http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/142425/index.do
Donaldson v. The Queen (January 5, 2016 – 2016 TCC 5, D’Auray J.).
Précis: The taxpayer and his wife converted their personal residence to rental property in 2007 and from rental property to personal residence in 2008. They each claimed a capital loss and a terminal loss in 2008. CRA reduced both losses claimed and the Donaldsons appealed to the Tax Court. The Court struck Mrs. Donaldson’s appeal since her 2008 assessment was a nil assessment. In the case of Mr. Donaldson the Court dismissed his appeal on the basis that CRA’s computations of capital loss and terminal loss were both correct (apart from an understatement of the terminal loss in the amount of $7.99).
Decision: Mrs. Donaldson’s appeal was struck since her 2008 assessment was a nil assessment. Mr. Donaldson’s computation of his losses was simply incorrect:
[20] For the 2008 taxation year, the appellants each claimed a net rental loss in respect of the property which included a terminal loss in the amount of $185,000. ($92,500. each) calculated as follows:
Fair Market Value (“FMV”) of the property in June 2007 - first change of use from personal residence to rental property……..……….……..$695,000.
FMV of the property in September 2008 – second change of use from rental property to personal residence.….…………….………………$510,000.
Difference - a non-capital loss of $144,000. for the house and a capital loss of $41,000. for the land……………….…………….…………………$185,000.
Loss claimed by each of the appellant (50%)…..………….…………$92,500.
The Court found:
[34] As I have stated, subsection 20(16) of the Act is the section that allows a taxpayer to deduct a terminal loss. Paragraph 20(16)(a) of the Act instructs us on how to calculate such a loss according to the definition of “undepreciated capital cost”, found in 13(21) of the Act. Applying subsection 20(16) of the Act in this appeal, the terminal loss is $12,114.97 calculated as follows:
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B
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Recaptured depreciation included in the appellant’s income in previous years
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$0
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E
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Capital cost allowance deducted by the appellants
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$0
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F
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The lesser of:
- Proceeds of disposition
- Capital cost of the property
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510,000 x 78,3% = $399,330
or $411,444.97
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$399,330
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[35] Mr. Donaldson’s 50% percent share of the terminal loss in respect of the building is $6,057.49.
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[41] Paragraph 40(1)(b) of the Act provides how a capital loss is to be calculated. The capital loss of Mr. Donaldson is determined as follows:
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Adjusted cost base
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$695,000+$472.50=$695,472 x 21.7%=
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$150,917.53
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($40,247.53)
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The appeal was allowed with respect to an understatement of Mr. Donaldson’s terminal loss in the amount of $7.99. There was no order as to costs as this was an informal procedure appeal.