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Second, it appears that the taxpayer, along with her former spouse, was previously engaged in a number of real estate transactions over the years, several of which the judge called “notable.” For example, in October 2005, the former couple jointly acquired a property in West Vancouver for $4.2 million and spent additional amounts on upgrades. The property was sold in July 2010 for a loss, which was reported as a business loss for tax purposes.

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In June 2008, the taxpayer purchased a condominium unit in West Vancouver with a friend on a 50-50 basis for approximately $698,000. The property was listed for sale a few weeks later, and was sold in June 2009 for net proceeds of $588,616, resulting in a loss.

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The taxpayer attempted to adjust her 2009 income tax return to treat her share of the loss as a business loss, which prompted inquiries from the CRA. In a letter to the CRA, the taxpayer explained that she intended to “pursue small-scale property refurbishment projects to generate a source of income, and that the (property sold) was to be the first such project.” She also stated that she had “plenty of experience owning and refurbishing properties” and that, after relocating to Vancouver, real estate “seemed like a logical sector to be making investments.”

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In court, the taxpayer testified that she moved a few items into her North Vancouver condo around Nov. 3, 2017, and in late November moved in some additional furniture, including two couches, a chest of drawers, bedside tables, a bed for the main bedroom and a sofa bed in the second bedroom. She said her daughters shared that room.

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Her evidence was that she lived at the condo from Nov. 23, 2017, to June 2018.

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The judge didn’t buy this argument. The taxpayer’s other property remained available, and that is likely where the taxpayer and her daughters had been residing when the daughters were not with her ex. As the judge said, “It is highly improbable that (her teenage daughters), would have moved into a smaller condominium and shared a bedroom after having separate bedrooms at (their previous three properties).”

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The judge also noted that the taxpayer didn’t bother to install Wi-Fi at the condo, nor did she change the address on her driver’s license, nor update her address with the CRA. Furthermore, when the condo was listed for sale, it was listed as “brand new” in the real estate listing.

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As the judge noted, “occupancy involves more than simply moving a few items into the premises. … It seems illogical that she would list the (condo) on December 6, 2017, and — while at the same time — move in and begin occupying the property primarily as a place of residence.”

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As the judge wrote, “On a balance of probabilities, and considering the totality of the evidence adduced together with common sense, I am unable to find that the (taxpayer) occupied the (condo) as a place of residence. … Instead, it is more probable that the (taxpayer) and her daughters continued to reside primarily at the four-bedroom home.”

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This led the judge to conclude that the taxpayer had acquired her interest in the condo with a speculative intent, motivated primarily by the possibility of resale at a profit. Thus, the judge ruled that the profit was properly taxable as business income.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

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