Wilfred H Browne v. Minister of National Revenue, [1979] CTC 2376, 79 DTC 342

The Chairman:—This is the appeal of Wilfred H Browne from an income tax reassessment dated March 1, 1977, by which the respondent added to the appellant’s income for the 1973 taxation year an amount of $18,250.50 as being his share of the capital gain realized on the sale of a residential property situated on Finch Avenue (hereinafter referred to as the “Finch property”). By a further reassessment dated February 24, 1978, the respondent allowed a reserve on the proceeds of the sale of the Finch property pursuant to subparagraph 40(1)(a)(iii) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

In 1947 the appellant and his wife purchased two acres of land under the Veteran’s Land Act, RSC 1970, c V-4, and built a residence in which they lived until 1969. In 1969, a real estate broker, in an attempt to assemble some thirteen acres of land, purchased, along with seven similar properties, the Finch property for $175,000 with a mortgage back of $125,000. In 1972, the purchaser defaulted on the mortgage and the appellant and his wife repossessed the property as of December 5, 1972. The Finch property had remained vacant since its sale. Considerable damage had been sustained by the property and it was in a poor state of repair at the time of foreclosure. After having the Finch property repaired and redecorated, the appellant then rented it.

After the sale of the Finch property in 1969, the appellant and his wife had acquired a new residence and did not subsequently reoccupy their former residence on Finch Avenue.

In 1973, the real estate broker who had attempted the original land assembly succeeded in financing the land assembly project and the Finch property was sold a second time by the appellant and his wife for $200,000 with a mortgage back of $175,000.

By letter dated November 12, 1975, the appellant advised the Minister of National Revenue that the Finch property was exempt from capital gains tax in that the taxpayer was electing under subsection 45(2) and attached the requisite form to his letter.

The Minister of National Revenue nevertheless reassessed the appellant as stated above to which the appellant objected and filed his notice of appeal.

There is no dispute as to the facts in this appeal nor as to the amount involved. The issue is whether the Finch property at the time of its sale by the appellant can be considered as a principal residence within the meaning of paragraph 54(g).

Paragraph 54(g) reads:

In this subdivision,

(g) “principal residence” of a taxpayer for a taxation year means a housing unit, a leasehold interest therein, or a share of the capital stock of a co-operative housing corporation, owned, whether jointly with another person or otherwise, in the year by the taxpayer, if the housing unit was, or if the share was acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation that was,

(i) ordinarily inhabited in the year by the taxpayer, his spouse or former spouse, or a child of the taxpayer who, during the year, was wholly dependent upon him for support and was a person described in subparagraph 109(1 )(d)(i),

(ii) or (iii), or

(ii) property in respect of which the taxpayer has made an election for the year in accordance with subsection 45(2),

except that, subject to section 54.1, in no case shall any such housing unit, interest or share, as the case may be, be considered to be a taxpayer’s principal residence for a year

(iii) unless it has been designated by him in prescribed manner to be his principal residence for that year and no other property has been so designated by him for that year, or

(iv) by virtue of subparagraph (ii), if by virtue of that subparagraph the property would, but for this subparagraph, have been his principal residence for 4 or more previous taxation years,

and for the purposes of this paragraph the “principal residence” of a taxpayer for a taxation year shall be deemed to include, except where the property consists of a share of the capital stock of a co-operative housing corporation, the land subjacent to the housing unit and such portion of any immediately contiguous land as may reasonably be regarded as contributing to the taxpayer’s use and enjoyment of the housing unit as a residence, except that where the total area of the subjacent land and of that portion exceeds one acre, the excess shall be deemed not to have contributed to the individual’s use and enjoyment of the housing unit as a residence unless the taxpayer establishes that it was necessary to such use and enjoyment:

There is no question that up until 1969, the Finch property had been acquired and was the appellant’s principal residence. However, after disposing of it and establishing himself at another residence, the Finch property ceased to be his principal residence. The fact thast the appellant repossessed the Finch property in December 1972 does not make it his principal residence because it was not acquired for that purpose nor was it used by him as a principal residence after 1969.

Subsection 45(2), which the appellant’s representative cited and which is referred to in subparagraph 54(g)(ii), must be read in conjunction with subsection 45(1) which deals with property which is a principal residence but which can have some other use (ie a duplex) and where an election may be made with reference to a change in use pursuant to subsection 45(2).

Subsection 45(2) is not applicable to the facts of this appeal because the Finch property was acquired in December 1972 and sold in 1973 not as the appellant’s principal property but as a rent-producing property which then was its only use.

The basic interpretation to be given to paragraph 54(g) is the ordinary meaning of what is generally understood by “principal residence”. The subparagraphs of paragraph 54(g) deal with various circumstances surrounding the disposition of what in fact is a principal residence. This is evidently not the case in this appeal and paragraph 54(g) is not applicable to the facts of this appeal.

I hold that the respondent did not err in including in the appellant’s 1973 income the amount of $18,250.50 as being the appellant’s share of the capital gain realized on the disposition of the Finch property and allowing a reserve pursuant to subparagraph 40(1 )(a)(iii) of the Income Tax Act.

Decision

For these reasons the appeal is dismissed.

Appeal dismissed.