REASONS
FOR JUDGMENT
Rip J.
[1]
The trustees of the Estate of the Late
Helen Bouldin Balanko appeal an income tax assessment for 2003, dated
April 8, 2013, to be permitted to designate as principal residence
Ms. Balanko’s former property in Whistler, B.C. (“Whistler property”).
[2]
Ms. Balanko died in 2005. The Whistler property
was sold in 2003 but after she had transferred the property to her husband in
1991. The gain on the sale of the property was attributed to her. In her 2003
return of income she did not claim the Whistler property as her principal
residence.
[3]
The Minister of National Revenue (“Minister”)
refused to designate the Whistler property as Ms. Balanko’s principal
residence for the reason that “another member of the family unit made a
principal residence designation in respect of another property for the period of
time involved”. The other member of the family unit was Dr. Balanko,
Ms. Balanko’s husband.
[4]
The appellant testified that Ms. Balanko
was separated from her spouse since 1983 pursuant to a written separation
agreement and that she and Dr. Balanko, a dentist, were living separate
and apart. Thus, no other member of the family unit had made a principal
residence designation during the relevant time period.
[5]
Ms. Balanko purchased the Whistler property
in 1976 for $41,900 and in 1991 transferred ownership of the property to Dr. Balanko
for one dollar. Ms. Balanko did not report the disposition of the Whistler
property to Dr. Balanko in her 1991 or other income tax return. Whether or
not she retained beneficial ownership of the property was not raised at trial. The
value of the property in 1991 was in excess of one dollar. In 2003 Dr. Balanko
sold the Whistler property for $350,000. The Minister has calculated that a
capital gain of $243,009 was made in the disposition and was attributed to
Ms. Balanko: s.s. 74.1(1) of the Act.
[6]
Ms. Balanko’s son, John Balanko
(“John”), stated that Ms. Balanko did not live in the Whistler property,
that the Whistler property was a family vacation property. However whether the
Whistler property is or is not eligible for designation as a principal
residence for this reason was not pleaded and is not in issue.
[7]
John was 23 years old when his parents
separated in 1983. He recalled the separation was initiated by his father but
his parents remained friendly. After separation, he said, his mother was in a
relationship with another man.
[8]
After separation, John stated, Dr. Balanko
continued to live in the family home on Pinecrest in Vancouver. This property
was sold sometime between 1985 and 1987.
[9]
In making the assessment, the Minister assumed
that since 1992 a property on Greenleaf Road in Vancouver was jointly owned by
Dr. and Ms. Balanko. John testified that he and his father were the
owners of the Greenleaf property, not his mother and father. He said his mother
never lived on Greenleaf. John stated he sold his interest in the Greenleaf
property in early summer of 2000 to his brother.
[10]
John produced a Statutory Declaration by
Dr. Balanko, dated June 13, 2005, that he and Ms. Balanko were
living separate and apart from January 15, 1983 to February 7, 2005,
her date of death. In the Declaration Dr. Balanko denied Ms. Balanko
was in a common law relationship with someone else.
[11]
John recalled that a basement suite was built for
his father at the Greenleaf property and, upon his return from a teaching
position in Winnipeg, his father resided in the basement. John described his
father as a “pack rat” and stored all of his records and personal documents in
the basement of the Greenleaf property.
[12]
Upon Ms. Balanko’s death in 2005,
Dr. Balanko moved into her condominium on Mariner’s Walk in Vancouver.
Ms. Balanko had purchased Mariner’s Walk in “about 1986 or so”, according
to John and in 1991 according to the Canada Revenue Agency (“CRA”). In her Last
Will and Testament, dated December 12, 2003, Ms. Balanko bequeathed
the residue of her Estate to “my husband” Dr. Balanko. There were no
specific bequests in the Will. The residue included Ms. Balanko’s interest
in the Mariner’s Walk property.
[13]
In her Will, Ms. Balanko also stated that
she had a one‑half interest in the Greenleaf property but any financial
charges registered against her interest were the responsibility of her son
Michael William Balanko. It would appear that according to the Will
the residue included a one‑half interest in the Greenleaf property and
that was inherited by Dr. Balanko. This appears to contradict John’s
evidence that he and Dr. Balanko were the owners of the Greenleaf property
until 2000 when he transferred his interest to a brother.
[14]
No written separation agreement was found among
the contents of Ms. Balanko’s property or Dr. Balanko’s property
after their respective deaths.
[15]
John testified that when his parents separated
he constantly reminded them to prepare and sign a separation agreement. He was
concerned that they would remain responsible for the other’s debts. He further
testified that he saw, but did not read, various papers on the kitchen table in
his father’s home, which he understood related to discussions for separation.
His father also told him that he raised the question of a separation agreement
with lawyers and a judge who were his patients while at his office or in a
social setting. But he did not retain a lawyer to prepare the agreement. Both
his mother and father were turning to friends for advice, John stated.
[16]
Finally, one day when John again asked his
father what was happening with the separation agreement, his father told him
that he “took care of it” and John assumed that because his father was an
honest person, he meant that a written separation agreement was prepared and
signed by each parent. He never saw a written separation agreement.
[17]
John believes the written separation agreement
was destroyed in a fire at the Greenleaf property on March 3, 2013.
[18]
Dr. Balanko died on December 22, 2011.
The Greenleaf property was designated as his principal residence for the period
from 1992 until his death.
[19]
Section 54 of the Income Tax Act
reads as follows:
|
“principal
residence” of a taxpayer for a taxation year means a particular property that
is a housing unit, … that is owned whether jointly with another person or
otherwise, in the year by the taxpayer, if
|
« résidence
principale » S’agissant de la résidence principale d’un contribuable
pour une année d’imposition … dont le contribuable est propriétaire au cours
de l’année conjointement avec une autre personne ou autrement, à condition
que :
|
|
(a) where
the taxpayer is an individual … the housing unit was ordinarily inhabited in
the year by the taxpayer, by the taxpayer’s spouse or former spouse or by a
child of the taxpayer.
|
a) le
contribuable étant un particulier … le logement soit normalement habité au
cours de l’année par le contribuable, par son conjoint ou ancien conjoint ou
par un enfant du contribuable.
|
|
except …
|
toutefois …
|
|
(c) where
the taxpayer is an individual … the particular property was designated by the
taxpayer in prescribed form and manner to be the taxpayer’s principal
residence for the year and no other property has been designated for the
purposes of this definition for the year by the taxpayer, by a person who was
throughout the year the taxpayer’s spouse (other than a spouse who was
throughout the year living apart from and was separated under a judicial
separation or written separation agreement from the taxpayer), …
|
c) à moins
que le contribuable … ne l’ait désigné comme étant sa résidence principale
pour l’année en la forme et selon les modalités réglementaires et qu’aucun
autre bien n’ait été désigné, pour l’application de la présente définition,
pour l’année par le contribuable, par une personne qui a été son conjoint
tout au long de l’année (sauf une personne qui, tout au long de l’année, a
vécu séparée du contribuable en vertu d’une séparation judiciaire ou d’un
accord écrit de séparation) …
|
[20]
Unfortunately for
the appellant, there is no written separation agreement in existence. If Ms. Balanko
signed a written separation agreement, nobody knows its contents. The section
54(c) definition of “principal residence” is quite clear: if a taxpayer
is still married only one of the taxpayer and the spouse may designate a
property as a principal residence except if the taxpayer and the spouse are
separated under a written separation agreement. That Dr. Balanko informed
John that he “took care of it” with respect to the purported written separation
agreement may suggest other ways in which he and Ms. Balanko settled their
affairs. Again, there is no written separation agreement before me.
[21]
The lack of a
written separation agreement that is required by the Act is a more
serious omission then lack of receipts to prove an expenditure: Hickman
Motors Ltd v. The Queen. A written separation agreement is a requirement in the
circumstances of this appeal and, for whatever reason, it is not available.
[22]
The appeal is
dismissed.
Signed at Ottawa,
Canada, this 19th day of March 2015.
“Gerald J. Rip”
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