January 27, 2012

Kewal Sidhu v. The Queen

2004 DTC 2540
Tax Court of Canada
April 2, 2004

Neutral Citation 2004 TCC 174
Court File Nos. 2001-3493(IT)G and 2003-2655(GST)I (General Procedure)

Dispositions of residential property — Capital gains — Whether taxpayer entitled to principal residence deduction, or to capital gains deduction — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, ss. 45(1), 54 “principal residence”, 110.6, 152(4)(a), 163(2).

The Minister reassessed the taxpayer for 1993–1998. On the taxpayer’s appeal to the Tax Court of Canada, four issues were raised. The first two issues concerned the income or losses sustained on four rental properties and from a trucking business. The third issue concerned an RRSP withdrawal, and the fourth concerned the tax treatment of a capital gain realized on the disposition in 1993 of a residential property (the “property”). The first two issues were settled on consent, and the third was not argued, which left for disposition only the capital gain issue.

Held: The taxpayer’s appeal was dismissed. There was a move by the taxpayer into the property after he had stopped renting it in 1992. However, it was probably a marginal and temporary move, in that the property did not become his settled place of residence in 1992. Therefore, there was no change of use of the property in 1992 from its former income-producing use to that of a residence. Hence, the taxpayer could not argue that the property was his principal residence at the time of its disposition in 1993. Also, his non-reporting of the gain on the disposition of the property, was tantamount to intentional, which meant that the taxpayer had acted knowingly or under circumstances amounting to gross negligence. This disentitled him to the capital gains deduction under subsection 110.6 of the Act as it read in 1993. Conversely, no negative inference was to be drawn from the fact that the Minister did not impose penalties under subsection 163(2) of the Act. On the capital gains issue, the Minister’s reassessment was affirmed.