Betty Madsen v. Minister of National Revenue, [1980] CTC 3022, 81 DTC 1

M J Bonner:—In this appeal it is necessary to determine the size of the land component of the appellant’s principal residence. The appellant’s home, situated on about eleven acres of land, was sold in 1973. The respondent assessed tax on the basis that only one of the eleven acres formed part of the appellant’s “principal residence” within the meaning of paragraph 54(g) of the Income Tax Act, and that the appellant realized a tax- able capital gain on the sale of the remaining land. The appellant contended that all of the land was necessary to the use and enjoyment of the home.

The eleven acres formed the remainder of a much larger parcel of land purchased by the appellant’s husband in 1945. At the time of purchase the land was a farm. In 1946 Mr Madsen built a factory for the manufacture of gymnasium equipment on a part of the farm subsequently conveyed away. Later, all the remainder of the farm was sold, save for the eleven acres. The exact chronology is not important for present purposes.

At the time of sale there was situate on the eleven acres a one and one-half storey stucco dwelling, a drive shed, a converted barn and a small cabin. The block of land was, roughly speaking, rectangular in shape with about 570 feet in frontage on Highway No 7 and a depth of about 860 feet. The stucco house was situated almost exactly in the centre of the property. The barn was situated about two-thirds of the way between the rear of the house and the rear or north property line. The frame shed was situated about half way between the rear of the house and the rear or north property line. The frame shed was situated about half way between the rear of the house and the front of the barn and somewhat to the west. Near the westerly boundary of the property was an area on which fruit trees grew, the remains of what was formerly a producing orchard. A semi-circular driveway extended from the easterly part of the south boundary of the property at Highway No 7 in a northerly direction, curving around to the rear of the house and back to a point near the west side of the south boundary of the property.

The appellant and her husband were Danish origin, and following purchase of the farm commenced to operate a folk school along the lines of Similar organizations in their native land. The property became the site of an annual folk festival attracting as many as 2,500 visitors. For such purposes alterations were made to various farm buildings, principally the barn, to create dormitory and other necessary facilities. Subsequently the appellant’s husband died and the appellant discovered a relationship between artistic activities, which were a concern of the folk school, and religion. In time the property became the site of many Christian fellowship conferences and meetings. Further alterations were made in the barn to enable it to be used for such purposes. The alterations rendered the upper floor of the barn capable of seating five hundred persons. The lower floor contained areas used as a kitchen, dining room, lounge and chapel. A former milk house was converted to a guest house and used by visiting speakers. The facilities thus created were used on a regular basis.

In 1967, when the appellant was contemplating a possible sale of a large portion of the farm, she called in Mr Phillip Mihorean, a real estate broker, and so laid out the boundaries of what was to be sold as to retain the portion containing the house, the former farm buildings and sufficient land to preserve the rural quality of the property. This done to enable the continuation of the appellant’s Christian fellowship activities in which she regarded as an appropriate setting.

The appellant was deeply committed to the endeavours in which she was involved. It is, I think, entirely fair to say that in 1973 and for many years before the appellant’s main preoccupation in life was the promotion and advancement of Christian fellowship by means of the activities carried on on the eleven acres. I might add that those activities were carried on not only up to the point of sale, but also subsequently for a period of six or seven years under a lease back which permitted the appellant to continue to live and carry on her activities on the property.

Mr Morden, for the appellant, argued that the entire eleven acre parcel was necessary to the appellant’s use and enjoyment of the housing unit, that is to say, the house. He pointed out, correctly I think, that the test as laid down by paragraph 54(g) is not only the objective test of use, but also the subjective test of enjoyment, being the equivalent of gratification and pleasure. He submitted that the land which lay between the front of the stucco dwelling and highway was necessary not only for the garden, lawn and swimming pool described in the evidence, but also for purposes of securing the privacy required for the activities already described. Finally, he submitted that Parliament, in enacting paragraph 54(g), could not have intended the adoption of some detailed piecemeal checkerboard method of calculating land strictly necessary to the use and enjoyment contemplated by the provision.

In argument Mr Taylor, on behalf of the Minister stressed, inter alia, that the portion at the end of paragraph 54(g), . . the excess shall be deemed not to have contributed to the individual’s use and enjoyment of the housing unit as a residence unless the taxpayer establishes that it was necessary to such use and enjoyment:”, stands as an exception to the general rule which includes subjacent and contiguous lands to the extent of one acre within the definition of “principal residence”. He relied on the rule which requires a person seeking to take advantage of a statutory exception to bring himself squarely within the terms of that exception.

For an appellant to succeed in a case such as this he must show that the land exceeding one acre was necessary not only to his use, but also to his enjoyment of the housing unit as a residence. Here, I have no doubt that by reason of physical layout and the atmosphere which the appellant sought to create the entire eleven acre parcel was necessary to the appellant’s religious activities. Further, I do not doubt that by reason of the proximity of the house to the lands on which the religious activities were carried on those lands made a very substantial contribution to the appellant’s enjoyment of the house as a place of residence. However, despite the undoubted bond between the appellant and the religious activities for which the land was used, I cannot find that such land was, as a result of that bond, necessary to the appellant’s use of the house as a residence. I might observe that there was no suggestion in the evidence that the house itself was used in any way in conjunction with the gatherings. This as I see it, is a case in which:

(a) the appellant used a house as a residence, and

(b) the appellant used adjacent land, but not the house, for the purposes of convening religious gatherings.

It is not a case, for example, of land surrounding the house being used for activities based in the house. The situation, as I see it, would not be materially different had the house been situated several hundred feet to the south, next to the highway, or indeed on the south side of the highway. I infer from the evidence that had such been the case neither the use of the house as the place in which the appellant resided nor the use of the barn and other buildings for the gatherings would have been essentially different.

In my view the appellant’s position, which rested on the necessity of the land surrounding the house for use in connection with the gatherings, must fail because of the absence of the necessary relationship between those activities and the use and enjoyment of the house as a residence. To allow this appeal would be to ignore the words “of the residence”. In the result the appeal must be dismissed.

Appeal dismissed.