Collier, J:—The facts in this income tax appeal are unusual.
In 1957 the defendant was living at home in Transcona, Manitoba with his mother and father. He was to be married. He planned to move out of his parent’s home. His parents suggested he buy some land adjoining the family home; that he build a residence on it; that they (the parents) would live in part of it. All that was done. The address of the property was 1615-1617 Regent Avenue, Transcona, Winnipeg.
The building was, by Canadian tastes, an unusual structure. It was divided by a partition. There were, on each side, 2 bedrooms, a living room and a kitchen. There was a window or opening in the adjoining kitchens. By that means the defendant and his family could talk with his parents, and each group Nave use of the sole telephone. There was one common basement. There were two furnaces. Hydro services were separately metered but the water services were common. There was one bill for taxes. The defendant paid it.
The defendant’s father died in 1959; his mother in 1962.
The defendant, on his mother’s death, considered converting the building into one big family home. But he had only one small child at that time. He decided he would rent the portion of the premises nis parents had occupied. Commencing in 1966, he did so. The tenants, who changed from time to time, paid for their own heat and hydro. The defendant paid all other expenses. The tenants did not have sole occupation of any part of the land.
From 1966 to 1973 the defendant, in his tax returns, showed the rent received as income. He deducted from that source the expenses properly attributable to the portion rented. The total net income for the 8 years was only $3,108.99. He claimed as deductions, and was permitted, capital cost allowances. They amounted to, over the 8 years, $3,421.88. They were calculated on an original base figure of $8,000.
In 1973 the defendant was approached by representatives of Foodex Systems Limited. That company operated fast food restaurant services under the name of Ponderosa Steak Houses. They were in the process of assembling land to open a restaurant. The defendant did not really want to sell. The first offer was $40,000. The defendant refused. He instructed his solicitor he would take $90,000. Foodex agreed. The defendant refused to pay a real estate agent’s commission. The purchaser did so.
It is Obvious that Foodex had no use for the building. It was only interested in the land. It seems a fair inference, from the evidence, it was . prepared to pay a healthy price in order to assemble the amount of land it desired.
Foodex moved the building to adjacent land. The superstructure was then sold to someone for $18,500. It was moved by the purchaser to Whiteshell, 65 miles from Winnipeg. The moving costs were $4,500. Mr Grant, the plaintiff's appraiser, understood the purchaser was converting it into a family home.
The revenue department, in 1976, requested Mr Grant to appraise the property. The tax interest was in respect of a possible taxable capital gain. As a result of that appraisal the Minister of National Revenue included, in computing the defendant’s income for 1973, the following:
(a) $8,560.75, as one-half of a capital gain by the defendant on the disposition of one-half of the land and building not allegedly resided on or in by the defendant.
(b) $3,421.88, capital cost recapture.
Revenue Canada’s position is that only half of the land, and only half of the building, were the “principal residence”* [1] of the defendant. It is common ground the defendant is not taxable on whatever portion of the proceeds of the 1973 disposition is allocated to “principal residence”!. [2] The Minister’s calculation is based on an apportionment or allocation of half the proceeds of the disposition to the other half of the land and building:. [3]
The actual figures, put forward by the appraiser and adopted by the Minister, are as follows:
| RESIDENCE | RENTED | |||
| LAND | BUILDING | LAND | BUILDING | |
| Sale 1973 | 27,800 | 17,200 | 27,800.00 | 17,200.00 |
| Valuation Day 13,750 | 13.875 | 13.750.00 | 13,875.00 | |
| Less /2 sale | ||||
| Expense | 253.50 | |||
| Net Gain | 13,797.50 | 3,325.00 | ||
| Taxable x /2 | 6,898.25 | 1,662.50 | ||
As can be seen, the total value in 1971, was appraised at $55,250.
The taxpayer’s position was as follows:
(a) all of the land formed part of his principal residence; it could not reasonably be divided as the revenue department did.
(b) the building portion of the property had no market, economic, or taxable value; all the value was in the land alone:
(c) alternatively, if some portion of the proceeds of the disposition are allocable to the building, capital cost recapture, only, should follow; the balance should be treated as part of the disposition of the “principal residence”.
I deal first with the defendant’s contention that, in effect, the whole of the land and premises ought to be considered as his principal residence. This is a difficult question. I have concluded it was not unreasonable for the Minister to treat one part of the land and building as the principal residence, and another part, not.
I set out the statutory meaning of ‘ principal residence”:
54. (g) ‘principal residence” of a taxpayer for a taxation year means a housing unit. a leasehold interest therein. or a share of the capital stock of a co-operative housing corporation. owned, whether jointly with another person or otherwise. in the year by the taxpayer. if the housing was. or if the share was acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation that was,
(1) ordinarily inhabited in the year by the taxpayer, his spouse or former spouse, or a child of the taxpayer who, during the year, was wholly dependent upon him for support and was a person described in subparagraph 109( 1 )(d)(i), (ii) or (iii), or
(ii) property in respect of which the taxpayer has made an election for the year in accordance with subsection 45(2).
except that. subject to section 54.1. in no case shall any such housing unit. interest or share. as the case may be, be considered to be a taxpayer's principal residence for a year
(iii) unless it has been designated by him in prescribed manner to be his principal residence for that year and no other property has been so designated by him for that year, or
(iv) by virtue of subparagraph (ii). if by virtue of that subparagraph the property would, but for this subparagraph. have been his principal residence for four or more previous taxation years.
and for the purposes of this paragraph the “principal residence” of a taxpayer for a taxation year shall be deemed to include. except where the property consists of a share of the capital stock of a co-operative housing corporation, the land subjacent to the housing unit and such portion of any immediately contiguous land as may reasonably be regarded as contributing to the taxpayers 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;
While the building was not quite a duplex in its construction, it served, to my mind, the same practical function. It could, and did, house separate families, who had separate facilities, and. paid for separate services. Paragraph 54(g) uses the expression “housing unit’’. The portion of the building ordinarily inhabited by the defendant and his family was, in my opinion, one housing unit. The portion ordinarily inhabited by his tenant was another housing unit. The first housing unit was the defendant’s principal residence. The other housing unit was not.
In respect of the land, the evidence indicates it was common to both housing units. Each family had the use of the whole of the land. It would, however, be unreasonable to assign or allocate the whole of the land to one housing unit. or to the other. The Minister’s equal apportionment has not, as I see it, been shown by the defendant to be unrealistic or. unreasonable.
I turn to the contention that the building, or housing units had no value; the whole value was in the land.
In support of his contention, the defendant relies on the following facts*: [4] one of the purposes in distinguishing between land and building values is (for tax purposes) to measure capital cost recapture; in the ordinary sale one assumes the hypothetical purchaser will usually keep the building, or at least assign some value to it in his price; in respect of this property:
(a) the area was zoned, in 1971, as light industrial;
(b) the highest and best use was retention for future development as commercial property, or as a speculation; a hypothetical purchaser would have done that.
(c) by 1973, the area had developed in such a way that the particular property was not desirable as residential;
(d) the building was unique in construction, and out-of-place in that area;
(e) the actual purchaser was a special buyer prepared to pay a premium: that purchaser assigned the whole of the price paid to land.
Again, I have found this issue a difficult one. Again. I have concluded it was not unreasonable or unrealistic for the Minister to allocate some value to the land. and some to the building.
The building obviously had monetary value to the defendant vendor. It had, it seems, no functional value to the purchaser, Foodex. The purchaser moved the superstructure away. It eventually became, in some unrevealed manner, a family residence elsewhere at a price of $23.000*. [5] Because Foodex assigned no functional value to the building does not mean there was no market value in the structure. I think it fair to infer Foodex. in the price it was willing to pay to obtain the property, assigned some value in the market sense, to the structure. But for Foodex's particular purposes, it had no economic value. Expert opinions could well vary as to the number of dollars that should be assigned to the whole structure, or to the housing unit occupied by the tenant. The defendant did not adduce any expert opinions on those points.
The defendant, in my view, did not show, on a balance of probabilities. the allocation, by the Minister. of value between structure and land. and between housing units, was unreasonable or unrealistic.
The above disposes, as well. of the defendant’s submission that the valuation. by the Minister, of the structure portion of the property Ought to be allocated wholly to the taxpayer’s housing unit: that the only amount that ought to be brought into income is the capital cost recapture sum of $3,421.88.
The Minister’s assessment is confirmed. The appeal (action) is allowed. The plaintiff is entitled to costs.
See paragraph 54(g) of the “new” Income Tax Act.
7 See paragraph 40(2)(b) of the statute.
1;: See section 68 of the Income Tax Act.
Most of them were elicited in Mr Grant's cross-examination.
The evidence before me did not disclose who actually disposed of the superstructure—Foodex or someone else. Nor does it disclose who received the purchase price of $18.500. The defendant said he could have ‘taken or kept the house. I assumed he meant at no cost, nor any reduction in the $90.000.