McArthur T.C.J. (orally):
THE REGISTRAR: This sitting of the Tax Court of Canada in London is resumed. His Honour Judge C. H. McArthur presiding.
Before the Court for judgment case No. 97-2930 (IT) I Matchwood Investments Ltd., Appellant, and Her Majesty the Queen, Respondent. No one appearing for the Appellant, Ms. N. Levasseur representing the Respondent.
HIS HONOUR: These appeals are from assessments for the Appellant’s 1991, 1992, 1993 and 1994 taxation years. In re-assessing the Appellant for the 1994 taxation year the Minister of National Revenue denied the Appellant’s request to delete the capital gain on the sale of the property which was previously included in computing the Appellant’s income for 1994, but allowed a deduction of allowable capital loss carry-back from the 1995 year in the amount of $45,785.00.
The issue boils down to whether the Appellant re-acquired the beneficial ownership of the property being 90 acres of land in Markdale, Ontario in 1994 or 1995.
The facts include the following: In 1990 the Appellant sold the property to a land developer for $810,000.00 and reported a gain of $227,261.00. In 1990 the Appellant took back a mortgage in the amount of $650,000.00. The mortgage required periodic payment of interest only with specific principle payment required as lots were developed and sold. The Appellant claimed capital gains reserve and reported capital gains as set out in the Reply to the Notice of Appeal but they averaged about $45,000.00 a year from 1990 through to 1994. At the end of 1993 the developer was in default on the mortgage and walked away from the property and the Appellant became a mortgagee in possession. The Appellant registered a Quite Claim Deed on the property in April 1994. At all material times the Appellant’s fiscal year was the end of October.
In 1995 the Appellant was allowed a capital loss in the amount of $260,000.00 with respect to the repossession of the property. The Minister included a taxable capital gain in the amount of $34,089.00 in the calculation of the Appellant’s income tax liability for the 1994 taxation year.
The position of the Appellant is included on page 2 of Mr. Matchett’s presentation and reads in part as follows:
On returning from Florida (Matchwood is the corporation Appellant and it must mean himself) in April of 1995 discovered that our accountant had shown a $50,000.00 capital gain in 1994 against my instructions since Revenue Canada had told him to do so. Matchwood entered into numerous correspondence and sent documents to Revenue Canada to support our claim and finally Revenue Canada requested Matchwood to get a legal opinion of when Matchwood obtained beneficial ownership of the property.
Mr. Willis’ letter of August the 21st, 1996 stated that Matchwood became a mortgagor or in possession and re-acquired beneficial ownership of the property in January 1994. The subsequent Quit Claim Deed issued in 1995 was to evidence the fact that the registered owner long ago had surrendered all of his rights to the property to Matchwood. In the circumstances no Writ of Possession would be necessary or eject occupants as there were no occupants. In summation Matchwood felt we had repossessed the property in January 1994 and felt the $50,000.00 capital gains should not have shown in our fiscal year 1994. Matchwood should be entitled to go back three years commencing 1993, 1992 and 1991. Revenue Canada ignored Matchwood’s request for an appeal and proceeded on their own sitting.
For the Appellant to be successful it must comply with the provisions of Section 69 of the Income Tax Act as it applied to the year 1994. The section reads in part:
Where at any time in a taxation year a taxpayer who was a mortgagee has acquired or re-acquired the beneficial ownership of a property in consequence of the other person’s failure to pay ...
And it continues to describe how the taxpayer is to compute his income. The controversial words are “re-acquired the beneficial ownership of the property”.
The Minister submits that the Appellant who was the mortgagee in possession in 1994 did not obtain beneficial ownership of the property until the execution and registration of the Quit Claim Deed to him in April 1995. In paragraph 12 of the Reply to the Notice of Appeal the Respondent uses the word “interest” rather than “ownership” as provided for in the Act. These reasons may be different if the word “interest” was correct. In this regard I refer to the definition of “beneficial interest” in the Mozley and Whiteleys Law Dictionary and to the Dictionary of Canadian Law, Carswell Second Edition. I will deal with the words “beneficial ownership”. While the Appellant re-acquired possession of the property in 1994 it did not obtain title or ownership until 1995 when it was granted a Quit Claim Deed. It is unfortunate this Deed was not available to be placed in evidence. While it is agreed that it was registered in 1995 there was no evidence as to when it was executed, although it would appear that it was also executed in 1995. The Dictionary of Canadian Law, Second Edition defines “beneficial owner” in part:
... the real owner of the property even though it is in someone else’s name they quote Csak vs. Aumon (1990) 69 DLR at 567 and at 570 Lane J. stated: ‘A person who has the right to drill into a unit of minerals and produce therefrom oil and gas or potash ...’
And then it goes on to expand on that, that he is the beneficial owner. While the Appellant had possession of the property in 1994 it did not obtain ownership until 1995. Up until the execution of the Quit Claim Deed by the mortgagor and the registration of it the mortgagor had a right of redemption by paying the arrears and placing the mortgage in good standing. After doing so it could dispossess the Appellant of it’s possession. That right ended with the Quit Claim Deed in 1995 and that is when the Appellant re-acquired beneficial ownership. For these reasons the appeal is dismissed.
Appeal dismissed.
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