Dunne v. Canada
T-926-86
Rothstein J.
7/3/95
19 pp.
Appeal from Tax Court decision dismissing appeal from Minister's assessment -- Plaintiff acquiring land and constructing townhouse development (the property)-Property mortgaged to Canada Mortgage and Housing Corporation (CMHC) -- Plaintiffs defaulting on payments and CMHC exercising power of sale -- Public auction producing no bid other than CMHC reserve bid, calculated as amount outstanding under mortgage; CMHC conveying property from CMHC as mortgagee to CMHC in own right-CMHC selling property at significant loss to third party (third party price) -- On income tax returns, plaintiffs claiming undepreciated capital cost of property as proceeds of disposition, i.e. amount less than CMHC reserve bid -- Minister's reassessment increasing proceeds of disposition of property to amount of CMHC reserve bid -- As Income Tax Act, s. 54(h)(vii) providing proceeds of disposition including amount of reduction of liability by taxpayer to mortgagee resulting from sale of mortgage, issue whether proceeds of disposition: (1) price for which property sold at mortgage sale, i.e. CMHC reserve bid; or (2) true value of real property, i.e. third party price -- Plaintiffs contending: (1) reserve bid not constituting proceeds of disposition as not reflective of true value of property; and alternatively, (2) sale of property by CMHC to own benefit not operative sale -- In absence of statutory requirement, appraisal of property only necessary where question arising as to whether property sold at lower price than true value -- Prejudice of concern to court between mortgagor and mortgagee, i.e. mortgagee must not take advantage of mortgagor; mortgagor's tax consequences of transaction not relevant -- In fixing reserve bid as total amount owing under mortgage, mortgagee eliminated large deficiency under mortgage and plaintiffs' liability -- Newfoundland Court of Appeal implicitly ruling provincial mortgagee may "buy in" at mortgage sale for its own benefit (Federal Business Development Bank v. Gaslard and Gaslard (1983), 44 Nfld. & P.E.I.R. 89 (C.A.)) -- Fact mortgagee buying in for own benefit of no consequence in terms of protection to mortgagor provided mortgagee acting in good faith and not negligently -- Objective of protection of mortgagor more likely achieved by construing CMHC's reserve bid as extinguishing plaintiffs' liability, even if such construction resulting in plaintiffs' realization of capital gain for tax purposes -- Appeal dismissed -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 54(h)(vii).