Date: 20001110
Docket: 1999-3920-IT-I
BETWEEN:
FERNAND TARDIF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] The appeal concerns the 1994 taxation year.
[2] The issue is whether the Minister of National Revenue (the "Minister") correctly determined the capital gain from the disposition of an immovable located in Stratford.
[3] In making the assessment under appeal, the Minister made the following assumptions of fact:
[TRANSLATION]
(a) the property in issue is located at 609 chemin Plante in Stratford;
(b) the property in issue is a cottage beside Aylmer Lake;
(c) the property was purchased by the appellant in June 1987 for $58,000;
(d) the property was transferred to his spouse, Huguette Charpentier, in October 1992 for good and valuable consideration;
(e) in April 1994, Huguette Charpentier sold the said property to 2955-0779 Québec Inc. for $100,000;
(f) the Minister determined the capital gain arising from the transaction described in subparagraph (e) by means of the following calculation:
(i) proceeds of disposition $100,000
(ii) adjusted cost base
(a) cost $58,000
(b) estimate-renovations $10,000 $ 68,000
(iii) capital gain $ 32,000
(g) based on a building permit application, among other things, an amount of $10,000 was added to the adjusted cost base;
(h) the taxable capital gain of $24,000 ($32,000 x 75%) was deemed to have been realized by the appellant since he had transferred the property to his spouse in 1992.
[4] All the facts were admitted by the appellant with the exception of subparagraph (f)(ii)(b), that is to say, specifically, the estimate of the renovations. In determining the adjusted cost base, the Minister estimated the cost of the repairs and renovations at $10,000, whereas the appellant claims to have actually paid over $60,000 therefor.
[5] The appellant testified at length describing the extent of the renovations made to the immovable in issue located in Stratford. He explained that the work had involved major repairs and changes. In that regard, he indicated that the roof had been completely replaced on the advice and with the cooperation of an architect; he moreover produced the plan prepared for and used in the repairs.
[6] The appellant contended that, apart from these expenses for the roof, numerous outlays had been made to replace the heating system and rebuild certain walls; he also redid the exterior cladding. He installed two patio doors, replaced the septic tank, did some remedial work on the electrical system, added a number of interior improvements and, lastly, did landscaping work, all, he said, at a cost exceeding $60,000.
[7] In support of his claims, the appellant submitted a number of invoices, a few photographs of the immovable before and after the repairs, a plan, the municipal assessment for 1995 and the undated handwritten list showing expenditures of $52,395.
[8] The appellant estimated his total expenditures at more than $60,000. To determine the adjusted cost base, the Minister for his part relied essentially on the amount indicated on the building permit application, that is, $10,000, and on two contracts subsequent to the performance of the work which expressly state the following (Exhibit I-2):
[TRANSLATION]
Contract of October 19, 1992
between FERNAND TARDIF and HUGUETTE CHARPENTIER
. . .
Statements of the parties respecting the G.S.T. and Q.S.T.
The transferor declares that the immovables hereby transferred are immovables occupied mainly for residential purposes, that he has performed no major renovations and has not claimed and will not claim any input tax credit in respect of the purchase of or improvements to the immovables, and the transferor makes this solemn declaration sincerely believing it to be true and knowing that it has the same force and effect as if it were made under oath under the Canada Evidence Act.
This transfer is accordingly tax exempt under the Excise Tax Act and the provisions respecting the Quebec sales tax.
. . .
(Exhibit I-3)
Contract signed on April 26, 1994
between Huguette CHARPENTIER and 2955-0779 QUÉBEC INC.
. . .
The vendor declares that the immovables being sold are immovables mainly and completely occupied for residential purposes, that she has performed no major renovations and has not claimed and will not claim any input tax credit in respect of the purchase of or improvements to the said immovables.
. . .
[9] In analyzing the documents and explanations submitted, the Minister only considered expenditures of approximately $3,500 as being valid; all the other expenses were disallowed on the ground that invoices were either non-existent or incomplete or debatable as to their content, being addressed to the "Almex" company. Apart from these complaints, the Minister also criticized the appellant for not having documents in support of the largest expenditures and also for not having proof of payment such as cheques or receipts to attest to those expenditures.
[10] The appellant explained that the passage of time was the reason for the incomplete documentary evidence. However, he also stated that he had taken care to keep the supporting documents substantiating the value added to the immovable in case he ever sold it to a third party. These two statements are somewhat difficult to reconcile, particularly since exhibits in support of some very large expenses were missing.
[11] Although the burden of proof is on the appellant, whose evidence is criticized as being incomplete and shaky, it is very surprising to see that the respondent's evaluation is itself debatable, if not downright arbitrary. First of all, the respondent bases her valuation on the amount stated on the building permit, which shows an estimated amount for the repairs of $10,000. Second, she argues that the appellant filed acceptable supporting documents for an amount of only $3,520, despite his having submitted invoices representing expenses vastly greater than $3,500.
[12] The amount stated on the building permit is definitely not a reliable indication. It is essentially an estimate which is of little value, particularly when what is involved is repairing an old building. Furthermore, a number of imponderables or changes may come into play while the work is under way, thus rendering inappropriate the amount originally estimated or shown on the permit application.
[13] As to the statements in the notarized agreements, these once again are elements of relative, but certainly not decisive, importance. The purpose of some expenditures was essentially to repair or replace certain dilapidated or heavily damaged parts of the residence.
[14] The appellant for his part submitted documentary evidence that was certainly imperfect in that some invoices were made out to the company for which he worked, while others showed that the materials described had been delivered elsewhere than in Stratford where the immovable was located.
[15] The appellant explained that he had asked that it be done that way since he was not known in Stratford and, above all, was not living on the premises. These are plausible and reasonable explanations.
[16] The standard of proof which the appellant had to meet was that of proof on a balance of probabilities, not of proof beyond any doubt.
[17] The appellant's testimony is validated by the extent of the work shown in the photographs. Apart from the photographs, the appellant testified that he had taken out a loan of more than $40,000. This loan was supported by documentary evidence, which was once again incomplete but consistent with his oral explanations.
[18] The complete replacement of the roof structure, the impressive repairs to the wall of the building, the exterior cladding, installation of a septic tank and two patio doors, the electrical work and changing the heating system are significant items for a building and they required expenditures exceeding the amount stated on the building permit.
[19] However, did the appellant expend more than $60,000 as he claims? He stated that he had done all he could to keep all the documentation and vouchers substantiating the various expenditures so as to be able to support his argument in the event of a sale to a third party. Consequently, it is quite surprising that the major expenditures are not supported by adequate documentary evidence.
[20] The handwritten document (Exhibit A-6) shows a total outlay of $52,387. The breakdown of expenses contained therein includes the cost of labour and materials. However, the appellant himself testified that the amount of $6,000 shown was not really paid and that a settlement was reached for $3,000, thus reducing by that amount the figure appearing for the item in question. Furthermore, certain expenditures were for the purchase of movables having nothing to do with the immovable at issue.
[21] In light of the evidence, it is difficult, indeed impossible, to accurately determine the value added. I therefore value at $40,000 the expenditures which must be taken into consideration in establishing the adjusted cost base.
[22] The appeal from the assessment for the 1994 taxation year is allowed, without costs, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant disbursed $40,000 to repair and improve the immovable purchased in June 1987.
Signed at Ottawa, Canada, this 10th day of November 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 27th day of December 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor