Mogan
T.CJ.:
The
appeals
of
Daniel
J.
Boudreau
v.
The
Queen
(Court
File
95-3970)
and
Lawrence
Boyd
v.
The
Queen
(Court
File
95-3972)
were
heard
together
on
common
evidence.
I
shall
refer
to
the
Appellants
as
“Boudreau”
and
“Boyd”,
respectively.
They
were
the
only
shareholders
of
B
&
B
Trailer
Supplies
Limited
(the
“Company”)
which
carried
on
business
as
a
wholesaler
of
recreational
trailers
and
parts.
In
effect,
the
Company
was
a
distributor.
The
Company
carried
on
business
from
1976
to
1993
when
it
was
put
into
bankruptcy.
The
issued
shares
of
the
Company
were
held
75%
by
Boudreau
and
25%
by
Boyd.
The
Company
carried
on
business
at
4205
Perkins
Road,
London,
Ontario.
That
property
(land
and
building)
was
owned
personally
by
Boudreau
and
Boyd
in
the
same
ratio
as
their
shareholdings
in
the
Company.
Boudreau
owned
a
75%
undivided
interest
in
4205
Perkins
Road
and
Boyd
owned
a
25%
undivided
interest.
For
convenience,
I
shall
refer
to
that
property
(land
and
building)
at
4205
Perkins
Road
as
“the
Land”.
Upon
the
Company’s
bankruptcy
in
1993,
the
Land
was
sold
under
a
Power
of
Sale.
As
a
result
of
that
sale,
the
Appellants
realized
a
capital
gain
of
approximately
$160,000
which
was
allocated
$120,000
to
Boudreau
and
$40,000
to
Boyd.
Each
Appellant
reported
his
respective
portion
of
the
capital
gain
in
his
1993
income
tax
return.
Each
Appellant
deducted
an
amount
with
respect
to
the
capital
gains
exemption
permitted
under
section
110.6
of
the
Income
Tax
Act.
The
Minister
of
National
Revenue
issued
reassessments
and
disallowed
the
deduction
to
each
Appellant
on
the
assumption
that
the
Land
was
“non-qualifying
real
property”
as
that
phrase
is
defined
in
subsection
110.6(1)
of
the
Act.
The
Appellants
have
appealed
from
those
reassessments
and
have
elected
the
informal
procedure.
Section
110.6
was
enacted
in
1985.
In
its
original
form,
an
individual
was
permitted
to
claim
a
$500,000
lifetime
capital
gains
exemption.
In
1988,
the
exemption
was
cut
back
to
$100,000
for
property
other
than
certain
farm
property
and
certain
shares
of
a
small
business
corporation.
In
February
1992,
the
exemption
was
eliminated
for
most
real
property.
The
definition
“non-qualifying
real
property”
in
subsection
110.6(1)
is
primarily
a
description
of
real
property
excluded
from
the
capital
gains
exemption
after
February
1992.
Just
as
important
in
the
definition,
however,
is
a
description
of
certain
real
property
“other
than”
the
excluded
property
which
continues
to
qualify
for
the
capital
gains
exemption.
It
is
under
this
provision
that
each
Appellant
deducted
an
amount,
with
respect
to
the
sale
of
the
Land
in
1993,
when
filing
his
1993
income
tax
return.
The
definition
of
“non-qualifying
real
property”
in
subsection
110.6(1)
is
very
long
containing
seven
paragraphs
((«)
to
(g);
some
paragraphs
have
two
or
three
subparagraphs;
and
two
subparagraphs
have
seven
or
eight
clauses.
For
the
purpose
of
deciding
these
appeals,
the
parties
are
in
agreement
that
I
am
required
to
interpret
only
clause
(#)(ii)(F)
but,
in
order
to
do
so,
I
think
it
is
important
to
set
out
almost
all
of
the
definition.
I
shall
omit
only
the
words
following
paragraph
(e).
110.6(1)
For
the
purposes
of
this
section,
“non-qualifying
real
property”
of
an
individual
(other
than
a
trust
that
is
not
a
personal
trust)
means
property
disposed
of
after
February
1992
by
the
individual,
or
a
partnership
any
of
the
income
of
which
is
required
to
be
included
in
computing
the
income
of
the
individual,
that
at
the
time
of
its
disposition
(in
this
definition
referred
to
as
the
“determination
time”)
is
(a)
real
property,
other
than
(i)
qualified
farm
property
of
the
individual,
(ii)
real
property
owned
by
the
individual
or
the
individual’s
spouse
that
was
used
(A)
throughout
that
part
of
the
24-month
period
preceding
the
determination
time
during
which
it
was
owned
by
the
individual
or
the
individual’s
spouse,
or
(B)
throughout
all
or
substantially
all
of
the
time
in
the
period
preceding
the
determination
time
during
which
it
was
owned
by
the
individual
or
the
individual’s
spouse,
principally
in
an
active
business
carried
on
by
(C)
the
individual
(otherwise
than
as
a
member
of
a
partnership),
(D)
where
the
individual
is
a
personal
trust,
a
preferred
beneficiary
(within
the
meaning
assigned
by
paragraph
108(1)(g))
under
the
trust
(otherwise
than
as
a
member
of
a
partnership),
(E)
a
spouse,
child
or
parent
of
the
individual
or
of
a
preferred
beneficiary
described
in
clause
(D)
(otherwise
than
as
a
member
of
a
partnership),
(F)
a
corporation
(otherwise
than
as
a
member
of
a
partnership)
where
shares
representing
all
or
substantially
all
of
the
fair
market
value
of
all
the
issued
and
outstanding
shares
of
its
capital
stock
were
owned
by
one
or
more
persons
described
in
this
subparagraph,
(G)
one
or
more
persons
as
members
of
a
partnership
where
interests
representing
all
or
substantially
all
of
the
fair
market
value
of
all
partnership
interests
in
the
partnership
were
owned
by
one
or
more
persons
described
in
this
subparagraph,
or
(H)
a
personal
trust
(otherwise
than
as
a
member
of
a
partnership)
where
interests
representing
all
or
substan-
tially
all
of
the
fair
market
value
of
all
beneficial
interests
in
the
trust
were
owned
by
one
or
more
persons
described
in
this
subparagraph,
and
(iii)
real
property
of
the
partnership
(except
where
the
individual
is
a
specified
member
of
the
partnership
or,
if
a
taxable
capital
gain
of
the
individual’s
spouse
from
the
disposition
of
property
of
the
partnership
would
be
a
taxable
capital
gain
of
the
individual,
the
individual’s
spouse
is
a
specified
member
of
the
partnership)
that
was
used
(A)
throughout
that
part
of
the
24-month
period
preceding
the
determination
time
during
which
it
was
property
of
the
partnership,
the
individual
or
the
individual’s
spouse,
or
(B)
throughout
all
or
substantially
all
of
the
time
in
the
period
preceding
the
determination
time
during
which
it
was
property
of
the
partnership,
the
individual
or
the
individual’s
spouse,
principally
in
an
active
business
carried
on
by
(C)
the
individual,
(D)
where
the
individual
is
a
personal
trust,
a
preferred
beneficiary
(within
the
meaning
assigned
by
paragraph
108(1)(g))
under
the
trust,
(E)
a
spouse,
child
or
parent
of
the
individual
or
of
a
preferred
beneficiary
described
in
clause
(F)
a
corporation
where
shares
representing
all
or
substantially
all
of
the
fair
market
value
of
all
the
issued
and
outstanding
shares
of
its
capital
stock
were
owned
by
one
or
more
persons
described
in
this
subparagraph,
or
(G)
a
personal
trust
where
interests
representing
all
or
substantially
all
of
the
fair
market
value
of
all
beneficial
interests
in
the
trust
were
owned
by
one
or
more
persons
described
in
this
subparagraph,
(b)
a
share
of
the
capital
stock
of
a
corporation
(other
than
a
qualified
small
business
corporation
share
of
the
individual
or
a
share
of
the
capital
stock
of
a
family
farm
corporation
of
the
individual)
the
fair
market
value
of
which
is
derived
principally
from
real
property,
other
than
real
property
that
was
used
(i)
throughout
that
part
of
the
24-month
period
preceding
the
determination
time
during
which
it
was
owned
by
the
corporation
or
by
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
or
(ii)
throughout
all
or
substantially
all
of
the
time
in
the
period
preceding
the
determination
time
during
which
it
was
owned
by
the
corporation
or
by
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
principally
in
an
active
business
carried
on
by
the
corporation
or
by
persons
described
in
any
of
clauses
(«)(ii)(C)
to
(H),
(c)
an
interest
in
a
partnership
(other
than
an
interest
in
a
family
farm
partnership
of
the
individual)
the
fair
market
value
of
which
is
derived
principally
from
real
property,
other
than
real
property
that
was
used
(i)
throughout
that
part
of
the
24-month
period
preceding
the
determination
time
during
which
it
was
property
of
the
partnership
or
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
or
(ii)
throughout
all
or
substantially
all
of
the
time
in
the
period
preceding
the
determination
time
during
which
it
was
property
of
the
partnership
or
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
principally
in
an
active
business
carried
on
by
one
or
more
persons
as
members
of
the
partnership
or
by
persons
described
in
any
of
clauses
(«)(ii)(C)
to
(H),
(d)
an
interest
in
a
trust
the
fair
market
value
of
which
is
derived
principally
from
real
property,
other
than
real
property
that
was
used
(i)
throughout
that
part
of
the
24-month
period
preceding
the
determination
time
during
which
it
was
owned
by
the
trust
or
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
or
(ii)
throughout
all
or
substantially
all
of
the
time
in
the
period
preceding
the
determination
time
during
which
it
was
owned
by
the
trust
or
persons
described
in
any
of
clauses
(a)(ii)(C)
to
principally
in
an
active
business
carried
on
by
the
trust
or
by
persons
described
in
any
of
clauses
(a)(ii)(C)
to
(H),
or
(e)
an
interest
or
an
option
in
respect
of
property
described
in
any
of
paragraphs
(a)
to
(d),
The
opening
part
of
the
definition
plus
the
opening
words
of
paragraphs
(a)
to
(e)
may
be
condensed
as
follows:
“non-qualifying
real
property”
of
an
individual
...
means
property
disposed
of
after
February
1992
by
the
individual
...
that
at
the
time
of
disposition
...
is
(a)
real
property,
other
than...
(b)
a
share
of
the
capital
stock
of
a
corporation...
(c)
an
interest
in
a
partnership...
(d)
an
interest
in
a
trust
...,
or
(e)
an
interest
or
an
option
in
respect
of
property
described
in
any
of
paragraphs
(a)
to
It
is
apparent
from
the
structure
of
the
definition
that
“non-qualifying
real
property”
may
be
not
only
real
property
as
in
paragraph
(a)
but
also
may
take
the
form
of
a
share
as
in
paragraph
(b)
or
an
interest
in
a
partnership
or
trust
as
in
paragraph
(c)
or
paragraph
(d).
Because
the
Appellants
(Boudreau
and
Boyd)
were
the
owners
of
the
Land
itself,
I
am
concerned
with
paragraph
(a).
If
the
Appellants
can
bring
the
Land
within
clause
(#)(ii)(F),
it
will
come
under
the
“other
than”
umbrella
in
paragraph
(a)
and
thereby
be
excluded
from
the
definition
and
thereby
be
available
for
the
capital
gains
exemption.
I
can
proceed
to
clause
(tz)(ii)(F)
because
the
parties
are
in
agreement
that
the
other
conditions
in
paragraph
(a)
have
been
satisfied
within
the
facts
of
these
appeals.
Specifically,
considering
the
appeal
of
Boudreau
who
owned
a
75%
undivided
interest
in
the
Land,
the
parties
agree
firstly,
that
the
Land
was
used
principally
(and
perhaps
exclusively)
in
an
active
business
throughout
the
periods
described
in
clauses
(A)
or
(B);
and
secondly,
that
the
active
business
was
carried
on
by
a
corporation.
Those
conditions
bring
me
to
clause
(a)(ii)(F).
The
Minister
of
National
Revenue
disallowed
the
capital
gains
exemption
to
the
Appellants
because
the
Land
was
owned
by
them
as
two
unrelated
individuals;
and
neither
one
owned
shares
in
the
Company
representing
all
or
substantially
all
of
the
fair
market
value
of
all
the
issued
and
outstanding
shares
of
its
capital
stock.
Counsel
for
the
Respondent
argued
that
“all
or
substantially
all”
expressed
as
a
percentage
means
90%
or
in
the
range
of
90%
as
indicated
by
a
number
of
decided
cases
commenting
on
those
words.
I
accept
that
argument
and
would
hold
that
even
Boudreau’s
75%
undivided
interest
in
the
Land
cannot
be
regarded
as
“substantially
all”.
With
respect
to
the
corporation
referred
to
in
clause
(a)(ii)(F),
when
shares
in
that
corporation
are
owned
by
two
or
more
persons,
the
Respondent’s
basic
argument
is
that
the
words
“owned
by
one
or
more
persons
described
in
this
subparagraph”
refer
to
related
persons.
This
argument
proceeds
on
the
basis
that,
within
subparagraph
(a)(ii),
the
persons
described
beyond
the
individual
are
related
to
the
individual
as
a
spouse,
a
child,
a
parent
or
a
preferred
beneficiary.
There
is
no
doubt
that
those
are
the
persons
described
in
clauses
(D)
and
(E)
of
subparagraph
(æ)(ü).
I
do
not
accept
the
Respondent’s
argument
because
it
is
too
restrictive;
it
produces
inconsistencies
within
the
definition;
and
most
importantly,
it
goes
against
what
I
regard
as
the
scheme
of
the
definition.
In
my
opinion,
the
scheme
of
the
definition
is
to
classify
all
real
property
as
“non-qualifying
real
property”
unless
it
is
part
of
a
family
farm
or
it
is
used
(throughout
a
prescribed
period
immediately
preceding
its
sale)
principally
in
an
active
business
carried
on
by
an
individual
or
a
closely
held
organization
whether
it
be
a
corporation,
a
partnership,
or
a
personal
trust.
In
these
appeals,
paragraph
(e)
is
important
because
it
describes
precisely
the
kind
of
property
owned
by
Boudreau
or
Boyd
in
respect
of
which
each
claims
a
deduction
under
section
110.6.
Each
owned
an
undivided
interest
in
the
Land.
Paragraph
(e)
speaks
of
“an
interest
...
in
respect
of
property
described
in
...
paragraph
(«)...”.
In
accordance
with
paragraph
(e),
a
particular
real
property
does
not
have
to
be
owned
by
one
person.
It
can
be
owned
by
two
or
more
persons
each
of
whom
owns
an
undivided
interest
in
the
whole.
Therefore,
with
respect
to
the
Land,
Boudreau
is
an
individual
described
in
subparagraph
(«)(ii).
So
is
Boyd.
This
conclusion,
standing
alone,
is
decisive
in
the
Appellants’
favour.
Alternatively,
consider
the
hypothetical
situation
in
which
Boudreau
and
Boyd
do
not
carry
on
their
recreational
trailer
business
within
the
Company
but
as
individual
partners
and
the
Land
is
a
partnership
asset.
In
this
situation,
when
the
Land
is
sold
as
a
partnership
asset
in
1993,
it
would
be
excluded
from
the
definition
of
“non-qualifying
real
property”
under
paragraph
(c)
of
the
definition
because
the
Land
would
come
under
the
umbrella
“other
than
real
property
that
was
used...”
within
paragraph
(c).
If
the
Appellants
would
qualify
for
the
capital
gains
exemption
in
this
hypothetical
situation,
should
they
be
disqualified
because
they
incorporated
their
active
business
but
held
the
Land
outside
the
corporation
and
leased
it
to
the
corporation
for
use
in
the
business?
In
a
parallel
hypothetical
situation,
if
at
all
relevant
times
the
Land
had
been
owned
by
the
Company
and
used
in
its
active
business
until
the
bankruptcy
of
the
business
in
1993,
upon
the
sale
of
all
shares
in
the
Company
in
1993,
the
Land
would
have
been
excluded
from
the
definition
of
“nonqualifying
real
property”
in
accordance
with
paragraph
(b)
of
the
definition.
In
my
opinion,
the
interpretation
which
the
Respondent
places
on
clause
(a)(ii)(F)
in
the
definition
of
“non-qualifying
real
property”
is
too
restrictive.
If
Parliament
or
the
draftsperson
had
intended
that
those
words
“one
or
more
persons
described
in
this
subparagraph”
mean
only
related
persons,
other
language
would
have
been
used.
There
is
no
requirement
within
the
definition
that,
for
certain
real
property
to
be
excluded
from
the
definition,
it
must
be
owned
by
related
individuals,
or
that
shares
of
the
corporation
referred
to
in
clause
(a)(ii)(F)
must
be
owned
by
related
individuals.
The
interpretation
which
I
place
on
those
words
in
clause
(a)(ii)(F)
is
more
in
harmony
with
the
scheme
of
the
definition
as
I
understand
it
(described
above)
than
the
interpretation
put
forward
by
the
Respondent.
The
appeals
are
allowed
with
costs.
Appeals
allowed.
Email this Content