Guy
Tremblay
[TRANSLATION]:—This
case
was
heard
in
Montreal,
Quebec
on
June
9,
1977.
1.
Point
at
Issue
The
Board
must
decide
whether,
in
respect
of
the
1972
taxation
year,
a
sum
of
$2,323,
which
the
respondent
claims
is
recapture,
is
taxable,
and
whether
a
sum
of
$960.33
which
the
appellant
claims
is
a
capital
loss,
is
an
allowable
deduction.
2.
Burden
of
Proof
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessment
is
incorrect.
This
burden
of
proof
derives
not
from
one
particular
section
of
the
Income
Tax
Act,
but
from
a
number
of
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
R
W
S
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
n-
3.1.
Most
of
the
facts
proved
are
correctly
reported
in
paragraph
2,
items
(a)
to
(f),
of
the
amended
reply
to
the
respondent’s
notice
of
appeal:
(a)
on
July
16,
1953,
the
Appellant
bought
real
estate
located
at
190
Lilas
Street,
Dorval,
for
$12,500.00,
the
said
real
estate
being
for
his
own
use;
(b)
in
the
course
of
taxation
year
1963,
the
Appellant
decided
to
change
the
use
of
his^real
estate,
namely
by
renting
the
said
real
estate.
(c)
at
the
time
of
this
change
in
usage,
the
Appellant
valued
his
real
estate
-at
$12,000.00
for
capital
cost
allowance
purposes;
(d)
on
August
10,
1972,
the
Appellant
sold
his
real
estate
for
$12,000.00,
$6,000.00
of
which
was
payable
at
the
time
of
the
sale
and
the
balance,
plus
eight
per
cent
interest,
due
on
August
10;
1977;
(e)
between
1963
and
1971
inclusive,
the
Appellant
claimed.
capital
cost
allowance
on
this
real
estate
which,
in
accordance
with
its
class,
amounted
to
five
per
cent
yearly;
(f)
the
undepreciated
portion
of
the
capital
cost
for
this
class
of
property
was
$8,269.06
at
the
time
of
the
disposal
of
the
depreciable
asset;
3.2.
It
was
further
admitted
that
the
fair.
market
value
of
the
house
was
$16,500
at
December
31,
1971.
3.3.
According
to
the
assessment
carried
out
in
1971
for
municipal
tax
purposes,
the
house
was
worth
$7,730
and
the
land,
$2,160,
for
a
total
of
$9,890.
3.4.
In
the
appellant’s
view,
the
lot
had
a
fair
market
value
of
$4,540.67
at
December
31,
1971,
a
figure
which
he
justifies
as
follows:
According
to
the:
municipal
assessment,
the
value
of
the
building
constitutes
78.16
per
cent
of
the
total
assessment
$7,730.00
$9,890.00
Since
the
fair
market
value
of
the
house
was
acknowledged
to
be
$16,500.00,
the
total
value
of
the
real
estate
is
therefore
$16,500.00
«.100
—
$20,790.67,
78.16
which
leaves
a
remaining
value
for
the
lot
of
$4,540.67,
or
21.84
per
cent
of
the
total.
3.5.
The
respondent,
however,
considers
the
fair.
market
value
of.
the
land
at
December
31,
1971
to
be
$2,160,
which
is
the
municipal
assessment.
3.6.
Out
of
thé
$12,000
selling
price,
the
respondent
considers
$10,592.06
to
be
a
reasonable
price
for
the
house,
which
constitutes
a
recapture
of
($10,592.06
—
$8,269.06)
$2,323.
3./.
The
appellant,
however,
keeping
the
same
percentages
taken
from
the
municipal
assessment
(78.16%
for
the
house
and
21.84%
for
the
land)
sets
$9,379.20
as
the
selling
price
for
the
house
and
$2,620.80
as
the
selling
price
for
the
land.
4.
Act
and
Comments
4.1.
The
sections
of
the
Act
primarily
involved
in
the
case
at
bar
are
section
3
and
paragraph
20(6)(b)
of
the
former
Act
and
section
3,
subsection
13(1),
paragraph
13(7)(b)
and
section
68
of
the
new
Act.
4.2.
Recapture
According
to
the
appellant,
the
total
depreciation
claimed—$4,038.96
in
his
calculations—should
be
subtracted
from
$16,500
(leaving
a
balance
of
$12,221.04)
and
not
from
$12,000,
the
selling
price
of
the
house
in
1953
and
the
value
placed
on
the
house
in
1963
when
he
began
to
rent
it.
In
pleading
his
case,
that
is
in
numerous
letters
written
to
the
Board
and
to
the
Department
of
National
Revenue
or
to
counsel
for
the
Department,
the
appellant
maintains,
moreover,
that
he
paid
too
much
for
this
house,
which
is
why
he
was
unable
to
sell
it
for
more
than
$12,000,
that
is,
for
less
than
the
purchase
price
19
years
after
the
date
of
the
purchase.
In
the
case
at
bar,
the
appellant
is
quite
wrong
in
wanting
to
value
the
house
at
$16,500
in
1963.
Besides,
given
a
fair
market
value
of
$16,500
in
1971,
the
house
should
not
be
worth
much
more
than
$12,000
in
1963.
Real
estate
increased
much
more
in
value
after
1963
than
before
1963.
From
another
standpoint,
the
Board
accepts
the
appellant’s
figure
of
$9,379.20
as
a
more
logical
selling
price
for
the
building,
which
establishes
the
recapture
at
($9,379.20
—
$8,269.06)
$1,110.14.
4.3.
Capital
Loss
The
Board,
accepting
the
appellant’s
figures
for
the
land;
sets
the
capital
loss
at
($4,540.67
—
$2,620.80)
$1,919.87,
half
of
which
can
be
deducted.
5.
Conclusion
The
appeal
is
allowed
in
part
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
in
accordance
with
the
reasons
for
judgment.
Appeal
allowed
in
part.
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