http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/108630/index.do
Balanko (Estate) v. The Queen (March 19, 2015 – 2015 TCC 66, Rip J.).
Précis: The problem at the heart of this decision was whether the Estate of the late Mrs. Balanko could claim a principal residence exemption for one property while the Estate of her late husband had already claimed a principal residence exemption for another property during the same period. The late Mrs. Balanko and her husband, Dr. Balanko, separated in 1983 but remained friends. In 1991 she transferred a condo in Whistler to him for $1.00. The Whistler condo was sold in 2003. She died in 2005. Dr. Balanko lived in another property, the Greenleaf property. After his death in 2011, that property was designated by his Estate as his principal residence for the period 1992 to 2011. Mrs. Balanko’s estate was assessed in 2013 for the gain on the sale of the Whistler condo in 2003 (the gain being attributed to her because she had transferred the property to her late husband). Mrs. Balanko’s son testified that his late father had told him that he and Mrs. Balanko had a written separation agreement but he had never seen it. No agreement was produced at trial. The Court held that in the absence of a written separation agreement Mrs. Balanko’s Estate could not designate the Whistler property as her principal residence since her husband’s Estate had already designated another property as his principal residence during the same period. The appeal was dismissed with no order as to costs.
Decision: This decision dealt with whether the Estate of the late Mrs. Balanko could claim a principal residence exemption for a property in Whistler when her late husband’s Estate had already claimed a principal residence exemption for another property in Vancouver during the same period:
[1] The trustees of the Estate of the Late Helen Bouldin Balanko appeal an income tax assessment for 2003, dated April 8, 2013, to be permitted to designate as principal residence Ms. Balanko’s former property in Whistler, B.C. (“Whistler property”).
[2] Ms. Balanko died in 2005. The Whistler property was sold in 2003 but after she had transferred the property to her husband in 1991. The gain on the sale of the property was attributed to her. In her 2003 return of income she did not claim the Whistler property as her principal residence.
[3] The Minister of National Revenue (“Minister”) refused to designate the Whistler property as Ms. Balanko’s principal residence for the reason that “another member of the family unit made a principal residence designation in respect of another property for the period of time involved”. The other member of the family unit was Dr. Balanko, Ms. Balanko’s husband.
[4] The appellant testified that Ms. Balanko was separated from her spouse since 1983 pursuant to a written separation agreement and that she and Dr. Balanko, a dentist, were living separate and apart. Thus, no other member of the family unit had made a principal residence designation during the relevant time period.
[5] Ms. Balanko purchased the Whistler property in 1976 for $41,900 and in 1991 transferred ownership of the property to Dr. Balanko for one dollar. Ms. Balanko did not report the disposition of the Whistler property to Dr. Balanko in her 1991 or other income tax return. Whether or not she retained beneficial ownership of the property was not raised at trial. The value of the property in 1991 was in excess of one dollar. In 2003 Dr. Balanko sold the Whistler property for $350,000. The Minister has calculated that a capital gain of $243,009 was made in the disposition and was attributed to Ms. Balanko: s.s. 74.1(1) of the Act.
[Footnote omitted]
The evidence was that Dr. Balanko never lived at the Whistler property. He lived in a property known as the Greenleaf property from 1992 until the date of Ms. Balanko’s death in 2005 when he moved into her property on Mariner’s Walk. When he died in 2011 his Estate designated the Greenleaf property as his principal residence.
The case turned on the definition of “principal residence” in section 54 of the
Income Tax Act:
“principal residence” of a taxpayer for a taxation year means a particular property that is a housing unit, … that is owned whether jointly with another person or otherwise, in the
(a) where the taxpayer is an individual … the housing unit was ordinarily inhabited in the year by the taxpayer, by the taxpayer’s spouse or former spouse or by a child of the taxpayer.
except …
(c) where the taxpayer is an individual … the particular property was designated by the taxpayer in prescribed form and manner to be the taxpayer’s principal residence for the year and no other property has been designated for the purposes of this definition for the year by the taxpayer, by a person who was throughout the year the taxpayer’s spouse (other than a spouse who was throughout the year living apart from and was separated under a judicial separation or written separation agreement from the taxpayer), …
Mrs. Balanko’s son testified that his father told him that he and Mrs. Balanko had a written separation agreement:
[16] Finally, one day when John again asked his father what was happening with the separation agreement, his father told him that he “took care of it” and John assumed that because his father was an honest person, he meant that a written separation agreement was prepared and signed by each parent. He never saw a written separation agreement.
[17] John believes the written separation agreement was destroyed in a fire at the Greenleaf property on March 3, 2013.
The absence of evidence of a written separation agreement was fatal to the Estate’s claim:
[20] Unfortunately for the appellant, there is no written separation agreement in existence. If Ms. Balanko signed a written separation agreement, nobody knows its contents. The section 54(c) definition of “principal residence” is quite clear: if a taxpayer is still married only one of the taxpayer and the spouse may designate a property as a principal residence except if the taxpayer and the spouse are separated under a written separation agreement. That Dr. Balanko informed John that he “took care of it” with respect to the purported written separation agreement may suggest other ways in which he and Ms. Balanko settled their affairs. Again, there is no written separation agreement before me.
[21] The lack of a written separation agreement that is required by the Act is a more serious omission then lack of receipts to prove an expenditure:
Hickman Motors Ltd v. The Queen. A written separation agreement is a requirement in the circumstances of this appeal and, for whatever reason, it is not available.
[22] The appeal is dismissed.
[Footnote omitted]