Income Tax - The Cost of Buy-Downs as a Moving Expense; Faxed Communications - The Validity Of #156

By Gerry Neely
B.A. LL.B

The reasons for judgment of a recently reported case, which have not yet made their way to the Victoria courthouse library is of particular interest in these days of high interest rates and buy-downs. This case must have been going through the court system since the early '80s because the buy-down was $6,000 to reduce the interest rate for a $50,000 two-year mortgage on a house sold at $131,800 from 25% to 17%.

The vendor made that payment to enable the purchaser to qualify for the mortgage. No one suggested that the vendor consider a price reduction of the same amount, probably because the price reduction would not have achieved the same result. In any event, the vendor's decision worked to his advantage, although it took an appeal to the federal court to establish that.

A taxpayer in Canada is entitled under Section 62 (1) of the Income Tax Act, to claim deductions for moving expenses against ordinary income if: (a) the taxpayer moves from one residence in Canada to another residence in Canada to commence a business or to be employed in the other location, or to attend a university or post-secondary educational institution, and (b) if after the move, the distance between his old residence and his new work location is not less than 40 kilometres greater than the distance between his new residence and his new work location.

Moving expenses are defined by Section 62 (3) (e) to include the selling costs incurred in respect of the sale of the old residence. The taxpayer claimed the buy-down of $6,000 as a selling cost. Revenue Canada disallowed this deduction because a price reduction in an amount sufficient to enable the purchaser to qualify for the mortgage would not have been a deductible selling cost. Revenue Canada's position was that the buy-down was equivalent to a price reduction.

The tax court and federal court both upheld the taxpayer's argument that the taxpayer's right to the deduction was based upon the method it chose to bring about the sale (the buy-down) and not another method which it might have chosen (the price reduction).¹

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An Ontario court was asked in 1989 to interpret a 1974 agreement which gave a purchaser a right of first refusal to purchase other property owned by the vendor. The optionee had to meet the terms of the offer within 72 hours from the date the optionor delivered to the purchaser a true copy of an offer acceptable to the optionor. The optionee's acceptance had to be exercised and delivered to the optionor within the 72 hour period.

The optionor faxed to the purchaser an offer acceptable to the optionor. The optionee did not exercise the option until 101 hours after receipt of the faxed offer. The optionor, as a result thereof, took the position that he had a binding agreement with the prospective purchaser.

The optionee sued for a declaration that its exercise of the right of first refusal was proper because the optionor had failed to deliver a true copy of the offer. The argument was that in 1974, when fax machines were unknown, the parties could not have anticipated a fax communication as a method for delivery of an offer acceptable to the optionor.

The court rejected this argument, saying that what was important was delivery and not the method of delivery. Another decision confirming the willingness of the court to encourage the acceptance of advanced technology.²

	1.	Canada v. Collins, citation to be provided.
	2.	Rollings v. Williams Investments Ltd., 7 RPR 2.(d) 1.

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