[OFFICIAL ENGLISH TRANSLATION]
1999-1229(IT)I
BETWEEN:
ALBERT LAVALLÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 25, 2000, at Québec, Quebec, by
the Honourable Judge Pierre Archambault
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Anne-Marie Boutin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1990 taxation year is dismissed.
Signed at Ottawa, Canada, this 1st day of February 2000.
|
"Pierre Archambault" |
J.T.C.C.
Translation certified true
on this 26th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20010123
Docket: 1999-1229(IT)I
BETWEEN:
ALBERT LAVALLÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Rendered orally on the bench
on January 25, 2000, at Québec, Quebec,
and subsequently amended for greater clarity)
Archambault, J.T.C.C.
[1] This is an appeal from an assessment made by the Minister of National Revenue (the Minister) for the 1990 taxation year. In computing Mr. Lavallée's income, the Minister disallowed the deduction of an amount of $10,860 as rental losses in respect of a property located at 5865 Saint-Laurent Street, Apt. 404, Lévis, Quebec (the Lévis property). The losses are due to interest expenses and property taxes.
Facts
[2] At the beginning of the hearing, Mr. Lavallée admitted subparagraphs 4(a), (b) and (c) of the Reply to the Notice of Appeal, which are reproduced below:
[TRANSLATION]
(a) the property was never rented by the appellant;
(b) according to a bank statement from the Royal Bank of Lévis, dated November 14, 1989, the appellant's address is the address of the property;
(c) according to the representatives of the financial institutions with whom the appellant dealt, the appellant's address is the address of the property.
[3] The evidence revealed that Mr. Lavallée was, at the time, an engineer with the Quebec ministère des Transports. He was married and is the father of eight children but during 1988 and 1989, he was involved in divorce proceedings. Considering the legal costs incurred in divorce proceedings, an amicable settlement (the settlement) providing for the division of the family assets was negotiated through the efforts of a notary. The settlement was signed about October 25, 1989, and was retroactive to October 1, 1989.
[4] During that time, Mr. Lavallée owned three rental properties: a sixteen-unit apartment building purchased in 1973 and sold in January 1988, a five-unit apartment building purchased in 1966 and a parking lot. In addition, the Lavallée family owned a convenience store that was primarily operated by Ms. Lavallée with the assistance of her children. Mr. Lavallée was also involved as the financial backer.
[5] The Lévis property was purchased by Mr. Lavallée in July or August 1988 with the help of his daughter, Louise, who was or about to become a realtor. Mr. Lavallée was more inclined to purchase a smaller apartment but, on the recommendation of his daughter, who thought it would be more advantageous, he purchased a more spacious apartment. Although his words were somewhat vague, Mr. Lavallée said he wanted this property to be part of his daughter's assets one day.
[6] From the beginning, the Lévis property was allegedly put on the market for sale or rental. However, the evidence showed that, beginning in July or August 1988 and up to the present, the property has never been rented. After it was purchased, the property remained unoccupied until October 1989. From then on, Mr. Lavallée occupied it from time to time. The floors had not yet been covered at the time. It was during this period that he negotiated the settlement referred to above. For the 1989 taxation year, the evidence shows that Mr. Lavallée incurred expenses of $876.84. According to Exhibit A-1, Mr. Lavallée occupied the Lévis property in 1990 during January, February, April, May, July, August and September. Mr. Lavallée said he had also lived in the home of a friend in Lévis and in an apartment above the convenience store belonging to his family.
[7] Beginning in 1991, the Lévis property became Mr. Lavallée's principal residence and he was still living there at the time of the hearing. The evidence revealed that advertising expenses of $112.23 were incurred in 1991 in respect of that property.
Analysis
[8] In order to be able to deduct his rental expenses in respect of the Lévis property-which amounted to $12,724.41 but $10,860 of which were disallowed by the Minister[1]-the expenses must have been made or incurred by the taxpayer for the purpose of gaining or producing income from a business that must be an adventure or concern in the nature of trade or made or incurred for the purpose of gaining or producing income from the rental of the property.
[9] In determining whether that is the case, any capital gain that might be realized by Mr. Lavallée on the disposition of that property must not, according to subsection 9(3) of the Income Tax Act (the Act), be taken into account. The expenses incurred in relation to the Lévis property may be deducted if the property was purchased in the context of an adventure or concern in the nature of trade.
However, as I said in Stein v. The Queen, 96 DTC 1526, the expenses incurred in such circumstances are deductible only in the year the property is sold.
[10] It is important to remember that it is Mr. Lavallée who had the burden of showing that he did not use the Lévis property for his personal use and that he was entitled to deduct the expenses he claimed.
[11] In my opinion, Mr. Lavallée did not succeed in proving this in the case at bar. Some of the evidence indicates that the property was held in the context of an adventure or concern in the nature of trade. First of all, there is the fact that his daughter was active in real estate and seems to have played a fairly significant role in choosing the property. There is also the fact that the property was put on the market soon after it was purchased. As I said earlier, if this property had been purchased in the context of an adventure or concern in the nature of trade, some expenses would be deductible, but only in the year of the sale.
[12] It is also possible that the Lévis property was purchased for personal use. Although Mr. Lavallée's daughter had her own residence, the evidence showed that she might have been looking for another residence because of some problems relating to the property she already had. Moreover, there is, of course, the personal use of the property at issue by Mr. Lavallée. According to his bank statement from the Royal Bank of Lévis, dated November 14, 1989, and according to the representatives of the financial institutions with whom he dealt, the Lévis property was his residence.
[13] However, regardless of whether it is decided that the purchase of the property was made in the context of an adventure or concern in the nature of trade or for personal reasons instead, the evidence has not established that it was purchased for the purpose of gaining or producing income therefrom.
[14] The factors that support this conclusion are the following. The Lévis property was never rented. It remained unoccupied from the outset for a period of 14 or 15 months. The fact that the appellant went to France when he still did not know whether the floors had been covered is an important sign indicating his lack of interest in renting this property. Subsequently, it was occupied intermittently by Mr. Lavallée himself until his occupation became permanent in 1991.
[15] There is nothing in the actions of Mr. Lavallée that reveals the conduct of a motivated landlord. The only expenses that might relate to the rental of the Lévis property are the advertising expenses, which, in my opinion, relate more to the sale than to the rental. No meaningful effort was made to find tenants. Furthermore, Mr. Lavallée said that he did not have much interest in finding such tenants in view of his intention to sell the property.
[16] Therefore, for all these reasons, the appeal of Mr. Lavallée is dismissed.
Signed at Ottawa, Canada, this 23d day of January 2000.
|
"Pierre Archambault" |
J.T.C.C.
Translation certified true
on this 26th day of September 2003.
Sophie Debbané, Revisor
[1] It should be noted that the analysis of the expenses deducted by Mr. Lavallée in 1990 does not make it possible to determine which rental properties they relate to, which might explain why the Minister did not disallow all of the expenses relating to the Lévis property. Obviously, this Court has no jurisdiction to increase the amount of the assessment; all that it can do is to vacate the assessment or decrease the amount thereof.