In a June 25, 2019 Tax Court of Canada case (Bygrave vs. H.M.Q., 2016-2201(IT)I), at issue was whether a gain of $13,412 on the sale of the taxpayer’s condo in 2010 was on account of capital (as filed by the taxpayer) or income (as CRA had assessed) and whether the gross negligence penalties CRA had assessed were applicable.

In 2006, the taxpayer entered into an agreement to purchase a condo but did not take possession until 2010 due to numerous construction delays. Shortly after taking possession, he sold the completed condo which he never resided in. In 2008, the taxpayer’s father passed away unexpectedly and as a result the taxpayer’s mother came to live with the taxpayer in his townhouse, which he shared and co-owned with his brother.

documenting the client’s original plan, and why it changed

While the taxpayer originally intended to sell his portion of the townhouse and move into the condo when it was completed, the untimely death of his father and the new obligation to look after his mother changed his plans. The condo would be too small for him and his mother to reside in. As he could not afford to hold both properties, he sold the condo, bought out his brother’s interest in the townhouse, and resided in the townhouse with his mother.

support that the original plan has been frustrated

Taxpayer wins
The Court accepted that, while the taxpayer’s intention was to live in the condo, it was frustrated by the untimely death of his father.

Further, while the taxpayer had experience in a number of different jobs, none had a close connection to real estate transactions.

While the condo was sold relatively soon after possession and the taxpayer did not ever live in it, both indicative of a finding on account of income, it was not sufficient to counter the original intention to purchase for use as a residence and thus on account of capital.

The Court found that the sale was on account of capital. Gross negligence penalties were vacated.

Editors’ comment
While the taxpayer was eventually successful in his appeal, it took nine years from the sale date and three court decisions. The taxpayer missed the deadline to appeal to the Tax Court so applied for an extension in that same court. While the Tax Court denied the extension, it was granted in the Federal Court of Appeal (see VTN 433(10)), allowing for the current case to be heard.