Tax Court of Canada Judgments

[ORIGINAL ENGLISH TRANSLATION]

Docket: 2003-3080(IT)I

BETWEEN:

ROGER DELORME,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on July 12 and 14, 2004, at Sherbrooke, Quebec

Before: The Honourable Judge Brent Paris
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Marie-Claude Landry

JUDGMENT

          The appeals of assessments made pursuant to the Income Tax Act for the 1999, 2000 and 2001 taxation years are dismissed.

Signed at Ottawa, Canada, this 22nd day of September 2004.

"B. Paris"

Paris J.

Certified true translation

Manon Boucher

[ORIGINAL ENGLISH TRANSLATION]

Reference: 2004TCC513

Date: 20040922

Docket: 2003-3080(IT)I

BETWEEN:

ROGER DELORME,

Appellant,

And

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Paris J.

[1]      The Appellant is appealing from a decision that refused the deduction of rental losses relating to property that he rented first to his son and his daughter-in-law, and then to his son, during 1999, 2000 and 2001. The losses in respect of which the deduction was refused totalled $11,338 in 1999, $1,351 in 2000 and $4,984 in 2001. The question that the Court must answer here is whether the expenses that the Appellant deducted in connection with the property were made for the purpose of deriving income from property, and whether these expenses were personal or living expenses of the Appellant within the meaning of the Income Tax Act (the "Act").

[2]      The Appellant purchased the property, located in North Hatley, Quebec, in May 1999 for the sum of $58,000 and took possession of it in July of that year. The property consisted of a small house built on land bordering the Massawippi River. The house was in very bad condition and required many repairs and extensive renovation.

[3]      According to the Appellant, his son expressed a desire to rent the property immediately after the Appellant purchased it, and they agreed that he would rent it for $375 a month. The Appellant stated that his son could not move in immediately but that he still paid the rent because, in the Appellant's words, "that was the agreement".

[4]      After a few initial repairs were made, the Appellant's son and daughter-in-law moved into the house even though, according to the Appellant, it was still uninhabitable at that point. The Appellant repeated that he could not have found another tenant, given the state of the property. Because the house was not well insulated and because the windows and doors were not airtight, the Appellant's son and daughter-in-law had to pay very high heating costs during the winter months. The Appellant stated that this was another reason why he could not charge rent higher than the rent that his son and daughter-in-law were paying.

[5]      During 2000, the Appellant's son and daughter-in-law separated, and his son lived in the house alone. After March 2001, he stopped paying the rent, even though he continued to live in the house until April 2002. Mr. Delorme stated that he took no action to recover the unpaid rent or to evict his son because he knew that his son had no money and that it would have been illegal to evict him during the winter. He added that during the seventeen years that he rented two other properties, only once did he have to take action to evict a tenant for not paying the rent. Mr. Delorme also stated that his son continued to pay the cost of heating the property, which the Appellant considered to be to his advantage.

[6]      Mr. Delorme apparently made repairs and renovations to the house during the period in question. He said that he did most of the work himself to save money. He stated that the constant renovation that the house was undergoing was another reason why he did not try to find another tenant.

[7]      Shortly after Mr. Delorme's son vacated the property, it sold for $120,000.

[8]      The Minister refused the deduction of rental losses because the expenses that constituted these losses had not been incurred in order to produce income, but were personal or living expenses, and because paragraphs 18(1)(a) and 18(1)(h) of the Income Tax Act prohibited the deduction of such amounts.

[9]      I conclude that the appellant did not establish, on a balance of probabilities, that he purchased and held the property with the intention of deriving rental income from it, and that he did not establish that the expenses were not personal and living expenses within the meaning of section 248 of the Act, which reads in part as follows:

"personal or living expenses" includes

(a) the expenses of properties maintained by any person for the use or benefit of the taxpayer or any person connected with the taxpayer by blood relationship, marriage or common-law partnership or adoption, and not maintained in connection with a business carried on for profit or with a reasonable expectation of profit,

[10]     Although the Appellant stated that he could earn $10,000 a year in rent from the property if he rented it during holiday periods, it was clear that major work had to be done on the house before this would be possible. This conclusion is supported by the fact that, prior to 2002, the Appellant did not try to rent the property during holiday periods; instead, he allowed his son to live in the house either in return for a modest rent or rent-free. The evidence therefore reveals that, given the state of the property, the rental income that it could have generated before work on the house was completed would not have been sufficient to cover the expenses. In the meantime, the Appellant was content to let his son, who was unemployed and unable to pay any rent at all, live in the property.

[11]     I also acknowledge that the reason why the Appellant did not try to recover the rent that his son owed him was because his son was a member of his family. The Respondent's evidence revealed that the Appellant took legal action to recover outstanding rent owed by two other tenants of the other properties that he rented in 2000. Although the Appellant argued that the circumstances of these legal proceedings were very different from his son's situation, in my opinion, only the fact that the tenants whom he prosecuted were not related to him distinguishes the two cases.

[12]     I light of this evidence, I am satisfied that the Appellant rented the property to his son for a purpose other than to derive profit from it and that the expenses associated with the property were not incurred in order to earn income.

[13]     The appeal is therefore dismissed.

Signed at Ottawa, Canada, this 22nd day of September 2004.

"B. Paris"

Paris J.

Certified true translation

Manon Boucher

REFERENCE:

2004TCC513

COURT FILE No.:

23003-3080(IT)I

STYLE OF CAUSE:

Roger Delorme v. HMQ

PLACE OF HEARING:

Sherbrooke, Quebec

DATE OF HEARING:

July 12 and 14, 2004

REASONS FOR JUDGMENT BY:

The Honourable Judge B. Paris

DATE OF JUDGMENT:

September 22, 2004

APPEARANCES:

For the Appellant:

The Appellant himself

For the Respondent:

Marie-Claude Landry

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada