Sarchuk
T.C.J.:
These
are
appeals
by
Danny
Moss
(the
Appellant)
from
assessments
of
tax
with
respect
to
his
1991,
1992
and
1994
taxation
years.
The
Appellant
filed
income
tax
returns
for
those
years
and
declared
total
income
in
the
amounts
of
$16,100,
$3,000
and
$21,287,
respectively.
The
Minister
of
National
Revenue
(Minister)
assessed
to
increase
the
Appellant’s
income
by
the
amounts
of
$214,947,
$20,356
and
$170,761.
In
so
assessing,
the
Minister
acted
on
the
basis
that
at
all
material
times,
the
Appellant
was
in
the
business
of
construction,
rental
and
sale
of
residential
properties
and
that:
(a)
The
Appellant
failed
to
include
in
his
income
for
the
1991
taxation
year
the
amounts
of
$67,333
and
$126,800
which
amounts
were
business
in-
come,
being
the
net
proceeds
received
by
him
upon
the
disposition
of
2
Hopwood
Drive
and
2
Dumfries
Place,
respectively;
and
further
failed
to
include
business
income
in
the
amount
of
$20,000
in
respect
of
the
construction
of
a
residence
at
2165
West
Taylor
Blvd.
(b)
With
respect
to
the
1992
taxation
year,
the
Minister
assessed
on
the
basis
that
the
Appellant
was
in
receipt
of
business
income
in
the
amount
of
$24,400
arising
out
of
the
construction
of
a
residential
property
located
at
919
Mclvor
Avenue.
(c)
The
Minister
also
assumed
that
with
respect
to
the
1994
taxation
year,
the
Appellant
failed
to
include
in
his
income
the
amount
of
$105,346
being
the
net
proceeds
received
by
him
upon
the
disposition
of
51
Dumbarton
Blvd.;
and
the
amount
of
$21,286
of
business
income
earned
in
respect
of
the
construction
of
8
Erinview
Place;
and
the
amount
of
$5,491
received
by
him
as
commission
income.
Furthermore,
as
a
consequence
of
the
foregoing,
the
Minister
also
assessed
penalties
pursuant
to
subsection
163(2)
of
the
Income
Tax
Act
(the
Act)
for
the
1991,
1992
and
1994
taxation
years.
At
the
commencement
of
the
trial
a
motion
was
made
on
behalf
of
Rochelle
Moss
pursuant
to
subsection
28(1)
of
the
Tax
Court
of
Canada
Rules
(General
Procedure)
for
leave
to
intervene
on
the
basis
that
she
may
be
adversely
affected
by
the
judgment
in
this
proceeding.
The
Court
determined
that
the
intervention
would
not
unduly
delay
or
prejudice
the
determination
of
the
rights
of
the
parties
to
this
proceeding.
Accordingly,
Rochelle
Moss
was
allowed
to
intervene
as
a
friend
of
the
Court
and
without
being
a
party
to
the
proceeding,
for
the
purpose
of
rendering
assistance
to
the
Court
by
way
of
evidence
or
argument.
The
Appellant’s
position
with
respect
to
the
assessments
is
that:
(a)
three
properties,
2
Hopwood,
2
Dumfries
and
51
Dumbarton
were,
in
each
case,
a
principal
residence
and
that
consequently,
the
sale
proceeds
are
neither
taxable
nor
includable
in
his
income
in
the
year
of
sale;
and
(b)
no
gains
were
made
on
the
sale
of
any
of
2
Hopwood,
2
Dumfries
or
51
Dumbarton
and
that
the
Minister’s
calculation
of
the
net
proceeds
received
by
him
upon
the
disposition
of
these
properties
as
well
as
the
Minister’s
calculation
of
business
income
in
respect
of
the
construction
of
2165
West
Taylor,
919
Mclvor,
and
8
Erinview
was
grossly
erroneous.
A
short
comment
is
necessary
at
this
point
to
limit
the
confusion
which
arises
from
the
testimony
vis-à-vis
the
“ownership”
of
the
properties
in
issue.
For
a
number
of
years,
the
Appellant
was
in
the
business
of
construct-
ing
residential
homes
for
sale
in
the
Tuxedo
area
of
Winnipeg,
reporting
the
business
income
so
earned
in
his
annual
tax
returns.
The
Appellant
testified
that
he
had
“gotten
in
over
my
head”
and
lost
money
on
the
stock
market
as
a
result
of
which,
in
November,
1988,
he
transferred
110
Bard
and
2
Hopwood
to
his
wife
Rochelle
Moss
in
order
to
keep
them
“safe”.
110
Bard
was
sold
in
1989.
In
1990,
the
Appellant
sold
a
house
he
had
constructed
at
732
Park
Blvd.
and
in
his
return
for
that
year
reported
net
income
from
construction
of
approximately
$104,000.
In
1991
and
1992,
the
Appellant’s
income
tax
returns
disclosed
no
business
income.
In
those
years,
however,
houses
constructed
by
the
Appellant
at
2
Hopwood
and
2
Dumfries
(on
a
lot
purchased
in
his
wife’s
name)
and
2165
West
Taylor
were
sold.
The
Hopwood
property
was
reported
by
Rochelle
Moss
in
her
1991
return
as
the
disposition
of
a
principal
residence.
The
sale
of
2
Dumfries
was
not
reported
by
either
the
Appellant
or
his
wife.
In
1994,
a
residence
at
51
Dumbarton,
also
built
on
a
lot
purchased
in
Rochelle
Moss’s
name,
was
sold
and
its
disposition
was
not
reported
by
either
the
Appellant
or
his
wife.
An
audit
conducted
by
Revenue
Canada
with
respect
to
the
Appellant’s
1991-1994
taxation
years
was
completed
in
May
1996.
Following
discussions
between
Revenue
Canada
and
the
Appellant’s
solicitor,
Mr.
Fien,
100%
of
the
audit
adjustments
for
taxation
year
1991
were
included
in
the
Appellant’s
return.
Thus,
100%
of
the
assessed
business
income
arising
from
the
2
Hopwood,
2
Dumfries
and
2165
West
Taylor
dispositions
was
allocated
to
the
Appellant.
With
respect
to
the
1992
and
1994
taxation
years,
initially
50%
of
the
adjustments
had
been
included
in
the
Appellant’s
returns
on
the
basis
that
a
50-50
partnership
existed
between
the
Appellant
and
his
wife,
Rochelle.
More
specifically
this
related
to
business
income
arising
from
the
disposition
of
51
Dumbarton
and
919
Mclvor
as
well
as
from
the
construction
of
8
Erinview.
At
the
objection
stage,
following
further
representations
made
by
the
Appellant’s
counsel,
reassessments
were
issued
which
allocated
100%
of
the
business
income
with
respect
to
these
properties
to
the
Appellant.
The
appeals
presently
before
the
Court
reflect
the
fact
that
the
totality
of
the
business
income
from
the
Appellant’s
construction
business,
as
may
be
determined,
was
that
of
the
Appellant.
Principal
Residence
-
Facts
The
Appellant
has
been
involved
in
the
residential
home
construction
business
for
a
number
of
years,
and
has
a
history
of
acquiring
vacant
parcels
of
land,
constructing
residences,
immediately
putting
them
on
the
market
and
in
the
meantime,
residing
in
some
of
them
until
their
sale.
The
evidence
discloses
that
he
was
involved
in
the
following
transactions
since
1982:^
653
Park
Blvd.
Construction
of
a
residence
commenced
in
October
1982.
On
completion,
the
Appellant
lived
in
this
home
until
it
was
sold
in
April
1984.
719
Park
Blvd.
The
Appellant
began
construction
of
a
dwelling
on
this
property
in
November
1983,
took
possession
in
1984
and
lived
there
until
April
1987
when
he
sold
the
property.
732
Park
Blvd.
Purchased
as
a
vacant
lot
in
1982.
Construction
began
in
August
1988
and
the
property
was
sold
in
January
1990.
724
Park
Blvd.
This
property
was
acquired
in
1985.
Title
was
held
in
the
name
of
the
Appellant’s
mother.
A
residence
was
constructed
and
was
sold
in
August
of
the
same
year.
114
Bard
Blvd.
The
Appellant
assisted
his
sister-in-law
in
constructing
a
house
on
this
lot
in
1985.
A
profit
was
reported
in
his
income
tax
return
for
that
year.
110
Bard
Blvd.
The
Appellant
purchased
the
land
and
began
constructing
a
dwelling
in
February
1986.
Following
its
completion,
he
moved
in
with
his
family
and
lived
there
until
the
fall
of
1988.
In
November
1988,
the
property
was
transferred
to
Rochelle
Moss,
his
wife.
110
Bard
was
listed
for
sale
on
October
26,
1986
and
continued
to
be
listed
until
its
sale
in
March
1989.
The
reason
advanced
by
the
Appellant
for
moving
out
was
an
alleged
falling-out
with
his
sister-in-law
who
lived
at
114
Bard.
2
Hopwood
Drive
This
house
was
originally
built
for
resale
in
1988
and
is
alleged
to
have
become
their
principal
residence
when
110
Bard
Blvd.
was
sold
in
1989.
The
Appellant
says
that
they
moved
in
in
April
(or
July)
1991
because
it
was
a
corner
lot
and
the
traffic
noise
adversely
affected
his
sleep.
This
property
was
first
listed
for
sale
in
August
1988
and
continued
to
be
listed
until
its
sale
in
July
1991.
Not
only
did
the
Appellant
maintain
the
multiple
listing
with
respect
to
this
property
throughout
their
occupancy
but
also
increased
the
price
on
several
occasions.
90
Hopwood
Drive
and
120
Hopwood
Drive
These
two
properties
were
purchased
in
1987
at
the
same
time
as
2
Hopwood.
Residences
were
constructed
on
each
property
and
were
sold
in
1988.
2165
West
Taylor
Blvd.
This
property
was
acquired
in
1990,
a
residential
home
was
constructed
and
was
sold
in
November
of
that
year.
2
Dumfries
Place
In
June
1991,
following
the
sale
of
2
Hopwood,
the
Appellant
and
his
family
moved
into
2
Dumfries.
It
was
listed
for
sale
on
September
20,
1991
and
was
sold
in
October
with
possession
to
be
given
in
January
1992.
The
reasons
advanced
for
the
sale
were
that
the
house
was
too
large,
they
were
in
over
their
heads
with
respect
to
the
upgrading
and
as
a
result,
sold
it
to
get
something
more
modest.
52
Dumbarton
Upon
leaving
2
Dumfries
in
January
1992,
the
Appellant
moved
into
a
house
he
had
built
on
this
property.
It
was
listed
for
sale
as
of
January
27,
1992
and
remained
listed
continuously
until
its
sale
in
November
of
that
year.
The
sale,
it
is
alleged,
was
not
planned
and
their
departure
was
the
result
of
a
flooding
problem
in
the
basement
and
a
subsequent
infestation
by
ants.
51
Dumbarton
The
Moss
family
moved
into
51
Dumbarton
in
November
1992.
Originally
constructed
for
resale,
it
became,
according
to
the
Appellant,
their
principal
residence
after
his
wife
and
mother
insisted
upon
moving
from
52
Dumbarton.
This
property
was
listed
for
sale
in
October
1992
and
an
open
house
was
held
shortly
thereafter.
It
was
remained
listed
until
its
sale
in
January
1994.
The
reason
given
for
the
disposition
was
because
there
were
too
many
stairs
for
the
Appellant’s
mother.
133
Park
Place
West
The
Appellant
applied
for
a
building
permit
in
March
1994
and
moved
into
the
property
in
July
of
that
year.
It
was
first
listed
for
sale
in
April
1994
and
was
listed
continuously
thereafter
until
at
least
1997.
919
Mclvor,
121
Park
Place
West,
8
Erinview,
129
Park
Place
West
and
75
Charlesglen
Drive
The
Appellant
constructed
homes
on
these
properties
for
several
clients
in
1989,
1992,
1994
and
1995.
The
Appellant
argued
that
2
Hopwood,
2
Dumfries
and
51
Dumbarton
were
the
principal
residences
of
his
wife,
Rochelle,
who
was
in
each
case
the
registered
owner.
He
maintains
that
in
each
instance
there
was
a
valid
reason
for
the
disposition.
The
Appellant
also
asserted
on
several
occasions
that
he
did
not
perceive
himself
as
being
in
the
construction
business
and
that
he
did
not
advertise
or
“do
anything
that,
in
my
view,
could
be
classified
as
soliciting
the
business”.
Principal
Residence
—
Conclusion
Although
the
Appellant
maintained
that
he
would
not
“characterize”
himself
as
being
in
the
house
construction
business,
on
the
basis
of
his
activities
during
this
period
of
time
and
taking
into
account
his
other
sources
of
income,
I
am
satisfied
that
he
was
a
person
who
built
residential
homes
for
a
living
and
as
such,
it
can
readily
be
said
that
he
was
in
the
construction
business.
The
Appellant
and
his
family
resided
in
eight
of
the
19
homes
constructed
between
1982
and
1995.
The
frequency
of
these
transactions
suggests
strongly
that
the
Appellant
had
constructed
residences
on
each
of
the
properties
in
question
with
the
intention
of
turning
them
into
account
at
a
profit
at
the
first
opportunity.
This
is
particularly
the
case
with
respect
to
the
properties
at
2
Hopwood,
2
Dumfries,
52
Dumbarton
and
51
Dumbarton
since
in
each
instance,
the
properties
were
listed
for
sale
during
construction
or
immediately
following
completion;
they
remained
listed
throughout
the
period
of
time
that
the
Appellant
and
his
family
resided
therein
and
were
marketed
in
identical
fashion
to
other
properties
which
he
had
constructed
for
sale
during
the
same
period.
I
am
unable
to
accept
the
Appellant’s
testimony
(or
that
of
his
wife
Rochelle)
that
she
was
unaware
of
these
listing
activities
or
that
she
would
not
have
agreed
to
any
sale
until
there
was
a
new
home
to
move
into.
In
so
far
as
the
reasons
advanced
by
them
for
moving
i.e.
a
falling-out
with
the
sister-in-law;
traffic
noise
adversely
affecting
the
Appellant’s
sleep;
house
too
large
and
too
costly
to
keep
and
an
alleged
insect
phobia,
suffice
it
to
say
that
they,
and
the
Appellant’s
“rationale”
for
the
listings
are
totally
unconvincing.
The
frequency
of
the
transactions,
their
relationship
to
the
Appellant’s
construction
business,
the
short
periods
of
time
that
these
properties
were
held,
and
the
absence
of
any
credible
reason
for
the
moves
leads
to
the
conclusion
that
the
properties
in
question
were
acquired
and
the
residences
thereon
were
constructed
with
the
prime
intention
of
turning
them
to
account
for
profit
at
the
first
reasonable
opportunity.
That
being
the
case,
each
of
2
Hopwood,
2
Dumfries
and
51
Dumbarton
were
inventory
in
the
Appellant’s
construction
business
and
were
not
at
any
time,
a
principal
residence.
2
Hopwood,
2
Dumfries
and
51
Dumbarton:
Cost
of
Construction
Since
I
have
concluded
that
these
three
properties
were
not
the
Appellant’s
principal
residences
it
follows
that
the
proceeds
of
disposition
are
includable
in
his
income
in
the
year
of
sale.
The
remaining
issue
is
whether
the
Appellant
has,
on
a
balance
of
probabilities,
established
that
the
Minister’s
assumption
that
the
net
proceeds
received
from
these
three
properties
in
the
amounts
of
$67,333,
$126,800,
and
$105,346,
respectively,
was
wrong.
Appraisal
evidence
was
adduced
on
behalf
of
each
of
the
parties
from
Patrick
G.
Rixon,
C.R.A.
(Rixon),
for
the
Appellant
and
on
behalf
of
the
Respondent
from
Larry
R.
Bainard,
A.A.C.I,
(Bainard).
Rixon
was
retained
by
the
Appellant
in
1997
to
estimate
the
original
cost
of
2
Hopwood,
2
Dumfries,
51
Dumbarton
and
919
Mclvor,
i.e.
their
cost
as
of
the
respective
dates
of
construction.
His
reports
with
respect
to
these
properties
were
provided
to
the
Appellant
by
way
of
letter
dated
April
11,
1997.
Rixon
had
available
the
blue
prints
and
a
list
of
“special
features
and
add-ons”
prepared
by
the
Appellant
for
each
of
the
properties
and,
as
of
the
date
of
the
report,
had
inspected
the
interior
of
51
Dumbarton.
He
also
accepted
the
Appellant’s
instructions
that
2
Dumfries
was
“almost
identical
to
the
home
at
51
Dumbarton”.
Rixon
testified
that
in
each
instance,
having
completed
his
review,
he
made
reference
to
Marshall
&
Swift
Costing
Services
(Marshall
&
Swift),
to
determine
the
replacement
(current)
cost
of
construction.
For
this
purpose,
Rixon
was
called
upon
to
determine
the
quality
of
the
properties
in
issue
since,
in
his
words,
Marshall
&
Swift
lists:
...a
number
of
categories
of
quality
of
homes,
and
based
on
the
features
and
the
quality
of
construction
of
the
home,
you
have
to
decide
what
quality
level
you
want
to
cost,
from
track
(sic)
building
mobile
homes
with
no
basements
to
Mansions.
In
his
opinion,
2
Hopwood,
2
Dumfries
and
51
Dumbarton
fell
into
the
“very
good
quality”
category
while
919
Mclvor
was
of
“average
quality”.
Utilizing
a
Marshall
&
Swift
computer
program,
he
input
the
“quality
level”
selected
together
with
the
square
footage
to
obtain
the
replacement
cost
estimate.
Rixon
further
stated
that
the
Marshall
&
Swift
program
takes
into
account
all
construction
costs
including
builder’s
profit
and
thus
the
estimates
it
provided
included
a
profit
margin
of
12.4%
in
the
base
cost
so
determined.
Having
obtained
the
current
cost
for
each
property
Rixon
then
input
the
dates
of
construction
provided
by
the
Appellant
to
enable
the
Marshall
&
Swift
program
to
apply
comparative
cost
multipliers
to
determine
the
original
cost
of
each
of
the
subject
properties.
With
respect
to
2
Hopwood,
2
Dumfries,
and
51
Dumbarton,
Rixon
reported
as
follows:
(a)
2
Hopwood
is
a
3,015
square
foot
bungalow
with
triple
attached
garage.
His
cost
estimate
of
$303,200
“effective
1989
when
the
home
was
built”
included
landscaping,
driveway,
built-in
appliances,
and
approximately
1,200
square
feet
of
basement
development.
(b)
2
Dumfries
is
a
2,800
square
foot
bungalow
with
a
double
attached
garage.
Its
estimated
cost
is
$373,100
as
of
1991
including
GST,
landscaping,
built-in
appliances,
a
driveway
and
a
finished
basement.
(c)
51
Dumbarton:
This
property
consists
of
a
2,800
square
foot
bungalow
with
double
attached
garage.
The
estimated
cost
of
construction
as
of
1992
was
said
by
Rixon
to
be
$386,300.
This
included
GST,
landscaping,
fencing,
driveway,
built-in
appliances
and
a
finished
basement.
In
all
three
cases
the
estimate
was
exclusive
of
land
values
and
inclusive
of
builder’s
profit
of
12.4%.
Bainard
prepared
a
limited
appraisal
for
the
Respondent
with
respect
to
919
Mclvor,
8
Erin
view,
2
Hopwood,
2
Dumfries,
51
Dumbarton,
and
52
Dumbarton.
He
described
his
work
as
a
preliminary
study
only
and
not
a
fully
detailed
appraisal
report.
For
this
purpose,
he
conducted
a
general
review
of
costs
in
order
to
arrive
at
a
probable
estimate
of
replacement
cost
new,
excluding
builder’s
profit
of
the
subject
properties.
He
then
made
adjustments
to
determine
the
respective
building
cost
as
at
the
time
of
their
construction.
The
steps
taken
by
Bainard
included
physical
inspection
of
site
details
but
no
interior
inspection
with
the
exception
of
2
Dumfries,
which
took
place
at
a
later
date.
Building
information
was
based
on
inspection,
City
assessment
field
sheets
and
examination
of
building
plans
supplied
to
the
City
for
the
building
permits.
Land
cost
was
based
on
historic
cost
as
provided
in
the
Land
Titles
records
for
each
subject
site.
The
cost
comparison
itself
was
based
on
an
analysis
of
individual
gross
profit
margins
of
new
home
builders
in
the
general
area,
as
well
as
analysis
of
contract
prices
of
custom-built
homes
reported
in
applications
for
the
GST
new
home
rebate
program,
which
were
based
on
a
percentage
of
the
total
GST
paid
with
respect
to
the
construction
of
the
property.
According
to
Bainard
this
method
of
valuation
involved
the
collection
of
existing
cost
data
and
reducing
them
to
units
of
comparison
after
having
made
adjustments
for
time
and
other
physical
differences.
This
approach
provided
him
with
an
indication
of
the
original
building
cost
of
each
of
the
properties
in
issue
to
which
the
historic
cost
of
the
land
would
be
added.
With
respect
to
these
properties,
Bainard’s
conclusion
was
that:
(a)
2
Hopwood:
Based
upon
my
research,
the
subject
improvements
replacement
cost
new
effective
June
29,
1988
is
$75.00
per
square
foot
of
plan
floor
area
or:
|
2,973
sq.ft.
x
$75.00
|
=
|
$222,975.00
|
|
plus
lower
level
development
|
1,200
sq.ft.
x
$20.00
|
=
|
$
24,000.00
|
|
Total
|
|
$246,975.00
|
(b)
2
Dumfries:
Based
upon
my
research,
the
subject
improvements
replacement
cost
new
effective
April
11,
1991
is
$85.00
per
square
foot
of
plan
floor
area
or:
|
2,730
sq.ft.
x
$85.00
|
=
|
$232,050.00
|
|
plus
lower
level
development
|
1,991
sq.ft.
x
$20.00
|
=
|
$
39,820.00
|
|
Total
|
|
$271,870.00
|
(c)
51
Dumbarton:
Based
upon
my
research,
the
subject
improvements
replacement
cost
new
effective
March
3,
1992
is
$85.00
per
square
foot
of
plan
floor
area
Or:
|
2,625
sq.ft.
x
$85.00
|
=
|
$223,125.00
|
|
plus
lower
level
development
|
2,000
sq.ft.
x
$20.00
|
=
|
$
40,000.00
|
|
Total
|
|
$263,125.00
|
Bainard
also
concluded
that
the
margin
of
profit
on
homes
of
this
type
was
19%
of
the
contract
price
and
is
included
in
the
contract
price.
He
observed
that
in
the
case
of
2
Dumfries
and
51
Dumbarton,
homes
which
were
built
three
and
four
years
later
than
2
Hop
wood,
he
utilized
$85.00
per
square
foot
of
plan
floor
area
rather
than
$75.00
per
square
foot.
The
profit-margin
however
remained
unchanged.
The
Appellant
also
adduced
evidence
from
Raymond
Arthur
Massey
(Massey)
and
Barry
Douglas
Kliewer
(Kliewer).
Massey
is
associated
with
Massey
Homes,
a
construction
company
in
Winnipeg,
while
Kliewer
is
a
realtor
and
sales
consultant
with
A
&
S
Homes.
Each
testified
that
in
or
about
April
1996,
the
Appellant,
posing
as
a
buyer,
approached
their
respective
companies
and
asked
them
to
provide
a
cost
of
construction
quotation
based
on
his
plans
and
specifications
for
51
Dumbarton.
The
price
quoted
by
Massey
Homes
$425,545
and
by
A
&
S
Homes
$545,500
(both
exclusive
of
GST).
In
1996,
Gerald
Choquette
(Choquette)
was
the
general
manager
of
the
home
custom
building
division
of
Malcolm
Group
of
Homes
Ltd.
In
April
of
that
year,
he
was
also
approached
by
the
Appellant
who
stated
that
he
wished
to
construct
a
home,
was
prepared
to
spend
approximately
$500,000
and
needed
a
price
by
the
following
Tuesday.
He
described
the
size
of
the
house
required
and
provided
a
handwritten
list
of
options
but
no
blueprints.
Choquette
prepared
a
proposal
for
Malcolm
Homes
for
submission
to
the
Appellant
quoting
a
price
of
$498,000
(+
$20,000
depending
on
selection
of
material,
exclusive
of
GST)
and
attempted
to
communicate
with
the
Appellant
on
several
occasions
but
received
no
reply.
Subsequently,
Choquette
was
retained
by
the
Minister
of
National
Revenue
to
provide
estimates
based
on
the
Appellant’s
plans
for
2
Dumfries
and
51
Dumbarton.
His
cost
estimate
in
each
case
was
based
on
a
computer
estimating
program
that
he
utilizes.
He
explained
that
the
unit
costs
in
the
program
are
based
on
quotations
received
from
subcontractors
and
the
quantities
are
taken
from
measurements
obtained
from
the
construction
blueprints.
He
noted
that
some
of
the
quotations
and
some
of
the
unit
prices
reflect
labour
and
material
while
others
reflect
material
or
labour
only.
On
this
basis,
the
total
anticipated
cost
of
2
Dumfries
(i.e.
builder’s
cost)
was
$271,025,
not
including
land
or
GST
and
for
51
Dumbarton
was
$299,003.
These
projected
costs
were
based
on
1998
prices.
Choquette
testified
that
both
at
Malcolm
and
in
his
own
business,
the
targeted
profit
margins
ranged
from
17
to
21%
depending
on
the
complexity
of
the
project.
Analysis:
2
Hopwood,
2
Dumfries,
and
51
Dumbarton
—
Net
Proceeds
This
issue
requires
the
Appellant
to
first
establish
his
cost
of
construction
with
respect
to
the
properties
and,
having
done
that,
to
adduce
evidence
to
establish
the
amount
of
profit
(or
loss
as
he
now
alleges)
resulting
from
each.
A
number
of
witnesses
appeared
on
his
behalf,
but
at
the
end
of
the
day,
the
Appellant’s
case
rests
primarily
on
his
own
testimony
and
that
of
his
appraiser,
Rixon.
By
way
of
example
with
respect
to
2
Hopwood,
the
Appellant
submitted:
Mr.
Rixon
concluded
that
the
cost
of
construction
in
1989,
would
have
been
approximately
$303,200,
including
a
12.4%
profit
margin
built
in
by
the
Marshall
&
Swift
Costing
Service.
This
results
in
actual
costs
of
$265,603.20.
If
the
property
is
held
to
be
inventory,
then
the
cost
of
carrying
the
property
must
be
deducted
from
any
gain.
Property
taxes
on
the
property
were
in
the
net
sum
of
$9,006.68
for
1990.
(Exhibit
A-3)
Capitalized
therefore,
taxes
payable
from
November,
1988
to
August
6,
1991
result
in
a
cost
of
approximately
$24,017.81
(32
months
x
$750.55).
Real
estate
commission
on
the
sale
was
6%
plus
GST,
being
$19,473.97.
The
cost
of
land
was
$36,000.
Utilizing
the
above
figures,
the
Appellant
calculated
his
loss
to
be
$41,761.98.
On
the
same
basis
and
utilizing
the
same
method
of
calculation,
the
Appellant
contends
that
he
suffered
losses
of
$5,534.22
and
$30,706.80
in
the
construction
and
sale
of
2
Dumfries
and
51
Dumbarton,
respectively.
The
Respondent’s
position
is
that
the
Minister
in
assessing
these
three
properties
was
correct
in
utilizing
Bainard’s
calculation
of
construction
costs
and
builder’s
mark-up
of
19%
to
produce
the
gross
profits
of
$67,333,
$126,800
and
$105,346
for
2
Hopwood,
2
Dumfries
and
51
Dumbarton,
respectively.
Since
the
Rixon
estimates
depend
to
a
substantial
degree
on
information
provided
by
the
Appellant
and
the
Marshall
&
Swift
program,
it
is
necessary
to
consider
the
reliability
of
each
as
well
as
the
credibility
and
trustworthiness
of
the
Appellant.
I
propose
to
first
review
his
testimony
with
respect
to
these
three
properties:
(a)
2
Hopwood
was
acquired
in
1987
at
the
same
time
as
lots
at
90
and
120
Hopwood
at
a
total
cost
of
$90,000.
A
house
was
constructed
in
1988
and
was
sold
in
1991
for
$303,000.
In
the
course
of
the
audit
on
August
3,
1995,
the
Appellant’s
“approximate
costs
of
construction”
were
sent
to
Revenue
Canada
by
his
accountant.
The
total
asserted
in
the
covering
letter
was
$314,600
(which
included
land
valued
at
$49,900)
“plus
mortgage
interest
on
the
amount
of
$275,000”.
No
invoices
or
other
documents
were
provided
to
substantiate
any
of
the
items
listed,
the
Appellant
alleging
that
they
were
destroyed
when
the
basement
at
52
Dumbarton
was
flooded
in
1992.
(b)
2
Dumfries:
The
lot
was
purchased
in
April
1991
for
$65,000.
Construction
of
a
house
was
completed
early
that
summer
and
the
Appellant
and
his
family
moved
in.
It
was
immediately
listed
for
sale
at
$429,500
and
was
sold
in
October
for
$410,000.
On
November
29,
1991,
the
Appellant
made
a
New
Housing
Rebate
(NHR)
application
(GST)
on
behalf
of
his
wife
in
which
he
stated
the
fair
market
value
to
be
$312,000
(notwithstanding
its
sale
price).
Shortly
thereafter,
the
Appellant
met
with
Dorothy
D.
Gordon
(Gordon),
a
Revenue
Canada
auditor,
and
produced
a
list
of
“purchases
and
expenses”
but
provided
no
invoices.
He
was
advised
to
do
so.
A
week
later
he
produced
another
list
and
a
number
of
invoices
to
Gordon.
In
the
course
of
their
meeting,
she
took
note
of
the
invoices
and
the
relevant
information
thereon
and
at
the
Appellant’s
request
returned
all
of
the
material
to
him.
The
total
building
expenses
claimed,
including
land,
amounted
to
$336,312.50
of
which
$326,479.49
were
accepted
(without
further
audit),
and
a
rebate
cheque
for
$3,295.35
was
issued
on
that
basis.
At
some
point
of
time
following
the
reassessment
of
the
Appellant’s
1991
income
tax
return
he
provided
the
Minister
with
a
document
captioned
“Estimated
Expenditures
Not
Included
in
GST
List
as
There
Were
No
Invoices
Available”
amounting
to
$69,800
thereby
increasing
the
amount
of
the
alleged
construction
costs
to
$396,279.49.
On
August
3,
1995,
the
Appellant,
through
his
accountant,
provided
a
further
handwritten
list
captioned
“approximate
cost
of
construction”
totalling
$408,050.
At
trial,
the
Appellant
produced
a
receipt
purporting
to
add
the
payment
of
7%
GST
on
the
purchase
price
of
the
land
in
the
amount
of
$4,550
to
his
cost
of
construction.
(c)
51
Dumbarton:
The
Appellant
constructed
a
residence
on
this
property
in
the
summer
of
1992
and
on
October
7,
1992,
filed
an
NHR
application
specifying
the
date
of
possession
to
be
October
15,
1992.
It
was
reviewed
by
Maureen
E.
McCurry
(McCurry),
an
auditor
with
Revenue
Canada.
Approximately
a
week
later,
the
Appellant
called
to
arrange
for
an
appointment.
Shortly
thereafter,
McCurry
noticed
an
advertisement
in
the
newspaper
for
an
open
house
at
51
Dumbarton
on
October
25.
Aware
that
the
date
of
possession
was
alleged
to
have
been
October
15,
1992,
she
attended
and
found
that
the
house
was
not
completed
and
appeared
to
be
uninhabited.
The
house
was
unfurnished.
A
granite
floor
had
been
installed
in
the
living
room
but
there
was
no
carpeting
or
other
floor
cover
in
the
balance
of
the
house.
There
were
no
dishes
in
the
kitchen
cupboards
nor
any
clothing
in
the
closets.
McCurry
also
observed
that
52
Dumbarton,
situated
across
the
street,
was
occupied,
there
was
a
car
in
the
garage
and
it,
unlike
51
Dumbarton,
was
fenced.
On
October
27,
she
met
the
Appellant
at
which
time
he
produced
a
list
and
a
number
of
invoices.
In
the
course
of
this
meeting,
McCurry
asked
whether
he
was
living
at
51
Dumbarton
and
if
so
since
when.
He
stated
that
they
had
moved
in
on
October
15.
McCurry
proceeded
to
review
the
Appellant’s
material
and
found
costs
listed
in
respect
of
which
there
were
no
invoices.
The
list
also
included
an
amount
purportedly
expended
for
the
construction
of
a
cedar
fence.
Asked
specifically
whether
such
a
fence
existed,
the
Appellant
responded
affirmatively.
This
was
patently
untrue.
McCurry
also
noted
that
some
of
the
invoices
produced
reflected
materials
delivered
to
52
Dumbarton
and
919
Mclvor.
When
asked,
the
Appellant
suggested
that
the
production
of
these
invoices
was
just
a
mistake.
Subsequently,
in
the
course
of
a
further
meeting,
McCurry
told
the
Appellant
that
she
had
viewed
the
home
during
the
open
house
on
October
25
and
knew
he
had
not
moved
in
on
October
15.
In
her
words
“at
that
point,
we
more
or
less
left
it”.
This
NHR
application
was
rejected.
Subsequently,
on
January
28,
1993
the
Appellant
reapplied
for
the
rebate
and
produced
a
list
and
expenses
and
invoices
totalling
$309,772.66
to
Fred
Krysko,
a
Revenue
Canada
auditor.
A
rebate
was
issued
on
this
basis
without
a
full
audit.
This
property
was
sold
in
1994
for
$410,000.
In
the
course
of
the
income
tax
audit,
by
letter
dated
August
3,
1995,
the
Appellant
produced
a
handwritten
list
captioned
“approximate
cost
of
construction”
totalling
$413,690
which
included
the
cost
of
land
in
the
amount
of
$65,500.
At
a
later
point
of
time,
the
Appellant
produced
a
further
list
of
“estimated
expenditures”
in
the
amount
of
$147,655
for
a
new
total
of
$456,427.66.
Finally,
on
September
23,
1998,
he
produced
amendments
to
the
foregoing
seeking
to
add
a
further
$14,285
for
a
grand
total
of
$470,712.66.
In
his
last
missive,
the
Appellant
also
sought
a
“real
estate
tax
correction”
of
$13,000
to
the
expenses
claimed.
None
of
these
claims
were
supported
by
invoices
or
other
documents
such
as
cancelled
cheques
or
credit
card
records.
Asked
on
several
occasions
to
at
least
refer
the
Revenue
Canada
auditors
to
suppliers
to
permit
confirmation
of
some
of
his
costs
the
Appellant
responded
that
he
could
not
remember
any
of
the
names
of
the
suppliers
or
subcontractors.
The
credibility
of
the
Appellant’s
assertions
with
respect
to
his
construction
costs
and
profit
margins,
as
well
as
his
allegations
of
losses
incurred
on
the
sale
of
the
properties
in
issue
must
also
be
assessed
in
the
context
of
other
building
projects
in
which
he
was
involved
during
the
same
general
period
and
his
testimony
with
respect
thereto.
(a)
90
Hopwood
and
120
Hopwood:
Residences
were
constructed
on
each
lot
and
were
sold
in
1988,
90
Hopwood
for
$247,500
and
120
Hopwood
for
$210,000.
In
his
income
tax
return
for
that
year
the
Appellant
reported
“business
income
(house
construction)”
gross
revenues
of
$457,500,
cost
of
goods
sold
$380,027.42,
and
a
profit
of
$79,146.
The
properties
were
not
specifically
referred
to
in
the
return,
however,
the
Appellant
conceded
that
they
were
probably
the
two
on
Hopwood
since
“he
did
not
know
of”
any
other
houses
that
he
had
built
in
that
year
and
that
his
profit
on
their
disposition
in
1988
was
approximately
$80,000.
(b)
In
1989,
the
Appellant
reported
no
business
income.
However,
in
that
year
the
sale
of
110
Bard
for
$425,000
was
reported
by
the
Appellant
as
a
disposition
of
a
principal
residence
with
no
tax
exigible.
(c)
In
January
1990,
732
Park
Blvd.
South
was
sold
for
$415,000.
In
the
course
of
cross-examination,
it
was
suggested
that
the
Appellant’s
profit
on
disposition
was
approximately
$90,000.
He
responded
that
although
“it
would
have
been
nice”,
he
had
never
made
that
kind
of
profit
on
a
property,
a
statement
totally
at
odds
with
an
affidavit
sworn
by
him
in
which
he
stated:
Because
of
my
injuries,
I
was
unable
to
work
for
a
period
of
5
weeks
from
January
11,
1990
to
February
15,
1990,
inasmuch
as
I
was
unable
to
supervise
home
construction
projects
or
seek
out
further
business
prospect
and
opportunities.
If
1
had
been
able
to
resume
my
usual
duties,
I
would
have
been
able
to
finalize
arrangements
for
the
construction
of
a
custom
home
in
the
Tuxedo
area
of
Winnipeg,
which
arrangements
had
to
be
completed
in
the
early
weeks
of
the
calendar
year
in
order
that
construction
could
be
commenced.
Since
I
was
unable
to
do
so
owing
to
my
back
injuries,
I
have
lost
the
opportunity
to
earn
a
potential
profit
on
the
sale
of
a
newly
built
custom
home
in
Tuxedo.
Since
I
was
unable
to
attend
to
my
usual
work
as
a
builder
of
homes,
I
was
also
prevented
from
finalizing
arrangement
or
commencing
work
on
the
construction
of
a
new
home
at
2165
West
Taylor
Avenue,
in
the
City
of
Winnipeg.
Due
to
this
delay,
the
home
which
I
was
building
on
the
said
property
could
not
be
completed
on
time
to
be
listed
in
the
spring
market;
as
a
result
I
have
lost
the
opportunity
of
selling
a
new
home
during
the
peak
selling
season.
My
net
income
from
the
construction
of
homes
in
1988
was
$79,146.
My
net
income
in
1989
from
the
sale
of
custom
homes
was
$12,727,
however,
I
elected
to
defer
the
profit
on
the
house
at
732
Park
Blvd.
which
was
on
December
15,
1989
to
1990
as
the
date
of
possession
for
this
property
was
set
in
April
on
(sic)
1990;
consequently
the
net
earning
from
the
sale
of
this
home
added
to
my
1989
income
would
have
provided
me
with
a
net
income
of
$102,727.
On
the
basis,
I
calculate
my
loss
due
to
the
loss
of
business
opportunity
as
follows:
|
Average
of
1988/1989
Incomes:
|
$90,936.50
|
|
divided
by
52
x
5
Weeks:
|
$
8,743.90
^
|
|
(Emphasis
added)
|
|
When
this
was
put
to
him,
the
Appellant’s
response
was:
Well
that’s
what
this
document
says,
yes.
I
think
it
was
an
ex-
aggeration
of
course.
Asked
whether
he
was
saying
that
he
swore
a
false
affidavit,
the
Appellant
responded:
“I
don’t
know”,
and
then
added:
Yes.
Your
Honour,
it
says
what
it
says.
My
recollection
that
the
income
from
that
home
was
not
anywhere
near
—
wasn’t
that
amount.
Now
1
can
also
understand
that
this
hasn’t
occurred
yet,
that
I
was
estimating
this
to
happen.
This
statement
is
also
an
“exaggeration”
since
the
affidavit
was
executed
on
September
18,
1990
and
the
sale
had
occurred
some
nine
months
earlier.
With
respect
to
the
sale
of
732
Park
Blvd.
reference
must
also
be
made
to
the
Appellant’s
1990
income
tax
return
in
which
he
reported
sales,
gross
revenue,
$671,000.
In
the
course
of
cross-examination,
the
following
exchange
took
place:
Q.
There
is
a
figure
of
gross
income
of
$671,000?
A.
Yes.
Q.
Where
would
that
income
have
come
from?
A.
I
don’t
know.
Q.
House
building?
A.
It
must
have
been.
Q.
Were
you
involved
in
any
other
business
in
that
year?
A.
No.
Q.
And
then
it
shows
the
cost
of
goods
sold
$566,147.58,
and
then
gross
profit
of
$104,852.42?
A.
Yes.
Q.
Would
this
have
included
732
Park
Place?
A.
I
don’t
recall.
I
honestly
don’t
recall.
Q.
Now
the
gross
income
of
$671,000
is
higher
than
the
selling
price
of
732
Park
Place.
Was
there
another
house
that
was
sold
in
that
period?
A.
Not
that
I
recall.
Q.
Now
Mr.
Moss,
did
you
assist
a
Mr.
D.
Baldner
with
the
construction
of
a
house
at
75
Charlesglen
Drive?
A.
Yes.
Q.
O.K.
Now
did
you
make
any
money
from
this
property?
A.
And
I
don’t
—
if
I
did
it
was
very
little.
He’s
my
best
friend
and
I
basically
did
it
for
nothing,
or
some
small
consideration,
and
I
don’t
recall.
And
if
I
did
I
might
have
declared
something.
A
review
of
his
subsequent
income
tax
returns
discloses
the
following:
(a)
In
1991,
the
Appellant
reported
zero
business
income.
In
that
year
Rochelle
Moss
reported
the
disposition
of
2
Hopwood
as
a
principal
residence.
The
Appellant
now
concedes
that
any
income
(or
loss)
from
this
disposition
was
his
to
report.
As
well,
in
that
year
2
Dumfries
was
sold
at
a
price
of
$410,000.
Its
disposition
was
not
reported
by
either
the
Appellant
or
his
wife.
(b)
In
1992,
the
Appellant
reported
“other
income”
in
the
amount
of
$3,000.
The
Minister
included
a
further
amount
of
$24,400
as
business
income
from
the
construction
of
919
Mclvor.
The
Appellant
alleges
that
he
incurred
a
loss
on
this
project.
I
have
concluded
otherwise.
(c)
In
1993,
the
Appellant
reported
$56,295.
The
attached
T4
states
“self-employed
commissions”
with
no
further
indication
of
source.
(d)
In
1994,
51
Dumbarton
was
sold
for
$410,000.
Its
disposition
was
not
reported
by
either
the
Appellant
or
his
wife.
That
same
year,
the
Appellant
constructed
a
house
at
133
Park
Place
West,
moved
in
and
listed
it
for
sale
at
$359,500.
He
also
constructed
a
house
at
121
Park
Place
West
for
Susan
Barron
and
said
the
amount
of
$109,594.32
he
received
“sounds
right”.
He
agreed
that
“some
income”
was
earned
from
this
project,
but
could
not
recall
the
amount
and
believes
that
he
reported
it.
Confronted
by
his
1994
return,
he
agreed
that
was
not
the
case.
He
then
added
“in
retrospect
I
recall
that
it
was
going
to
be
on
the
following
year’s
return,
because
the
home
wasn’t
completely
finished
that
year”.
That
too
is
false
since
he
reported
no
business
income
in
his
1995
tax
return.
As
well,
he
constructed
a
second
house
for
Susan
Barron
at
129
Park
Place
in
1995,
the
income
from
which
also
appears
to
have
gone
unreported.
I
have
significant
reservations
regarding
the
truthfulness
of
the
Appellant’s
testimony.
A
number
of
his
statements
were
patently
false
and
many
others
were
in
themselves
improbable
and
unreasonable.
Furthermore,
in
many
instances,
they
were
not
the
result
of
a
simple
mistake,
honestly
made,
but
were
deliberately
and
dishonestly
asserted
to
prevent
Revenue
Canada
in
the
first
instance
and
the
Court
now
from
making
a
decision
on
credible
evidence.
He
was
at
all
times
prepared
to
say
and
do
anything
to
achieve
his
objective
(or
to
have
his
wife
do
so)
as
is
most
evident
from
his
willingness
to
create
a
sham
transaction
in
order
to
obtain
the
District
Registrar’s
approval
for
the
sale
of
2165
West
Taylor.
His
responses
to
counsel’s
questions
in
relation
to
that
transaction
were
equally
illuminating
since
he
attempted
to
portray
himself
as
the
injured
party
stating:
The
only
reason
that
it
was
done
is
to
mitigate
our
losses
and
it
hurt
nobody.
Nobody
got
hurt.
Nobody
got
defrauded.
Nobody
—
it
cost
nobody
anything,
except
the
Mosses,
that
should
be
remembered.
His
conduct
in
that
instance
impacts
seriously
on
both
his
character
and
credibility.
Evidence
was
also
adduced
from
the
Appellant’s
wife,
Rochelle.
My
initial
impression
is
that
she
is
an
intelligent
and
articulate
person.
However
it
soon
became
apparent
that
she
was
prepared
to
do
and
say
whatever
was
necessary
to
assist
the
Appellant.
By
way
of
example,
she
could
not
have
been
anything
but
aware
that
the
Appellant
planned
to
reacquire
2165
West
Taylor
by
means
of
a
sham
transaction.
She
clearly
understood
that
the
Levy
“agreement”
which
she
signed
and
which
was
drafted
in
simple
and
unambiguous
language
was
designed
to
permit
her
to
establish
beneficial
ownership
of
the
property
and
that
the
transfer
to
Levy
was
a
subterfuge.
Furthermore,
I
am
unable
to
accept
that
she
honestly
believed
that
the
term
“arm’s
length”
meant
someone
outside
of
the
family.
This
willingness
to
skirt
the
truth
was
demonstrated
on
a
number
of
occasions.
By
way
of
example,
she
was
prepared
to
provide
the
purchaser
of
2165
West
Taylor
with
a
statutory
declaration
for
GST
purposes
which
was
false.
Her
testimony
with
respect
to
this
document
was
not
plausible.
In
November
1992
she
certified,
for
the
purpose
of
obtaining
a
loan,
that
2165
West
Taylor
had
a
market
value
of
$395,000
and
that
she
had
clear
title.
This
information,
which
she
provided
to
the
credit
union
was
patently
false.
An
annual
mortgage
statement
with
respect
to
this
property
directed
to
her
indicates
that
the
balance
owing
as
of
December
31,
1992
was
$224,019.
In
her
1992
income
tax
return
she
reported
income
from
the
disposition
of
2165
West
Taylor
in
the
amount
of
$265,000
(i.e.
the
purported
sale
to
Levy)
although
she
knew
that
no
consideration
had
been
paid.
Her
testi-
to
Revenue
Canada
officials
or
to
the
Court.
See,
inter
alia,
footnotes
4,
14,
15,
26,
40
and
47
and
paragraphs
22(c),
23(c)
and
52.
mony,
her
demeanour,
and
her
conduct
left
me
with
significant
reservations
regarding
her
veracity.
I
turn
next
to
the
testimony
of
Rixon.
Although
he
is
a
certified
real
estate
appraiser
and
is
entitled
to
give
an
expert
opinion
as
such
I
have
substantial
concerns
regarding
his
conclusions
as
to
the
original
cost
of
the
properties
in
issue
and,
more
particularly,
as
to
his
qualifications
and
testimony
regarding
builder’s
profits.
With
respect
to
the
original
cost
of
the
properties
Rixon
utilized
Marshall
&
Swift,
a
valuation
service
which
provides
cost
data
for
determining
replacement
cost
of
buildings
in
the
United
States,
Puerto
Rico,
Guam
and
Canada.
As
I
understood
Rixon,
the
Marshall
&
Swift
computerized
program
he
used
first
establishes
bench
mark
costs
and
then
applies
location
factors
(e.g.
such
as
the
cost
of
material
and
labour)
to
various
cities.
The
bench
mark
costs
to
which
a
location
factor
is
applied
are
based
solely
on
square
footage
and
the
quality
of
the
property,
the
latter
being
a
totally
subjective
assessment
by
the
appraiser.
Since
in
this
step
the
Marshall
&
Swift
system
relies
exclusively
on
the
judgment
of
the
person
inputting
the
data
regarding
the
quality
of
the
property,
it
was
incumbent
upon
Rixon
to
be
certain
of
the
accuracy
of
the
information
he
utilized.
That
he
did
so
is
questionable
since
it
is
a
fact
that
for
his
report
Rixon
had
inspected
only
one
of
the
four
residences
and
had
accepted,
without
question,
the
Appellant’s
assertion
that
2
Dumfries
and
51
Dumbarton
were
virtually
identical.
It
was
on
this
basis
that
he
concluded
that
2
Hopwood,
2
Dumfries
and
51
Dumbarton
were
of
“very
good
quality”
for
the
purposes
of
the
Marshall
&
Swift
program.
I
acknowledge
that
he
inspected
the
interiors
several
years
later
(in
fact
just
prior
to
the
trial)
“to
confirm
his
opinion”
but
as
this
involved
discussions
at
that
time
with
the
Appellant
and
the
Intervenor’s
counsel
and
a
second
affidavit
(which
was
not
filed),
his
testimony
gives
rise
to
some
concern.
In
this
context,
reference
should
be
made
to
his
affidavit
dated
August
11,
1998
which
contains
the
following
paragraph:
11.
Attached
hereto
and
marked
Exhibits
“G”,
“H”
and
“I”
respectively,
are
estimates
from
Malcolm
Homes
Ltd.,
dated
April
10,
1996,
BDK
Realty
Ltd.,
dated
April
19,
1996,
and
Massey
Homes
Ltd.,
dated
April
20,
1996,
for
the
cost
of
constructing
the
homes
with
the
features
set
out
in
those
particular
estimates.
In
my
opinion,
each
of
those
estimates
is
a
reasonable
statement
of
the
cost
of
constructing
homes
with
those
specifications
and
features.
Emphasis
added
Rixon
however
testified
that
these
estimates
had
not
been
provided
to
him
and
that
he
“received
that
material
after
the
fact”
and
“definitely”
did
not
rely
on
it.
Whether
he
relied
on
this
information
is
not
the
primary
concern.
If
he
read
the
affidavit
before
signing
it,
he
accepted
the
inclusion
of
an
opinion
that
was
not
his.
Failure
to
read
the
affidavit
before
signing
would
suggest
poor
judgment
and
a
preparedness
to
accept
whatever
was
put
before
him
by
the
Appellant
or
by
Intervenor’s
counsel.
Since
he
knew
it
was
to
be
used
by
the
Appellant
to
support
his
case,
it
raises
a
question
both
with
respect
to
his
credibility
as
an
expert
and
as
to
his
impartiality.
The
second
stage
of
the
costing
process
required
Rixon
to
convert
the
replacement
cost
of
construction
to
the
historic
cost.
For
this
purpose,
Marshall
&
Swift
provides
a
table
of
“comparative
cost
multipliers”
which
is
used
to
apply
the
appropriate
discount
factor
for
time.
Utilizing
the
information
provided
to
him
by
the
Appellant
as
to
the
dates
of
construction,
Rixon
determined
the
original
cost
of
2
Hopwood,
2
Dumfries,
51
Dumbarton
and
919
Mclvor.
I
add
only
that
in
so
doing,
the
original
cost
of
2
Hopwood
was
determined
as
of
1989.
However,
the
evidence
is
that
the
house
was
constructed
in
the
summer
of
1988
and
was
listed
for
sale
on
August
8
of
that
year,
which
may
have
resulted
in
an
overstatement
of
its
original
cost.
The
generally
accepted
cost
estimating
methods
are
the
comparativeunit
method,
the
unit-in-place
method
and
the
quantity
survey
method.
Each
may
be
used
where
replacement
costs
are
being
estimated.
Any
method
used
for
estimating
replacement
cost
requires
the
calculation
of
direct
(hard)
and
indirect
(soft)
costs.
Both
types
of
costs
are
equally
necessary
for
construction
and
must
be
measured
accurately
to
ensure
a
reliable
value
indication
by
the
cost
approach.
Reference
is
also
made
by
the
authors
of
this
text
to
a
number
of
services
including
Marshall
&
Swift
which
publish
data
for
estimating
current
costs
of
improvements.
They
caution
however
that
the
quoted
construction
costs
may
not
include
certain
necessary
items
which
would
require
the
appraiser
to
estimate
such
costs
separately
and
include
them
in
his
replacement
cost
estimate.
There
is
no
evidence
before
the
Court
to
indicate
whether
the
Marshall
&
Swift
method
includes
all
necessary
items.
The
authors
further
observe
that:
Certain
problems
arise
when
using
such
data
to
help
estimate
current
reproduction
or
replacement
cost.
The
problems
are
that
the
national
figures
must
apply
to
the
local
area;
that
the
accuracy
of
the
figures
cannot
always
be
ascertained,
especially
when
no
indication
is
given
of
which
components
are
used
in
each
figure
(i.e.
only
direct
costs,
or
direct
and
some
indirect
costs);
that
historical
costs
may
not
be
typical
or
normal
for
the
time
period;
and
that
construction
methods
used
at
the
time
of
the
historical
cost
may
differ
from
those
in
use
at
the
time
of
the
appraisal.
Even
though
cost-index
trending
helps
an
appraiser
to
confirm
a
cost
estimate,
it
is
not
necessarily
an
accurate
substitute
for
the
three
methods
of
estimating
building
costs.
Although
I
accepted
and
heard
the
testimony
of
Rixon
as
an
expert
appraiser,
in
retrospect
I
have
concluded
that
there
is
little
evidence
before
me
to
qualify
him
to
give
an
opinion
with
respect
to
the
original
cost
of
the
properties
constructed
by
the
Appellant.
He
relied
of
necessity
on
the
Marshall
&
Swift
service
as
the
basis
for
his
opinion
but
was
unable
to
explain
adequately
how
the
relevant
statistics
and
other
data
were
collated.
I
have
serious
reservations
as
well
with
respect
to
Rixon’s
testimony
regarding
builder’s
profit.
He
said
that
the
subject
rarely
came
up,
that
he
probably
had
not
looked
at
it
more
than
half
a
dozen
times,
and
he
had
never
been
qualified
as
an
expert
to
give
testimony
in
that
regard.
He
relied
exclusively
on
Marshall
&
Swift’s
handbook
which,
he
said:
...breaks
down
construction
on
a
percentage
basis,
the
framing,
the
electrical,
the
plumbing,
the
plans,
every
part
of
the
construction
is
broken
down,
including
builder’s
profit
and
Marshal
&
Swift
states
percentage
is
12.4%.
but
was
unable
to
provide
any
information
as
to
the
basis
on
which
this
percentage
was
determined.
He
conceded
that
for
this
purpose,
Marshall
&
Swift
makes
no
distinction
between
large
and
small
builders
or
tract
versus
custom
home
builders
and
that
it
uses
the
same
profit
margin
figure
for
all
builders
in
North
America.
This
lack
of
information
is
of
substantial
concern
since,
as
was
observed
in
The
Appraisal
of
Real
Estate:
Because
the
extent
of
entrepreneurial
profit
varies
with
economic
conditions,
a
typical
relationship
between
it
and
other
costs
is
difficult
to
establish;
however,
entrepreneurial
profit
should
not
be
omitted
from
the
cost
approach.
En-
trepreneurial
profit
is
a
necessary
element
in
the
motivation
to
construct
improvements....
Although
prices
of
materials
and
wage
scaled
for
labour
usually
can
be
determined
for
any
date,
the
resulting
cost
of
combining
them
in
a
completed
building
cannot
be
predicted
with
certainty.
The
profit
incentive
(or
lack
of
it)
can
raise
or
lower
the
cost
estimate.
This
phenomenon
is
illustrated
by
competitive
contractor
bids.
Building
cost
estimates
based
on
the
same
set
of
specifications
frequently
vary
substantially.
A
contractor
who
is
working
at
capacity
is
inclined
to
make
a
high
bid,
but
one
who
is
not
so
busy
may
submit
a
lower
figure.
My
concerns
with
respect
to
the
Marshall
&
Swift
profit
margin
go
beyond
the
fact
that
it
is
the
same
for
all
builders
in
North
America.
It
was
Rixon’s
assumption
that
the
location
factors
utilized
by
Marshall
&
Swift
reflect
the
actual
market
place
cost
for
labour,
material,
and
installed
components.
The
Appellant’s
ability
to
obtain
substantial
discounts
on
supplies
and
the
fact
that
he
paid,
in
his
words,
almost
all
of
his
labour
costs
in
cash,
strongly
suggests
that
the
12.4%
figure
is
inapplicable
to
his
operation.
As
Rixon
observed,
with
respect
to
payment
of
trades
that:
In
costing
we
assume
that
everything
is
paid
for
above
board.
We
don’t
speculate
on
things
being
done
under
the
table.
So
—
I
mean
obviously
profit
margins
are
going
to
change
if
you
can
find
a
sub-trade
that’s
going
to
work
—
for
cash
without
payment
of
the
tax.
and
categorically
stated
that
if
all
or
most
of
the
labour
costs
were
paid
for
in
cash,
the
profit
margin
would
be
higher.
It
is
reasonable
to
assume
that
Rixon
was
aware
that
the
Appellant
was
a
builder.
Thus
it
is
somewhat
surprising
that
he
made
no
inquiries
with
respect
to
other
homes
built
by
him
in
that
area
and,
it
would
appear,
failed
to
ask
for
or
obtain
any
relevant
information
from
the
Appellant
or
from
other
sources
with
respect
thereto.
By
way
of
example,
Rixon
assumed
that
the
Appellant
did
not
receive
a
“good
discount”
because
he
was
a
small
builder.
In
fact,
one
of
the
Appellant’s
witnesses
testified
that
he
granted
a
55%
discount
on
supplies
which,
he
added,
ranked
the
Appellant
above
one-time
customers
and
major
accounts
and
just
below
“big
dealers
and
distributors”
who
received
60%.
The
extent
to
which
matters
such
as
this
might
have
impacted
on
the
accuracy
of
the
builder’s
profit
provided
by
Marshall
&
Swift
is
unknown
since
it
would
appear
that
Rixon
did
not
put
his
mind
to
the
influence
of
such
variables.
I
must
also
observe
that
both
Rixon
and
Bainard
appear
not
to
have
considered
the
fact
that,
for
example,
51
Dumbarton
was
constructed
in
1992
but
not
sold
until
1994
and
2
Hopwood
was
built
in
1988
and
sold
in
1991.
Neither
appears
to
have
considered
whether
or
not
housing
prices
had
escalated
(or
otherwise)
in
the
interim
and
took
that
fact
into
account
if
that
were
the
case.
For
somewhat
different
reasons
I
have
reservations
regarding
the
Bainard
appraisals.
I
should
acknowledge
at
the
outset
that
he
candidly
stated
that
his
report
was
nothing
more
than
a
preliminary
appraisal
for
the
purpose
of
establishing
a
reasonable
figure
which
would
permit
the
Revenue
Canada
auditor
to
determine
an
adjusted
cost
base
for
the
properties.
He
described
this
as
an
unusual
request
since
he
was
not
asked
to
determine
the
market
value
of
the
properties
but
only
to
estimate
the
replacement
cost
new,
less
normal
contractor’s
profit.
It
is
also
a
fact
that
Bainard
did
not
have
access
to
the
residences
although
he
ultimately
did
view
the
interior
of
2
Dumfries.
Thus,
for
the
most
part,
I
am
not
prepared
to
place
much
reliance
on
his
estimates
of
original
cost.
With
respect
to
his
builder’s
profit
analysis,
the
situation
is
somewhat
different.
Bainard
testified
that
he
conducted
a
survey
of
gross
profit
margins
of
builders
and
made
an
analysis
of
contract
prices
of
custom
homes.
While
his
statistical
sampling
was
limited
and
his
methodology
questionable,
the
profit
ratios
derived
therefrom
are
not
far
removed
from
the
Appellant’s
proven
building
profits
from
90
and
120
Hopwood
and
732
Park
Blvd.
and
are
not
of
themselves
unreasonable.
The
testimony
of
Massey,
Kliewer,
and
Choquette
provided
the
Court
with
little
assistance
with
respect
to
the
original
cost
of
construction
of
the
properties
in
issue
or
of
the
Appellant’s
builder’s
profit.
Massey
was
not
involved
in
the
preparation
of
the
Massey
Homes
quotation
and
had
not
been
privy
to
the
discussions
between
the
individual
responsible
and
the
Appellant.
He
had,
in
preparation
for
the
trial,
been
shown
the
plans
and
the
list
of
desired
features
and
considered
the
company’s
quote
to
be
appropri
ate.
Kliewer,
for
his
part,
testified
that
what
he
prepared
was
not
a
cost
analysis,
but
rather
was
a
basic
evaluation
of
the
price
to
a
consumer
of
a
particular
package.
He
further
testified
that
his
responsibilities
with
his
employer
did
not
include
dealing
in
profit
margins
for
the
building
department.
Choquette
for
his
part
had
not
been
provided
with
the
plans
which,
as
he
observed,
made
it
difficult
for
him
to
quote
a
price.The
spread
between
the
lowest
and
highest
quotation
was
approximately
$120,000
and
initially,
might
seem
surprising
since
they
were
based
on
the
same
plans
and
specifications.
However,
it
is
a
reasonable
inference
that
this
spread
must
for
the
most
part
reflect
the
fact
that
substantial
variations
in
builder’s
profit
ratios
can
and
do
exist.
This
is
further
demonstrated
by
the
testimony
of
Massey
who
asserted
his
company
expected
a
5%
profit,
Choquette’s
testimony
which
indicated
that
they
aimed
for
17%
to
21%
depending
on
complexity,
and
the
Appellant’s
own
profit
ratios
which
were
from
17%
to
25%.
Conclusion
In
deciding
that
not
a
great
deal
of
reliance
can
be
placed
on
the
appraisal
reports
of
either
Rixon
or
Bainard
(and
virtually
none
on
the
testimony
of
the
Appellant),
I
am
mindful
of
the
following
comments
made
by
Walsh
J.
in
Bibby
v.
Æ.,
While
it
has
frequently
been
held
that
a
Court
should
not,
after
considering
all
the
expert
and
other
evidence
merely
adopt
a
figure
somewhere
between
the
figure
sought
by
the
contending
parties,
it
has
also
been
held
that
the
Court
may,
when
it
does
not
find
the
evidence
of
any
expert
completely
satisfying
or
conclusive,
nor
any
comparable
especially
apt,
form
its
own
opinion
of
valuation,
provided
this
is
always
based
on
the
careful
consideration
of
all
the
conflicting
evidence.
The
figure
so
arrived
at
need
not
be
that
suggested
by
any
expert
or
contended
for
by
the
parties.
At
the
outset,
I
must
state
that
the
Appellant’s
assertions
that
substantial
losses
were
incurred
in
the
construction
and
sale
of
2
Hopwood,
2
Dumfries
and
51
Dumbarton
are
not
supported
by
a
single
credible
fact.
These
three
residences
were
constructed
and
sold
within
a
thirty-month
period
from
July
1991
to
January
1994.
There
is
no
evidence
whatsoever
of
a
slow
market
nor
is
there
any
evidence
that
the
Appellant
was
under
pressure
to
sell.
The
Appellant
is
a
sharp
businessman
and
it
is
inconceivable
that
he
would
have
disposed
of
these
properties
at
a
loss
unless
there
was
some
reason
such
as
extraordinary
financing
pressure
to
do
so.
There
is
not
a
tittle
of
evidence
to
support
such
a
proposition.
Faced
with
conflicting
values
and
approaches,
I
have
concluded
that
the
most
significant
evidence
regarding
builder’s
profit
is
the
Appellant’s
own
business
history
and
more
particularly,
the
net
profit
reported
on
the
construction
of
homes
in
the
same
district
in
the
years
immediately
preceding
the
taxation
years
in
issue.
I
add
that
in
my
view,
there
is
no
possibility
whatsoever
that
the
Appellant
has
ever
overstated
his
net
building
profits
in
his
income
tax
returns.
To
recapitulate,
in
1988
the
net
profit
reported
from
the
sale
of
90
and
120
Hopwood
was
$79,146
which
represents
17.4%
of
the
sale
price.
Two
years
later
the
Appellant
constructed
and
then
sold
732
Park
Blvd.
for
$415,000.
His
profit
from
this
project
was
at
least
$90,000
(per
his
affidavit)
or
$103,987
(per
his
income
tax
return).
In
1990,
he
said
the
reported
income
came
from
house
building
and
that
very
little,
if
any,
represented
his
involvement
in
the
construction
of
a
house
by
his
friend
Baldner.
That
being
the
case,
and
since
he
“could
not
recall”
selling
another
property
in
that
year,
his
testimony
can
only
lead
to
the
conclusion
that
all
or
virtually
all
of
the
reported
profit
arose
from
the
sale
of
732
Park
Blvd.
That
net
profit
calculated
as
a
percentage
of
the
sale
price
is
25%.
The
sale
prices
of
2
Dumfries
and
51
Dumbarton
which
were
$410,000
and
$412,000
suggest
that
they
were
very
similar
in
size
and
quality
to
732
Park
Blvd.
Accordingly,
a
25%
profit
margin
may
properly
be
applied
to
them.
In
the
case
of
2
Hopwood,
a
21%
margin
is
more
appropriate
given
that
its
sale
price
suggests
a
more
modest
residence.
Thus,
for
the
1991
taxation
year,
the
Appellant
will
be
required
to
include
in
his
income
the
amounts
of
$63,630
and
$103,000
being
the
net
proceeds
received
by
him
upon
the
disposition
of
2
Hopwood
and
2
Dumfries.
With
respect
to
the
disposition
of
51
Dumbarton
in
the
1994
taxation
year,
the
Appellant
will
be
required
to
include
in
income
the
amount
of
$102,500.
One
further
matter
must
be
dealt
with
at
this
point.
In
the
course
of
his
testimony
the
Appellant
alleged
that
2
Dumfries
was
sold
in
January
1992
and
that
accordingly
Revenue
Canada
was
wrong
in
attributing
any
income
earned
therefrom
to
his
1991
taxation
year.
Aside
from
his
statement
absolutely
no
evidence
was
tendered
to
establish
that
fact.
He
did
tender
in
evidence
a
tax
bill
for
1991
and
an
undated
letter
purporting
to
be
from
Saniuk
with
respect
to
the
commission.
Neither
document
assists
him.
There
were
a
number
of
sources
available
to
the
Appellant
to
establish
the
date
of
the
sale
such
as
the
purchaser,
the
solicitors
who
acted
for
him
or
for
the
Appellant
are
but
two
examples
that
immediately
come
to
mind.
I
also
note
that
the
hard
copy
printout
of
the
records
stored
in
the
Winnipeg
Real
Estate
Board
Property
archives
with
respect
to
this
property
indicate
that
it
was
listed
for
sale
on
September
20,
1991
and
was
sold
on
October
10,
1991.
In
the
absence
of
any
evidence
to
the
contrary
there
is
no
basis
upon
which
to
reverse
the
Minister’s
assessment
on
this
point.
2165
West
Taylor
Blvd.
A
vacant
parcel
of
land
located
at
2165
West
Taylor
was
acquired
by
the
Appellant
on
January
29,
1990,
for
$61,000.
Title
was
registered
in
the
name
of
Rochelle
Moss.
The
Appellant
applied
to
the
City
of
Winnipeg
for
a
development
permit
and
commenced
construction
of
a
dwelling
house.
Completed
on
or
about
November
15,
1990,
it
was
sold
to
Elaine
Dusang
(Dusang)
in
February
1991
for
$295,000.
Dusang
paid
the
Appellant
$20,000
in
cash
and,
as
she
was
unable
to
assume
a
Canada
Trust
builder’s
mortgage
in
the
amount
of
$243,000,
the
Appellant
says
he
“carried
the
rest
of
the
financing
on
the
home
in
my
wife’s
name”
in
the
amount
of
$275,OOO
On
or
about
the
7th
day
of
March,
1991,
Rochelle
Moss
provided
the
purchaser
with
a
statutory
declaration
to
the
effect
that
the
sale
of
2165
West
Taylor
was
“an
exempt
transaction
under
any
of
sections
2
to
5,
or
sections
8
or
9
of
Part
I
of
Schedule
V
of
the
Excise
Tax
Act’.
In
her
testimony,
she
agreed
that
this
was
in
effect
a
representation
that
it
was
her
personal
residence
but
alleged
that
she
was
unable
to
recall
its
purpose.
The
declaration,
she
maintained,
was
not
false
in
that
she
lived
there
for
a
very
short
period
of
time.
The
Appellant,
for
his
part,
testified
that
she
moved
into
the
house
for
a
few
weeks
with
a
cot
and
“some
other
stuff”
because
they
had
a
“little
tiff’.
He
said
the
declaration
had
nothing
to
do
with
the
purchaser’s
need
for
some
proof
of
residence
for
GST
purposes.
The
testimony
of
both
the
Appellant
and
Rochelle
Moss
is,
to
put
it
bluntly,
suspect
and
must
be
viewed
with
caution.
Several
months
after
taking
possession
the
purchaser
defaulted.
The
Appellant
sought
legal
advice
and
learned
that
the
only
remedy
available
was
to
commence
foreclosure
proceedings.
He
was
also
advised
that
in
order
to
do
so
it
was
necessary
to
comply
with
certain
procedures
which
included
putting
the
property
up
for
auction
and
that
in
the
event
it
was
not
sold,
the
property
could
not
be
repossessed
for
six
months.
The
Appellant
was
also
made
aware
that
if
the
property
was
sold
to
an
independent
third
party
it
would
not
be
necessary
to
follow
this
procedure.
To
avoid
having
to
offer
the
property
at
public
auction,
the
Appellant
persuaded
a
friend,
Armand
Levy
(Levy),
to
pretend
to
act
as
an
“arm’s
length
purchaser”.
This
arrangement
was
evidenced
by
a
document
which
reads:
Contract
This
shall
form
a
legal
and
binding
contract
between
Rochelle
Moss,
owner
of
2165
West
Taylor
Blvd.
and
Armand
Levy,
purchaser
of
said
property.
At
all
times
the
above
property
shall
remain
the
absolute
and
complete
property
of
Rochelle
Moss
even
though
title
will
be
transferred
to
the
name
of
Armand
Levy
and
at
all
times
Rochelle
Moss
will
be
responsible
and
in
fact
pay
all
expenses
connected
with
the
purchase
of
the
above
property,
all
maintenance,
repairs,
mortgage
payments,
legal
fees,
etc.
and
all
expenses
connected
with
the
ultimate
sale
of
the
said
property
at
which
time
Armand
Levy
undertakes
to
turn
over
any
and
all
funds
received
from
the
sale
of
2165
West
Taylor
Blvd.,
Winni
|
peg,
Manitoba.
|
|
|
Signed
|
“Rochelle
Moss”
|
Rochelle
Moss
|
|
Signed
|
“Armand
Levy”
|
Armand
Levy
|
This
24th
day
of
September,
1991,
in
the
City
of
Winnipeg,
Manitoba
^
As
a
result,
information
was
deliberately
provided
to
the
District
Registrar
which
was
false
in
that
it
indicated
that
Rochelle
Moss
and
Levy
were
dealing
at
arm’s
length
with
one
another
in
connection
with
the
sale
of
the
property
and
that
the
sale
itself
was
bona
fide
and
for
valuable
consideration.
In
this
manner,
the
District
Registrar’s
approval
for
the
sale
was
obtained
without
requiring
the
Appellant
to
offer
it
for
sale
at
a
Sheriff’s
auction.
On
September
30,
1991,
2165
West
Taylor
was
conveyed
to
Levy
by
way
of
a
transfer
under
Power
of
Sale
at
a
purported
consideration
of
$265,000.
No
money
changed
hands.
The
Appellant
subsequently
rented
the
property
to
a
third
party.
Levy
became
concerned
as
to
the
possible
ramifications
of
his
“ownership”
of
the
property
and
on
August
27,
1992
Rochelle
Moss
agreed
to
“purchase”
the
property
from
him
for
the
sum
of
$395,000.
Again,
no
money
changed
hands.
Title
to
the
property
was
registered
in
her
name
on
November
13,
1992.
In
reassessing
the
Appellant,
the
Minister
added
the
amount
of
$20,000
to
his
income
for
1991
representing
the
cash
he
acknowledges
receiving,
i.e.
the
difference
between
the
amount
of
the
vendor
take
back
mortgage,
$275,000,
and
the
sale
price
paid
by
Dusang
of
$295,000.
This
assessment
was
premised
on
information
received
by
Revenue
Canada
from
the
Appellant’s
solicitor
to
the
effect
that
the
gross
profit
was
$20,000.
Counsel
for
the
Respondent
concedes
that
the
manner
in
which
the
Minister
calculated
the
income
to
be
added
was
incorrect
since
the
amount
of
the
profit
should
have
been
the
difference
between
the
Appellant’s
actual
cost
of
construction
and
the
sale
price.
No
evidence
was
adduced
by
the
Appellant
with
respect
to
his
cost
of
construction
and
neither
the
Appellant
nor
the
Respondent
dealt
with
this
issue
in
their
respective
submissions.
Accordingly,
that
amount
stands
unchallenged.
Rochelle
Moss
did
not
report
the
disposition
of
2165
West
Taylor
in
her
1991
income
tax
return.
However,
in
her
1992
return,
she
reported
its
“sale”
with
gross
revenues
of
$265,000.
The
cost
of
goods
sold
was
reported
to
be
$308,063,
which
amount
purports
to
include
reacquisition
costs
in
the
amount
of
$32,145.75,
resulting
in
a
net
loss
of
$43,063.
The
Appellant’s
position
is
that
the
costs
of
repossessing
the
property
were
well
in
excess
of
the
$20,000
originally
paid
by
the
purchaser,
Dusang.
Since
the
costs
of
reacquisition
more
than
offset
any
profit
from
the
sale,
he
contends
that
the
Minister’s
calculation
of
the
profit
on
the
sale
was
wrong.
The
submission
of
counsel
for
the
Respondent
on
this
issue
in
its
totality
is
that
“as
to
D.
Moss’s
assertion
that
the
costs
of
reacquisition
offset
any
profit
from
the
sale,
the
Respondent’s
position
is
that
that’s
not
relevant.
The
reacquisition
costs
should
be
capitalized
and
may
increase
the
property’s
ACB
in
the
year
of
sale”.
Conclusion
The
Appellant
was
at
all
relevant
times
in
the
business
of
building
homes
for
resale.
2165
West
Taylor,
at
the
time
of
its
disposition
in
1991,
formed
part
of
his
inventory.
When
the
purchaser
defaulted
and
the
Appellant
took
steps
to
reacquire
the
property
(setting
aside
for
the
moment
the
questionable
methods
utilized),
it
was
clearly
his
intention
to
restore
it
to
its
presale
condition
and
put
it
back
on
the
market.
Thus,
he
was
reacquiring
it
as
inventory
to
be
held
for
sale
in
the
ordinary
course
of
his
business.
The
Appellant’s
position
fails
to
take
into
account
section
79
of
the
Act
which
sets
out
all
of
the
governing
rules
where
a
mortgagee
reacquires
beneficial
ownership
of
a
property
as
a
result
of
the
mortgagor’s
failure
to
pay
all
or
any
part
of
the
amount
owed
to
him
(referred
to
in
the
section
as
the
“taxpayer’s
claim”)
which
is
the
amount
of
the
balance
of
principal
owing
by
the
debtor
together
with
interest
accrued
and
unpaid
at
that
time.
Subsection
19(f)
provides
that:
(f)
the
taxpayer
shall
be
deemed
to
have
acquired
or
reacquired,
as
the
case
may
be,
the
property
at
the
amount,
if
any,
by
which
the
cost
at
that
time
of
the
taxpayer’s
claim
exceeds
the
amount
described
in
subparagraph
(e)(i)
or
(ii),
as
the
case
may
be,
in
respect
of
the
property.
The
“cost
at
that
time
of
the
taxpayer’s
claim”
is
to
be
computed
as
at
the
time
when
the
creditor
actually
reacquires
beneficial
ownership
of
the
property.
Considering
the
whole
of
the
section,
it
is
reasonable
to
conclude
that
any
outlays
made
by
the
creditor
before
the
time
of
reacquisition
to
protect
his
interest
in
the
property
could
form
part
of
the
“cost
at
that
time
of
the
taxpayer’s
claim”.
These
outlays
might
properly
include
such
items
as
re-
alty
tax,
insurance
premiums,
necessary
repairs
and
maintenance
but
in
all
cases,
these
amounts
once
established
would
have
to
be
capitalized.
For
this
purpose,
it
is
the
Appellant’s
responsibility
to
first
establish
the
date
on
which
the
reacquisition
occurred
and
then,
with
some
degree
of
clarity,
establish
the
amounts
which
come
within
the
meaning
of
the
term
“cost
at
that
time
of
the
taxpayer’s
claim”.
On
the
evidence
it
is
not
possible
to
determine
what
was
the
cost
of
the
Appellant’s
claim
for
the
purposes
of
section
79
of
the
Act
since
no
evidence
as
to
the
amount
of
the
mortgage
and
interest
“at
that
time
of
the
taxpayer’s
claim”
was
adduced
by
the
Appellant.
Furthermore,
the
documents
submitted
by
the
Appellant
in
support
of
his
claim
establish
that
most
of
the
expenses
were
incurred
following
the
reacquisition
(September
30,
1991)
with
a
substantial
number
of
them
being
incurred
in
1992
and
1993
and
as
such
section
79
would
appear
to
preclude
their
inclusion
as
reacquisition
costs.
As
well
in
1992,
the
property
had
been
rented
and
the
income
and
expenses
therefrom
had
been
reported
in
Rochelle
Moss’s
income
tax
return
for
that
year.
The
Appellant
has
not
established
his
position
on
a
balance
of
probabilities
and
accordingly,
the
Minister’s
assessment
on
this
issue
must
stand.
1992
taxation
year:
919
Mclvor
The
1992
assessment
arises
out
of
the
Appellant’s
failure
to
include
the
amount
of
$24,400
business
income
from
the
construction
of
919
Mclvor
Avenue.
The
Appellant
constructed
a
small
bungalow
plus
a
garage
on
property
owned
by
Mary
Wenger
for
the
set
price
of
$89,000.
There
was
no
written
agreement.
The
Appellant
initially
testified
that
as
general
contractor,
he
hired
the
trades
people,
purchased
the
materials,
disbursed
the
funds
as
provided
to
him
by
Wenger
from
time
to
time
and
turned
over
all
invoices
and
bills
to
her.
As
for
profit
he
said:
I
guess,
not
I
guess,
I
am
saying
that
there
was
nil
profit
made
in
that
transaction.
As
a
matter
of
fact,
I
recall
that
I
had
lost
$1,000
or
$2,000
in
that
transaction,
which
I
never
claimed
because
I
had
so
many
loss
carry-forwards
sitting
there
anyway,
I
never
thought
I’d
be
able
to
use
it.
Subsequently,
in
the
course
of
cross-examination,
reference
was
made
by
the
Appellant
to
a
handwritten
list
of
costs
which
he
provided
to
Revenue
Canada
in
1997.
This
list,
he
said,
was
not
“a
reconstruction”
but
reflected
“the
data
I
kept,
or
the
list
I
kept
as,
I
believe
as
the
home
was
getting
built
or
shortly
within
that
time”.
He
explained
that
there
were
no
invoices
for
most
of
the
items
listed
because
they
“probably”
were
paid
in
cash.
Based
on
this
list,
the
Appellant
submits
that
the
total
of
the
cost
of
construction
was
$95,746,
i.e.
resulting
in
a
loss
of
approximately
$6,746.
The
Appellant
also
relies
on
Rixon’s
cost
estimate
of
$100,900
which
includes
landscaping,
uni-stone
driveway,
GST,
built-in
appliances
and
a
12.4%
profit
margin
for
the
builder
but
is
exclusive
of
land
value.
Rixon
gave
this
home
the
Marshall
&
Swift
“average
quality”
classification.
The
Appellant
says
this
estimate
produces
an
actual
cost
of
$88,388.40
and
a
taxable
gain
of
$611.10,
a
conclusion
he
argues
is
more
consistent
with
his
position
than
Bainard’s.
The
Appellant
would
have
the
Court
believe
that
he
grossly
underestimated
his
cost
of
construction
which,
it
is
reasonable
to
assume,
included
the
cost
of
the
extra
“features”
and
his
anticipated
builder’s
profit.
He
adduced
no
evidence
to
suggest
that
he
ran
into
problems
in
the
course
of
construction
or
that
there
were
unexpected
cost
over-runs.
The
Respondent
relies
on
Bainard’s
estimate
of
replacement
cost
and
his
cost
of
construction
determined
as
follows:
Based
upon
my
research
the
subject
improvements
replacement
cost
new
effective
June
26,
1992
is
$70.00
per
square
foot
of
plan
floor
area
or:
1,085
sq.ft.
x
$70.00
=
$75,950.00
Based
upon
my
research,
the
margin
of
profit
on
homes
of
this
type
is
15%
of
the
contract
price.
This
profit
is
included
in
the
contract
price.
Therefore,
the
replacement
cost
new
excluding
builder’s
profit
is
estimated
at:
85%
of
$75,950
=
$64,557.50
In
his
calculation,
the
Minister
accepted
this
amount
as
the
cost
of
construction
and
then
by
subtracting
it
from
the
contract
price
of
$89,000
determined
the
Appellant’s
net
profit
to
be
$24,400
(rounded
off).
The
profit
margin
resulting
from
this
calculation
is
approximately
28%
and
in
my
view,
is
unreasonable
even
assuming
that
the
Appellant
was
the
beneficiary
of
substantial
discounts
in
the
cost
of
supplies
and
reduced
labour
costs.
For
the
reasons
expressed
previously,
I
am
not
prepared
to
accept
the
Rixon
—
Marshall
&
Swift
cost
analysis
nor
Bainard’s
estimate
of
replacement
cost
new
which
may
not
to
have
taken
into
consideration
the
partially
finished
basement
and
some
of
the
extra
“features”.
The
Appellant’s
testimony
with
respect
to
the
timing
of
the
entries
and
the
accuracy
of
his
“list”
of
costs
is
dubious
and
I
am
not
prepared
to
rely
on
it.
On
the
evidence,
the
only
fact
which
is
not
in
dispute
is
the
contract
price
quoted
to
Wenger
by
the
Appellant,
i.e.
$89,000,
which
I
am
satisfied
included
his
profit
margin.
This
was
a
smaller
house
than
90
and
120
Hopwood
in
respect
of
which
the
Appellant’s
profit
margin
was
approximately
17%.
I
am
also
mindful
of
Bainard’s
testimony
that
there
is
a
distinction
between
owner-built
and
project
manager/builder’s
price
and
that
on
a
smaller
home
a
15%
profit
would
be
reasonable.
Accordingly,
I
have
concluded
that
the
Appellant’s
income
from
this
project
is
to
be
calculated
on
the
basis
of
15%
of
$89,000
being
$13,350.
Taxation
Year
1994
—
The
51
Dumbarton
and
8
Erinview
Transactions
In
his
1994
tax
return,
the
Appellant
reported
commissions
in
the
amount
of
$10,650
(T4A
slips
attached),
RRSP
income
of
$359
and
business
income
of
$10,278.
Aside
from
the
amount,
no
information
was
provided
regarding
the
source
of
the
business
income.
On
October
12,
1995,
the
Appellant
filed
a
Tl
adjustment
request
to
increase
his
1994
income
by
the
amount
of
$29,282.
The
source
of
this
additional
income
was
not
disclosed.
In
assessing
the
1994
taxation
year,
the
Minister
included
additional
business
income
as
follows:
|
Profit
from
51
Dumbarton
|
$105,346
|
|
Profit
from
8
Erin
view
|
$
21,286
|
|
Unreported
commission
income
|
$
5,491
|
|
T-1
Adjustment
requested
by
the
Appellant
|
$
29,282
|
I
have
previously
ruled
that
51
Dumbarton
was
not
a
principal
residence
as
asserted
by
the
Appellant
and
that
the
net
proceeds,
which
I
have
determined
to
be
$102,500
are
to
be
included
in
his
income
for
taxation
year
1994.
8
Erinview
was
a
residence
constructed
by
the
Appellant
on
a
lot
owned
by
Donald
Forsyth
(Forsyth).
He
was
to
use
Forsyth’s
plans
and
to
provide
the
necessary
services
in
contracting
for
the
supplies
and
labour
required
to
construct
a
house.
The
Appellant
testified
that
the
he
declared
a
profit
of
$10,650
from
this
project
in
his
1994
income
tax
return.
He
took
pains
to
point
out
that
the
amount
assessed,
i.e.
$10,643
which
the
Minister
claims
to
be
“the
income
I
did
not
declare
on
that
home
is
like
within
several
hundred
dollars
of
that
amount”,
i.e.
the
$10,650
he
reported.
When
it
was
brought
to
his
attention
that
the
amount
of
$10,643
reflected
the
initial
assessment
in
which
only
50%
of
the
business
income
from
this
project
had
been
attributed
to
him,
the
Appellant
argued
that
his
appeal
had
been
structured
on
the
basis
that
the
total
profit
was
$10,643,
that
he
was
now
caught
by
surprise
by
the
“Minister’s
doubled”
numbers,
and
that
the
Minister
should
not
be
permitted
to
proceed
on
this
basis.
There
is
no
merit
in
the
Appellant’s
position.
The
evidence
is
clear
that
in
the
course
of
examining
Patricia
Ross
(Ross)
an
officer
of
Revenue
Canada
on
discovery
the
Appellant
elicited
responses
which
established
that
the
amount
of
business
income
ultimately
assessed
with
respect
to
8
Erinview
was
$21,286.
This
amount
was
also
specifically
referred
to
by
the
Appellant
in
an
affidavit
he
filed
with
the
Federal
Court
Trial
Division
in
an
action
commenced
by
his
wife.
The
Appellant’s
contention
that
he
was
caught
by
surprise
and
thereby
placed
at
a
disadvantage
by
the
actions
of
the
Minister
is
not
credible.
The
Appellant’s
testimony
with
respect
to
the
profit
earned
from
8
Erinview
and
with
respect
to
his
subsequent
Tl
adjustment
request
is,
to
say
the
least,
perplexing.
In
the
request
he
sought
to
have
his
income
increased
by
$29,282
but
disclosed
no
source.
In
the
course
of
the
trial,
he
first
said
that
this
was
done
to
increase
the
1994
income
by
that
amount
as:
the
full
amount
of
the
loss
carry-forwards
that
I
still
had
available,
as
a
protest,
Your
Honour.
I
said,
‘Here,
your
nickeling
and
diming
me
to
death.
I
don’t
care.
Here
it
is.
I’ll
declare
all
this
income
and
I
don’t
care’,
and
that’s
what
I
did.
In
cross-examination
he
further
explained
this
income
adjustment
as
follows:
Well,
it
wasn’t
all
earned,
as
I
tried
to
describe
to
you
before.
There
was
some
profit
that
was
made
on
the
building
of
the
21
-
121
Park
Place
West
for
Ms.
Barron.
There
wasn’t
very
much
at
all,
I
can’t
remember
the
exact
amount.
The
balance
of
it
was
nothing.
It
was
just
the
utilizing
of
the
rest
of
the
loss
carryforwards
that
I
had
available.
He
firmly
asserted
that
the
number
$29,282
was
not
picked
at
random
but:
part
of
it
would
have
been
any
profits
made
on
121
Park
Place
West...
The
balance
was
nothing.
It
didn’t
occur.
It
is
an
accepted
fact
that
the
Appellant
completed
the
construction
of
121
Park
Place
for
Susan
Barron
in
1994
and
that
he
earned
“some
profit”.
He
also
said
that
since
this
profit
had
not
been
reported
in
his
1995
income
tax
return
(as
he
initially
believed),
he
must
have
included
any
income
earned
therefrom
in
his
1994
return.
I
assume
he
meant
that
it
formed
part
of
the
income
of
$10,650
initially
reported
or
part
of
the
T1
income
adjustment
he
subsequently
sought.
Thus,
what
the
Court
heard
from
the
Appellant
is
that
the
income
reported
came
from
the
Erinview
project,
or
from
the
Erin
view
and
121
Park
Place
projects,
or
that
it
represented
income
from
those
two
sources
plus
a
fictitious
amount
of
$29,282
which
he
described
as
“a
specific
number
so
as
to
come
close
or
right
on
the
amount
of
loss
carryforwards
I
have
left
to
utilize”.
The
Appellant’s
testimony
with
respect
to
the
source
of
the
reported
income
consisted
of
contradictions,
inconsistencies
and
half-truths
and
is
quite
improbable.
His
specific
assertion
that
the
business
income
of
$10,278
initially
reported
reflected
his
total
profit
from
8
Erinview
was
a
statement
tailored
to
conform
to
his
mistaken
assumption
of
the
total
amount
of
income
assessed
and
bore
no
relationship
to
his
profit
from
this
project.
On
the
evidence
before
me,
it
is
not
possible
to
conclude
whether
the
Appellant
reported
any
income
from
this
construction
project.
It
is
the
Appellant’s
responsibility
to
provide
sufficient
records
and
information
to
readily
per-
mit
the
determination
of
amounts
to
be
deducted
as
expenses,
gross
and
net
revenues
and
income
tax
payable.
The
assessment
of
tax
is
not
to
be
converted
into
a
guessing
game.
The
Appellant
also
challenges
the
amount
of
income
assessed
by
the
Minister
as
profit
from
the
construction
of
8
Erinview.
He
relies
on
the
testimony
of
Rixon
who,
several
days
prior
to
trial,
was
asked
by
the
Appellant
to
perform
a
cost
appraisal
of
8
Erinview
and
for
that
purpose
was
provided
with
a
copy
of
Bainard’s
report.
Rixon
examined
the
property
but
did
not
view
the
interior
of
the
house.
He
concluded
that
Bainard’s
cost
of
$75
per
square
foot
was
quite
reasonable
and
does
not
challenge
it
but
does
dispute
Bainard’s
profit-margin
of
19%
on
the
basis
that
according
to
Marshall
&
Swift
it
should
be
12%.
In
assessing,
the
Minister
relied
on
Bainard’s
report
in
which
he
concluded
that:
Based
upon
my
research,
the
subject
improvements
replacement
cost
new
effective
March
17,
1994
is
$75.00
per
square
foot
of
plan
floor
area
or:
2585
sq.
ft.
x
$75.00
=
$193,875.00
Based
upon
my
research,
the
margin
of
profit
on
homes
of
this
type
is
19%
of
the
contract
price.
The
profit
is
included
in
the
contract
price.
Therefore,
the
replacement
cost
new,
excluding
builders
profit
is
estimated
at
81%
of
$75.00
=
$60.75
per
square
foot
of
gross
building
area.
2585
sq.
ft.
x
$60.75
=
$157,038.75
However,
I
must
observe
that
the
foregoing
conclusion
was
done
without
an
inspection
of
the
interior,
appears
not
to
take
into
account
the
agreed
upon
contract
price
of
$68.00
per
square
foot
plus
extras
amounting
to
some
$19,800.
The
nature
of
the
extras
and
their
cost
would
appear
to
indicate
a
built-in
profit
margin
for
the
Appellant
as
well.
In
1997,
the
Appellant
produced
a
list
of
expenses
with
respect
to
this
property
to
Revenue
Canada
(Appeals)
in
the
amount
of
$165,928.
In
his
testimony
in-chief,
he
said
that
the
approximate
cost
of
construction
was
$167,460
and
that
he
was
paid
the
sum
of
$178,110.
He
then
stated
that
the
agreement
with
Forsyth
had
been
amended
to
increase
the
size
from
2,400
to
2,550
sq.
ft.
(or
thereabouts)
at
$68.00
per
square
foot
for
a
total
price
of
$176,400.
He
also
said
that
a
number
of
extras
had
been
agreed
to
in
the
course
of
construction
at
an
added
cost
of
$19,800.
Forsyth,
for
his
part,
had
previously
produced
to
Revenue
Canada
invoices
and
cancelled
cheques
relating
to
the
construction.
The
cancelled
cheques
totalled
$178,000.
According
to
Forsyth,
the
invoices
amounting
to
$94,000
were
all
that
the
Appellant
provided
and
according
to
Forsyth,
virtually
none
related
to
labour
costs.
At
trial,
Forsyth
testified
that
the
Appellant
was
paid
approximately
$194,000
for
the
construction
reflecting
the
contract
cost
and
the
extras.
This
calculation
is
confirmed
by
the
Appellant’s
allegation
in
a
statement
of
claim
filed
by
him
against
Forsyth
in
which
he
asserted
that
the
total
amount
paid
by
Forsyth
was
$193,233.
Given
the
inconsistencies
in
the
testimony,
the
basis
for
the
Minister’s
calculations
is
not
readily
apparent.
I
believe
that
the
amount
of
$21,286
added
to
the
Appellant’s
income
was
determined
on
the
basis
that
the
contract
price
was
$178,287
(per
Forsyth’s
cancelled
cheques)
while
the
“construction
costs”
of
$157,000
(rounded
down
from
$157,038.75)
were
taken
from
Bainard’s
report.
In
so
doing,
the
Minister
was
either
unaware
(or
overlooked)
what
appears
to
have
been
the
actual
contract
price,
i.e.
approximately
$194,000.
However,
had
this
amount
been
used
in
the
calculation,
the
result
would
have
increased
the
amount
of
income
attributable
to
the
Appellant
to
approximately
$37,000
(which
I
might
add
would
be
relatively
consistent
with
Bainard’s
19%
and
the
Appellant’s
claim
in
the
Forsyth
lawsuit
that
his
profit
per
project
amounts
to
$30,000
to
$40,000).
That
being
the
case,
the
Appellant
has
been
the
beneficiary
of
the
Minister’s
miscalculation.
In
any
event,
on
the
evidence
adduced
I
am
satisfied
that
the
Appellant’s
profit
from
the
construction
of
8
Erinview
was
at
least
$21,286.
Given
the
lack
of
any
credible
evidence
to
the
contrary,
there
is
no
basis
upon
which
to
reject
the
Minister’s
assessment
with
respect
to
8
Erinview.
Loss
Carry-forwards
The
Appellant
contends
that
he
had
loss
carry-forwards
available
at
the
beginning
of
1991
in
the
amount
of
$148,522
and
that
he
only
claimed
$16,100.
He
says
that
given
the
availability
of
the
losses
he
had
no
motivation
to
conceal
income
from
the
Respondent
and
could
have
claimed
an
additional
$132,422
to
set
off
against
income
in
1991,
$36,251
of
which
was
to
expire
in
the
next
tax
year.
In
1992,
he
had
$96,171
in
loss
carryforwards
available,
but
claimed
none.
He
contends
that
the
Minister’s
assumption
that
he
had
failed
to
report
income
in
1994
of
$20,356
was
wrong,
arguing
that
he
had
no
such
income
otherwise
he
would
have
reported
it
and
set
it
off
as
against
his
available
losses.
The
Appellant’s
assertion
that
no
motive
to
conceal
income
existed
must
be
viewed
in
light
of
the
fact
that
he
deliberately
avoided
the
payment
of
taxes
in
1991
on
business
income
of
approximately
$190,000
being
the
net
proceeds
from
the
disposition
of
2
Hopwood
and
2
Dumfries
by
treating
them
as
principal
residences.
Furthermore,
with
respect
to
51
Dumbarton
which
was
sold
in
1994,
neither
the
Appellant
nor
his
wife
reported
its
disposition
nor
did
he,
from
all
appearances
report
the
income
earned
on
the
construction
of
a
residence
for
Susan
Barron.
The
decision
not
to
report
the
income
from
these
projects
as
well
as
from
the
Erinview
and
Mclvor
transactions
was
solely
the
Appellant’s.
Penalties
Penalties
were
imposed
by
the
Minister
pursuant
to
subsection
163(2)
of
the
Act
in
taxation
years
1991,
1992
and
1994
with
respect
to
the
failure
by
the
Appellant
to
include
in
income
the
profits
from
2165
West
Taylor,
919
Mclvor
and
8
Erinview,
respectively.
The
evidence
as
a
whole
establishes
that
throughout
the
years
in
issue
and
in
other
years,
the
Appellant
demonstrated
a
markedly
cavalier
attitude
not
only
with
respect
to
the
reporting
of
his
income
and
expenses,
but
also
regarding
the
retention
of
basic
transaction
data
such
as
invoices,
receipts,
contracts,
cancelled
cheques,
etc.
Furthermore,
he
was
not
unaware
of
the
requirement
that
such
records
should
generally
be
kept
for
six
years.
I
note
that
it
was
the
Appellant
who
attended
to
the
preparation
of
both
his
and
his
wife’s
income
tax
returns
and
it
has
not
been
suggested
that
the
omission
of
this
income
was
the
result
of
simple
inadvertence
or
oversight.
On
the
facts
before
me,
I
am
satisfied
that
the
Appellant
knowingly
made
false
statements
or
omissions
in
the
income
tax
returns
filed
for
these
years
as
a
result
of
which
the
tax
that
would
have
been
payable
was
not
accurately
reported.
The
penalties
were,
in
my
view,
properly
imposed.
The
appeals
are
allowed
and
the
assessments
are
referred
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
following
basis:
1991
taxation
year:
The
business
incomes
assessed
with
respect
to
2
Hopwood
and
2
Dumfries
are
to
be
reduced
to
$63,630
and
$103,000,
respectively;
1992
taxation
year:
The
business
income
assessed
with
respect
to
the
construction
of
919
Mclvor
is
to
be
reduced
to
$13,350
and
the
penalty
assessed
to
be
adjusted
accordingly;
and
1994
taxation
year:
The
business
income
assessed
with
respect
51
Dumbarton
is
to
be
reduced
to
$102,500.
The
Appellant
is
not
entitled
to
any
further
relief
in
any
of
the
taxation
years
in
issue.
Appeal
allowed
in
part.
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