Hechos

"Mr. Colubriale is appealing a decision of the Tax Court of Canada (2004 DTC 3432; 2004 TCC 578), confirming an assessment for his 1996 taxation year on the grounds that the fair market value of the immovable property he sold to a company of which he was the majority shareholder was $1,000,000 and that consequently the sum of $1,500,000 received as consideration included a taxable benefit of $500,000 under subsection 15(1) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the Act).\n\nThe appellant is shareholder, director and president of a paper recovery and processing business operating under the name of J.C. Fibers Inc. (J.C. Fibers). The processing takes place in a plant located at Chambly, south of Montréal. This plant occupies the rear of a building, which has been held by the appellant and his wife and leased to J.C. Fibers since 1986. The front of the building was occupied by offices.\n\nFollowing a fire which destroyed the building in 1989, the appellant erected a new building at the same location, at a cost of $1,574,788. J.C. Fibers became the tenant of the property under a new 10-year lease, covering the period from November 1, 1989, to December 31, 1999.\n\nWhile it was a tenant, J.C. Fibers paid for various improvements to the property, including the installation of a weighing apparatus and a loading dock and the construction of a parking area. The evidence did not indicate the cost of this work or when it was done.\n\nOn February 2, 1996, the appellant sold the property to J.C. Fibers for the sum of $1,500,000. In order to reduce the taxes applicable to the transfer of title, his wife’s share had been assigned to him on the same day.\n\nThe consideration was set at $1,500,000 on the basis of an appraisal made in December 1995 (Reasons, paragraph 7). This appraisal had been done in order to determine an insurable value for the building. At that time the building’s replacement value was determined to be $1,392,610.\n\nThe appellant and his accountant also took into account the actual cost of reconstructing the building after the fire, which was $1,574,788. This accounting value and the replacement value exclude the land, the cost of which was $174,450. The transaction was carried out on the basis of this information.\n\nHaving sold the property for a price which he considered lower than its cost, the appellant did not report any gain for tax purposes. In fact, since the building was depreciable property in the hands of the appellant and he had no other asset in this category, he claimed a terminal loss of $124,619 under subsection 20(16) of the Act, on the basis that the part of the proceeds of disposition relating to the building (depreciable property) was $1,390,000 and the part relating to the land (non-depreciable property) was $110,000.\n\nUnder an assessment issued on May 30, 2000, the Minister of National Revenue refused the loss claimed by the appellant and added to his income a benefit of some $523,775 (which, at trial, was reduced to $500,000) on the ground that the fair market value of the property sold to J.C. Fibers by the appellant was $1,000,000 rather than $1,500,000."