Ewald Rode v. Minister of National Revenue, [1977] CTC 2365, 77 DTC 258

Delmer E Taylor:—This is an appeal from an income tax assessment for the year 1974 in which the Minister of National Revenue increased the taxable income of the appellant by an amount of $24,033.34 representing the net gain on the sale of a house and lot during that year. The appellant relied on paragraphs 54(g) and 40(2)(b) of the Income Tax Act. The respondent relied, inter alia, upon sections 3, 4 and sub- sections 9(1) and 248(1) of the Income Tax Act, RSC 1952, c 148 as amended by SC 1970-71-72, c 63, section 1.

Facts

The appellant was at all times material self-employed as a subcontractor, or as a contractor in his own right building residential properties. He built and sold a house at 406 Chalfont Road, Winnipeg, the net gain on the transaction forming the subject of this appeal.

Contentions

The appellant asserted that:

—He purchased his first personal residence in 1965 at 206 Lipton Street, wherein he resided until September 1973 when he moved to 406 Chalfont Road, a property he had built as his new personal residence. The new residence was decorated to his personal taste and it was his intention to reside at 406 Chalfont Road for years to come.

—This property was never, at any time, advertised for sale nor did he solicit offers to purchase.

—The purchasers had twice before made offers to buy this particular property but were refused with the explanation that it was the appellant’s personal residence and not “for sale’’.

—After residing in 406 Chalfont Road for several months, the appellant (although the house suited his personal needs and tastes as a residence) began to realize that the property did not meet his expanding business needs. The appellant’s business was not large enough to require separate yard and office facilities, a combination of both being adequate. This line of reasoning on his part coincided with the third unsolicited offer from the purchasers of 406 Chalfont Road. The appellant then accepted the third offer and moved to his present residence at 525 Elmhurst Avenue. This property has a yard large enough for storage of supplies, equipment and materials. The house was adapted to permit passage by the appellant’s truck to the rear of the property.

The respondent asserted that:

—At all material times the appellant was in the business of building and selling houses.

—Prior to September 1973 the appellant built a house at 406 Chalfont Road in Winnipeg in the Province of Manitoba.

—During the construction of the house at 406 Chalfont Road it was included in the appellant’s work in progress as part of his business inventory.

—During his 1974 taxation year the appellant sold the house at 406 Chalfont Road, realizing a profit in the amount of $24,033.54. Evidence

It would serve little purpose to review the detailed and informative evidence provided by both the appellant himself, the purchaser of the property, a Mr Sigimund Redman, and the appellant’s chartered accountant, a Mr Norman Fiske. In essence it supported the basis of the appellant’s contentions as outlined above. Counsel for the appellant recognized clearly the impediments in the case posed by the direct and continuing involvement with the construction industry, and the difficulties of segregating therefrom the appellant’s actions which related to his personal residence requirements. His portrayal for the Board of the evidence upon which such a distinction could be made was very capably managed, and the appellant’s evidence was corroborated by Redman and Fiske. Totally, it was very impressive indeed.

However, a witness for the respondent, Mr Edward Wallis, an Appeals Officer with the Department of National Revenue, produced and identified photostatic copies of advertisements from the Winnipeg Tribune dated June 8, 9, 11, 12, 13 and 14, 1973, listing for sale a house at 406 Chalfont Road. A copy of a further advertisement dated June 20, 1973 for another property (404 Elmhurst, Winnipeg), giving the same telephone number, was also introduced by this witness. There was considerable comment by counsel for the appellant about the admissibility of this evidence, and about the research work done by Wallis in making these advertisements available. The sale advertisements for the subject property appear to the Board to be identical and, for the purpose of record, one is reproduced:

CHARLESWOOD

406 Chalfont. Very well designed 3 BR bung. with dble. att. garage & OFP.

*“L shaped LR & DR carpeted Lge. kit. with eating area

Pwd. rm. off MBR

Lot 60 x 165 ft.

Only $40,600

To view call Mr. Rode 889-7786

783-9960 evgs.

After some further discussion with counsel, the appellant himself was recalled to the witness-stand and gave his view of the advertisement, in answer to questions from his counsel:

Q. Mr Rode, you have had a chance now to examine these ads which appeared for one week in the month of June of 1973 for 406 Chalfont? A. Yes.

Q. Do you remember placing these ads? A. No, I don’t remember placing these ads.

Q. Mr Rode, before coming here today, and before pursuing this matter to the stage at which we are at now, did you do any checking to see if you had placed any ads on this property? A. Yes. Mr Fiske asked me if I had and I said no. So I started checking some files and I didn’t see any and I! couldn't find any receipts for them and so I was positively sure that I didn’t.

Q. Can you give us any explanation as to why you would have advertised it if according to your earlier testimony you did not want to sell it? A. The ad is there and I must have placed it. If I said something before, and it is not true now, then it was my intention and it is something that I didn’t know about because I did not want to sell the house. I had no intention of selling this house or of placing an ad. I don’t know why I may have done it. It might have been 404 Elmhurst and that might have been the reason, I don’t know.

Q. Where were you operating out of at this time? A. Well, I still lived at 206 Lipton St. but at most of the time I was working at 406 Chalfont during the evenings.

Q. The phone numbers that are listed in there, what phone is that; do you recognize that? A. This is the 206 Lipton St. phone.

Q. So that you have no explanation that you can offer as to why you would have placed the ads other than you might have wanted to attract customers for your house at Elmhurst. Have you any other explanation? A. Yes, I think that was supposed to be for that and I have no other explanation and I am not sure.

Q. Well, thinking back now to the month of June in that year, was there anything—any reason why particularly for one week in the month of June you might have advertised it and that you did not advertise it at any other time of the year? A. I can’t really say.

Q. Was your house sold at 206 Lipton at the time? A. In June, I guess not.

Q. We are still looking for some sort of clarification I believe that you and Mr. Redmann testified that June of 1973 was about the time that he came to see you? A. Yes that is correct.

Q. Now. if you had placed an ad offering to sell it at $40,600 why would you not have accepted an offer from him at that time? A. Well, basically I didn't want to sell this house and I wanted to move into this house.

Q. Does this $40,600 sound like the price that you would have attributed to this house? A. Well maybe at that time but it was not finished yet.

Q. How much was it finished at that time? A. Well the roof was on and the finishing inside was done I think. The house outside I think was completed.

Argument

The rather dramatic evidence introduced by counsel for the respondent, through his witness, provided sharp contrast to the evidence for the appellant. Both counsel therefore related to the evidence, rather than relying greatly upon earlier case law. In substance the appellant’s case from the viewpoint of his counsel came down to:

Now, it is purely a speculative thing as to why the ad was placed at all. So I think that from what he says the ad was placed and it was of a limited nature, the overwhelming evidence goes the other way to support Mr Rode’s Stated intentions.

Counsel for the respondent placed the matter this way:

Now, coming back to what I think is going to be most significant, we have the taxpayer’s statement unequivocably that he never thought of reselling the house and that he had always from the word go, from the very start or from the first home or whatever it was, that this was going to be his home. I would submit to you that there really is a question here as to the other evidence and what kinds of inferences can be drawn and how strongly they contradict Mr Rode’s direct testimony.

Findings

Due to the particular circumstances cited above, the Board has reviewed in detail the complete official transcript of the hearing. To accept the evidence which is, as indicated by counsel, overwhelmingly in favour of the appellant, would be to accept concurrently the statement contained in his notice of appeal:

This property was never, at any time, advertised for sale nor did the Appellant solicit offers to purchase.

There may have been a reason or reasons for which the advertisements for sale were placed in the newspapers. It is even conceivable that they were not placed by the appellant personally or, if so placed, for a reason other than to induce a sale (perhaps as he indicated for comparison or to interest prospective purchasers in some of his other property).

However, the Board is of the opinion that there is no explanation available save the one provided by counsel for the respondent—the desire and intention of the appellant to sell the subject property.

Decision

The appeal is dismissed.

Appeal dismissed.