Date: 20010820
Docket: 2000-4823-IT-I
BETWEEN:
DWAYNE LUCYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Docket: 2000-4824-IT-I
MARLENE LUCYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1]
These appeals pursuant to the Informal Procedure were heard at
Saskatoon, Saskatchewan on common evidence by consent of the
parties on August 8, 2001. Both Appellants testified
and called Tim Kolababa, a real estate agent in Saskatoon. The
Respondent called Denise Hill, an auditor with Canada Customs and
Revenue Agency ("CCRA").
[2]
The Appellants are husband and wife. They have appealed
assessments that they received income from the proceeds of the
sale of 130 Woods Court, Saskatoon in 1996 and from the
proceeds of the sale of 142 McFarland Place, Saskatoon in 1997 on
the basis that both of these properties were their principal
residences. In the event that they are found to be traders in
these properties and liable as assessed, they claim additional
expenses.
[3]
The assumptions in the Replies to both Notices of Appeal are
virtually identical. Those in Reply to Dwayne's in paragraph
16 read:
16.
In so reassessing the Appellant, the Minister made the following
assumptions of fact:
(a)
The facts admitted supra;
(b)
Woods Court and McFarland Place (the "Properties") were
new, single family homes;
(c)
The sale of the Properties offered a potential for profit;
(d)
The homes on the Properties were built by the family in new areas
of the City where lots were available for same;
(e)
The Appellant was familiar with the market in the areas where the
Properties were located;
(f)
The Appellant sold both of the Properties within a year of the
family moving into them;
(g)
Both Properties had a private for sale sign on them shortly after
construction was completed;
(h)
The Appellant has sold 5 houses in thirteen years, and has built
4 houses since 1993;
(i)
The first two of the five houses were considered a principal
residence of the Appellant;
(j)
The houses on the Properties were built by the Appellant with the
assistance of his family and other trades people;
(k)
The Properties were advertised for sale shortly after
completion;
(l)
The Appellant is experienced in house construction and approached
it as a business;
(m) The
Appellant assisted his brother in the construction of a
house;
(n)
The Appellant has written four of the eight exams to certify in
the New Home Warranty Program with the Saskatchewan Home
Builders;
(o)
The Appellant incorporated Jade Developments Inc. to purchase and
obtain wholesale discounts;
(p)
The Appellant would not have sold the Properties if he could not
realize a profit;
(q)
The Appellant had the intention to sell the Properties from the
time they were acquired.
[4]
Assumptions 13(b), (c), (d), (e), (f), (g), (h), (i), (j), (k),
(l), (m), (n) and (o) are correct. Assumption (q) is in dispute.
Dwayne was ambivalent respecting assumption (p) in that he would
not say that he would have sold 142 McFarland at a loss, but he
would not have sold 130 Woods at a loss.
[5]
The pertinent dates respecting the five houses that the
Appellants have owned follow:
|
|
|
1534
Haslam Way
|
1906 Kenderdine Road
|
130
Woods Court
|
142 McFarland Place
|
106 McFarland Place
|
|
1.
|
Offer to purchase lot
|
City name draw
|
|
June, 1995
|
Aug. 30, 1996
Deposit
July-August
|
Dec. 16, 1997
|
|
2.
|
Title of lot acquired
|
Dec. 15, 1987
|
Sept. 15, 1993
|
Oct. 16, 1995
|
Oct. 25, 1996
|
Dec. 24, 1997
|
|
|
(Price)
|
($22,819.77)
|
($31,800.00)
|
($36,900.00)
|
($40,000.00)
|
($49,500.00)
|
|
3.
|
Plan draughtsman's invoice
|
Not known
|
Not known
|
July 26, 1995
|
July 11, 1996
|
|
|
|
(square feet)
|
(1080)
bungalow
|
(1600)
bungalow
|
(2125)
split level
|
(Virtually identical to 130 Woods Court)
|
(2300)
2 storey
|
|
4.
|
Construction began
|
|
|
August, 1995
|
July-August, 1996
|
|
|
5.
|
Building permit
|
|
|
Aug. 22, 1995
|
Aug. 14, 1996
|
|
|
6.
|
Moved in
|
Nov. 1987
|
Oct. 1993
|
Dec. 1995
|
Dec. 1996
|
April, 1998
|
|
7.
|
First considered selling
|
|
|
Feb. 1996
|
Jan.-Feb. 1997
|
|
|
8.
|
Own sale sign up
|
|
Unknown but first use
|
Feb. 1996
|
Feb. 1997
|
|
|
9.
|
Listed with real estate agent
|
July, 1993
|
March, 1995 for 90 days (sold after listing
expired)
|
March, 1996 for 90 days (sold after listing expired)
|
Aug. 25, 1997 for 90 days
|
|
|
10.
|
Offer to sell signed
|
(Transfer)
Aug. 23, 1993
|
(Transfer)
July 15, 1995
|
June 27, 1996
(1st offer)
|
Dec. 12, 1997
(lst offer)
|
|
|
|
(Price)
|
($113,500.00)
|
($150,000.00)
|
($178,000.00)
|
($210,000.00)
|
|
|
11.
|
Possession given to buyer
|
|
|
July 30, 1996
|
Jan. 23, 1998
|
|
|
|
|
(moved into an apartment)
|
(rented from purchaser, and then with Dwayne's
parents
|
(rented a
4-plex)
|
(rented duplex)
|
still live there
|
Notes:
1.
The Appellants acquired a standard sized (approximately 2' x
3') "For Sale" sign for display on their lawn
showing their phone number when they sold 1906 Kenderdine Road.
Dwayne testified that they kept this sign and used it on their
lawn for their subsequent sales of both 130 Woods Court and
142 McFarland. (See Exhibits R-1 and R-2, photographs.)
2.
In order to build 130 Woods Court and 142 McFarland Road the
Appellants obtained a line of credit and a construction mortgage
from the Bank of Nova Scotia. Marlene testified that the line of
credit was used for construction and the construction mortgage
paid off the line of credit as each phase of construction was
reached. Once each house was finished and they moved in, the
Appellants had an ordinary residential mortgage.
3.
Dwayne incorporated Jade Developments Corporation
("Jade") on July 10, 1995 (A-1, Tab 31),
before he had the plans for 130 Woods Court and kept Jade as its
incorporator. From then on, the Appellants used Jade to obtain
trade discounts for everything that they could except for the
purchase of lots. However, it appears from the Appellants'
testimony and from the cheques on exhibit that Dwayne and Marlene
paid for these purchases personally from their lines of
credit.
4.
For their first four houses, including 130 Woods Court and 142
McFarland, Dwayne and Marlene did the baseboards, painting or
wallpapering and the closet shelves. After their first house,
their children helped clean up construction refuse on the
remaining three of their first four houses.
5.
130 Woods Court, 142 McFarland Place and 106 McFarland Place are
all within about 150 meters of each other on adjoining
"courts" off of Kerr Road, Saskatoon. Each house was
well within 100 meters of Kerr Road.
[6]
From their very first house at 1534 Haslam Way, (where they were
assisted and taught by Marlene's father) the Appellants acted
as general contractors and had a draughtsman draw plans, sent the
plans out to subcontractors, obtained and accepted or rejected
bids on excavation, concrete, framing, plumbing, electrical,
drywall, roofing, etc. and paid their subcontractors from their
lines of credit.
[7]
In 1996 Dwayne helped his brother build a house and in 1997 he
helped his mother develop her basement. He used Jade to obtain
trade discounts. In September and October 1997 Dwayne wrote four
New Home Warranty Program exams with the object of qualifying so
as to obtain discounts on lot purchases to build their "next
principal residence" but he did not do additional exams once
he found that there were four more exams and that their first two
additional lots would require payments of the full retail price.
After building 106 McFarland, Dwayne, as the general contractor,
also built a 1500 square foot home in 1997 for the Lupul family
in the same "Arbor Creek" district as the Woods and
McFarland houses. In early 1998 the Revenue Canada audits
began.
[8]
During the years in question, Dwayne was a bus driver for the
City of Saskatoon and Marlene was a secretary for Imperial Oil
Limited. Both jobs were full time. Dwayne earned about $35,000.00
per year and Marlene about $30,000.00 per year. Dwayne had to get
up to go to work at about 4:30 a.m. They testified that
immediately after moving into 130 Woods Court they
discovered that vibrations from the adjoining thoroughfare of
Kerr Road kept Dwayne awake and so they decided to move. They
blame the vibration on the concrete slab beneath the family room
and their bedroom above the family room. They then built the same
plan with a slab, at 142 McFarland (on the adjoining court) on a
lot situated two lots from Kerr Road. They did not complain about
vibrations there. However, in about January, 1997, about one
month after moving into 142 McFarland rumours began to circulate
that Imperial Oil Limited would close in Saskatoon. The
Appellants testified that this was the reason for the move from
142 McFarland. They could not afford the monthly costs there. But
Marlene did not look for a new job at any time in 1997. When she
was laid off in early 1998, she relied on a consulting firm hired
by Imperial Oil Limited through which she obtained a job in one
month on the staff of the Saskatchewan City Police Force, where
she remains. These reasons are not credible because:
1.
They retained and kept using the same private "For
Sale" sign for three houses in a row beginning before either
of the subject properties was built.
2.
They never moved very far from Kerr Road. Indeed their present
house is closer to Kerr Road (albeit with a different plan) than
142 McFarland.
3.
Despite their alleged motive respecting Marlene's job, she
did not actively look for another job and they went ahead and
built a larger, more expensive house at 106 McFarland Place where
they now live.
4.
The incorporation of Jade in July, 1995 and its continuing use by
them for trade discount purchases is indicative of a
business-like conduct of their construction activities. Their
financing arrangements during the construction of the last three
houses were also normal for the construction business.
[9]
In Happy Valley Farms Ltd. v. The Queen, 86 DTC 6421
Rouleau, J. described the following tests to be used in
determining whether the proceeds of the sales of real property
were income. Using them, the Court finds:
1.
The nature of property sold
The two houses in question were single family residences
located in a residential area.
2.
The length of period of ownership
130 Woods Court's land was owned for about 13 months; the
house existed for about seven months. 142 McFarland Place's
land was owned for about 18 or 19 months; the house existed for
about 13 months.
3.
The frequency of other similar transactions by the
taxpayers
1906 Kenderdine was a somewhat similar transaction.
4.
Work expended on the property realized
The painting, wallpapering, wallboards and cleaning was
physically done by the Appellants for each subject property.
However more important was the general contracting manner in
which they managed and did the financing, obtaining of plans,
submissions for tender and supervision of construction. (Dwayne
checked the construction each day or evening.) All of this was
completely business-like. In addition the initial "For
Sale" sign placement of the Appellants' own sign within
about two months of completion in each subject case was
business-like.
5.
The circumstances responsible for the sale of the
property
Dwayne's allegations about vibrations at 130 Woods Court
are not accepted when the subsequent two moves were not very far
from the alleged source - Kerr Road. Marlene's excuse
of a possible loss of her job as the reason for the sale of 142
McFarland is similarly rejected in view of the evidence that she
did not actively look for a job while they proceeded to build an
even more expensive house at 106 McFarland Place.
6.
Motive
The fact that the Appellants kept and used the same "For
Sale" sign for each of (in order) 1906 Kenderdine, and then
130 Woods Court, and then 142 McFarland Place is highly
indicative of a primary intent from the beginning of the lot
purchase of each of 130 Woods Court and 142 McFarland Place to
sell at a profit. The incorporation of Jade before the purchase
of the 130 Woods Court lot also indicates a business intent.
[10] In the
foregoing circumstances, the Court finds that the Appellants both
had the intention to sell both the subject properties from the
time that they were acquired, that they were sold with the
intention to gain a profit, that the proceeds therefrom were
taxable as income and that they were correctly included in the
calculations of the income of both Appellants.
[11] The
Appellants argued that certain additional expenses should be
allowed for deduction if it was found that the proceeds of the
sales were income. In the Court's view the Respondent allowed
the proper expenses to each Appellant including the vehicle
expenses allowed and the deduction of interest and similar
expenditures in the course of construction. The Respondent did
not allow the deduction of mortgage interest, property taxes or
utility expenditures while the Appellants resided in the two
subject properties and the Court finds that to be correct since
the Appellants benefited from the shelter the properties provided
at those times.
[12] For these
reasons, both appeals are dismissed.
Signed at Prince Rupert, British Columbia, this 20th day of
August, 2001.
"D. W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
2000-4823(IT)I and 2000-4824(IT)I
STYLE OF
CAUSE:
Dwayne Lucyshyn and Marlene Lucyshyn
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
August 8, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge D. W. Beaubier
DATE OF
JUDGMENT:
August 20, 2001
APPEARANCES:
Counsel for the
Appellant:
Kurt G. Wintemute
Counsel for the
Respondent:
Karen Janke
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4823(IT)I
BETWEEN:
DWAYNE LUCYSHYN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeal of
Marlene Lucyshyn
(2000-4824(IT)I)
on August 8, 2001, at Saskatoon,
Saskatchewan
by the Honourable Judge D. W. Beaubier
Appearances
Counsel for the
Appellant:
Kurt G. Wintemute
Counsel for the
Respondent:
Karen Janke
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1996 and 1997 taxation years are dismissed in
accordance with the attached Reasons for Judgment.
Signed
at Prince Rupert, British Columbia, this 20th day of August,
2001.
J.T.C.C.
Email this Content