Docket: 2007-196(IT)I
BETWEEN:
MARLYNE LABRÈCHE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeals heard
on common evidence with the appeals of
Yvon Labrèche (2007‑198(IT)I) on July 5, 2007, at Montréal, Quebec.
Before: The Honourable
Justice Lucie Lamarre
Appearances:
|
For the Appellant:
|
The Appellant herself
|
|
Counsel for the Respondent:
|
Nancy Dagenais
|
____________________________________________________________________
JUDGMENT
The appeals from the
assessments made under the Income Tax Act for the 2003 and 2004 taxation
years are dismissed.
Signed at Ottawa, Canada, this 18th day of July 2007.
"Lucie Lamarre"
Translation certified
true
on this 15th day
of August 2007.
Brian McCordick,
Translator
Docket: 2007-198(IT)I
BETWEEN:
YVON LABRÈCHE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeals heard on common evidence with the
appeals of
Marlyne Labrèche (2007‑196(IT)I) on July 5, 2007, at Montréal,
Quebec.
Before: The Honourable Justice Lucie
Lamarre
Appearances:
|
For the
Appellant:
|
The Appellant himself
|
|
Counsel for the Respondent:
|
Nancy Dagenais
|
____________________________________________________________________
JUDGMENT
The appeals from the
assessments made under the Income Tax Act for the 2003 and 2004 taxation
years are dismissed.
Signed at Ottawa, Canada, this 18th day of July 2007.
"Lucie Lamarre"
Translation
certified true
on this 15th day
of August 2007.
Brian McCordick,
Translator
Citation: 2007TCC413
Date: 20070718
Dockets: 2007-196(IT)I
2007-198(IT)I
BETWEEN:
MARLYNE LABRÈCHE,
YVON LABRÈCHE,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1] In December 2002,
the Appellants purchased a duplex from Marlyne Labrèche's brother for
$70,000. The value of the property at the time, as assessed by the
municipality, was $87,900. At the time of the purchase, the Appellants had
lived in the lower unit for three years and were aware of the problems that
water caused to the flooring.
[2] Following the
purchase, the Appellants moved to the upper unit and spent six months
renovating the lower unit. There were cracks in the foundation and there was mold
in the walls. The sump pump was not operational because the slope
under the floor was in the wrong direction. In place of the existing foundation
of stone and cement, the Appellants poured a new foundation using a cement-only
base.
[3] The slope
underneath the floor was redone in the correct direction to make the sump pump
operate. All the cracks were repaired, and a new laminate floor was installed.
Since the ceiling was crooked, beams were added. The bathroom and kitchen were
renovated. A washer and dryer were purchased for the exclusive use of the lower
unit, and a central vacuum cleaner was installed for the use of both units.
[4] The Appellants said
that they had no choice but to renovate the lower unit so that they could
derive rental income from it. They said that they used basic materials, not
high-quality materials.
[5] In July 2003, they
rented the lower unit to their son for $300 per month. In 2003, they
claimed a total of $22,672.77, including $18,333.38 in maintenance and
repair expenses related to the lower unit, and in 2004, they claimed a total of
$12,186.26 for both units, half of which sum they considered the personal
portion.
[6] In 2003, the
Minister of National Revenue ("the Minister") considered the
amount of $18,333.38 as capital expenditures, not current expenditures. The Minister
also considered an amount of $2,339.56, included in the expenses claimed in
2004, to be a capital expense incurred in 2003. This latter amount represents
the cost of the washer and dryer plus 50% of the cost of the central vacuum.
[7] In 2004, of the $12,186.26 claimed,
apart from the amount of $2,723.75 related to the washer, dryer and central
vacuum, which was considered in 2003, the Minister disallowed an amount of
$1,151.57 because it was not supported by vouchers, and an amount of $654.42
because it consisted of personal expenses. He allowed an amount of
$1,407.59 as current expenses, 50% of which were deductible from the rental
income. The balance of $6,248.93 was considered to be of a capital nature.
[8] The Appellants are
only disputing the amounts that the Minister considered to be capital expenditures.
In their submission, the work on the lower unit consisted of repairs to restore
the unit to a good condition so that it could be rented. They feel that they
did not use better materials than the ones that were in place previously.
[9] Current expenditures
are distinguished from capital expenditures by analyzing the purpose of the outlay
(see Bowland v. Canada, [1999] T.C.J. No. 588 (QL), affirmed
by the Federal Court of Appeal, [2001] F.C.J. No. 839 (QL)). An expense
is of a capital nature if it is a permanent improvement to the building rather
than a simple repair, or if the expense gives rise to an enduring benefit as
opposed to being a recurring expenditure. Another factor is the cost of the
expenditure relative to the cost of the asset.
[10] In my opinion, by redoing
the foundation in cement only (when it was previously stone and cement), by
completely redoing the walls, bathroom and kitchen, and by adding beams to the
ceiling, the Appellants considerably and permanently improved the lower unit.
[11] This will not be
recurring work. Moreover, the amount of the expenses that the Respondent
considered to be of a capital nature in 2003 and 2004 is $26,921.87 ($18,333.38 +
$2,339.56 + $6,248.93), that is, 38% of the $70,000 purchase price. This
is a significant percentage of the purchase cost, another indication that the
expenditures were of a capital, not current, nature. I would add that, in Haddon
Hall Realty Inc., 62 DTC 1001, cited by Rip A.C.J. in Di Fruscia v. Canada,
2007 TCC 310, at paragraph 8, the Supreme Court of Canada held that "the
acquisition of stoves and refrigerators were not repairs but replacements and
thus capital outlays." Here, just as I find that the other expenditures to
renovate the lower unit were not repairs but replacements, and thus capital
outlays, so too were the expenditures for the purchase of the washer, dryer and
central vacuum cleaner.
[12] Moreover, as
suggested by the Federal Court of Appeal in Fiore v. Canada, [1993] F.C.J. No. 249
(QL), "[w]here, as in the instant case, property is bought for a price . . . below its ordinary
capital value at the time of the purchase . . . and the expenses are
necessary because of the condition of the buildings and are incurred to restore
them to their ordinary value, we consider that those expenses are capital in
nature." In my opinion, the instant case is the same. The Appellants
purchased a property valuated at $87,900 for $70,000, and invested just over
$25,000 in it. As the Federal Court of Appeal stated in Fiore, this
work considerably exceeded that of maintenance and repair done to preserve a
capital asset, and in fact, constituted a significant improvement to that
asset.
[13] The appeals are
dismissed.
Signed at Ottawa, Canada, this 18th day of July 2007.
"Lucie Lamarre"
Translation
certified true
on this 15th day
of August 2007.
Brian McCordick,
Translator
Email this Content