Theresa Naka v. Her Majesty the Queen (Informal Procedure), [1995] 2 CTC 2212, 95 DTC 407

Bowman J.T.C.C. (orally):—While the facts are fresh in my mind I think that I shall deliver judgment. This is a case which basically depends upon the facts, and I can see little purpose in writing a lengthy judgment in which I refer to a number of authorities.

The question in issue in this case is whether a gain realized by Ms. Naka, the appellant, on the sale of property at 611 Oxford Street, Kelowna, B.C., is a gain on revenue or on capital account.

The facts are that Ms. Naka together with her husband, Ryan, lived together with her in-laws at 2319 Hayman Road. She had two children and from time to time had foster children. I believe during the time in issue she had three or maybe she had less than that, I can’t remember the evidence, but she had at least two children of her own and a certain number of foster children as well. She worked for the B.C. Department of Social Services.

Over the years Ms. Naka and her husband had befriended an elderly lady, Mrs. Mayor, who had lived near them. She had done a number of things for her, driving her, assisting her at home and things like that, things that people do occasionally for elderly neighbours. When in 1991 Mrs. Mayor died, her executrix, Mrs. Baker, informed Ms. Naka that as a recognition of the kindness that she had shown her over the years for the past or SO years she wanted to give her some money or, alternatively, sell her house at 611 Oxford Street-I am sorry, 911 Oxford Street at a discount of about $10,000.

Things moved fairly quickly and that agreement was reached in May. Mrs. Baker thought that the property was worth about 75,000. She agreed to sell it-not in writing but in principle, to Ms. Naka for $65,000, and that property was purchased on July 25, 1991.

It was financed to the extent of 100 per cent by a loan from Valley Waterworks Limited, a company that was either owned by the appellant’s father-in-law or all events in which the appellant’s father-in-law had a substantial interest.

Ms. Naka, and I now get to what I think is the crucial part of the testimony, Ms. Naka stated that it was her intention to move into the house and move away from 2319 Hayman Road. I can accept that it would be difficult with children, foster children, in-laws all together in one home. It would be difficult to continue to stay there and I accept her testimony that things were strained. I don’t question that for a moment.

She stated that it was her intention to move into 611 Oxford Street. As Ms. Goodey pointed out in argument and in a very thorough and excellent cross-examination that 611 Oxford Street is rather small for a family of that size and she asked me to draw the inference that the intention was never to move in and to live there but, rather, to flip the property at a profit thereby giving rise to taxable incoem from an adventure in the nature of trade.

The appellant testified that after they had bought the house and after they had done a certain amount of work to fix it up, to make it livable, it became apparent that her in-laws would be moving out of 2319 Hayman Road to another property. I think, on Bernard Street where another member of the family, of the Naka family, had formerly lived and moved out of. Therefore the Naka in-laws moved into this other property and it became possible for her to continue to stay there without the strain and stress of living with her in-laws and, therefore, she listed the property and sold it.

There are certain problems with Ms. Naka’s case in the sense that it was a small property, it was fully financed, yet, on the balance I accept that it was her intention to move in, that it was not her intention to sell the property at a profit when she bought it. Apparently in a telephone conversation with a Mr. Gordon Scott of the Department of National Revenue he testified that she had said that it was her intention to sell it. Subsequently she said that it was not her intention to sell the property but, rather, to move in.

I don’t question the credibility of any of the witnesses that have appeared before me but I do find it a little difficult to rely on notes made after the event of the telephone conversation with a taxpayer who receives a telephone call out of the blue from the tax department and maybe make unguarded statements that are not necessarily consistent with the facts.

Now I come to the fact that the property was sold in a very short period of time. The president of the Exchequer Court, Mr. Justice Jackett, in Warnford Court (Canada) Ltd. v. M.N.R., [1964] C.T.C. 175, 64 D.T.C. 5103, held that property that was held for two weeks I think and sold, nonetheless, gave rise to a capital gain. He stated-and I am going from memory because I do not have my books here, but he stated that the inference that might be drawn from a quick sale, that it was the taxpayer’s intention to sell the property, could be rebutted from other circumstances. I think the circumstances have been established.

I will not go into all of the other cases. Ms. Goodey referred to Regal Heights Ltd. v. M.N.R., [1960] S.C.R. 902, [1960] C.T.C. 384, 60 D.T.C. 1041, a decision of the Supreme Court of Canada. Every one of these cases of course turns on its own facts. Perhaps the most useful review of the criteria is found in the decision of Mr. Justice Rouleau in Happy Valley Farms v. The Queen, [1986] 2 C.T.C. 259, 86 D.T.C. 6421, where he mentioned a number of things, intention, the work done to make the property more saleable, the length of time that it is held, to mention only a few.

Those criteria were cited with approval in the Federal Court of Appeal-and the case’s name escapes me at the moment-but taking all of these into account I think that the better view is that this was a gain on capial account and it was her intention to hold the property and that it did not have the indicia of trade that one normally associates with a quick purchase and resale of property.

As to her expenses she testified that in addition to the expenses allowed her by the Minister of National Revenue in computing the gain which the Minister calculated at $16,648 there was another $800 that she paid for paint and wallpaper, approximately. No vouchers were put forward but I do not think that as a matter of law that vouchers are required.

There is a decision of the Exchequer Court back about 1962, Weinberger v. M.N.R., [1994] C.T.C. 103, 64 D.T.C. 5060, where it was held that if the taxpayer’s evidence was credible one could accept that the expenses were incurred notwithstanding the absence of any records. So I accept that it was an $800 gain-I would say at least an $800 dollar expense for wallpaper. There’s another $1,000 that apparently she gave to her brother for his assistance in fixing up the house mainly in yard work.

According to the number of hours that she estimated it came to about $43 an hour which is rather high. I am inclined to say that she is entitled to $500 as a deduction there so that the gain realized should not be $16,648, as computed by the Minister, but $16,648 less $1,300 which would work out to $15,348 I believe.

I hold that that is a gain on capital account. The assessment is therefore-at least the appeal is therefore allowed, the assessment referred back to the Minister of Revenue for reconsideration and reassessment on the basis that the gain on capital account is $15,348.

The appellant was not represented by counsel, therefore there will be no counsel feels but if there were any costs properly incurred, to which she is entitled, she can claim those.

I might say that I have reached this conclusion notwithstanding the very able argument by counsel for the Minister.

Appeal allowed.