October 07, 2011

Harcharan S. Sendher (Appellant) v. Her Majesty the Queen (Respondent)

98 DTC 1250
Tax Court of Canada
November 25, 1997

(Court File No. 95-2988(IT)G.)

Principal residence deduction — Taxpayer acquiring a whole parcel of land (comprising 3.03 acres) on which his principal residence located — Taxpayer filing subdivision application, and then selling the property — Whether actual use of lands in excess of 1.23 acres required for taxpayer’s use and enjoyment of his principal residence — Whether frontal restrictions affecting the property requiring taxpayer to sell it as a single parcel — Income Tax Act, R.S.C. 1985 (5th Supp.), c.?1, as amended, s.?54(g).

The taxpayer acquired a whole parcel of land (comprising 3.03 acres or 1.226 hectares) on which his principal residence was located, although he did not want the whole parcel. In November 1988, the taxpayer filed a subdivision application and, by June 28, 1989, everything was completed for the proposed subdivision. On June 28, 1989, the property was conveyed away by the taxpayer in a non-arm’s length sale for $700,000. In assessing the taxpayer for 1990, the Minister denied him the principal residence exemption in respect of such conveyance. The taxpayer appealed to the Tax Court of Canada.

Held: The taxpayer’s appeal was allowed. The evidence did not establish that the actual use of land in excess of 1/2 hectare (1.23 acres) was required for the taxpayer’s use and enjoyment of his principal residence. However, the property was subject to the restriction that each parcel required a frontage of 165 feet, and the municipality would not allow the taxpayer to sell or create a lot retaining only 1 acre with a 165-foot frontage, since such severed parcel would only have had a 44-foot frontage. Because of such frontal restriction, the taxpayer was required to maintain the whole parcel and sell it as a single parcel. The Minister was therefore ordered to reassess on the basis that the entire (3.03 acre) property involved the disposition of the taxpayer’s principal residence.