature, a principal residence cannot be subject to a partial disposition". Perhaps that point should have been argued because, as a final result, Mr. and Mrs. Yates were permitted to retain the use and enjoyment of their original home on an area of only 0.925 acres in apparent violation of a zoning by-law that required a minimum of ten acres for each detached dwelling. This final result poses an interesting contrast with a statement of the learned trial judge quoted above: "The defendants could not legally have occupied their housing unit as a residence on less than ten acres."

A zoning by-law is different from most enacted laws because it begins with certain permitted exceptions like non-conforming uses and its ongoing operation is expected to be subject to further exceptions like spot zoning and variances. A planning act will usually provide for such exceptions.

The possibility of large acreages being classified as part of a taxpayer's principal residence because of land use laws was noted by Reed, J. in The Queen v. Joyner, [1988] 2 C.T.C. 280; 88 D.T.C. 6459 at 6463. If I were deciding this primary issue at first instance, I should have thought that the definition of “principal residence" in paragraph 54(g) permitted only subjective criteria and not an objective test like a zoning by-law which, in the present appeal, requires 80 acres for one dwelling. I am bound, however, by the decision of the Federal Court in The Queen v. Yates, supra, and must therefore hold that, when the appellant sold his nine acres to the City of Calgary on August 31, 1980 (five months after By-Law 2P80 came into force), all of the nine acres were included as part of his principal residence.

Because the primary issue is decided in favour of the appellant, it is not necessary to consider either of the two secondary issues. The appeal is allowed with costs and the reassessment for the appellant's 1980 taxation year is referred back to the respondent for reconsideration and reassessment in accordance with the above reasons.

Appeal allowed.