Wall v. The Queen

Wall v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2019-08-14
Neutral citation
2019 TCC 168
File numbers
2013-3996(GST)G, 2013-3997(GST)G, 2014-4354(IT)G
Judges and Taxing Officers
Henry A. Visser
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2013-3996(GST)G
2013-3997(GST)G
2014-4354(IT)G
BETWEEN:
JOHN WALL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on October 24, 25 & 26, 2016 and April 26 & 27, 2017 at Vancouver, British Columbia
By: The Honourable Justice Henry A. Visser
Appearances:
Counsel for the Appellant:
George Douvelos
Counsel for the Respondent:
Selena Sit
Johanna Russell
JUDGMENT
The Appeals from the assessments and reassessments made under Part IX of the Excise Tax Act and the Income Tax Act are allowed, and the assessments and reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
(a) the Appellant’s net business income for his 2006 taxation year should be reduced by $126,000 in respect of his sale of the Vacant Lot at 2761 Patricia Crescent, Savary Island;
(b) the Appellant’s income for his 2006 taxation year should be increased by $63,000 in respect of the taxable capital gain he earned in respect of his sale of the Vacant Lot at 2761 Patricia Crescent, Savary Island;
(c) the Appellant was not required to collect or remit GST in respect of his sale in 2006 of the Vacant Lot at 2761 Patricia Crescent, Savary Island, and as a result the amount of net GST which he was required to remit in respect of his reporting period July 1, 2006 to September 30, 2006 should be reduced by $9,000;
(d) the Appellant’s net business income for his 2006 taxation year should be reduced by $159,370 (being the difference between $810,693 and $651,323), to reflect an error conceded by the Respondent and described in paragraphs 14 and 23 of her Reply in matter 2014-4354(IT)G;
(e) the amount of applicable interest and penalties which was assessed should be consequentially reduced in respect of the foregoing paragraphs (a) to (d); and
(f) the Appellant’s Appeals are dismissed in all other respects.
Costs are awarded to the Respondent. The parties shall have 30 days from the date hereof to reach an agreement on costs, failing which the Respondent shall have a further 30 days to file written submissions on costs and the Appellant shall have yet a further 30 days to file a written response. Any such submissions shall not exceed 10 pages in length. If the parties do not advise the Court that they have reached an agreement and no submissions are received, costs shall be awarded to the Respondent as set out in the Tariff.
Signed at Halifax, Nova Scotia this 14th day of August 2019.
“Henry A. Visser”
Visser J
Citation: 2019 TCC 168
Date: 20190814
Docket: 2013-3996(GST)G
2013-3997(GST)G
2014-4354(IT)G
BETWEEN:
JOHN WALL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Visser J.
I. OVERVIEW
[1] The Appellant, John Wall, has been a licensed real estate agent in Vancouver since approximately 1977. He also has significant experience developing real estate. He has, however, reported very little income for income tax purposes from either activity. In 2006, 2008 and 2010, Mr. Wall sold four properties in British Columbia for aggregate sale proceeds of $5,784,000.00 (and estimated profit of $2,234,419), and in particular sold three homes which he developed in Vancouver’s West Side (the “Three Homes”) and one vacant lot on Savary Island (the “Vacant Lot”) (collectively, the Three Homes and the Vacant Lot are referred to herein as the “Four Properties”). Mr. Wall did not report any income or gains from these sales in his 2006, 2008 and 2010 taxation years, and did not collect, remit or report any GST or HST on the sale of the Four Properties. He also reported very little income from other sources during those taxation years. In respect of the sale of the Three Homes, he did so on the basis that he had built and occupied each of the Three Homes as his principal residence. Notwithstanding his significant business and real estate experience, he testified that he overlooked reporting the significant gain on the sale of the Vacant Lot.
[2] Pursuant to Notices of Reassessment (the “ITA Reassessments”) issued by the Minister of National Revenue (the “Minister”) under the Income Tax Act (the “Act”) [1] on October 7, 2013, the Minister reassessed Mr. Wall’s 2006, 2008 and 2010 taxation years to include $810,693, $772,403 and $651,323, respectively, of unreported net business income in respect of his sale of the Four Properties (totaling $2,234,419 in aggregate). The Minister also assessed gross negligence penalties against Mr. Wall pursuant to subsection 163(2) of the Act in respect of this unreported income.
[3] Due to an acknowledged error by the Minister, [2] the Minister’s reassessments of Mr. Wall’s unreported net business income for 2006 and 2010 were accidentally switched, and the Minister accordingly issued a further Notice of Reassessment on May 4, 2015 pursuant to which the Minister reassessed Mr. Wall’s 2010 taxation year to include an additional $159,370 [3] of unreported net business income. The Minister also assessed additional gross negligence penalties pursuant to subsection 163(2) of the Act in respect of this unreported income. The Minister did not, however, issue a further Notice of Reassessment to correct the $159,370 overstatement error in the Minister’s October 7, 2013 Notice of Reassessment in respect of Mr. Wall’s 2006 taxation year or reduce the amount of gross negligence penalties assessed pursuant to subsection 163(2) of the Act in respect of Mr. Wall’s 2006 taxation year. In this respect, the Respondent has conceded that Mr. Wall’s net business income for his 2006 taxation year should be reduced by $159,370, and that consequential reductions should be made with respect to the amount of interest and penalties applicable to Mr. Wall’s 2006 taxation year. [4]
[4] Pursuant to a Notice of Assessment (the “4668 ETA Assessment”) issued by the Minister under the Excise Tax Act (the “ETA”) [5] on November 30, 2011, the Minister assessed the Appellant’s reporting periods from August 14, 2009 to December 31, 2010 in respect of $271,800 of unreported net GST, $8,833.50 of failure to file penalties and $11,892.50 of interest, for a total of $292,526. The 4668 ETA Assessment relates to the property sold by Mr. Wall in 2010. [6]
[5] Pursuant to three Notices of Assessment issued by the Minister under the ETA on January 24, 2012, the Minister assessed the Appellant’s reporting periods from April 1, 2006 to June 30, 2006, July 1, 2006 to September 30, 2006, and January 1, 2008 to March 31, 2008 in respect of $205,810 of unreported net GST, $8,232.40 of failure to file penalties, $4,321.20 of late remitting penalties and $67,150.89 of interest, for a total of $285,514.49. [7] Combined, the four GST assessments at issue in these Appeals totalled $578,040.49 at the time of assessment.
[6] At the hearing of these Appeals, the Respondent also conceded that Mr. Wall sold the Vacant Lot on Savary Island on account of capital, and that therefore the sale was not subject to GST and the gain thereon should be included in Mr. Wall’s 2006 income as a capital gain.
[7] Mr. Wall has appealed the foregoing assessments and reassessments of income tax and GST (and related interest and penalties) to this Court. These Appeals were heard on common evidence.
II. ISSUES
[8] Further to the concessions made by the Respondent in her Reply in respect of the ITA Reassessments and those made at the hearing of these Appeals in respect of the Vacant Lot, the issues remaining in these Appeals are as follows:
(a) Did Mr. Wall sell the Three Homes on account of income or on account of capital for the purposes of the Act;
(b) If Mr. Wall sold the Three Homes on account of capital, could he claim the principal residence exemption in respect of any of the Three Homes pursuant to paragraph 40(2)(b) of the Act;
(c) Did the Minister properly assess penalties pursuant to subsection 163(2) of the Act in respect of Mr. Wall’s 2006, 2008 and 2010 taxation years;
(d) Was the Minister able to reassess Mr. Wall beyond the normal reassessment period in respect of his 2006, 2008 and 2010 taxation years pursuant to subsection 152(4) of the Act;
(e) Was the sale of each of the Three Homes subject to GST;
(f) Did the Minister properly assess failure to file penalties pursuant to section 280.1 of the ETA; and
(g) Did the Minister properly assess late remitting penalties pursuant to paragraph 280(1)(a) of the ETA.
[9] Of the foregoing issues, the primary issue is whether Mr. Wall sold the Three Homes on account of income (in the course of a development business) or on account of capital. A secondary issue is whether (and if so, to what extent) Mr. Wall resided in any of the Three Homes prior to selling them. The other issues are subsidiary to the determination of those two issues.
[10] For the reasons that follow, it is my view that Mr. Wall sold the Three Homes on account of income in the course of a development business he was carrying on during the years under appeal, and that therefore Mr. Wall’s Appeals should be dismissed, except to the extent of the concessions made by the Minister relating to:
(a) the uncorrected overstatement error totaling $159,370 in respect of Mr. Wall’s 2006 taxation year;
(b) the sale of the Vacant Lot on Savary Island by Mr. Wall in his 2006 taxation year being on account of capital, and not income;
(c) the sale of the Vacant Lot on Savary Island by Mr. Wall in 2006 not being subject to GST in the amount of $9,000; and
(d) consequential reductions in the amount of penalties and interest applicable to the foregoing three concessions.
III. BACKGROUND FACTS
[11] As previously noted, these Appeals relate to the sale by Mr. Wall of the Four Properties during the taxation years under appeal. In particular, Mr. Wall sold the following properties during those taxation years: [8]
Purchase
Sale
# Months
Date
Date
Owned [9]
2761 Patricia Crescent,
Savary Island [10]
February 1992
August 15, 2006
177
4007 West 21st Ave
November 29, 2004
April 6, 2006
16
4324 West 14th Ave
July 13, 2006
March 27, 2008
21
4668 West 14th Ave [11]
August 14, 2009
November 29, 2010
16
[12] Mr. Wall had very little documentation with respect to these properties. Nevertheless, the Minister allowed certain documented expenses and estimated development costs, and as a result computed Mr. Wall’s profit or gain from the sale of the Four Properties as follows: [12]
Development
Purchase
Costs
Expenses
Sale
Price
Allowed
Allowed
Price
Profit/Gain
2761 Patricia Crescent,
Savary Island
$ 24,000.00
$ -
$ -
$ 150,000.00
$ 126,000.00
4007 West 21st Ave
$ 580,000.00
$ 311,676.00
$ 1,001.31
$ 1,418,000.00
$ 525,322.69
4324 West 14th Ave
$ 890,000.00
$ 287,054.00
$ 1,543.34
$ 1,951,000.00
$ 772,402.66
4668 West 14th Ave
$ 1,127,500.00
$ 325,205.00
$ 1,601.69
$ 2,265,000.00
$ 810,693.31
Total
$ 2,621,500.00
$ 923,935.00
$ 4,146.34
$ 5,784,000.00
$ 2,234,418.66
[13] Mr. Wall testified at the hearing of these Appeals. He also submitted documentary evidence in support of his Appeals. As discussed further below, I did not find Mr. Wall to be a credible witness. Mr. Wall also called three additional witnesses, namely Mr. Bryan Velve (who was the real estate listing agent for the sale of the Three Homes), Mr. Alexander Wall (the Appellant’s son), and Mr. Alfonso Daudet (who was Mr. Wall’s investment advisor). The following are summaries of each of their testimonies.
A. Mr. John Wall
(1) Overview
[14] As previously noted, Mr. Wall has been a real estate agent for many years, and also has significant experience developing real estate, both on his own and in conjunction with others. He has, however, reported very little income for tax purposes from either business activity, including in the taxation years under appeal. He nevertheless claimed that he built each of the Three Homes with the intention to live in each as his principal residence, notwithstanding that his reported income could not plausibly support the significant mortgages he had on each of the Three Homes. In that respect, Mr. Wall testified that he built each of the Three Homes so that he and his son could live close to his ex-spouse (Ms. Karen Wall), but, through a series of unfortunate events, was forced to sell each of the Three Homes that he had built and lived in with his son, so that he could pay down his accumulated debt. In my view, however, the evidence shows that Mr. Wall engaged in a pattern of purchasing a property, demolishing the existing structure, building a new house, selling the property and using the proceeds (i) to repay his accumulated debt, (ii) as income to support his lifestyle and (iii) to finance his next real estate development. In this respect, based on all of the evidence, on a balance of probabilities, it is my view that Mr. Wall purchased and developed each of the Three Homes with the intention to sell them in the course of a development business he carried on as a sole proprietor. There is, in my view, no other plausible conclusion that can be drawn from all of the evidence presented at the hearing of these Appeals.
[15] In my view, Mr. Wall’s testimony was largely unreliable, self-serving, and evasive. He also could not (or chose not to) provide documentary evidence to support much of his position. When faced with evidence that contradicted his position, he was incredulous, offering explanations that were implausible or illogical. In addition, when faced with his own prior inconsistent statements, he dismissed the inconsistencies as trivial. He was also selective in remembering details about the Three Homes and other properties he developed or transacted with.
[16] For example, Mr. Wall took out financing for his construction activities from his bank on the basis of being a real estate developer with a six figure income. In Court, however, he denied building the Three Homes as a developer and blamed the bank for manipulating his mortgage applications to get them approved.
[17] Mr. Wall testified that he was aware of the principal residence exemption and tried to inform himself generally about how it works but he did not seek advice as to whether it would apply to his specific circumstances. His evidence suggests that he operated on the assumption that if a person lived in a house for approximately one year, then the principal residence exemption would apply to exempt any gains arising on the sale of the house.
[18] During the relevant period, Mr. Wall’s expenses far exceeded his reported annual income. In my view, the long-term ownership of each of the Three Homes was not plausible based on Mr. Wall’s reported income, absent some other source of capital, such as savings or gifts. In this respect, Mr. Wall said that he used his savings and loans from family to finance each of the Three Homes, but there was, in my view, no evidence proffered to support his claim. Mr. Wall reported income of approximately $15,000 to $20,000 per year as a realtor and he brought no evidence of the income he made from his prior developments or any other source of funding. Furthermore, the majority of the income he made from being a realtor during the relevant period involved transactions relating to properties he owned or properties transacted by his father (Mr. Henry Wall) and his “friend”, Ms. Pillon (who was also referred to in the evidence as his girlfriend or spouse).
[19] It is unclear whether Mr. Wall lived in any of the Three Homes. Considering all of the evidence, it is my view, on a balance of probabilities, that he did not. In my view, neither he nor the witnesses he called could reliably verify his claims. Throughout the entire period under appeal there is evidence that Mr. Wall lived in and used his apartment and Ms. Pillon’s homes as his mailing address. While there is some evidence showing that Mr. Wall used each of the Three Homes as his mailing address for some limited purposes (such as receiving gas bills), that evidence is insufficient to establish that he lived in any of the Three Homes. Overall, it is my view that Mr. Wall’s testimony about living in each of the Three Homes (and how long he lived in each) was self-serving and inconsistent with the documentary evidence presented at trial.
(2) Properties connected to John Wall
[20] As previously noted, Mr. Wall has extensive experience buying, developing and selling real estate. In that respect, following is a summary of various properties connected to Mr. Wall which were referenced in the evidence presented at the hearing of these Appeals.
(a) The Vacant Lot - 2761 Patricia Crescent, Savary Island
[21] In February 1992 Mr. Wall and his then spouse (Karen Wall) purchased the Vacant Lot (located at 2761 Patricia Crescent, Savary Island) for $24,000. Mr. Wall and Karen Wall separated around 1996. On July 24, 1998, Mr. Wall became the sole owner of the Vacant Lot when Karen Wall transferred her interest to him. [13] He subsequently sold the Vacant Lot for $150,000 on August 10, 2006, and used the proceeds to finance the purchase of 2612 Patricia Crescent, Savary Island. During 2006, Mr. Wall was also involved with the sale of 4007 West 21st Ave and 4067 West 19th Avenue, as well as the purchase of 4324 West 14th Avenue (in each case as discussed further below). Mr. Wall testified that he did not report the sale of the Vacant Lot in his 2006 income tax return because he overlooked reporting it, despite having knowledge of how such transactions are reported from his previous development activities and his experience as a real estate agent. He thus did not dispute the amount of the gain he earned in respect of his sale of the Vacant Lot, but rather argued that the Minister was statute barred from reassessing his 2006 taxation year on October 7, 2013 in respect thereof.
(b) Pocido Holdings Limited – Mr. Wall’s Real Estate Development Company
[22] Mr. Wall testified that he owned a real estate development company called Pocido Holdings Limited (“Pocido"). Sometime between 1993 and 1995, Pocido and another builder developed approximately 20 townhouses in Squamish, British Columbia. Mr. Wall also testified that Pocido conducted the townhouse development as a business and claimed input tax credits for the GST paid during the construction.
[23] Mr. Wall testified that Pocido also worked with different builders to develop a house and a duplex. Mr. Wall was unable to remember exactly when these properties were developed. When he was shown mortgage applications, he could not recall which properties they referred to. The house was likely built in the Arbutus area of Vancouver in the mid to late 1990s. The duplex was likely built in the Kitsilano area of Vancouver in the early 2000s. Both developments involved the demolition of an existing structure and the construction of a new house or duplex which was subsequently sold.
(c) 4434 West 8th Avenue
[24] Mr. Wall lived in 4434 West 8th Avenue with his spouse (Karen Wall) and son (Alexander Wall). Karen Wall and Alexander Wall continued to live in that house after Mr. Wall and Karen Wall separated in approximately 1996. After their separation, Karen Wall’s health deteriorated due to multiple sclerosis (MS). Mr. Wall testified that she was unable to work and that she used a wheelchair. Mr. Wall said that he had an agreement with Ms. Wall to care for Alexander Wall when she was unable to do so because of her illness. He said that Alexander Wall initially spent half of his time with his mother at 4434 West 8th Avenue but as her illness progressed he only spent weekends with her.
[25] On July 19, 2004, Mr. Wall transferred his share of 4434 West 8th Avenue to Karen Wall in lieu of future support payments. This was arranged through a transaction involving a notional mortgage. However, Mr. Wall testified that he continued to pay for expenses relating to Ms. Wall’s illness such as the installation of a $30,000 lift at 4434 West 8th Avenue. Mr. Wall also said he continued to pay expenses related to Alexander Wall’s ADHD and other learning disabilities. However, Mr. Wall did not provide any documentary evidence to support these expenses or his separation or divorce arrangement with Ms. Wall (including in respect of child support).
(d) Mr. Wall’s Apartment - #908 2370 West 2nd Avenue
[26] Mr. Wall testified that he moved into an apartment at #908 2370 West 2nd Avenue (the “Apartment”) around 1996 after he separated from Ms. Wall. He further testified that it was a small unit and that he decided to purchase and develop the house at 4007 West 21st Avenue because he wanted to provide a house for his son Alexander Wall to live in. However, Mr. Wall testified that he decided to keep the Apartment lease even after he allegedly moved into 4007 West 21st Avenue. While Mr. Wall testified that he sublet the Apartment in order to cover the cost of the lease, he did not call any of his purported tenant(s) or provide documentary evidence of any sublease agreement(s).
[27] Mr. Wall testified that he moved back into the Apartment after selling 4007 West 21st Avenue and continued to live there while 4324 West 14th Avenue was under construction. It is unclear from the evidence presented at trial when Mr. Wall ended the lease on the Apartment, but he testified that he lived there for a short period while he was building 4668 West 14th Avenue. Mr. Wall’s evidence indicates that the Apartment was available to him as a residence for most of the relevant period that is the subject of these Appeals.
[28] Mr. Wall used the Apartment as his mailing address on his 2006 and 2008 income tax returns, various mortgage and loan documents, [14] and his HPO application for 4324 West 14th Avenue.
(e) 4007 West 21st Avenue
[29] 4007 West 21st Avenue was the first of the Three Homes which Mr. Wall Purchased. Mr. Wall testified that he had the same intention for purchasing and developing each of the Three Homes: he wanted to provide a home for his son, Alexander Wall, in the same neighbourhood as his school and his mother’s home.
[30] Mr. Wall purchased 4007 West 21st Avenue on November 29, 2004 for $580,000. He subsequently obtained a demolition permit, following which he demolished the existing house on that property. He also obtained a building permit which was issued on March 10, 2005, following which he constructed a new house. It was listed for sale on January 13, 2006 and again on February 13, 2006. He obtained an occupancy permit which was issued on April 4, 2006, and the property was sold on April 6, 2006 for $1,418,000.
[31] Mr. Wall financed the development of 4007 West 21st Avenue using an $812,500 mortgage from HSBC. On cross examination, the Respondent asked Mr. Wall how he could afford the down payment and the long-term mortgage payments. In this respect, I note that Mr. Wall’s annual reported income for tax purposes for most of the years from 1987-2005 was approximately $15,000 to $20,000. Mr. Wall testified that he had savings and personal loans from friends and family, but he did not provide any evidence to corroborate his claims.
[32] Mr. Wall testified that he purchased a rundown house at 4007 West 21st Avenue, demolished it and built a three-level, five-bedroom house with a suite in the basement. He testified that his original plan was to renovate the existing house but, shortly after purchasing the property, it became apparent to him that a new build would be more cost effective. However, during examinations for discovery Mr. Wall made no mention of renovations. In contrast, he said, “when I bought [4007 West 21st Avenue] the house was not livable that was on there. It was just a rundown really old house that you couldn't even live in. So as soon as possible I got the permits necessary to tear it down.” [15]
[33] Mr. Wall testified that it takes approximately six months of construction before a house can be lived in. In this respect, he testified that, despite ongoing construction, he moved into 4007 West 21st Avenue as soon as it was livable. Mr. Wall initially testified that that he moved into 4007 West 21st Avenue by approximately May 2005. However, upon the Respondent pointing out in cross examination that the building permit for 4007 West 21st Avenue was not issued until March 10, 2005, Mr. Wall suggested that he completed preliminary work prior to getting the building permit which accounts for the short period between getting the permit and moving in. Upon the Respondent further suggesting that Mr. Wall did not begin construction until after the building permit for 4007 West 21st Avenue was issued and that therefore it would have been impossible for him to start living there in May 2005, Mr. Wall admitted that 4007 West 21st Avenue was not demolished until after March 10, 2005 and that it was more likely that he began living in 4007 West 21st Avenue by July or August, 2005.
[34] Mr. Wall’s testimony and the documentary evidence are in conflict about whether there were appliances in 4007 West 21st Avenue before it was sold. Mr. Wall said that when he moved in, there may not have been appliances. When he sold 4007 West 21st Avenue, the listing indicated that there was a budget for appliances. Mr. Wall testified that he could not remember if there already were appliances in the house. He suggested that the budget for appliances was because some buyers prefer different appliances. When confronted with the contradiction he firmly asserted that he had installed cheap appliances in 4007 West 21st Avenue.
[35] Upon selling 4007 West 21st Avenue, the contract of purchase and sale dated February 24, 2006 listed as a fundamental term that all construction had to be completed before closing. Mr. Wall testified that construction was substantially finished by that time. The final construction inspection by the City of Vancouver was completed on March 29, 2006 and an occupancy permit was issued on April 4, 2006. Mr. Wall did not keep any documents evidencing the construction process or when it was complete. He was insistent that there was nothing stopping him from living in each of the Three Homes before construction was complete.
[36] Mr. Wall did not keep any records of the construction expenses for 4007 West 21st Avenue. The only documentary evidence he provided showing expenses were Terasen gas bills. Mr. Wall estimated that each of the Three Houses cost $250 per square foot to construct. He said that each house was 3000 square feet so the construction cost would have totaled approximately $750,000 for each of the Three Houses.
[37] Mr. Wall sold 4007 West 21st Avenue on April 6, 2006 for $1,418,000. He did not report the sale in his 2006 income tax return. Mr. Wall testified that he has used the same accountant since the 1990s. Marsh and Marsh Co. prepared Mr. Wall’s 2006 tax return. Mr. Wall testified that he did not inform his accountant that he had sold 4007 West 21st Avenue.
[38] Mr. Wall testified that he sold 4007 West 21st Avenue to pay his debts. I note, however that he had other personal assets that he could have sold. Mr. Wall testified that the reason he sold 4007 West 21st Avenue was because his debts were unmanageable and there was sufficient equity in 4007 West 21st Avenue to pay the debts and construct a new house. Mr. Wall did not have any documents to show the amount of his debts at that time. He testified that he did not want to take another loan from the bank because he did not want to go further into debt. However, within three months of selling 4007 West 21st Avenue, Mr. Wall financed 4324 West 14th Avenue with a mortgage of $1,125,000. Mr. Wall insisted that it was a logical financial move to use his equity in 4007 West 21st Avenue to pay his debts and reinvest into a new property. Despite having purported insurmountable debts, Mr. Wall contributed $13,000 to his RRSPs during the same tax year. I note that Mr. Wall still owned the Vacant Lot (2761 Patricia Crescent, Savary Island) and an aircraft (which was valued at $200,000 on his mortgage application dated April 9, 2005). [16] Mr. Wall could not explain how he amassed the savings to finance 4007 West 21st Avenue and why he couldn’t use his other assets to pay his accumulated debts.
(f) 4067 West 19th Avenue
[39] On March 10, 2005, Mr. Wall purchased 4067 West 19th Avenue for $585,000. [17] This was the same day that he received the building permit for 4007 West 21st Avenue. He claimed that his name was on the contract of purchase and sale but that his father was actually the buyer. Mr. Wall testified that he may have co-signed with his father for the mortgage on 4067 West 19th Avenue, but denied that 4067 West 19th Avenue was part of his real estate development business. Mr. Wall testified that he assigned the contract for the purchase of 4067 West 19th Avenue to his father on closing. I note that 4067 West 19th Avenue is in the same neighborhood as the Three Homes at issue in these Appeals (4007 West 21st Avenue, 4324 West 14th Avenue, and 4668 West 14th Avenue).
[40] Mr. Wall testified that he demolished the existing house on 4067 West 19th Avenue and built a new four-bedroom house for his father (who was 82 years old at the time). Mr. Wall was the general contractor for the construction. He could not recall if the layout was similar to the Three Homes.
[41] Mr. Wall’s father agreed to sell 4067 West 19th Avenue on May 18, 2006 for $1,480,000. Mr. Wall received a referral fee from Mr. Velve on this sale. [18] Mr. Wall said that his father sold the house because his parents’ health was deteriorating and they moved in with his sister. When the house was sold, the contract of purchase and sale indicated that the seller occupied the residence and therefore GST was not applicable. The contract also required the seller to provide an occupancy permit by the closing date.
(g) 2612 Patricia Crescent, Savary Island
[42] On September 18, 2005, Mr. Wall was listed as the purchaser on a contract of purchase and sale for 2612 Patricia Crescent, Savary Island. [19] He claimed that the contract was assigned to his father (Mr. Henry Wall) when the sale closed in July 2006. There was no evidence that Mr. Henry Wall made any payments for 2612 Patricia Crescent. Mr. Wall denied that he was the actual owner of 2612 Patricia Crescent at that time.
[43] As noted above, Mr. Wall sold the Vacant Lot (located at 2761 Patricia Crescent, Savary Island) on August 10, 2006 for $150,000 and contributed the proceeds to pay for 2612 Patricia Crescent. Mr. Wall said that his father financed 2612 Patricia Crescent with a $300,000 mortgage but there was conflicting documentary evidence showing that it was a $485,000 mortgage. Mr. Wall was the covenantor on this mortgage.
[44] Mr. Wall said that the monthly mortgage payments of $821 were coming out of his bank account but that his father would pay him back or they would rent the property to cover the mortgage. However, in discoveries, Mr. Wall said that he made most of the payments for 2612 Patricia Crescent because he was going to be using it the most.
[45] As noted, when Mr. Wall sold the Vacant Lot (located at 2761 Patricia Crescent, Savary Island) in 2006 for $150,000, he contributed the proceeds to the purchase of 2612 Patricia Crescent. Yet when Mr. Wall was purportedly experiencing financial difficulties that he testified led to the sale of 4007 West 21st Avenue in 2006, he did not sell the Vacant Lot or apply its proceeds to his accumulated debt. Rather he chose to sell 4007 West 21st Avenue in 2006 first and subsequently used the proceeds of the sale of the Vacant Lot to finance the purchase of 2612 Patricia Crescent.
[46] In my view, Mr. Wall’s evidence shows that there was a pattern of purchasing and selling properties which is inconsistent with his story. Mr. Wall purchased 2612 Patricia Crescent just after he sold 4007 West 21st Avenue due to purported insurmountable debts. He sold the Vacant Lot to finance this purchase. He also purchased 4324 West 14th Avenue just before the purchase of 2612 Patricia Crescent closed. Mr. Henry Wall sold 4067 West 19th Avenue the month before 2612 Patricia Crescent was purchased. Therefore, notwithstanding his purported insurmountable debts in 2006, Mr. Wall sold two properties (the Vacant Lot and 4007 West 21st Avenue) and purchased two other ones (2612 Patricia Crescent and 4324 West 14th Avenue) which required an even larger investment than the two he had sold. During the same time frame, he also purchased, developed and sold 4067 West 19th Avenue, although it was partly “papered” in his father’s name (Mr. Henry Wall), although there is no evidence to suggest his father acted other than as agent in doing so.
[47] Mr. Henry Wall transferred 2612 Patricia Crescent to Mr. Wall for $1.00 on March 28, 2011. [20] Mr. Wall’s acquisition of 2612 Patricia Crescent is discussed in further detail below because it is relevant to his reasons for selling 4668 West 14th Avenue.
(h) 4324 West 14th Avenue
[48] 4324 West 14th Avenue was the second of the Three Homes which Mr. Wall purchased. Mr. Wall purchased 4324 West 14th Avenue for $890,000 on June 12, 2006, three months after selling 4007 West 21st Avenue. Mr. Wall listed 4324 West 14th Avenue for sale on January 19, 2008. The final construction inspection from the city was completed on April 22, 2008. Mr. Wall sold 4324 West 14th Avenue on March 25, 2008 for $1,951,000.
[49] Mr. Wall applied for and received an HSBC mortgage of $1,150,000 to finance the development. He did not provide the Court with any documents showing his savings, debts, down payment or expenses at the time.
[50] Mr. Wall testified that he bought 4324 West 14th Avenue with the intention of renovating it but he decided that it made more sense for him to build a new house. He said that it would cost less for him to rebuild than to renovate or hire a professional builder. During examinations for discovery he said 4324 West 14th Avenue was not livable and that it was only worth the land value. He did not mention any plans for renovation.
[51] Mr. Wall received the building permit for 4324 West 14th Avenue on August 14, 2006. He agreed on cross-examination that construction would have begun on or after he got the building permit but insisted that construction began as soon as possible. Mr. Wall had no evidence showing when the construction began or when it was completed. However, he maintained that he was living in 4324 West 14th Avenue by early 2007.
[52] Mr. Wall testified that he designed the layout of 4324 West 14th Avenue specifically with his “friend”, Ms. Pillon, and her children in mind. He said that he built a special room at the back of the house to isolate his cat from Ms. Pillon’s children because one of them has allergies. Mr. Wall claimed that he was advised against designing the house to include the cat room because it would reduce interest in the property on resale. In other respects, 4324 West 14th Avenue was similar to 4007 West 21st Avenue– it was a three-level five-bedroom house with a suite in the basement which could be rented to generate income. Although the special room was described as a “cat room”, there was nothing to suggest that it couldn’t be used for other purposes. Furthermore, 4324 West 14th Avenue was sold only two months after it was listed.
[53] Mr. Wall applied to the Homeowner’s Protection Office (HPO) when building 4324 West 14th Avenue because the HPO allegedly allows a person who builds their own home to obtain certain savings by removing the requirement for home warranty insurance. Mr. Wall provided his applications for this program but was unable to show any documentation that demonstrated his applications were successful or that he met the criteria for acceptance. According to Mr. Wall, these criteria allegedly included proof that the property was owner occupied for a period of at least one year. There was no evidence to corroborate the way the program functions. Mr. Wall specifically mentioned the HPO in relation to 4324 West 14th Avenue and generally indicated that this was evidence which supported his residence at each property, but there was no specific testimony regarding the HPO program for the other properties.
[54] Mr. Wall stated that it took about six months to make 4324 West 14th Avenue livable and he moved in as soon as he could. He testified that he hired contractors to finish the house during the day while his son Alexander Wall was in school.
[55] Mr. Wall claimed that 4324 West 14th Avenue was furnished in the same way as the other properties. He testified that his son stayed there throughout the week and spent weekends at his mother’s house. Mr. Wall said that his son kept his clothing and sports equipment at 4324 West 14th Avenue.
[56] Mr. Wall said that he did not keep documents showing his construction expenses for 4324 West 14th Avenue, but he was able to produce several gas bills. He testified that on occasion he would keep the heat low or off to save money depending on the season. As with the other homes, he estimated the construction costs were $250 per square foot.
[57] Mr. Wall sold 4324 West 14th Avenue on March 25, 2008 for $1,951,000. He did not report the sale on his 2008 income tax return. Mr. Wall testified that he could not remember whether he told his accountant about the sale of 4324 West 14th Avenue. However, he made vague statements that suggested he kept this information to himself because he thought the principal residence exemption applied and there was no need to discuss the matter with his accountant. [21]
[58] Mr. Wall testified that he sold 4324 West 14th Avenue because his debts had become insurmountable again and he was not making a lot of money as a realtor. He said that he was expecting Ms. Pillon to live with him and to contribute to the mortgage payments but this did not work out. He also claimed that he was unable to get extra money from renting out the basement. There was growing equity in the property so he decided to pay off his debts and build another house.
[59] During this period, Mr. Wall continued making monthly mortgage payments of $821 for 2612 Patricia Crescent and kept the lease for his Apartment. In a mortgage document dated March 28, 2007, Mr. Wall reported numerous assets including RRSPs, stocks, bonds, investments, an aircraft, and a Mercedes automobile. [22] He also had access to a line of credit in the amount of $150,000. Mr. Wall did not explain why he chose to sell his home (4324 West 14th Avenue) instead of using these other assets to manage his alleged debts.
(i) 4684 West 9th Avenue
[60] On February 28, 2007 Mr. Wall purchased 4684 West 9th Avenue. He testified that he assigned the purchase contract to Ms. Maria Pillon who made the purchase for $1,200,000. Mr. Wall was a guarantor for Ms. Pillon’s financing. Mr. Wall testified that he did not undertake any construction on this property. He described it as an older house that had been renovated. Much like the Three Homes, it was a three-level five-bedroom house with a basement suite. Mr. Wall further testified that Ms. Pillon lived there with her children. In addition, Mr. Wall testified that he lived in 4684 West 9th Avenue with his son Alexander Wall while he was constructing the new house at 4668 West 14th Avenue.
[61] Mr. Wall testified that Ms. Pillon sold 4684 West 9th Avenue for financial reasons related to failed investments in the stock market. The property at 4684 West 9th Avenue was listed for sale on January 19, 2008 for $1,988,000. Mr. Wall could not recall the actual sale price but he said that Ms. Pillon did not make money on the sale. He agreed with the Respondent that the final sale price would have been somewhere around $1,215,000.
(j) 4668 West 14th Avenue
[62] 4668 West 14th Avenue was the third of the