INCOME TAX |
Income Calculation |
Capital Gains and Losses |
tuart Estate v. Canada
A-201-03
2004 FCA 80, Malone J.A.
1/3/04
8 pp.
Appeal from judgment of Tax Court ([2003] 3 C.T.C. 2232) dismissing appeal of income tax assessment for 1994 taxation year--Whether Tax Court erred in interpretation or application of definition of "principal residence" found in Income Tax Act, s. 54(e)--In 1957 Mrs. Stuart sole owner of small house located on 1.31726 hectares of land, purchased from Estate of her husband--Income consisted of approximately $10,000 in government pensions--In 1992, Mrs. Stuart signed offer to sell property to developer for $1.8 million, which then commenced lengthy application process to rezone property to "multi-family residential"--Process completed and sale closed in 1994--In assessing tax liability, M.N.R. took position that only 45% of land fell within definition of "principal residence"--Estate appealed assessment to Tax Court on basis entire property had been Mrs. Stuart's principal residence--Generally, capital gain realized by Canadian resident on sale of principal residence exempt from income tax, but statutory definition limits amount of land qualifying for exemption to 1/2 hectare (s. 54(e))-- Before Tax Court, appellant argued all of property appellant's principal residence because in reality she was locked into property as single parcel and was required to sell it as single unit because of zoning, lack of means to finance subdivision application--Argument rejected in Tax Court--There was evidence supporting inference developer or third party might have absorbed subdivision costs--Inference drawn by Judge that third party developer would pay for costs of subdivision application reasonably supported by overall evidence and not contrary to overwhelming weight of evidence--Under s. 54(e), onus on appellant to establish remainder of property necessary to Mrs. Stuart's use and enjoyment of her housing unit as residence--Evidence relevant to question of how much land in excess of 1/2 hectare necessary to use and enjoyment of housing unit as residence mainly objective, and must be linked to legal and physical characteristics of property--Relevant factors typically include zoning restrictions; access to roads, utilities; geographical barriers to development--Evidence of landowner's financial resources of marginal relevance--Tax Court summarily dismissed argument impossible for Mrs. Stuart to subdivide property due to her personal circumstances --Not error of law but determination evidence did not demolish M.N.R.'s assumption--Tax Court correctly concluded test of necessity not met--Appeal allowed but only on issue of solicitor-client costs awarded to Minister--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 54(e) "principal residence" (as am. by S.C. 1994, c. 7, Sch. viii, s. 16).