|
Docket: 2003-1802(IT)G |
|
BETWEEN: |
|
ALISTAIR N. MOLLISON, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
____________________________________________________________________
Appeals heard on April 13, 2005, at Toronto, Ontario
|
By: The Honourable Justice D.W. Beaubier |
|
|
|
|
|
Appearances: |
|
|
|
|
|
For the Appellant: |
The Appellant himself |
|
|
|
|
Counsel for the Respondent: |
Craig Maw |
____________________________________________________________________
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1998, 1999 and 2000 taxation years are dismissed.
Signed at Calgary, Alberta, this 26th day of April 2005.
|
"D.W. Beaubier" |
Beaubier, J.
|
Citation: 2005TCC288 |
|
Date: 20050426 |
|
Docket: 2003-1802(IT)G |
|
BETWEEN: |
|
ALISTAIR N. MOLLISON, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Toronto, Ontario on April 13, 2005. The Appellant was the only witness.
[2] Paragraphs 9 to 14 inclusive of the Reply to the Notice of Appeal outline the matters in dispute. They read:
9. In computing income for the 1998, 1999 and 2000 taxation years (the "period in question"), the Appellant deducted the following rental losses from his income:
|
Taxation Year |
1998 |
1999 |
2000 |
|
Rental Loss |
$18,103 |
$14,497 |
$15,754 |
10. In reassessing the Appellant for the period in question, the Minister of National Revenue (the "Minister") by Notices dated November 5, 2001, advised the Appellant that his income tax liability for the period in question had been increased by disallowing rental losses in the amounts of $18,103, $14,497 and $15,754 respectively as they were not made or incurred to gain or produce income from a business or property in accordance with the provisions of paragraphs 18(1)(a) and 18(1)(h) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act").
11. The Appellant filed a valid Notice of Objection for the period in question on February 1, 2002. The Minister issued a Notice of Confirmation dated February 13, 2002 confirming the reassessments.
12. In so confirming the reassessments for the Appellant for the period in question, the Minister relied on, inter alia, the following assumptions:
a) facts admitted and stated above;
b) in January, 1993, the Appellant purchased a cottage property located in Collingwood, ON for $223,000 (the "Property");
c) in 1993, the Appellant obtained a first mortgage on the Property in the amount of $215,000;
d) the Property was purchased with the intention of using it as a family vacation property and as a commercial rental property;
e) the Appellant's predominant intention was not to make a profit from the Property but rather to use the Property as a family vacation property;
f) the Property was only available for rent when not being used personally by the Appellant or the Appellant's family;
g) the Property was used personally by the Appellant during Christmas, New Year's, Thanksgiving and the majority of the summer months;
h) in June, 1995, the Appellant retained the services of Sae and Ski Property Management ("Sea and Ski") to manage the Property;
i) the agreement between the Appellant and Sea and Ski stated that the Property was to be rented for $750 per week during the peak season;
j) the Appellant provided Sea and Ski with a calendar designating available periods for rent and personal use, with the personal use being approximately two weekends in May, six weeks in July and August, Thanksgiving weekend and two weeks over Christmas and New Year's;
k) in 1996 the rental revenue increased and then dropped again in subsequent years;
l) in 1998 the Property was rented out for 21 days;
m) in 1999 the Property was rented out for 16 days;
n) in 1998 and 1999, Sea and Ski did not obtain any tenants in those two years other than the Sea and Ski manager renting it for his personal use;
o) the Appellant did not actively seek tenants for year round occupancy;
p) the Appellant did not change his personal use of the Property during the periods in question, but acquired Sea and Ski to market the Property during times when it was not being used by the Appellant;
q) the Appellant did not change his personal use of the Property during the periods in question given the past history of losses;
r) the Property incurred losses in each year in operation. From 1993 to 2000 the Appellant experienced losses from the Property as follows:
|
Taxation Year |
Income |
Rental Loss Claimed |
|
1993 |
$2,500 |
($5,481)
|
|
1994 |
NIL |
NIL
|
|
1995 |
NIL |
($5,143)
|
|
1996 |
$4,300 |
($11,985)
|
|
1997 |
$1,845 |
($11,874)
|
|
1998 |
$1,750 |
($18,103)
|
|
1999 |
$1,650 |
($14,497)
|
|
2000
|
$1,200 |
($15,754) |
|
TOTAL |
$13,245 |
($82,837) |
s) in 2001 the Property was rented out for the most of the ski season and the Property still had a projected loss;
t) the rental losses of the Appellant in respect of the Property were not made nor incurred for the purpose of gaining or producing income from a business or property;
u) the rental losses claimed in relation to the Property were personal or living expenses of the Appellant;
v) the Property was not being carried on in a sufficiently commercial manner to constitute a source of income;
w) the Appellant did not have a business plan for the Property;
x) the marketing efforts used by the Appellant did not change when they were proven to be unsuccessful;
y) there is no indication that the Property may be profitable;
z) the Appellant did not have a reasonable expectation of profit from the Property during the period in question;
aa) the Appellant did not have a reasonable expectation of income at the time he purchased the Property;
B. ISSUES TO BE DECIDED
13. The issues are:
a) whether the Appellant is entitled to deduct rental losses in the amounts of $18,103, $14,497 and $15,754 for the period in question;
b) whether the interest paid by the Appellant under the mortgage is deductible;
C. STATUTORY PROVISIONS RELIED ON
14. He relies on sections 3, 9; subsection 248(1); and paragraphs 18(1)(a), 18(1)(h) and 20(1)(c) of the Act.
[3] Assumptions 12 a), b), c), d), g), h), i), j), k), l), m), n), o), q), r), s), x) and aa) were not refuted by the evidence.
[4] At all times from the date of purchase, the Property was owned jointly by the Appellant and his wife. The Appellant claimed all of the losses incurred by the Property. He only owned half of the Property. Moreover, at least once, as exhibited (Exhibit A-1, tab 28), a tenant paid her rental cheque to Mrs. Mollison. Therefore if the Appellant is found to be entitled to any of the losses claimed, he is only entitled to half of that amount.
[5] Furthermore, the Appellant claimed an expense of $2,600 in 1998 for building a deck on the Property; that was a capital expenditure and is not a deductible expense in any event. He also claimed an expense of $980 in 1999 for flagstone and material installed to build a path; that is also a capital expenditure and is not a deductible expense in any event.
[6] Finally, the Appellant was an employee of Dupont. There is no evidence that he ever personally rented any other property for profit. He alleged that he had done some calculations when he purchased the Property, but there was no evidence of a plan at that time to make a profit from renting the Property. He testified that when he decided to rent the property in 1995 he approached Sea and Ski to act as the agent. He and his wife did rent the Property very occasionally at a discount from the Sea and Ski rate to acquaintances at their respective work places. But they themselves did not advertise the Property for rent. The result is that the Court finds that the indicia of carrying on a business do not exist in this case. Therefore, if it should be found that this is an "income" Property, it will be as income from property and not income (or a loss) from a business.
[7] With respect to the remaining assumptions in paragraph 12, the Court finds:
e) From the evidence, the Appellant's intention at the time of purchase was to have a personal use vacation property. He pointed out that his offer to purchase (Exhibit A-2) contained a rental agreement to the vendor at $500 per month from January 4 to May 14, 1993. He did not rent it at all in 1994 or 1995. The first objective occurrence of a true intention by the Appellant to rent the Property was when he entered the first agency agreement with Sea and Ski. He testified that he decided to retain Sea and Ski in 1995 when he discovered the rental market and knew the costs of operation of the Property. The date of the first contract with Sea and Ski is assumed in h) to be June, 1995.
f) This assumption was not denied by the Appellant and is not refuted.
p) The Appellant did not deny that he did not change his personal use of the Property during the years in question. In cross-examination, he stated that he had rented the Property in blocked-out periods, but he did not say that this had interfered with his personal use of it.
t) In calculating his expenses for the Property in 1998, 1999 and 2000, the Appellant estimated his use of the Property at 70 days per year or 19.18% of 365 days (approximately 20%). Then he deducted 80.72% of the expenses. According to the assumptions, it was rented for 21 days in 1998 and 16 days in 1999; these were not refuted. The number of days rented in 2000 is not in evidence, but the Appellant and his wife rented to acquaintances at $500 per week and he declared $1,200 in rent to indicate an estimated 17 days rented in 2000, at a maximum. When the Appellant rented personally, he did not pay a commission to Sea and Ski.
t), u), v) The remaining comments respecting these will be dealt with in the narration to follow.
w) Is true. Based on his testimony, the Appellant never drew or created a plan to earn a profit, or a business plan for the Property.
y) The Appellant paid down the mortgage dramatically to a balance of about $68,000 in 2004 when he showed a loss of $4,000, including interest paid on the mortgage. This assumption remains true today.
z), aa) Will be dealt with in what follows.
[8] There was, at the very least, a strong personal element in the ownership and operation of the Property by Mr. and Mrs. Mollison. Using the criteria set out by Dickson, J. in Moldowan v. R, [1978] 1 S.C.R. 480, the Appellant had no plan to arrive at a profitable level; had no training or experience in operating a rental property; has an experience to date of substantial losses without considering depreciation; and he did not testify as to a course of action that he had at any time to make it profitable. The Property is in the Collingwood, Ontario, area which is a recreation and skiing area, and is near ski runs, so the periods that the Mollisons blocked out in their exhibited calendars are all of the prime rental times for the Property. The result of all of this and for their conduct is that at no time in the years in question was the Property capable of showing a profit. Even today, it does not appear to be capable of showing a profit.
[9] In these circumstances, with the finding of a very strong personal element in the acquisition and operation of the Property, and given the findings in paragraph [8], the Appellant fails the test set out in paragraph [60] by the Supreme Court of Canada in Stewart v. R., 2002 Carswell Nat., 1070. That is, renting the Property was not capable of being carried out in a sufficiently commercial manner to constitute a source of income in the years appealed. That remains true today.
[10] From the Appellant's own testimony, the Court finds, contrary to assumption 12 d), that the Appellant's original purpose when the Mollisons purchased the Property was entirely personal. The 1993 rent to the vendor was obviously happenstance due to the date of purchase and the vendor's own convenience. It was only in 1995 that the Mollisons embarked on the renting scheme, when they instructed Sea and Ski and began their programme of tax deductions by Mr. Mollison.
[11] For these reasons, the appeal is dismissed.
[12] No costs are awarded in this matter.
Signed at Calgary, Alberta, this 26th day of April 2004.
|
"D.W. Beaubier" |
Beaubier, J.
|
CITATION: |
TCC2005288 |
|
COURT FILE NO.: |
2003-1802(IT)I |
|
STYLE OF CAUSE: |
Alistair N. Mollison |
|
PLACE OF HEARING: |
Toronto, Ontario |
|
DATE OF HEARING: |
April 13, 2005 |
|
REASONS FOR JUDGMENT BY: |
The Honourable Justice Beaubier |
|
DATE OF JUDGMENT: |
April 26, 2005 |
|
APPEARANCES: |
|
For the Appellant: |
The Appellant himself |
|
Counsel for the Respondent: |
Craig Maw |
|
COUNSEL OF RECORD: |
|
For the Appellant: |
|
Name: |
|
|
Firm: |
|
|
For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |