SUPREME
COURT OF CANADA
Deputy Minister of
Revenue of Quebec
Appellant
v.
Richard Moufarrège
Respondent
Official English Translation
Coram:
McLachlin C.J. and Major, Bastarache, Binnie, LeBel, Deschamps and Charron JJ.
|
Reasons for
judgment:
(paras. 1 to 7)
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|
Deschamps J. (McLachlin C.J.
and Major, Bastarache, Binnie, LeBel and Charron JJ. concurring)
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______________________________
Moufarrège v. Quebec (Deputy Minister of Revenue), [2005] 2
S.C.R. 598, 2005 SCC 53
Deputy Minister of Revenue of Quebec Appellant
v.
Richard
Moufarrège Respondent
Indexed as: Moufarrège v.
Quebec (Deputy Minister of Revenue)
Neutral citation: 2005 SCC 53.
File No.: 30382.
2005: October 12.
Present: McLachlin C.J. and Major, Bastarache, Binnie,
LeBel, Deschamps and Charron JJ.
on appeal from the court of appeal for quebec
Income tax – Deduction – Interest – Interest paid
on loan used to earn income from business or property – Source of income ceasing
to exist – Interest not deductible – Taxation Act, R.S.Q., c. I-3, ss. 128,
160.
Cases Cited
Referred to: Bronfman
Trust v. The Queen, [1987] 1 S.C.R. 32; Tennant v. M.N.R., [1996] 1
S.C.R. 305; Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622; Ludco
Enterprises Ltd. v. Canada, [2001] 2 S.C.R. 1082, 2001 SCC 62; Stewart
v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46.
Statutes and Regulations Cited
Taxation Act, R.S.Q., c. I-3, ss. 128,
160.
APPEAL from a judgment of the Quebec Court of Appeal
(Baudouin, Morin and Rochon JJ.A.), [2004] R.J.Q. 1117, [2004] R.D.F.Q. 19,
2004 D.T.C. 6356, [2004] Q.J. No. 3783 (QL), setting aside a decision of Barbe
J., [2002] Q.J. No. 909 (QL). Appeal allowed.
Jean Lepage and Alain‑François
Meunier, for the appellant.
Nicolas X. Cloutier and
François A. Barette, for the respondent.
English version of the judgment of the Court delivered
orally by
1
Deschamps J. — Section 128
of Quebec’s Taxation Act, R.S.Q., c. I-3, authorizes the deduction of
expenses relating to a business or property, provided that they were incurred
to gain income. Section 160(a) adds that a taxpayer may deduct the
interest paid on a loan used to earn income from a business or property.
2
In the case at bar, the Deputy Minister disallowed two deductions
claimed by the respondent. The first was for interest paid on a loan initially
contracted to purchase real property. The property had been sold by the time
the deduction was disallowed. The second disallowed deduction related to
interest on a loan that had initially been contracted to purchase shares in a
company that went bankrupt before the deduction was claimed.
3
Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, established that
it is the current rather than the original use that is relevant in assessing
the deductibility of interest payments (see to the same effect: Tennant v.
M.N.R., [1996] 1 S.C.R. 305; Shell Canada Ltd. v. Canada, [1999]
3 S.C.R. 622; Ludco Enterprises Ltd. v. Canada, [2001] 2 S.C.R.
1082, 2001 SCC 62).
4
Stewart v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46, did not
alter the principle that when a reasonable expectation of income disappears, so
does the right to a deduction. In that decision, the Court stated that “the
deductibility of expenses presupposes the existence of a source of income”
(para. 57).
5
In the instant case, once the properties were sold, the source of income
ceased to exist and the loan was no longer being used to earn income from
property in accordance with ss. 128 and 160. With regard to the shares, the
company in question is bankrupt, and nothing in the record indicates a
possibility of a resumption of activities, so here too the source of income has
disappeared even though the company has not been dissolved.
6
For these reasons, the appeal is allowed, the judgment of the Court of
Appeal is reversed, and the judgment of the Court of Québec is restored, with
costs.
7
The motion for costs is dismissed.
Judgment accordingly.
Solicitors for the appellant: Veillette, Larivière, Montréal.
Solicitors for the respondent: Davies Ward Phillips & Vineberg,
Montréal.
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