October 07, 2011

Dusan Gavrilovic and Slavinka Gavrilovic (Appellants) v. Her Majesty the Queen (Respondent)

97 DTC 142
Tax Court of Canada
September 16, 1996

(Court File Nos. 94-2547(IT)G and 94-2548(IT)G).

Principal residence exemption — Between 1985 and 1994, taxpayers purchasing and reselling some 15 residential properties — Whether, on the facts, taxpayers entitled to treat one particular residential property out of that group as their principal residence — Income Tax Act, R.S.C. 1985, Chapter 1 (5th Supp.), s. 54(g).

One taxpayer was a home builder and real estate salesman. The other taxpayer was his spouse and his partner in real estate transactions. From 1986 to 1994, each of the taxpayers owned or had ownership interest in 15 residential properties. On September 6, 1988, the taxpayers purchased a lot, subdivided it into two lots (“3606” and “3608”), and built a house on each one. Both houses were listed for sale on August 23, 1989; 3606 was sold on September 28, 1989, and 3608 remained for sale, even though the taxpayers alleged that it was their principal residence. 3608 was eventually sold on July 30, 1990. In assessing the taxpayers for 1990, the Minister denied them the principal residence exemption in respect of 3608. The taxpayers appealed to the Tax Court of Canada.

Held: The taxpayers’ appeals were dismissed. The taxpayers alleged that they had moved into 3608 in July or August of 1989, but the house was not finished at that time. Numerous invoices from suppliers showed that a great deal more had to be done after July 1990. In addition, the insurance policy on 3608 was a construction policy which had been extended to September 15, 1989, and no occupancy permit was issued by the City of Vancouver until July 20, 1990, just prior to the closing of the sale of the property. On these facts it could be seen that when the taxpayers built 3606 and 3608, they had formed no intention to make either their principal residence. Their course of conduct was more indicative of them remaining at 3608 until it could be sold and then moving on to another residence to make it their principal residence. For these reasons, the taxpayers were not entitled to treat 3608 as their principal residence. The Minister’s assessment was affirmed accordingly.