T-4485-81
The Queen (Plaintiff)
v.
William Yates (Defendant)
Trial Division, Mahoney J.—Toronto, March 9;
Ottawa, March 10, 1983.
Income tax — Income calculation — Capital gain — Prin
cipal residence — Appeal by Crown from Tax Review Board
— Defendants wanting only enough land for residence but
purchasing 10 acres being minimum required by municipal
zoning — No more than one acre used for residential purposes
— Defendants selling 9.3 acres excluding residence to City
under expropriation threat — Whether acreage sold constitut
ing principal residence so that disposition resulting in tax-
exempt capital gain — No argument that partial disposition of
principal residence impossible — "Individual's" in s. 54(g)
synonymous with "taxpayer's" — Critical time being moment
before disposition — Where objective test met by taxpayer
unnecessary to consider subjective test based on actual contri
bution of contiguous land to use and enjoyment as residence
though might be proper — Factors referred to re s. 24(6)
Expropriation Act possibly relevant where appropriate —
Entire 10 acres contributing to use and enjoyment as residence
since defendants could not legally have occupied as residence
with less — Therefore disposition of principal residence
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 40(2), 54(g),
178(2) — Expropriation Act, R.S.C. 1970 (1st Supp.), c. 16, s.
24(6).
COUNSEL:
H. Erlichman for plaintiff.
C. A. Maiocco for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
C. A. Maiocco, Guelph, for defendant.
The following are the reasons for order ren
dered in English by
MAHONEY J.: This action was tried on common
evidence with a like action against the defendant's
wife, May Yates, Court file no. T-4484-81. The
evidence consisted entirely of the transcript of the
Tax Review Board hearing, which included a par-
tial agreed statement of facts. The only issue for
determination is whether the disposition in issue
resulted in a taxable capital gain. The amount of
the gain is, if necessary, to be subject of further
proceedings.
The defendants acquired a ten-acre parcel of
vacant land near Guelph on which, in 1964, they
built their home. Ten acres was the minimum
residential parcel then permitted by the zoning.
The zoning by-law was subsequently amended to
require a 25-acre minimum. The defendants con
tinued to reside there as legal non-conforming
users.
When they bought, the defendants did not want
ten acres; they wanted only enough land for their
residence but had to buy at least ten acres. They
did not use more than an acre for residential
purposes. The balance was rented to a neighbour
ing farmer who grew crops on it.
In 1978, the defendants sold 9.3 acres to the
City of Guelph under threat of expropriation. The
9.3 acres did not include the residence. The
defendants continue to reside on the remaining 0.7
acre plus an adjacent 0.225 acre transferred to
them by the City as part of the consideration for
the 9.3 acres.
The issue is whether the disposition of the 9.3
acres was a disposition of a principal residence. It
was not argued that, by its very nature, a principal
residence cannot be subject of a partial disposition.
If the disposition of the 9.3 acres was a disposition
of a principal residence, the capital gain thereon is
exempted from tax by paragraph 40(2)(b) of the
Income Tax Act [R.S.C. 1952, c. 148, as am. by
S.C. 1970-71-72, c. 63]. The definition of "princi-
pal residence" by paragraph 54(g) is both lengthy
and complex. It is desirable to recite only the
material part.
54....
(g) ... the "principal residence" of a taxpayer for a taxation
year shall be deemed to include ... the land subjacent to the
housing unit and such portion of any immediately contiguous
land as may reasonably be regarded as contributing to the
taxpayer's use and enjoyment of the housing unit as a
residence, except that where the total area of the subjacent
land and of that portion exceeds one acre, 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;
I take the word "individual's" to be synonymous
with "taxpayer's"; perhaps the draftsman wearied
of the tedious repetition of "taxpayer" and varia
tions thereof as he approached the end of a sen
tence of over 400 words.
In my opinion, the critical time is the moment
before disposition. It is possible that a subjective
test, involving the actual contribution of the
immediately contiguous land to the taxpayer's use
and enjoyment of the unit as residence, may be
admissible. Perhaps such factors as are commonly
taken into account in applying subsection 24(6) of
the Expropriation Act' could be relevant in appro
priate circumstances. However, whether or not a
subjective test is properly to be applied, an objec
tive test surely is and if, in its application, it is
found that the taxpayer has discharged the onus
on him, it is unnecessary to consider the subjective.
The defendants could not legally have occupied
their housing unit as a residence on less than ten
acres. It follows that the entire ten acres, subjacent
and contiguous, not only "may reasonably" be
regarded as contributing to their use and enjoy
ment of their housing unit as a residence; it must
be so regarded. It also follows that the portion in
excess of one acre was necessary to that use and
enjoyment.
The disposition in issue was a disposition of a
principal residence. The assessments will be
referred back to the Minister for reassessment on
that basis. The amount of tax in issue brings
subsection 178(2) into play in the matter of costs.
Except for disbursements there will be a single set
of costs for both actions. A copy of these reasons
will be filed in, and form part of the record of,
action no. T-4484-81.
' R.S.C. 1970 (1st Supp.), c. 16.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.