In Balanko Estate v R, 2015 TCC 66, an informal procedure case, the taxpayer could not claim the principal residence exemption for a property because she had never divorced her husband, from whom she had been living separate and apart for over 20 years, or entered into a written separation agreement.
Mrs B purchased a Whistler property in 1976 (the “Property”). In 1983, she separated from her husband, Dr B, but they never divorced. No one could find a written separation agreement either. In 1991, she transferred the Property to Dr B for $1.00. In 2003, Dr B sold the Property. Mrs B died in 2005. Her estate filed a voluntary disclosure, and as a result the CRA reassessed her 2003 taxation year in 2013 to include in her income a portion of the gain realized on the sale of the Property. The estate sought to designate the Property as her principal residence. The Court held that it could not do so for all relevant years because Dr B had designated another property as his principal residence from 1992 to 2011. Per Justice Rip:
[20] Unfortunately for the appellant [Mrs B], there is no written separation agreement in existence. If Ms. Balanko signed a written separation agreement, nobody knows its contents. The section 54(c) definition of “principal residence” is quite clear: if a taxpayer is still married only one of the taxpayer and the spouse may designate a property as a principal residence except if the taxpayer and the spouse are separated under a written separation agreement. That Dr. Balanko informed [his son] John that he “took care of it” with respect to the purported written separation agreement may suggest other ways in which he and Ms. Balanko settled their affairs. Again, there is no written separation agreement before me.
[21] The lack of a written separation agreement that is required by the Act is a more serious omission then lack of receipts to prove an expenditure: Hickman Motors Ltd v. The Queen. A written separation agreement is a requirement in the circumstances of this appeal and, for whatever reason, it is not available.
