Strayer,
J.:
—
Relief
Requested
This
is
an
appeal
against
a
reassessment
by
the
defendant
of
the
plaintiff's
income
tax
for
her
1982
taxation
year,
in
respect
of
the
gain
realized
by
her
in
the
disposition
of
Lot
77,
Section
31,
Nanaimo
District,
Gabriola
Island,
Plan
23760.
Facts
At
the
time
of
disposition,
the
plaintiff
owned
this
lot
as
well
as
the
adjacent
Lot
76,
all
part
of
a
subdivision
of
approximately
100
lots.
Lot
76
is
approximately
105
feet
wide
and
Lot
77
is
100
feet
wide.
Their
sides
vary
in
length
from
214
to
223
feet.
Their
sides
run
on
a
north-easterly/south-westerly
axis,
the
south-west
ends
facing
onto
a
road
called
Wild
Cherry
Terrace.
The
north-east
ends
commence
to
slope
away
toward
the
sea
which
is
approximately
one
mile
away,
and
those
ends
of
the
lot
afford
a
splendid
view
over
the
Strait
of
Georgia
toward
the
mainland
of
British
Columbia.
The
background
facts
are
not
in
dispute.
In
1971
the
plaintiff
and
her
husband
entered
into
an
agreement
to
purchase
Lot
76.
They
initially
purchased
it
as
a
campsite
and
they
paid
approximately
$4,000
for
it
in
instalment
payments.
In
1973
or
1974
they
built
a
cottage
on
it
with
the
help
of
friends.
By
1975
they
had
completed
paying
for
Lot
76
and
they
also
bought
Lot
77
for
$10,000,
acquiring
title
to
both
lots
in
June
of
that
year.
Up
until
this
time
they
had
lived
in
Victoria
and
used
the
Gabriola
property
simply
as
a
vacation
site.
At
about
that
time
Mr.
Fourt
left
his
employment
as
a
bank
manager
in
Victoria
and
bought
a
share
in
a
business
in
Nanaimo.
They
decided
to
live
on
Gabriola.
They
originally
intended
to
build
a
house
on
Lot
77
but
eventually
decided
to
add
on
instead
to
their
cottage
on
Lot
76.
This
they
did
by
stages
commencing
in
1975
and
continuing
to
build
for
two
or
three
years.
While
the
house
was
built
entirely
on
Lot
76
they
built
a
storage
shed
on
Lot
77
to
enable
them
to
store
the
furniture
from
their
house
in
Victoria,
which
they
had
sold
in
the
meantime,
until
the
house
was
completed.
They
installed
an
incinerator
on
Lot
77
and
an
outhouse
for
use
during
power
failures
and
when
they
had
an
excess
of
visitors.
They
had
some
lawn
on
Lot
77
and
some
parking
area
although
their
principal
driveway
was
on
Lot
76.
The
well
and
a
garden
shed
were
also
on
Lot
76.
The
plaintiff
testified
that
one
of
the
reasons
for
buying
Lot
77
was
to
preserve
the
quietness
and
privacy
of
Lot
76.
While
both
lots
had
originally
been
in
the
joint
names
of
the
plaintiff
and
her
husband,
in
1980
they
were
transferred
into
her
name
alone.
Various
mortgages
were
put
on
the
property
for
the
purpose
of
financing
the
business
ventures
of
the
plaintiff's
husband.
These
were
consolidated
in
1982
into
a
mortgage
on
Lot
76
alone.
The
lots
were
appraised
in
1982
with
values
being
fixed
at
$160,000
for
Lot
76
and
$70,000
for
Lot
77.
In
that
year
Lot
77
was
transferred
to
Cowell
Investments
Ltd.
in
consideration
of
the
transfer
of
shares
in
ABC
Electric
Ltd.,
a
business
in
Victoria,
to
the
plaintiff's
husband.
The
value
of
$70,000
was
given
to
Lot
77
for
this
purpose.
The
plaintiff
did
not
report
any
capital
gain
in
respect
of
the
sale
of
Lot
77
in
her
income
tax
return
for
1982.
By
notice
of
reassessment
of
July
9,
1986
the
defendant
reassessed
her
1982
income,
assessing
a
taxable
capital
gain
of
$30,000
on
the
disposition
of
Lot
77,
on
the
basis
that
the
capital
gain
was
$60,000
representing
the
difference
between
the
purchase
price
of
$10,000
of
Lot
77
and
its
disposition
price
of
$70,000.
The
plaintiff
took
the
position
that
Lot
77
was
part
of
her
“principal
residence"
at
the
time
of
its
disposition
and
therefore
the
proceeds
of
disposition
were
exempt
from
capital
gains.
She
appealed
to
the
Tax
Court
of
Canada
which
dismissed
her
appeal
on
June
8,
1988
([1988]
2
C.T.C.
2060;
88
D.T.C.
1420).
She
then
appealed
to
this
Court.
Issue
Paragraph
54(g)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
provides
as
follows:
54.(g)
“Principal
residence"
of
a
taxpayer
for
a
taxation
year
means
a
housing
unit
.
.
.
owned
.
.
.
in
the
year
by
the
taxpayer.
.
.
(v)
for
the
purpose
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
1/2
hectare,
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
established
that
it
was
necessary
to
such
use
and
enjoyment
.
.
.
.
It
is
agreed
that
the
total
surface
area
of
these
two
lots
together
would
be
less
than
1/2
hectare.
It
must
therefore
be
determined
whether
Lot
77
may
be
regarded
as
"contiguous"
to
the
land
subjacent
to
the
house
on
Lot
76
and
if
so
whether
it
"may
reasonably
be
regarded
as
contributing
to
the
taxpayer's
use
and
enjoyment.
.
.”
of
that
house
as
a
residence.
Conclusions
With
great
respect,
it
appears
to
me
that
the
learned
trial
judge
in
the
Tax
Court
of
Canada
focused
on
the
wrong
issue.
After
reciting
the
facts
he
made
the
following
observation
at
2062
(D.T.C.
1421):
From
the
appellants
subjective
viewpoint,
certainly
the
use
and
enjoyment
by
her
of
the
space
afforded
by
the
adjacent
Lot
77
is
a
matter
to
be
considered.
But
was
it
necessary
to
the
use
and
enjoyment
of
her
home
on
Lot
76?
[Emphasis
added.]
He
then
went
on
to
consider
the
decision
of
Eric
Rode
and
Elizabeth
Rode
v.
M.N.R.,
[1985]
1
C.T.C.
2324;
85
D.T.C.
272
(T.C.C.)
which
was
a
case
involving
the
disposition
of
some
9.3
acres
of
land
where,
of
course,
the
burden
was
on
the
taxpayer
to
show
that
any
amount
in
excess
of
1/2
hectare
was
"necessary"
to
his
use
and
enjoyment
of
the
housing
unit.
After
considering
that
case,
the
learned
judge
concluded
with
respect
to
the
present
set
of
circumstances
as
follows:
From
the
outset
the
appellant
really
dealt
with
Lot
77
for
what
it
was—a
legal
entity.
For
instance,
the
title
thereto
was
encumbered
by
a
registered
judgment
in
1980
which
was
subsequently
removed
with
the
proceeds
of
a
mortgage
placed
on
Lot
76.
The
facilities
placed
on
Lot
77
could
have
as
easily
been
located
on
the
"home
lot”
Lot
76.
The
sale
of
the
adjoining
Lot
77
did
not
affect
the
appellants
use
and
enjoyment
of
Lot
76
where
her
residence
was
located.
Though
the
use
of
the
space
provided
by
Lot
77
may
have
been
convenient
and
enjoyable
it
was
not
necessary
to
the
appellant’s
"use
and
enjoyment
of
the
housing
unit
as
a
residence"
within
the
meaning
of
paragraph
54(g).
Thus
it
will
be
seen
that
while
the
learned
judge
considered
that
the
use
of
Lot
77
may
well
have
been
convenient
and
enjoyable
for
the
plaintiff
he
dismissed
her
appeal
because
that
lot
was
not
"necessary"
to
the
use
and
enjoyment
of
the
housing
unit.
He
thus
applied
the
test
appropriate
for
the
disposition
of
land
in
excess
of
1/2
hectare
whereas
the
land
in
question
here
was
less
than
1/2
hectare.
Counsel
referred
me
to
only
one
reported
decision
under
subparagraph
54(g)(v)
involving
the
disposition
of
land
of
less
than
1/2
hectare.
This
was
the
case
of
Johnstone
v.
The
Queen,
[1988]
1
C.T.C.
48;
88
D.T.C.
6032
(F.C.T.D.)
where
my
colleague
Muldoon,
J.
decided
that,
in
reference
to
a
strata-title
duplex
built
by
the
taxpayer,
the
disposition
of
the
lower
unit
prior
to
the
occupation
by
the
taxpayer
of
the
upper
unit
did
not
amount
to
the
disposition
of
part
of
a
"principal
residence".
The
facts
of
that
case
were
extraordinary
and
of
little
relevance
to
the
present
circumstances.
The
unit
in
question
had
never
been
used
in
any
way
by
the
taxpayer
prior
to
its
disposition
and
it
had
clearly
been
built
with
a
view
to
disposition.
I
must
therefore
seek,
without
much
guidance
from
the
jurisprudence,
to
give
subparagraph
54(g)(v)
an
appropriate
meaning
in
the
present
context.
Two
observations
can
be
made.
Firstly,
the
burden
of
proof
on
the
taxpayer
in
respect
of
the
disposition
of
land
under
1/2
hectare
is
very
considerably
less
than
the
burden
of
proof
in
respect
of
land
of
more
than
1/2
hectare.
There
is
a
common
thread
running
through
both,
namely
that
it
must
be
shown
that
the
land
disposed
of
contributed
to
the
"use
and
enjoyment
of
the
housing
unit
as
a
residence".
But
it
is
sufficient
in
respect
of
the
smaller
dispositions
to
show
that
the
land
disposed
of
"may
reasonably
be
regarded
as
contributing"
to
that
use
and
enjoyment,
whereas
in
respect
of
the
larger
dispositions
the
taxpayer
must
establish
that
it
was
“necessary
to
such
use
and
enjoyment".
Secondly,
it
appears
to
me
that
the
actual
use
and
enjoyment
made
by
the
taxpayer
of
the
property
is
considerably
more
important
in
the
application
of
the
test
with
respect
to
dispositions
of
land
of
less
than
1/2
hectare.
I
need
not
enter
the
debate
as
to
whether
the
test
of
what
is
"necessary"
in
respect
of
larger
dispositions
is
an
objective
or
subjective
test.
With
respect
to
the
test
for
smaller
dispositions,
however,
the
only
requirement
is
that
the
land
disposed
of
“reasonably
be
regarded
as
contributing”.
The
word
"reasonably"
implies
some
kind
of
objective
test
in
the
sense
that
the
Court
is
not
obliged
to
indulge
the
most
extravagant
or
fanciful
views
of
a
taxpayer
as
to
how
contiguous
land
contributes
to
the
use
and
enjoyment
of
her
residence.
But
where
there
is
credible
evidence,
as
there
is
here,
of
actual
use
and
enjoyment
by
the
taxpayer
of
the
contiguous
land
in
connection
with
her
house,
and
such
use
and
enjoyment
is
not
of
an
exaggerated
or
unnatural
sort,
a
great
deal
of
weight
must
be
attached
to
it
in
assessing
whether
such
use
can
be
reasonably
regarded
as
contributing
to
the
taxpayer's
use
and
enjoyment
of
his
residence.
It
is
not
for
the
officials
of
the
Department
of
National
Revenue,
nor
for
the
courts,
to
be
the
arbiters
of
lifestyles
chosen
by
taxpayers.
We
must
resist
the
temptation
to
reject
too
readily
the
taxpayer's
choice
of
what
contributes
to
the
use
and
enjoyment
of
his
residence
just
because
others
might
choose
differently:
in
particular
we
are
not
entitled
to
reject
the
taxpayer's
claim
that
certain
land
contributed
to
the
use
and
enjoyment
of
his
residence
simply
because
in
our
view
such
land
was
not
necessary
to
that
use
and
enjoyment.
The
latter
test
is
appropriate
only
for
dispositions
of
holdings
totalling
more
than
1/2
hectare.
In
the
present
case
the
plaintiff
gave
very
credible
evidence
that
she
and
her
husband
bought
Lot
77
to
provide
them
with
additional
space
and
privacy.
Although
they
had
intended
to
build
a
house
on
it,
they
kept
it
and
did
make
use
of
it.
While
its
use
as
space
for
a
storage
shed,
an
outhouse,
an
incinerator,
some
lawn
and
parking
was
obviously
not
essential
to
the
use
and
enjoyment
of
the
house
on
Lot
76,
it
clearly
contributed
to
that
use
and
enjoyment.
It
is
true,
as
counsel
for
the
defendant
implied,
that
all
of
these
uses
could
have
been
accommodated
on
Lot
76.
It
is
also
true
that
after
the
sale
of
Lot
77
in
February
1982
the
plaintiff
continued
to
live
in
the
house
on
Lot
76
until
early
1983
and
was
able
to
rent
the
house
to
a
tenant
until
1990
when
it
was
sold.
There
was
nothing
to
suggest
that
the
plaintiff
or
her
tenant
suffered
any
particular
hardship
in
being
limited
to
Lot
76.
Nevertheless,
that
is
not
the
test
for
whether
a
portion
of
land
may
reasonably
be
regarded
as
contributing
to
the
taxpayer's
use
and
enjoyment
of
his
or
her
housing
unit.
What
is
important
is
that
Lot
77
did
in
the
plaintiff's
view
contribute
to
her
use
and
enjoyment
of
her
house
and
that
view
cannot
be
characterized
as
exaggerated,
fanciful
or
unnatural.
Therefore
Lot
77
can
reasonably
be
regarded
as
so
contributing
to
that
use
and
enjoyment
and
I
so
find.
Counsel
for
the
defendant
also
argued
that
Lot
77
could
not
be
said
to
oe
“immediately
contiguous
land"
in
relation
to
the
housing
unit.
It
will
be
noted
that
subparagraph
54(g)(v)
includes
as
part
of
the
principal
residence
.
.
.
the
land
subjacent
to
the
housing
unit
and
such
portion
of
any
immediately
contiguous
land
as
may
reasonably
be
regarded
as
contributing
.
.
.
.
Although
counsel
was
apparently
prepared
to
concede
that
land
contiguous
to
the
land
underlying
the
house
could
be
contiguous
up
to
the
unit
property
line,
namely
the
boundaries
of
Lot
76,
she
contended
that
there
was
no
basis
for
regarding
Lot
77
as
being
contiguous
thereto
even
though
it
was
immediately
adjacent.
More
broadly,
the
argument
appeared
to
be
that
for
land
to
be
contiguous
to
the
land
subjacent
to
a
housing
unit
it
must
form
part
of
the
smallest
legally
divisible
unit
of
land
upon
which
the
house
sits.
Elaborating
on
this,
it
was
pointed
out
that
there
were
some
100
lots
in
this
subdivision,
most
of
them
approximately
of
the
same
size
as
Lots
76
and
77.
These
were
sold
as
building
sites
for
homes
and
therefore
only
the
area
of
an
individual
lot
could
be
considered
contiguous
to
a
house
built
on
such
a
site.
That
is
not
what
subparagraph
(v)
says,
however,
and
I
do
not
think
that
an
intention
can
be
ascribed
to
Parliament
to
limit
the
natural
meaning
of
“contiguous”
in
this
way.
Such
a
limitation
could
have
easily
been
spelled
out
in
the
Act
and
it
would
have
greatly
simplified
the
work
of
assessment
officers
and
of
the
courts:
"principal
residence”
could
simply
have
been
defined
as
including
only
the
minimum
amount
of
land
on
which
local
authorities
would
permit
the
housing
unit
to
stand.
I
also
respectfully
draw
support
for
my
conclusion
from
the
very
lucid
judgment
of
the
Tax
Court
of
Canada
in
Wallace
Estate
v.
M.N.R.,
May
3,
1990,
Court
file
89-1479(IT)
(unreported).
That
case
also
involved
two
legally
separate
adjacent
lots,
but
with
a
total
area
of
over
3.3
acres
being
more
than
/2
hectare.
The
taxpayer
had
to
show
not
only
that
the
second
lot
contributed
to
the
use
and
enjoyment
of
the
house
which
was
on
the
first
lot
but
that
it
was
"necessary
to
such
use
and
enjoyment".
The
evidence
clearly
showed
to
the
satisfaction
of
the
judge
that
the
second
lot
was
"necessary"
in
this
sense,
even
though
legally
the
lots
could
have
been
sold
separately
and
physically
the
house
would
nave
survived
with
certain
modifications
to
the
grounds.
In
other
words
the
existence
of
two
legally
separate
lots
did
not
preclude
the
second
lot
from
being
contiguous
to
the
lot
upon
which
the
house
stood.
A
fortiori
it
should
not
in
the
present
case,
involving
less
than
/2
hectare,
preclude
Lot
77
from
being
contiguous
to
the
land
subjacent
to
the
house
on
Lot
76.
I
am
therefore
allowing
the
appeal
with
costs.
Appeal
allowed.