Tax Court of Canada Judgments

Date: 20030115

Docket: 2000-3214-IT-G

BETWEEN:

PAUL SOLOMONS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowie J.

[1]            Mr. Solomons brings these appeals from his assessments for income tax for the years 1992 and 1993. He claims to be entitled, in computing his income under section 3 of the Income Tax Act (the Act), to deduct from his income a loss sustained in respect of a residential property that he purchased in 1989 and sold in 1993. It became clear during the evidence that he led from his accountant that he had delivered notices of objection for both 1992 and 1993, but had later withdrawn the objection for 1992. He therefore has no right of appeal from the assessment for 1992, and so the appeal for that year should be quashed.

[2]            Before I deal with the substance of the appeal for 1993, I wish to say a few words about the request for an adjournment that the Appellant made at the opening of the trial. The appeal was begun on July 19, 2000, when the Appellant filed a Notice of Appeal that he had prepared and signed, apparently without the benefit of professional help. The Respondent filed a Reply on September 20, 2000, and later a List of Documents. Nothing else appears to have happened until July 23, 2002, when Associate Chief Judge Bowman, following a status hearing, made an Order fixing the dates by which production and discovery were to be completed, and fixed Tuesday, January 7, 2003 as the trial date. On the afternoon of Monday January 6, 2003, the Court Registry in Ottawa received the following letter by fax from a Toronto lawyer.

We are to be retained today by the Appellant in connection with the above matter, which is set down for hearing in Toronto on January 7, 2003 at 9:30 a.m. The Appellant did not fully understand the nature of the proceedings in this matter and did not realize until very recently that his interests would be prejudiced without having the presence of counsel at the hearing. Accordingly, he contacted our firm as soon as possible thereafter, with a view to retaining us to represent him.

Accordingly, we respectfully request, on behalf of the Appellant, a brief adjournment of the hearing in this matter, to allow us to have a reasonable amount of time to adequately prepare the Appellant's case. I have spoken with counsel for the Respondent ... who has advised that he does not oppose our request for the adjournment. I would suggest an adjournment to sometime in early May, 2003, if possible.

I appreciate your assistance in this matter and look forward to your response.

Later that afternoon, at about 4:55 p.m., counsel for the Respondent faxed a letter to the Registry, as follows:

Further to my telephone conversation with you, I will consent to the adjournment as requested by [counsel] if the costs of preparing the case are allowed, and if I have to appear tomorrow then the costs of appearance as well.

[3]            In the meantime, counsel had been advised that the request for an adjournment should be made to the presiding judge on Tuesday morning at 9:30 a.m., the time fixed for the trial to begin. On Tuesday morning the Appellant appeared, without counsel, and requested that the trial be adjourned. In response to my inquiry as to what had changed since the Associate Chief Judge had fixed the trial date, he replied only that he had been unable to negotiate a settlement of his appeal.

[4]            I declined to grant the requested adjournment, notwithstanding the position expressed by counsel for the Respondent in his letter of Monday afternoon. Consent of opposing counsel is certainly a factor to be considered in dealing with an adjournment application, but it is by no means determinative of the issue.[1] Among the other factors that I considered are the facts that counsel had not actually been retained, according to his letter, that the trial date had been fixed almost six months previous, that there had been no intervening event that had impeded the Appellant from preparing and presenting his case, and that the Appellant had waited until the afternoon before the trial date to first raise the question of retaining counsel and seeking an adjournment. The resources of this Court, like most others, are both scarce and costly. They are paid for by the public. As Hugessen J.A. said in a different context in Adams v. RCMP:[2]

... The day has passed when courts could allow to litigants the luxury of being at their beck and call. Courts are public institutions for the resolution of disputes and cost substantial public money. Court congestion and delay is a serious public concern. Parties who launch proceedings at any level with the intention of putting them in a "holding pattern" for their own private purposes may be called to account for their waste and abuse of a public resource. They also risk having those proceedings dismissed.

[5]            Some adjournments are necessary in the interests of justice by reason of factors that cannot be either predicted or prevented. People become ill; witnesses are justifiably unavailable; other litigation may prevent parties or counsel from being available at the time fixed. However, this is not such a case. I understand that there may have been some settlement negotiations that continued until late last week. That often happens, but it is up to litigants, and their counsel, to be prepared to proceed with cases on the dates that have been fixed. It is a great convenience to counsel and to the parties that this Court fixes dates for trial months in advance; they do not have to be available for trial on short notice, as is the case in some other Courts. That convenience comes at a price, however; they must do what is required in order to be ready on the day fixed. Litigants who decide to conduct their own cases without counsel, hoping to achieve a settlement before trial, run the risk that they will have to proceed to trial without counsel. They cannot expect that the Court will grant them an adjournment, and thereby waste the resources of the Court for the time that has been allotted to the matter, because their settlement discussions have failed. This Court has a significant backlog of informal appeals that are waiting to have dates fixed for hearing in Toronto. Three or four of them could be disposed of in every day that goes to waste. The reason advanced by the Appellant for seeking an adjournment of this trial does not weigh very heavily in the balance, compared to the public interest in efficient use of Court resources, including providing hearings to the Appellants in the backlog of informal cases. I turn now to the merits of the appeal.

[6]            Mr. Solomons is a realtor. In May 1989, he entered into an agreement to purchase a residence at 190 Strathearn Road in Toronto. The transaction was to close on July 14 that year. Between those dates, he realized for the first time that the residential real estate market in Toronto was about to collapse. At the time, he was living in a house at 20 Ross Street, in which he had an ownership interest, along with two other people. It was his intention to move to and to live in the house on Strathearn. However, it quickly became apparent to him that it would be beyond his means to afford, as the collapsing market would mean fewer sales, and, therefore, reduced income for him in the foreseeable future. He had no choice but to close the transaction in July, but he immediately formed the intention to resell the house. The opportunity to rent the house for a two-month term arose, and he took advantage of it, but no buyers appeared. He then decided that the house would not sell unless he did some renovations, so he moved into it at the beginning of October 1989 and set about those renovations, letting contracts to various trades to do the necessary work while he lived in the house. He chose this alternative to continuing to live at Ross Street because he was able to find a tenant for his part of the Ross Street house much more readily than he could hope to do so for 190 Strathearn Road. Mr. Solomons testified that he listed the Strathearn house for sale in May 1990 at an asking price of $588,000; over the next few months he reduced the price a number of times, until it was down to $499,000. At the end of 1992, he returned to live in the Ross Street house and rented the Strathearn Road house to a tenant, who remained there until August 1993. In 1993 he reduced the listing price to $399,000, and he sold it in October of that year for $390,000.

[7]            In filing his income tax return for 1992, Mr. Solomons claimed to be entitled to treat the Strathearn Road house as inventory, and to write it down to the lower of cost and market value, thereby creating a loss that he would then deduct in computing his income under section 3 of the Act. In assessing him for 1992 the Minister disallowed this claimed loss. As I have said, Mr. Solomons delivered a notice of objection from that assessment, but later withdrew it. Instead, he claimed to be entitled to deduct a realized non-capital loss in 1993, computed on the basis of the difference between his adjusted cost base of $534,900 in 1989 and the net proceeds of the sale in 1993, which were $379,233. The Minister disallowed this too, on the basis that the property was a personal use property until it was rented in January 1993. Instead, the Minister assessed the Appellant on the basis that the property had been a personal use property from the time of its acquisition in 1989 until it was rented in January 1993, that upon the change in use at that time it had a fair market value of $402,888, and that the loss should be allocated between building and land in the ratio 56% to 44%. He, therefore, allowed the Appellant a terminal loss of $13,247,[3] and a capital loss of $10,408.[4] The fair market value as at January 1, 1993 and the proceeds of disposition that were assumed by the Minister in assessing the Appellant were not challenged during the trial. Nor was the building-to-land ratio that he applied.

[8]            The Appellant has stated the issues this way in part (d) of his Notice of Appeal:

(d)            ISSUES TO BE DECIDED:

(1)            Whether or not 190 Strathearn was a business property.

(2)            Whether or not 190 Strathearn is considered inventory.

(3)                  Whether or not the Minister acted with due dispatch in confirming the 1992 and 1993 assessments.

[9]            I shall deal with the last of these issues first. It is now settled[5] that when a taxpayer who has delivered a notice of objection does not receive a notice of confirmation or a notice of reassessment "with all due dispatch"[6] then his remedy is not simply to sit back, suffer as much delay as the Minister may inflict on him, and then on an appeal claim to win by default. After 90 days have elapsed, he may launch an appeal to this Court and thereby bring the matter to a head: see the Act, subsection 169(1). If he does not choose to do so, he cannot complain later about the delay. This ground of appeal has no merit.

[10]          The other two issues, as expressed by the Notice of Appeal, may be considered together, as they both require a consideration of the status of the Strathearn Road house from time to time. The Appellant's evidence was very clear that he purchased that house to live in it. There was no suggestion in his evidence that he bought it with any intention of reselling it at a profit, to rent it, or for any purpose other than to live in it. By the time the transaction closed he wanted to resell it, but only because he had concluded by that time that he would not be able to afford it. That house was a personal use property, at least from October 1, 1989 until January 1 1993, when he rented it to a tenant. Whether it was a personal use property or not during the two months that it was rented in 1989 is irrelevant to any consideration of the Appellant's income for either 1992 or 1993. When Mr. Solomons moved out of the house and rented it at the beginning of 1993, he was deemed to have disposed of it, and to have immediately reacquired it, for $402,888, which was its fair market value at that time: see subsection 45(1) of the Act. Between January 1, 1993 and October 22, 1993 he held it as capital property. During that period it declined in value. The building was depreciable property, and so it gave rise to a terminal loss by reason of subsection 20(16) of the Act. The land was non-depreciable capital property, and so it gave rise to a capital loss. The Minister's computation of the amounts of these is correct.

[11]          The Appellant seems to have assumed that because he wanted to sell the house from the time he closed the purchase in 1989 until he was able to sell it in 1993, it must be considered inventory in his hands during that period. However, he was in exactly the same position as anyone else who, having bought a house for personal use, decided that he could not afford it - he was selling a personal use property. He was never engaged in the business of buying and selling houses, nor was his purchase of this house an adventure in the nature of trade. This is not altered by the fact that he was a realtor.

[12]          In the course of the hearing, the Appellant attempted to raise an issue with respect to a loss that he may have suffered in connection with his interest in the Ross Street house. However, no such issue was pleaded, nor was there any evidentiary basis upon which any such loss could have been established at the hearing. No such issue was defined in the pleadings, and no expert witness affidavit had been filed and served, as required by Rule 145; nor did the Appellant indicate that he had any evidence as to the value of his interest in the Ross Street house available.

[13]          For these reasons, the appeal for 1993 is dismissed. The appeal for 1992 is quashed, as the notice of objection had been withdrawn before the Notice of Appeal was filed. If it had been a valid appeal, it would necessarily have failed for the same reasons. The Respondent is entitled to her costs.

Signed at Ottawa, Canada, this 15th day of January, 2003.

"E.A. Bowie"

J.T.C.C.

CITATION:

COURT FILE NO.:

2000-3214(IT)G

STYLE OF CAUSE:

Paul Solomons and Her Majesty the Queen

PLACE OF HEARING

Toronto, Ontario

DATE OF HEARING

January 7 and 10, 2003

REASONS FOR JUDGMENT BY:

The Honourable Judge E.A. Bowie

DATE OF JUDGMENT

January 15, 2003

APPEARANCES:

Counsel for the Appellant:

The Appellant himself

Counsel for the Respondent:

Shatru Ghan

COUNSEL OF RECORD:

For the Appellant:

Name:

--

Firm:

--

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

Date: 20030115

Docket: 2000-3214(IT)G

BETWEEN:

PAUL SOLOMONS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeals heard on January 7, 2003, and judgment delivered orally

on January 10, 2003, at Toronto, Ontario

By: The Honourable Judge E.A Bowie
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Shatru Ghan

_______________________________________________________________

JUDGMENT

                The purported appeal from the assessment of tax made under the Income Tax Act for the 1992 taxation year is quashed.

                The appeal from the assessment of tax made under the Act for the 1993 taxation year is dismissed.

                The Respondent is entitled to her costs.

Signed at Ottawa, Canada, this 15th day of January, 2003.

"E.A. Bowie"

J.T.C.C.