Desmeules v. R., [1998] 3 CTC 2573, 98 DTC 1383

Lamarre Proulx T.C.J.:

The appellant is appealing an assessment by the Minister of National Revenue (“the Minister”) made pursuant to s. 160 of the Income Tax Act (“the Act”).

The facts that the Minister took into consideration in arriving at his assessment are described in paragraph 7 of the Reply to the Notice of Appeal. I quote the most relevant:

[TRANSLATION]

(a) The appellant’s husband, Jean Crevier, purchased, a residence at 23 Place Halifax in Candiac, province of Quebec, on or about September 22, 1987 for $109,000, $44,269.57 of which was paid in cash and the remainder, $64,730.43, was the balance owing on a mortgage loan made by the Industrial Alliance Life Insurance Company, and assumed by Mr. Crevier.

(b) In October 1991, when the mortgage loan on this residence was being renegotiated, the appellant’s husband obtained a mortgage loan of $86,250, an amount greater than the balance owing to Industrial Alliance, for the stated purpose of repaying a second mortgage held by one Leonard Polchynski of Burlington and paying for renovation work already done.

(d) On December 6, 1991 the appellant’s husband Jean Crevier transferred ownership of the Place Halifax residence gratuitously by notarial deed, for the stated purpose of benefiting the appellant, on condition that she paid real estate taxes due or to become due and notarial and registration fees and made payments owing under the mortgage to Industrial Alliance, registered against the immovable property on October 16, 1991.

(e) At December 19, 1991 the amount owing by Jean Crevier for taxes, penalties and interest for 1989 and preceding years was at least $88,237.60.

(g) The appellant was not dealing with Jean Crevier at arm’s length when the terms of transfer of the immovable property were negotiated and when it was transferred.

(h) The appellant was Jean Crevier’s second wife, having married him in May 1990 under the regime of separation of property.

(i) The consideration stated by the appellant for the said transfer for the purposes of the Act to authorize municipalities to collect duties on transfers of immoveables was $120,000. The appellant and her husband were familiar with the real estate market, since they worked as real estate agents.

(j) The fair market value of the said immovable property, with the building and improvements, on December 6, 1991 was not less than $103,000.

On September 7, 1993 the appellant was assessed for $25,760. On August 15, 1995, after the appellant’s notice of objection, the assessment was reduced to $16,750. This notice of reassessment bears No. 01435. It is this reassessment which is on appeal.

At the start of the hearing an application for postponement was made by counsel for the appellant to permit compliance with the procedural requirements of s. 57 of the Federal Court Act in order to challenge the constitutional validity of s. 160 of the Act. Counsel for the appellant informed the Court that he knew the requirements of s. 57 of the Federal Court Act. Although the Notice of Appeal mentioned the possibility of challenging the constitutional validity of s. 160 of the Act, counsel had decided not to pursue that avenue. However, two recent judgments of the Supreme Court of Canada, for which he did not have the exact references, led him to think that there might be a chance of attempting such an argument. Counsel did not clearly indicate the nature of the constitutional argument he would draw from those recent judgments. As the application to postpone was made on the very morning of the hearing, the ground of constitutional validity had already been raised in the Notice of Appeal and it would have been easy to comply with the procedure required by the aforesaid s. 57 at the proper time, and in view of the vagueness of the argument on constitutional validity, the application to postpone was dismissed.

The appellant testified at her counsel’s request. The testimony of the appellant, who is a real estate agent, was very short. She filed as Exhibit A- 1 the deed of sale of a house located at 23 Place Halifax in Candiac, dated December 16, 1994, for $86,000. This was the house which had been transferred by her husband Jean Crevier on December 6, 1991 and concerning which subparagraph 7(j) of the Reply stated that in 1991 it was worth not less than $103,000.

The appellant said she had had the house up for sale for six months at a price of $106,000, had had two visits and had accepted an offer of $86,000. In cross-examination counsel for the respondent showed her a sales listing, Exhibit I-1, in which the house was offered for $119,000. She did not remember a listing at that price. The listing was not dated.

There was no evidence in the examination-in-chief as to the date of the listing of the house for sale or the steps taken to sell it. There was no evidence to indicate whether the transaction was made at arm’s length.

The deed of sale (Exhibit A-l), on page 8, in the clause headed [TRANSLATION] “Statement Regarding Pre-Contract”, mentions that the sale was made to give effect to an offer made on September 12, 1994 and accepted the same day. This clause also mentions a pre-contract. Neither the offer nor the pre-contract was filed at the hearing.

The same agreement (Exhibit A-l), at page 9 in the clause titled [TRANSLATION] “Notations required under s. 9 of the Act to authorize municipalities to collect duties on transfers of immoveables”, states the following regarding the consideration and the amount making up the tax base of the transfer duties:

[TRANSLATION]

3 According to the transferor and transferee the amount of consideration for the transfer of the immovable property is $86,000.

4 According to the transferor and transferee the amount making up the tax base of the transfer duties is $107,000.

The clause titled [TRANSLATION] “Possession”, to be found on page 4 of the contract of sale (Exhibit A-1), reads as follows:

[TRANSLATION]

The purchaser shall become owner of the immovable property as of this date, with possession and occupation as of June 15, 1995.

Except for a question to confirm the selling price of the house, no other question was put to the appellant to explain the aforementioned clauses.

The Notice of Appeal itself, dated November 29, 1995, indicated that the appellant’s residence was located at 23 Place Halifax, in the town of Candiac, both as regards the description of the appellant and the first point in the facts. This residence is deemed to have been sold on December 16, 1994 and the purchaser to have taken possession on June 15, 1995.

There were no expert witnesses for the appellant.

The respondent called an expert witness. He was André Beaudet, a real estate appraiser who is now retired. He made up the valuation when he was employed by Revenue Canada. Based on sales of comparable property located in the same area as the property in question, Mr. Beaudet arrived at a market value of $103,000. He admitted in cross-examination that the real estate market in that area had not really changed from 1991 to 1994.

Arguments and conclusions

Counsel for the appellant argued that the best evidence of the market value of immovable property is the price obtained for that property on the open market by people dealing with each other at arm’s length and that the price obtained by the appellant was $86,000, and since there had been no change in the real estate market since 1991 it was the market value of the property in 1991.

Counsel for the respondent maintained that the expert appraiser’s report was made in accordance with industry practice and that there was no evidence regarding the circumstances of the sale of the property in question to indicate that it was a sale made on the open market.

To this counsel for the appellant responded that lie did not have to present evidence of the circumstances of the sale since those circumstances had not been raised as an argument by the respondent.

Counsel for the appellant’s argument regarding the selling price of the house obtained in 1994 would be a persuasive one if he had shown that the appellant had sold the house on the open market. Contrary to what he maintained, he had to present evidence of the circumstances of the sale of the house as they were essential to arriving at the market value.

The circumstances of the sale were not explained. The appellant said she had the house up for sale for six months and received two visits. There was no evidence as to the date the house was listed on the market or the steps taken for the sale. The purchase offer was accepted the same day it was made. The taking of possession was considerably delayed and even after the filing of the Notice of Appeal the appellant was still living in the house, after the date of possession mentioned in the contract of sale. There was also no explanation of the various clauses of the contract of sale cited above, in particular that concerning the transfer duties, setting the tax base of those duties at $107,000.

I consider that the appraisal of the market value made by Mr. Beaudet was made carefully and in accordance with industry practice. The sale of the house at $86,000 in 1994, in a market which had been stationary since 1991, might have cast doubt on the market value of the property set by the expert appraiser if there had been evidence that the sale was made on the open market. For the reasons indicated above, I must conclude that such evidence was not presented.

The appeal is dismissed with costs to the respondent.

Appeal dismissed.