Citation: 2007TCC752
Date: 20071217
Docket: 2007-1962(IT)I
BETWEEN:
JACQUELINE PIGEON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This is an appeal concerning the 2003 taxation
year.
[2] The issue to be determined is whether, for the
purpose of computing the appellant's income, the income from the sale of an
immovable should be included as business income or as capital.
[3] The facts on which the Minister of National
Revenue (the "Minister") relied for the reassessment are described in
paragraphs 5 and 8 of the Reply to the Notice of Appeal (the "Reply")
as follows:
[translation]
5. On October 31, 2005, the Minister issued a
reassessment to the appellant for her 2003 taxation year, making the following
changes to her income, among others:
|
Description
|
Amount
|
|
ADDITION
(DEDUCTION)
|
|
|
Business income
|
$37,722
|
|
Capital gain
Taxable (50%)
|
($18,861)
|
|
Cancellation of deferral of net capital loss for 2004 taxation
year
|
$7,330
|
8. In issuing and
confirming the reassessment dated October 31, 2005, for the 2003 taxation year,
the Minister relied on the same assumptions of fact, namely:
(a) In her income
tax return for the 2003 taxation year, the appellant reported a taxable capital
gain of $18,861 ($37,722 X 50%) in connection with the sale of an immovable
located at 364-366-368 Briggs East in Longueuil in the province of Quebec
(hereafter the "immovable");
(b) The appellant
had purchased the immovable on November 1, 2002;
(c) The immovable
was sold on June 10, 2003;
(d) The appellant has
owned property for many years;
(e) The appellant has
bought and sold several immovables in the past;
(f) During the
2002 and 2003 taxation years, the appellant was a "real estate
agent";
(g) During an
interview with the Minister's auditor, (hereafter the "auditor") on August 17, 2005, the appellant confirmed having purchased the
immovable with the intention to resell it within one year;
(h) The appellant
had taken out a bank loan to finance the purchase of the immovable;
(i) The bank loan
had a one-year term;
(j) The
transaction in question was an adventure or concern in the nature of
trade;
(k) In light of the
preceding, the auditor determined that the amount of $37,722 resulting from the
sale of the immovable in 2003 was business income.
[4] I quote the entire Notice of Appeal, because the
evidence will subsequently show that many of the statements in it are not
consistent with reality:
[translation]
April 22, 2007-04-22
Tax Court of Canada
– Notice of Appeal – Informal Procedure
Type of appeal: 2003 Income Tax
To whom it may concern:
When I purchased the immovable, I had only one initial intention,
which was to make a long-term investment. I had no secondary intention of
selling this immovable in the short term. In addition, I never confirmed to
Karine Touchette that I purchased this immovable to resell it in the short
term. The resale of the immovable at 364‑366‑368 was not planned
at the time of purchase.
The hypothecary loan was made according to standards, that is,
amortized over 25 years and renewable in one year. At that time, the rate
was 5.65% for one year. The hypothecary loan officer at the Laurentian Bank
advised me to take this rate for a fixed term of one year, as rates were likely
to be lower in one year. She was right, because around 2003 & 2004, the five-year
fixed rate was lower, and there was a significant difference.
If I had been thinking about selling when I purchased, I would
surely not have given a down payment of 25%. In general, speculators usually try
to put down the least amount of cash, purchase several properties at a time and
squeeze as much money as possible from what was not invested at the time of
sale.
My initial intention was to purchase an immovable, manage it wisely
and receive rental income.
I wanted to build up a portfolio for a decent retirement, as I did
not have any pension fund.
In 2002 and 2003, I held full-time employment at Jean Coutu as a naturopathy
clerk. I had income to support myself. The purchase of this immovable was
really made as a retirement plan and to have rental income.
CIRCUMSTANCES LEADING TO THE SALE OF THE PROPERTY AT 364‑366‑368 BRIGGS‑LONGUEUIL
Around February 23, 2003, Sylvain Simard contacted me, saying that
he wanted to purchase a triplex. I told him that I was not interested in
selling. Around April 6, 2003, he asked me once again if the immovable was for sale, as he had
purchased other property in the St. Hubert area, but the transaction was not
finalized. On April 9, 2003, we met for 2 hours, 30 minutes. He was worried because he no
longer had a place to live. After 2 hours and 30 minutes of discussion, I
accepted his offer out of empathy, late in the evening, around 11:00 p.m.
This immovable had not been advertised anywhere, be it in a
newspaper and through any network. In addition, it was sold for slightly less
than its market value at that time.
MY PROFIT FROM THE SALE MUST BE TREATED AS A CAPITAL GAIN FOR THE FOLLOWING REASONS:
-I was personally liable for a hypothecary loan of $97,500 which was
used to make this purchase and put down 25% cash. Sale not planned at the time of purchase. The purchase of the immovable
was made for investment purposes, and the immovable was to have been kept for a
long time.
Ref.: O&M Investments Ltd. v. Her Majesty the Queen
(1990) 1 C.T.C. 15
The fact that the taxpayer has been a part-time professional in the
field of real estate for less than one year is not relevant, because the
taxpayer makes his own investment decisions regarding real estate and
securities.
Ref.: Grouchy v. Her Majesty the Queen (1990) C.T.C. 375.
-The taxpayer intended to develop a sufficient real estate portfolio
for retirement.
"Jacqueline Pigeon"
Taxpayer
[5] In her notice of appeal, the appellant stated
having chosen a fixed rate for her hypothecary loan. She stated the same thing
at the hearing. She even submitted a financing offer from the Laurentian Bank in
the amount of $97,500 dated September 18,
2002, which confirmed this statement
(Exhibit A-6).
[6] However, counsel
for the respondent submitted a document from the same bank, a final offer dated
September 26, 2002, in which the term is open (Exhibit I‑2).
[7] At the hearing, the appellant also stated having
paid a three-month penalty for paying off her hypothecary loan. However, the
bank stated that she did not pay a penalty. This is confirmed by Exhibit I-7,
[translation] "Closing
Sheet", in which the note "0" was written in the box entitled [translation] "Penalties", and
by Exhibit I-6, [translation]
"Deed of Loan, Immovable Hypothec", on the last page, where the
clause entitled [translation] "Special
remarks" appears.
[8] At the hearing, the
appellant stated that she had paid the difference between $97,500, the amount
of the hypothecary loan, and the purchase price of $130,000 out of her own
savings. However, counsel for the respondent submitted a loan document in the amount of $32,500, dated November 1, 2002 (Exhibit I-1). This loan was guaranteed by a
second hypothec on the Briggs
Street property.
[9] The appellant stated
that the sale of her property was the result of an unsolicited offer. The
purchaser was the brother of a long-time friend or acquaintance. Neither the
purchaser nor the friend testified. However, the appellant asked a friend who
was allegedly at her home on the evening the unsolicited offer was made to
testify on this point.
[10] Karine Touchette, an auditor for the Minister,
stated that either the appellant or her representative did indeed tell her that
this property had been purchased for the purpose of reselling it in the short
term. Two other properties were also covered by this audit. The auditor accepted
the appellant's explanation for one of them but included the other as business
income as well. As far as the objection was concerned, the income from the sale
of this other property was also deemed to be a capital gain. The auditor
submitted a list of transactions involving immovables made by the appellant from
1990 to 2006 as Exhibit I-3.
[11] At the hearing,
counsel for the respondent submitted a sworn statement from an adviser at the Laurentian
Bank. The adviser was not present at the hearing. Most of the statements
concerned facts and were supported by documentation. However, in one statement,
the adviser reported what the appellant allegedly told her about her intentions
when purchasing the property.
[12] Normally, the
opposing party should have the right to cross-examine a deponent. If the
deponent cannot testify, I am of the opinion that the content of his or her
sworn statement must be disclosed to the opposing party before the hearing.
However, in this case, the deponent's statement merely confirmed the reason for
choosing an open term. This reason had been given by the appellant herself at
the hearing when she explained why she had not chosen an open term.
[13] In this case, many of the statements made in the
notice of appeal and at the hearing were not consistent with the truth. It is
obvious that statements which are not consistent with the truth seriously
undermine the appellant's credibility with regard to her statement to the
effect that she had acquired the property for a long-term goal. In addition,
the circumstances surrounding the purchase and resale must be considered: the short period of
time during which she owned the property; the appellant's numerous transactions
involving immovables; the absence of key witnesses, such as the purchaser, in
connection with the unsolicited offer; the purchase price, which was borrowed
in its entirety; and the open term for the hypothecary loan. All these facts
lead to the conclusion that it is much more plausible that the property was purchased
for rapid resale, rather than for long-term investment.
[14] The appeal is therefore
dismissed.
Signed at Ottawa, Canada, this
17th day of December 2007.
"Louise Lamarre Proulx"
Translation
certified true
on this 1st day of
February 2008
Michael Palles,
Reviser
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