Citation: 2007TCC36
Date: 20070119
Docket: 2005-1869(IT)G
BETWEEN:
HAYDN PUGH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This is an appeal concerning the 2000 taxation year.
[2] The question at issue is the value of a rental building in the year 1989. The Appellant claims that its value was $175,000. The Minister of National Revenue (the "Minister") states that it was $50,000. If it was in fact $50,000, there would be a recapture of capital cost allowance in the amount of $21,529. If on the other hand the value was as claimed by the Appellant, there would be a terminal loss.
[3] The assumptions of fact made by the Minister are set out at paragraph 5 of the Reply to the Notice of Appeal as follows:
(a) In 1988, the Appellant purchased a property located at 185, Simard Blvd in the city of St-Lambert (the property) consisting of a land and a building for $125,770.
(b) On May 11, 2000 the Appellant sold his property for $150,000.
(c) The expenses incurred by the Appellant for the purpose of the disposition of the property amounted to $650.
(d) On October 2nd, 1998 in view of settling an appeal on other taxation years, the Appellant and the Minister agreed that the building was acquired in 1988 for $50,000, the balance of the purchase price, $75,770 was allocated to the cost of land.
(e) The Minister used the amount of $50,000 to calculate the Appellant's capital gain following the disposition of the property and to calculate the recapture of the capital cost allowance. A schedule was prepared by the auditor and is attached to the Reply to form an integral part thereto.
(f) The Appellant rented the building from 1989 to 1995 and deducted through those years capital cost allowance for a total of $21,090.
(g) From January 2000 to the disposition on May 11, 2000, the Appellant incurred rental expenses of $1,844 that was allocated as a deduction in calculating the net rental income for the taxation year.
[4] The out-of-court settlement made pursuant to subsection 169(3) of the Income Tax Act (the "Act") for the purpose of settling appeals for the years 1992, 1993 and 1994 was produced by the Appellant as Exhibit A-1. The initial value of the rental building was determined in the settlement document to be $50,000. This figure is therein repeated three times, that is, once for each of the years in question, as follows: "The initial value of the building is 50 000 $ for the purposes of computing the deductible capital cost allowance in the calculation of the net rental income."
[5] The Appellant claimed that this agreement to settle was obtained by intimidation and threat. In that regard, the Appellant had subpoenas issued to Ms. Anne-Marie Boutin, the lawyer acting for the Deputy Attorney General of Canada in the appeals covered by the out-of-court settlement and Mr. Hubert de Groot, the agent for the Minister.
[6] Ms. Boutin explained that there had been two meetings with Mr. Pugh before the hearing of the case that was set for October 6, 1998. The first meeting was to discuss a possible settlement, and the second, to sign the settlement agreement.
[7] On September 30, 1998, Ms. Boutin sent a draft offer to Mr. Pugh. It was received by Mr. Pugh who sent the following acknowledgement of receipt (Exhibit I-1):
. . .
This is to acknowledge receipt of (1) document (25 instant) and (2) your offer of settlement (30 instant).
To date, in the time available since the presentation of both (1) and (2) I have not been able to obtain legal counsel to represent or advise me on acceptance of your offer.
. . .
[8] On October 1, 1998, Ms. Boutin sent the following letter to Mr. Pugh (Exhibit I-2):
. . .
This is to acknowledge receipt of your letter dated September 30, 1998. We understand that you had not been able to obtain legal counsel to represent or advise you on our offer. But, we want to remember you that the hearing of this case will be October 6, 1998 and we must have time to meet our witness and prepare the case.
In consequence, wee must gave you a delay to tell us if you accept our offer or don't accept it. The delay will end tomorrow, October 2, 1998 at 13:00.
. . .
[9] Exhibit I-3 is Mr. Pugh's acceptance dated October 2, 1998. It reads as follows:
. . .
This is to confirm acceptance of your offer of the 30th. Sept. 1998.
I will make myself available as to time, date and venue.
. . .
[10] The settlement agreement was in fact signed on October 2, 1998.
[11] Although Mr. Pugh claims that two evaluations were done by independent appraisers in 1989, no evaluations were produced in court and no appraisers came to testify at the hearing.
[12] Ms. Boutin said that she had no recollection of any evaluations by independent appraisers having been presented to her at the time of the settlement. The only evaluation that she saw was the municipal evaluation for the year 1994 produced as Exhibit I-4. In the year 1994, the land was evaluated at $135,100 and the building at $40,100.
[13] The appeals agent, Ms. Johanne Desmarais, produced as Exhibit I-5 the municipal evaluation for the year 1985. In 1985, the building was evaluated at $53,700 and the land at $48,400.
[14] Ms. Desmarais produced as Exhibit I-7 the schedule prepared by the Appellant for the calculation of the terminal loss claimed. It shows that the Appellant took the value of the land indicated in the 1994 municipal evaluation, namely $135,100, but for the building determined a value of $175,000.
Analysis and conclusion
[15] The only evaluations produced at the hearing were municipal evaluations, one for the year 1985 (Exhibit I-5) and the other for the year 1994 (Exhibit I -4). As stated above, in 1985 the land was evaluated at $48,400 and the building at $53,700 while in the year 1994 the values were $135,100 and $40,100 respectively.
[16] The Appellant did not produce any evidence that the amount agreed to by the parties had been erroneously arrived at. Although he mentioned that, for 1989, he had attached to his income tax return two evaluations by independent appraisers establishing a value of $175,000, no such document was produced in court and no appraisers were called to testify on the matter.
[17] In view of the above, it appears evident from the municipal evaluations, in the absence of any other evaluation by independent appraisers, that the value arrived at by consent of the parties was a reasonable one.
[18] The appeal shall be dismissed with costs.
Signed at Ottawa, Canada, this 19th day of January 2007.
"Louise Lamarre Proulx"
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