Flanagan v. MNR, 89 DTC 615, [1989] 2 CTC 2395 (TCC)

Rip, T.C.J.:—The issue in these appeals from income tax assessments for 1982 and 1983 is whether a housing unit was ever located on two properties disposed of by the appellant, Patrick Gerald Flanagan ("Flanagan"), and, if so, whether the properties were part of his principal residence.

In January 1973 Flanagan purchased from his mother a vacant lot on which he hoped to build a home. The property was located in the Shuswap Regional District of British Columbia and fronted on Shuswap Lake, which was a source of fresh water supply. Mr. Flanagan was denied a building permit for his home by the municipal authorities. He was informed Shuswap Lake had a high water mark that would preclude construction and septic system approval; a permanent structure could not be built on the lot unless additional land was acquired for a septic system connected to the lakefront property in perpetuity. He also was informed by the municipal authorities that without a septic system no utility could be connected to the property.

Flanagan attempted to acquire an easement for the septic system from an owner of neighbouring land but the owner refused since she had "other plans” for her property. Eventually she sold the property to a developer. The developer also refused to grant Flanagan an easement but in 1975 entered into an agreement with Flanagan for the sale of a lot. In 1978 Flanagan acquired this second property. The second property was across a public road from the property he acquired from his mother (“first property"). Flanagan caused an easement in perpetuity to be placed on the second property in favour of the first property; a pipe ran beneath the road between the two properties.

In the meantime Flanagan wanted to put the property he acquired from his mother to the use intended. He purchased a 14-foot camper trailer in September 1973. The trailer contained a sink, stove, cupboards, bed and a portable toilet. He would drive the trailer to the property on weekends, when he had time off from work and when on vacation. He would live in the trailer during these times. At the end of a stay on the property he would drive the trailer to his parents’ home in Surrey where he would leave it when not in use and return to his rented apartment in Vancouver. The trailer was not left on the property for fear of vandalism. The trailer was used on the property during 1973 and 1974.

Also, in 1973 Flanagan purchased a van which also contained a trailer hitch. The van contained a bed, sink, cupboards, stove, toilet and lighting. Electrical power was available by means of an extension cord from a neighbour's property. A second van was acquired in 1978. The vans, like the trailer, were used by the appellant on the property as a place in which to sleep, eat and spend time, in short, to live. When he was away from the property Flanagan would leave the van parked near his apartment in Vancouver. The evidence indicates that in 1982 Flanagan made use of the second van on the first property.

Flanagan stated he never spent any spare time other than on the first property. All his vacations were spent on the property during the time he owned it; during this time, he explained, he continued attempts to obtain a building permit. He improved the property by raising it by three feet to prevent flooding. He also testified that he used the trailer, vans and tent only on the property. He did not, for example, make use of the trailer or vans when they were left parked in Surrey or Vancouver.

When he left his residence in Vancouver for the property he would take most of his clothing with him. He explained that during the time he owned the property his lifestyle did not require too much in the way of clothing and luxuries.

During the time he owned the property he would also occasionally put a tent on the property for shelter. On leaving the property he would take down the tent except if he intended to return within a week.

During 1976, Flanagan lived on the first property continuously from June to September; in any other year he estimates he spent at least 30 days a year on the property.

In 1982, a business Flanagan started was beginning to make demands on his time which affected his lifestyle. He decided to sell the properties. The first property was sold in 1982 and the second in 1983. In filing his income tax returns for those years he claimed the properties as principal residence and thus did not include any part of the capital gain in income.

The respondent denied the claims on the basis there was no housing unit that was ordinarily inhabited by the appellant on either of the two properties.

Both parties rely on paragraph 54(g) of the Income Tax Act (“Act”) which reads as follows:

. . ."principal residence" of a taxpayer for a taxation year means a housing unit,

(i) ordinarily inhabited in the year by the taxpayer. . .

except that . . . in no case shall any such housing unit . . . be considered to be a taxpayer's principal residence for a year

(iii) unless it has been designated by him in prescribed form and manner to be his principal residence for that year and no other such housing unit . . . has been so designated for that year by him . . .

and for the purposes of this paragraph the "principal residence” of a taxpayer for a taxation year shall be deemed to include . . . the land subjacent to the housing unit and such portion of any immediately contiguous land as may reasonably be regarded as contributing to the taxpayer's use and enjoyment of the housing unit as a residence. . . .

The relevant times to consider when determining principal residence are 1982 and 1983, the taxation years in which the respective properties were sold.

The original position taken by the respondent in disallowing the appellant's claim was that a "housing unit” does not include a trailer, van or tent. He relied on the English line of cases, the most recent of which is Makins v. Elson (Inspector of Taxes), [1977] 1 All E.R. 572. In that appeal the taxpayer purchased land in 1970 for the purpose of building a "dwelling house"; he had received permission to build the home. A month after the purchase he moved to the property with a caravan and lived there with his family. He started to build a home but very little work was in fact done. While he lived on the property, water, telephone and electricity, which had been installed on the site, were connected to the caravan. The wheels had been taken off the caravan; it was jacked up and resting on bricks. In 1973 the taxpayer sold the caravan and property. The issue was whether the gains arising from the sale were exempt from capital gains tax on the ground the caravan was a chattel separate from the land and that the land did not constitute a dwelling-house or part of a dwelling-house within the meaning of paragraph 29(1)(a) of the Finance Act, 1965 which was the taxpayer's only or main residence.

The Court, Chancery Division, took into account the installation of the telephone, electricity and water system, and the fact that the wheels of the caravan were not on the ground and found the caravan to be a "dwellinghouse". [1]

A "caravan" is defined by the Shorter Oxford English Dictionary on Historical Principles as “a covered carriage or cart (now gen. superseded by van . . .); a house on wheels ..."

In the French language text of 54(g) of the Act the words "housing unit” read "logement", and “subjacent” reads "sous-jacent".

The words "housing unit"are not defined in any dictionary available to me. The Oxford English Dictionary, Second Edition, (Oxford) defines "housing" as ". . .a shelter of a house, or such as that of a house; house accommodation; lodging. . . . A house or building. . ." Le Grand Robert de la langue française, deuxième édition (Robert) defines "logement" as “Local à usage d’habitation, et, plus spécial, Partie de maison, d'immeuble ou l'on réside habituellement. . .

In Field Place Caravan Park Ltd. v. Harding, [1966] 3 All E.R. 247 Lord Denning M.R. stated, on page 251:

In parting with the case I would say that these caravans with their pitches are very like small bungalows with their gardens. Just as a small bungalow is rateable, so also is a residential caravan.

A "housing unit” need not be a building. A house provides shelter to people who reside in it, and a building is not the sole means of shelter. A van and trailer, suitably equipped, are capable of providing the same type of shelter and comfort as a traditional house. Today one finds more than a few people residing in vans and trailers while some trailers, like the caravan in Makins v. Elson, supra, may rest on bricks and be supplied with services. Others may be mobile taking advantage of the very nature of the beast for travel. In either event the van or trailer easily may serve as a housing unit: it is a question of fact whether the van or trailer at any time is a housing unit. I do not find the lack of services to the appellant's van and trailer fatal to his appeal; there are, unfortunately, many buildings used as homes by Canadians which lack services normally available to the larger community and the lack of these services ought not to colour the very character of the building used as their housing unit. Similarly lack of services to a van or trailer, otherwise a housing unit, should not affect their character. A "housing unit” need not, for the purposes of paragraph 54(g), be a building or structure. The respondent has recognized that a trailer may be a housing unit for the purposes of paragraph 54(g) in its Interpretation Bulletin IT-120R3, published on February 16, 1984. Paragraph 5 of the bulletin states:

The term "housing unit" includes a house, apartment in a duplex, or apartment building or condominium, cottage, mobile home, trailer or houseboat.

While administrative policy and interpretation are not determinative, they are entitled to weight and can be an “important factor" in case of doubt about the meaning of legislation: re de Grandpre, J. in Hare/ v. Deputy Minister of Revenue of the Province of Quebec, [1978] 1 S.C.R. 851; [1977] C.T.C. 441; 77 D.T.C. 5438 at page 859, Nowegijick v. The Queen et al, [1983] 1 S.C.R. 29; [1983] C.T.C. 20; 83 D.T.C. 5041 at page 37 per Dickson, J. (as he then was).

Counsel for the respondent submitted that if a mobile home, van or trailer may be a “housing unit" and thus a principal residence for the purposes of paragraph 54(g), it is only the mobile home or trailer itself that is the principal residence and not any land. The mobility of the mobile home, van or trailer suggests that many different lots, even roads in which they travel, may be subjacent to such a housing unit at any particular time.

This submission, in my view, ignores part of the statutory provision, paragraph 54(g), which provides that "'principal residence'. . . shall be claimed to include. . .the land subjacent to the housing unit and such portion of any immediately contiguous land as may be regarded as contributing to the taxpayer's use and enjoyment of the housing unit as a residence. . .".

"Subjacent" is defined by Oxford as ". . .situated underneath or below; underlying." "Sous-jacent" is defined by Robert as . .Qui s'étend, qui est situé au-dessous. . .". It is quite obvious that a van, trailer and tent must rest on something. Mr. Flanagan's van and trailer, as well as his tent, rested on the land he acquired from his mother; this land was situated underneath or below the van and trailer, as well as the tent, and in the normal sense of the word was subjacent to the housing unit used by Mr. Flanagan during his ownership of the first property.

In my view, the term “principal residence" in paragraph 54(g) includes land subjacent to a mobile home, van or trailer at the time the mobile home, van or trailer is in use as a housing unit. Hence where any of a mobile home, van or trailer is a housing unit ordinarily inhabited by the taxpayer, the land subjacent to such housing unit is part of the principal residence together with the housing unit itself.

The land contiguous to the land subjacent to the housing unit is to be included as part of Flanagan's principal residence in 1982 if it may reasonably be regarded as contributing to his use and enjoyment of the housing unit as a residence. With respect to the property he acquired from his mother, the land contributed to his use and enjoyment of the trailer, vans and tent. He did not spend all his time inside the van, the housing unit, in 1982. The purpose in acquiring the land was because of its lake frontage and surroundings. The first property was part of Flanagan's “principal residence" in 1982 within the meaning of paragraph 54(g) if it was “ordinarily inhabited” by him in 1982.

The courts have discussed on several occasions the meaning of the expression "ordinarily resident", as that expression was used in subsection 139(4) of the Act, as it read prior to 1972. In Thomson v. M.N.R., [1946] S.C.R. 209; [1946] C.T.C. 51; 2 D.T.C. 812 the Supreme Court of Canada found there was nothing of a casual or non-permanent character about the taxpayer's residence in New Brunswick even though he lived there, during the years in appeal, from May to October, less than 183 days in each year. He resided the rest of year in the United States. Rand, J. on page 64 (D.T.C. 815) stated that:

The expression “ordinarily resident" carries a restricted signification, and although the first impression seems to be that of preponderance in time, the decisions on the English Act reject that view. It is held to mean residence in the course of the customary mode of life of the person concerned, and it is contrasted with special or occasional or casual residence. The general mode of life is, therefore, relevant to a question of its application.

Kellock, J. at pages 67 and 68 (D.T.C. 819 and 820), stated as follows:

"Ordinarily" is defined as “in conformity with rule or established custom or practice,” “as a matter of regular practice or occurrence,” “in the ordinary or usual course of events," “usually,” "commonly," “as is normal or usual.” "Sojourn" in clause (b) is to be contrasted with "resident" in clause (a). A mere sojourn is not within the section unless the sojourn continues beyond the stated period. In my opinion, the appellant is not to be described as a sojourner in respect of the years in question but as a person residing in Canada within the meaning of clause (a). There is not the slightest difference between his use of his Canadian home and that of either of his two American homes. All three establishments are essentially of the same nature and are equally regarded by him as "homes" in the same sense. The appellant's residence in each is in the ordinary and habitual course of his life and there is no difference in the quality of his occupation in any one of them, although he may and does occupy each at different periods of the year.

The word “ordinarily” does not, therefore, restrict a person to having residence in one country; a person may ordinarily inhabit more than one housing unit in a year if he does so in the course of the customary mode of his life: this too is a question of fact. The respondent agrees that a seasonal residence may be a taxpayer's principal residence. Paragraph 9 of the respondent's Interpretation Bulletin IT-120R3 reads as follows:

The question of whether a residence was "ordinarily inhabited” during a taxation year by a taxpayer, the taxpayer's spouse or former spouse, or a child of the taxpayer must be resolved on the facts in each particular case. Where the residence has been occupied by such a person for only a short period of time during a taxation year (such as a seasonal residence occupied during a taxpayer's vacation or a house which was sold early or bought late in a taxation year), it is the Department's view that the taxpayer “ordinarily inhabited" that residence in the year, provided that the principal reason for owning the property was not for the purpose of gaining or producing income therefrom. In circumstances where a taxpayer receives incidental rental income from a seasonal residence, such property is not considered to be owned for the purpose of gaining or producing income therefrom.

Mr. Flanagan testified that in the normal course of living he spent all his free time at the first property. He did not visit the property only occasionally or use it for purposes other than ordinary habitation: see Shlien v. M.N.R.,

[1988] 1 C.T.C. 2244; 88 D.T.C. 1152 at page 2247 (D.T.C. 1154). The use of the vans, trailer and tent, as well as the lot he acquired from his mother was part of his lifestyle in 1982 prior to selling the property in that year. Cross- examination did not indicate that in 1982, up to the time of the sale of the property, Flanagan used the property any differently than in past years. In 1982, and prior years, the property was “ordinarily inhabited” by Mr. Flanagan.

Finally we arrive at the land Mr. Flanagan acquired in 1975, sometimes referred to as the second property, and sold in 1983. Prior to 1983 the land comprising this property was not contiguous to the land comprising the first property which was subjacent to the housing unit. The two properties were separated by a roadway and were not touching. Underground piping under the road connecting the two properties does not make the properties contiguous. Also in 1983 the first property was not part of Mr. Flanagan's principal residence since he no longer owned it. In any event at no time in 1983 was a housing unit owned by the appellant resting on the second property. The second property was not part of Flanagan’s principal residence in 1983.

The appeal for 1982 will be allowed with costs, if any; the appeal for 1983 will be dismissed.

Appeals allowed in part.