ParizConsulting Group

2026-10-30

Abbasi, 2026 TCC 183: a mattress in the basement of a house under renovation is not a principal residence, and a late-filing penalty stands where the filing date is never disputed

2026 TCC 183 · Tax Court of Canada

Provisions

ITA s. 40ITA s. 54ITA s. 162ITA s. 150ITA s. 18

Text

Author: Sas Tullo

This is a general procedure appeal about two Toronto houses bought and sold within about a year each. The Minister assessed capital gains of $67,261 on the first and $177,651 on the second. Ms. Abbasi said the second house was her principal residence and that the Minister had understated her costs on both. She lost on every point, including a challenge to late-filing penalties. The decision is useful for anyone claiming the principal residence exemption on a property that was never really home, and for counsel who assume that a penalty falls away because the Crown did not plead the filing date as an assumption.

Facts

Ms. Abbasi bought a house on Barrymore Road in Toronto in 2005, lived there with her father until his death in 2008, rented the basement to a tenant, and still lives there (paras 9-10). She bought the Park Home Avenue property for $680,000, closing November 29, 2013, agreed to sell it for $810,000 the next day, and closed that sale on April 4, 2014, having decided not to live there before she even signed the purchase agreement (para 12). In April 2014 she bought the Bain Avenue property for $757,000, closing August 8, 2014, and sold it in July 2015 for $1,200,000 (para 13).

The Bain property was seventy years old and not livable without new bathrooms and a kitchen (para 31). Her brother Naseer, recently separated, moved in shortly after closing with a mattress, paid cash rent, and dealt with the contractors; renovations most likely began in November 2014 (paras 34, 39-40). Almost every receipt, and the utility bills, were in Naseer’s name (para 42). Ms. Abbasi described being “back and forth” between the two houses, sleeping on a mattress in the Bain basement with her brother, and keeping a toothbrush, pajamas, and later some linens, dishes, and clothes there (paras 45-47). She never changed any contact address from Barrymore (para 59). Neither she nor her brother could say when, if ever, she moved in (para 57). A family friend who testified for her believed Naseer owned the house and barely mentioned her (paras 54-56). According to the Reply, the 2014 and 2015 returns were filed on May 20, 2017 (para 72).

Issues

The Court identified four questions: whether the Minister correctly computed the net gain on the Park Home property; whether the Bain property was Ms. Abbasi’s principal residence; alternatively, whether the Bain gain was correctly computed; and whether late-filing penalties under subsection 162(1) were properly imposed (paras 4-6). Two procedural points were also raised (paras 82-91).

Holding

The appeals for 2014 and 2015 were dismissed with costs to the Respondent (para 92). The additional closing and financing costs were not outlays made for the purpose of the dispositions; Ms. Abbasi did not ordinarily inhabit the Bain property; and the penalties stood because she neither pleaded nor proved that the returns were filed on time or that she was duly diligent.

The court’s reasoning

On the computation of the gains, Clark J. applied paragraph 40(1)(a), under which a gain is the excess of proceeds over adjusted cost base plus outlays and expenses “made or incurred by the taxpayer for the purpose of making the disposition” (para 18). Following Kalwa v The King, 2025 TCC 89, she held that a mortgage commitment fee, tax holdback, interest adjustment, wire fee, and realty tax adjustment paid on purchase were not shown to have been incurred for the purpose of selling (paras 17-19). The argument that sections 53 and 54 bring into the cost base amounts made non-deductible by subsection 18(2) failed because subsection 18(2) did not apply (para 20), and the claim that a $15,000 purchaser’s deposit was really commission failed because the taxpayer herself testified that she received it (paras 22-24).

On the principal residence question, the Court turned to the definition in section 54, which requires that the housing unit have been ordinarily inhabited in the year by the taxpayer, a spouse or former spouse, or a child (paras 26-27). Drawing on Flanagan v MNR and Thompson v MNR, Clark J. understood the phrase to mean a place normally occupied as a home in the course of the person’s customary mode of life, as opposed to casual residence (paras 28-29). A short period may suffice (Wall v R, 2019 TCC 168) and a person may be ordinarily resident in two places (Kuntz v R, 2013 TCC 218), so the taxpayer’s attachment to Barrymore was not itself disqualifying (para 30).

The claim failed on the evidence. Applying the credibility framework in Nichols v Canada, 2009 TCC 334 (para 60), the judge found the three witnesses contradicted one another and the taxpayer contradicted herself (paras 8, 61). The pleaded facts did not match the testimony (paras 37-38), and the documents pointed to Naseer as the occupant (para 42). The judge found it “implausible that the Appellant chose to sleep on a mattress in a basement with her brother, in a house under substantial renovation”, when she had a nearby house she loved (para 61). The taxpayer had not proven on a balance of probabilities that she ordinarily inhabited the property (para 62).

On penalties, counsel argued that because the Reply did not assume the filing date, no burden fell on the taxpayer (para 65). The Court disagreed. Subsection 162(1), read with paragraph 150(1)(d), imposes the penalty where an individual’s return is filed after April 30 of the following year (paras 68-70). Unlike section 163 penalties, for which subsection 163(3) places the burden on the Minister, there is no reversed onus for subsection 162(1) (para 76). The Notice of Appeal pleaded due diligence but never asserted that the returns were filed on time; the Reply stated the May 20, 2017 filing date, and no Answer disputed it (paras 71-72, 79). Citing Eisbrenner v Canada, 2020 FCA 93, the judge held that a failure to plead material facts does not shift the burden to the Minister (paras 75, 78-80). Due diligence requires a high degree of care (Perera v The Queen, 2014 TCC 280), and a belief that the gain need not be reported did not meet it (para 81).

An assumption reading “The Appellant nor her family ordinarily inhabited” the properties was not converted into an admission by the missing “neither” (paras 82-86), and the rule in Browne v Dunn, as explained in R v Lyttle, 2004 SCC 5, does not require a party to warn the other side’s witnesses that they have contradicted each other in chief (paras 87-91).

Practical implications

The principal residence analysis adds little new law but applies it with rigour. A claimant who cannot say when she moved in, whose name appears on no utility bill, and whose own witnesses describe someone else’s home will not get past the “ordinarily inhabited” threshold. Advisers should expect the CRA to look at change-of-address records, utility accounts, and furniture, the markers mentioned at paragraph 29.

The penalty holding deserves more attention. In my view it is correct that subsection 162(1) carries no reversed onus, but the reasoning rests on the absence of any plea or evidence about the filing date rather than on a rule that the Minister never has to prove lateness. Where a taxpayer squarely denies late filing, the Crown should still expect to prove its date. Counsel who put penalties in issue should plead the filing date they contend for, not merely assert due diligence. Subsection 162(1) as quoted in the reasons matches the current text on the Justice Laws website (Act current to September 30, 2026; the section was last amended in 2023); the current wording of paragraph 40(1)(a) and section 54 is not separately checked here. Whether an appeal was taken is not verified here.

For homeowners the takeaway is that the principal residence exemption follows real life, not intention. Sleeping occasionally in a house a relative is renovating does not make it home for tax purposes.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Abbasi v. The King, 2026 TCC 183, judgment dated October 23, 2026, Clark J. (appeal heard August 17 and 18, 2026, Toronto, general procedure, with written submissions in August and September 2026). Reasons on the Tax Court’s site. Also on CanLII.