FCA Finds Appellant in Business of Buying and Selling Homes

Wall v. Canada 2021 FCA 132

Wall v. Canada (decision here)


A real estate agent and developer disposed of three homes without reporting any of the transactions on his tax returns.  The Minister reassessed the Appellant on the basis that the home sales yielded business income and imposed gross negligence penalties.  The Tax Court of Canada (“TCC”) agreed with the reassessments and penalties. The Appellant appealed to the Federal Court of Appeal (“FCA”) alleging a variety of errors.  The FCA disagreed and dismissed his appeal.


The Appellant Mr. Wall was a lifelong real estate agent and had significant experience developing real estate, both on his own and in conjunction with others. Historically, the Appellant reported very little income for tax purposes from either business activity, including in the taxation years under appeal.

In 2006, 2008 and 2010, the Appellant sold four properties in B.C. for aggregate sale proceeds of $5,784,000.00[1]. The properties consisted of three homes and one parcel of vacant land. The Appellant bought old homes, demolished them and built new homes to be sold.  The Appellant did not report any income or gains from these sales in his 2006, 2008 and 2010 taxation years, and did not collect, remit or report any GST/HST on the sales. He also failed to report the gains on the basis that he had built and occupied each of the homes as his principal residence. The Appellant testified that he believed that if a person lived in a house for about a year, then the principal residence exemption would apply to exempt any gains arising on the sale of the house.

The Minister reassessed the Appellant’s 2006, 2008 and 2010 taxation years to include $810,693, $772,403 and $651,323, respectively, of unreported net business income in respect of the subject sales.  The Minister also assessed gross negligence penalties in respect of this unreported income.


The main issue at the TCC was whether the Appellant sold the homes on account of income or on account of capital.  A secondary issue was whether the Minister properly assessed gross negligence penalties pursuant to subsection 163(2) of the Income Tax Act.

TCC Decision

The Appellant’s position was that he purchased and developed each of the homes with the intention of living in each one as his principal residence, which he argued he did, but that changes in his circumstances forced him to sell each of the homes after he had lived in each of them for a period of time.  Because his intention was to live in the homes, his argument was that he purchased each home on account of capital and that he qualified for the principal residence exemption.

The Crown argued that the evidence clearly indicated the Appellant’s intention was to purchase the properties, tear down the houses, rebuild the houses, and then sell the properties for profit.

The legal test required the Court to consider the nature of the property sold, the length of period of ownership, the frequency or number of other similar transactions by the taxpayer, work expended on the property, the circumstances that were responsible for the sale of the property and the Appellant’s motive.

Court’s Findings

The factors militated in favour of a finding that the Appellant’s dispositions were on account of income. The Appellant was considered by the Court to be a sophisticated property developer who had the skills to quickly develop and sell properties for significant returns. In the Court’s  view, the Appellant was in the business of developing properties and he developed the homes as part of this business. The Court also found the Minister had properly assessed gross negligence penalties.  The Appellant’s conduct was found to be consistent with both willful blindness and the general definition of gross negligence.  Furthermore, the sheer size of the Appellant’s unreported profits from his development business in comparison to his reported income favoured the imposition of penalties.

The critical aspect of this decision was the Court’s view that the Appellant lacked credibility.  He was reporting about $20,000 a year in income for over 20 years, and yet was involved in many real estate development activities.  Furthermore, he was advising mortgagees that his annual income was approximately $200,000/year at the time he was allegedly earning approximately $20,000/year.   He did not report the property sales on his tax returns, despite understanding how real estate transactions work for tax purposes.  At some points during the years at issue, the Appellant paid mortgage interest that exceed his reported annual income fourfold without explanation.

The Appellant appealed to the FCA.

FCA Decision

The Appellant focused only on the GST/HST issue in the TCC.  Specifically, the Appellant’s only basis for appeal to the FCA was whether the TCC had erred in finding that he was a ‘builder’ for the purposes of the Excise Tax Act. The FCA indicated that this turned on the TCC’s findings with respect to whether the Appellant was carrying on a business or an adventure or concern in the nature of trade. The legal test to determine this considers the nature of the property sold; the length of the period of ownership; the frequency or number of similar transactions; work expended on or in connection with the property; the circumstances that were responsible for the sale of the property, and motive.[2]

Intention is Most Important Factor

The FCA correctly identified intention as the primary consideration.  The Appellant’s stated intention was to reside in each of the three homes as his principal residence.  The FCA found, however, that the evidence concerning the Appellant’s intention was sparse and inconsistent. The FCA ultimately found that “…the evidence that supported his assertion was outweighed by the evidence that contradicted this assertion.”[3] The Court zeroed in on a select number of discrepancies in the evidentiary record.

First, each house in issue was listed for sale before the occupancy permit was obtained.  The FCA found that listing the homes for sale prior to the issuance of an occupancy permit was inconsistent with the Appellant’s stated intention of occupying the homes.  Second, the Appellant explained that he sold the homes to pay his large accumulated debts.  However, his mortgages continued to increase in value.  In the FCA’s view, a person trying to reduce debt would not incur more debt on the purchase of a subsequent home.

The FCA dismissed his appeal with costs to the Crown.

[1] For an estimated profit of $2,234,419.

[2] The FCA extracted the legal test from Happy Valley Farms Limited v. Minister of National Revenue [1986] 2 C.T.C. 259, 86 D.T.C. 6421 (F.C.T.D.).

[3] Wall v. Canada 2021 FCA 132 (“Wall FCA”), at para. 35.