T-2705-80
Ruth Gameroff (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Decary J.—Montreal, October 19;
Ottawa, November 5, 1982.
Income tax — Income calculation — Income or capital gain
— Plaintiff partner in vendor real estate company which
entered into agreement for purchase and sale of real property
— Pursuant to offer to purchase and verso of deposit cheque,
deposit to be forfeited as partial liquidated damages on pur
chaser's default — Whether plaintiffs share of forfeiture on
default taxable capital gain under the Act — Action dismissed
— S. 54(c)(ii)(B) includes within definition of "disposition"
any transaction or event by which debt owing to taxpayer or
right of taxpayer to receive amount is settled — Acceptance of
offer to purchase resulted in debt being owed to vendor and
right to full amount of debt was settled by receipt of deposit
money — Facts bring case within s. 54(c)(ii)(B) therefore
receipt of forfeited amount is disposition and taxable capital
gain under s. 40(1)(a) — Income Tax Act, S.C. 1970-71-72, c.
63, ss. 40(1) (a), 54(c)(ii)(B).
COUNSEL:
Norman Bacal and D. J. Levinson for
plaintiff.
Jacques Côté for defendant.
SOLICITORS:
Heenan, Blaikie, Jolin, Potvin, Trépanier,
Cobbett, Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
DECARY J.: The issue in this matter is to deter
mine if the share of the plaintiff in an amount of
$65,000 received by a real estate partnership when
a deposit was forfeited, is a taxable capital gain
under the provisions of the Income Tax Act,
R.S.C. 1952, c. 148, as am. by S.C. 1970-71-72, c.
63, s. 1.
The facts were agreed upon by the parties and
are described in the declaration:
1. During the 1977 taxation year, Plaintiff was one of the
partners of Grovedale Realty Co.
2. On March 3rd, 1977, an offer to purchase certain immove
able property located in the City of Lachine was addressed by
Administration Guipar Inc. to Grovedale Realty Co.
3. The purchase price indicated in the said offer was one
million three hundred and fifty thousand dollars ($1,350,000).
4. The offer to purchase was open for acceptance until 5:00
p.m. on March 3rd, 1977.
5. The purchase price was to be paid by means of:
a) a deposit accompanying the offer, payable to the order of
Canada Permanent Trust "In Trust", in the amount of sixty-
five thousand dollars ($65,000), which deposit was to be held
"In Trust" until the signing of the deed of sale and to be
applied on account of the purchase price at that time;
b) cash upon execution of a valid deed of sale in the amount of
eight hundred and twenty-nine thousand two hundred and one
dollars and sixty-five cents ($829,201.65); and
c) by the assumption of an existing mortgage, in the amount of
four hundred and fifty-five thousand seven hundred and ninety-
eight dollars and thirty-five cents ($455,798.35).
6. At the time of the offer, a certified cheque in the amount of
sixty-five thousand dollars ($65,000) was drawn by Adminis
tration Guipar Inc., payable to Canada Permanent Trust "In
Trust".
7. A photocopy of this cheque accompanying the offer bears the
following notation:
"This is a xerox copy of the $65,000 deposit which accompanies
this offer. If the purchaser fails or refuses to sign the deed of
sale on/or before April 18th, 1977, under the conditions stipu
lated in this offer, this offer shall become null and void, ipso
facto, and the $65,000 shall be forfeited to the vendor as partial
liquidated damages. Canada Permanent Trust shall, upon
demand by the vendor, immediately remit the $65,000 to the
vendor. The vendor need not give notice or advice for such
forfeiture to take place, and the vendor shall have the right to
claim additional damages."
8. The offer was duly accepted by the vendor, Grovedale Realty
Co. and a letter was addressed to Canada Permanent Trust
indicating that the property had been sold and that the pur
chaser had issued the deposit cheque, payable to the order of
Canada Permanent Trust, and further stating the following:
"If any interest accrues on this deposit, it should be credited to
the account of Administration Guipar Inc."
9. Subsequently, the prospective purchaser failed to carry out
the transaction.
10. In consequence of the purchaser's failure to complete the
transaction, the amount deposited with the Canada Permanent
Trust was forfeited to Grovedale Realty Co., pursuant to the
agreement between the parties, as liquidated damages.
It was also agreed that the evidence in the
present case would be the evidence of two other
cases: the one of Wise v. The Queen, T-3435-80
[Federal Court, judgment dated November 5,
1982] and the one of Lippman v. The Queen,
T-3436-80 [Federal Court, judgment dated
November 5, 1982], as these three defendants are
partners of Grovedale Realty Co.
The documents filed under quote of D-1 are the
offer to purchase and description of property, the
acceptance of the offer, the annotation at the verso
of the cheque being the deposit of $65,000 and a
letter to Canada Permanent Trust dated March 3,
1977.
There are discrepancies as to the dates and the
amount in some of these documents but as the
facts have been admitted these discrepancies have
no bearing in the case.
The acceptance of the offer to purchase reads as
follows:
ACCEPTANCE BY VENDOR:
I accept the present Offer to Purchase the property described
on the reverse side of this document. I agree to pay to Canada
Permanent Trust a commission of FOUR (4) per cent of the
agreed sale price, provided the Purchaser signs a valid Deed of
Sale on or before April 30, 1977.
It is to be noted that the acceptance that com
pletes the meeting of the minds refers not to the
18th of April but to the 30th of April. In a
transaction of an amount of $1,350,000 such dif
ferent dates for the closing should have called for
an explanation.
The notation on the verso of the $65,000 deposit
cheque was as follows:
This is a Xerox copy of the $65,000 deposit which accompanies
this Offer. If the Purchaser fails or refuses to sign the Deed of
Sale on or before April 18, 1977 under the conditions stipulated
in this Offer, this Offer shall become null and void, ipso facto,
and the $65,000.00 shall be forfeited to the Vendor as partial
liquidated damages. Canada Permanent Trust shall upon
demand by the Vendor, immediately remit the $65,000.00 to
the Vendor. The Vendor need not give notice or advice for such
forfeiture to take place, and the Vendor shall have the right to
claim additional damages.
That notation refers, inter alla, like the offer, to
the 18th of April and to the fact that the $65,000
shall be forfeited to the partnership without giving
notice or advice to the Trust Company. One has to
note that the deposit for such event of forfeiture is
labelled "partial liquidated damages".
The last document is a letter dated March 3,
1977, from Grovedale Realty Co., to Canada Per
manent Trust:
3, /97 7.
Feb. 18, 1977.
Canada Permanent Trust,
1091 Decarie Blvd.,
St. Laurent, Que.
Gentlemen:
We have today sold through your agents properties
on 45th. Avenue, Lachine, Que. The Purchaser
Administration Guipar Inc. has issued a deposit
cheque payable to your order "in trust" for the sum
yS coo of . D e__ ! De - • .
($-l-00,900.00).. If any interest accrues on this
deposit it should be credited to the account of
Administration Guipar Inc. Such interest however,
io shall not run beyond SIXTY (G0) days from the
date hereof.
Notwithstanding, we want it clearly understood
6s, that the : - - C.. De
you are holding in trust is for
our account to be applied to the purchase price and
in effect this is now our money which will be
physically transferred to us upon the formal con
veyance of the property to Administration Guipar
Inc.
Furthermore, if there is a default on the part of the
Purchaser, we will ask you to forward these monies
to us without a conveyance taking place.
Yours truly
GROVEDALE REALTY CO.
Per:
c.c. Mr. Yvan Soulard
Mr. Yvon Robert Jr.
We, the undersigned, Yvan Soulard and Yvon
Robert, hereby acknowledge receipt of a copy of
this letter.
Feb. 18, 1977
(and signed by Messrs. Yvan Soulard and Yvon
Robert Jr.).
That letter shows that the date and the amount
of the deposit were changed without being
initialled.
The Act includes, at clause 54(c)(ii)(B), as
being a disposition:
54. In this subdivision,
(c) "disposition" of any property, except as expressly other
wise provided, includes
(i) any transaction or event entitling a taxpayer to pro
ceeds of disposition of property,
(ii) any transaction or event by which
(B) any debt owing to a taxpayer or any other right of a
taxpayer to receive an amount is settled or cancelled,
It is my opinion that on the 3rd of March 1977,
by its acceptance of the offer to purchase, the
partnership had a debt owing to it or a right to an
amount totalling $1,350,000; that there being no
completion of the sale, no closing, then on the 18th
of April there was, ipso facto, forfeiture of the
deposit that had then to be remitted to the partner
ship; that the forfeit had been provided for in the
notation on the deposit cheque; that in the letter to
the Canada Permanent Trust Company it is stated
that in case of default the monies shall be trans
mitted to the partnership without conveyance; that
the letter of Grovedale Realty Co., to the Canada
Permanent Trust Company establishes that monies
of the deposit are monies of the partnership.
It is well established that the defendant cannot
be bound by an error of her servants in a document
like an explanation in a notice of assessment.
The solution of the problem, as I see it, does not
require to deal with the matter of the damages the
plaintiff has alleged.
It is my considered opinion that the facts of the
case fall within the ambit of clause 54(c)(ii)(B) of
the Act. Indeed, there was a debt of an amount of
$1,350,000 that was owed to the partnership and
was subject to certain conditions and the said debt
was cancelled by the receipt of the deposit that has
been forfeited. Furthermore, the right to the
amount of either $1,350,000 or $65,000 was set
tled by the receipt of the latter amount. In either
event, the receipt of $65,000 is a disposition within
the meaning of clause 54(c)(ii)(B) of the Act.
The amount forfeited being included in the defi
nition of "disposition", it is therefore a taxable
capital gain under the provisions of paragraph
40(1)(a) of the Act and the plaintiff has been
properly assessed on her share of the capital gain
of the partnership under the provisions of sections
38 and 39 of the Act.
The case shall be dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.