Citation: 2007TCC340
Date: 20070617
Docket: 2006-2351(IT)I
BETWEEN:
R.L. GRUBER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2006-2352(IT)I
AND BETWEEN:
BRENDA GRUBER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] These appeals
pursuant to the Informal Procedure were heard together on common evidence at Kelowna, British Columbia on
June 6, 2007. The Appellants are husband and wife. Their claims are identical.
Mr. Gruber was the only witness.
[2] The particulars of
the appeals are set out in the Reply to Mr. Gruber’s Notice of Appeal in
paragraphs 3 to 12, inclusive. They read:
3. In computing income for the 2003 taxation
year, the Appellant reported gross rental income of $15,747.00 and a net rental
loss of ($9,942.77);
4. The Minister initially assessed the
Appellant for the 2003 taxation year as filed by Notice dated May 20, 2004.
5. By Notice dated September 29, 2005, the
Minister reassessed the Appellant’s 2003 taxation year to reduce the rental loss
from $9,942.77 to $2,937.92. The Minister denied the Appellant 50% of $4,109.07
claimed for maintenance and repair expenses and denied 50% of $9,900.65 claimed
for renovation expenses by reclassifying these expense items as capital
expenditures as detailed on the attached Schedule “A”.
6. The Appellant objected to the reassessment
by serving on the Minister a Notice of Objection received by the Minister on
December 13, 2005.
7. The Minister confirmed the September 29,
2005 reassessment on May 8, 2006.
8. In reassessing tax for the Appellant’s
2003 taxation year, and in confirming the reassessment, the Minister assumed
the same facts, as follows:
a) during the 2003 taxation year, the
Appellant owned a 50% interest in a condominium apartment (the “Property”)
located at #2301 – 2140 Kuhio Avenue, Honolulu, Hawaii;
b) the remaining 50% interest in the Property
was owned by the Appellant’s spouse;
c) the Appellant and his spouse made an offer
to purchase the Property on November 4, 2002 and received legal ownership of
the property on December 9, 2002;
d) the Property was available for rent
effective March 1, 2003 and the Appellant received rental income from
the Property starting in March, 2003;
e) the Appellant earned rental income of
$15,747.00, before the allocation of his 50% share, as detailed on the attached
Schedule “A”;
f) the Appellant determined that 80% of all
of the claimed expenses were incurred to earn the rental income;
g) the Appellant claimed total rental
expenses in the amount of $35,632.55, before the allocation of his 50% share,
as described on the attached Schedule “A”;
Maintenance and Repair Expenses
h) the Appellant claimed total maintenance
and repair expenses of $4,490.83 before the allocation of his 50% share, as
detailed on the attached Schedule “A”;
i) the Appellant incurred total maintenance
and repair expenses in the amount of $381.76 before the allocation of his 50%
share, as detailed on the attached Schedules “A” and “B”;
j) the disallowed maintenance and repair
expenses were incurred in the months of January and February, 2003 and were
incurred to make the Property suitable to rent;
k) the Appellant did not incur any additional
maintenance and repair expenses, greater than the amount allowed by the
Minister, in the 2003 taxation year for the purpose of gaining or producing
rental income from the Property;
l) the disallowed maintenance and repair
expenses are capital expenditures and form part of the Class 1 assets for the
2003 taxation year;
Renovation Expenses
m) the Appellant claimed total renovation
expenses of $9,900.65 before the allocation of his 50% share, as detailed on
the attached Schedule “A”;
n) the renovation expenses included new
counter tops, a toilet, plumbing, keys, custom draperies and the removal of
asbestos;
o) the renovation expenses were incurred in
the months of January and February, 2003 and were incurred to make the Property
suitable to rent, as detailed on the attached Schedule “C”;
p) the Appellant did not incur any additional
renovation expenses, greater than the amount allowed by the Minister, in the
2003 taxation year for the purpose of gaining or producing rental income from
the Property;
q) the disallowed renovation expenses are
capital expenditures and form part of the Class 1 assets in the 2003 taxation
year.
B. ISSUES TO BE DECIDED
9. The issue is whether the Appellant is
entitled to deduct maintenance and repair expenses and renovation expenses of
$2,054.53 and $4,950.32, respectively, as current expenses in computing his
rental income in the 2003 taxation year.
C. STATUTORY PROVISIONS RELIED ON
10. He relies on subsection 9(2) and paragraphs
18(1)(a), 18(1)(b) and 20(1)(a) of the Income Tax Act, R.S.C. 1985, c.1
(5th Supp.), as amended (the “Act”) and on subsections
1100(1), 1100(11) and 1100(14) of the Income Tax Regulations, C.R.C. c.
945, as amended (the “Regulations”).
D. GROUNDS RELIED ON AND RELIEF SOUGHT
11. He respectfully submits that in computing
rental income in the 2003 taxation year, the Appellant is not entitled to
deduct additional maintenance and repair expenses and additional renovation
expenses, on the basis that:
a) any additional maintenance and repair
expenses beyond the allowed $381.76 were not current expenses as required by
paragraph 18(1)(a) of the Act but were capital expenditures; and
b) any additional renovation expenses were
not current expenses as required by paragraph 18(1)(a) of the Act but
were capital expenditures.
12. He further submits that the Minister has
properly determined that the maximum capital cost allowance that the Appellant
was entitled to deduct for the 2003 taxation year in respect of Class 1 assets
was nil, pursuant to paragraph 20(1)(a) of the Act and subsections
1100(11) and 1100(14) of the Regulations.
[3] Assumptions 8(a) to
(j), inclusive, and (m) to (q), inclusive, were confirmed by the evidence.
Assumptions 8(k) and (j) are incorrect respecting the following items which are
described in Schedule B to the Reply:
|
Light
|
$ 11.29
|
|
Misc.
|
4.72
|
|
Vases
|
14.15
|
|
Light/dustpan
|
15.96
|
|
Upholstery
|
30.34
|
|
Decorations
|
321.43
|
|
Vacuum supplies
|
239.75
|
|
Blanket
|
51.35
|
|
Sheets/supplies
|
199.18
|
|
Cutlery
|
33.66
|
|
Lights
|
4.78
|
|
Desk lamp
|
44.94
|
|
Pillow
|
19.23
|
|
Pillow
|
66.71
|
|
Sheets
|
115.96
|
|
Sheets/towels
|
95.40
|
|
Kitchenware
|
182.97
|
|
Towels
|
30.45
|
|
Crock Pot
|
62.63
|
|
Mixer
|
16.14
|
|
Casserole set
|
32.41
|
|
Small appliances
|
112.36
|
|
Cookware
|
121.26
|
|
Alarm clock
|
23.12
|
|
Misc.
|
40.07
|
[4] These are allowed
because they appear to be portable unattached items which are easily broken,
stolen or lost by tenants and need constant replacing.
[5] The remaining items
in appeal are denied because they are items purchased and installed in the
condominium which are of enduring benefit to make it rentable or, in the case
of the ceiling and insulation removed, were renovations done to the condominium
to make it rentable. Mr. Gruber testified that the condominium was not in
rentable condition when it was purchased. The reconstruction and rehabilitation
done by the Grubers and their contractors from the date of purchase until March
were done to the capital of the condominium as permanent improvements to enable
it to be rented.
[6] For these reasons,
the appeal is allowed respecting the items described in paragraph [3] herein.
Signed at Saskatoon, Saskatchewan
this 15th day of June, 2007.
"D.W. Beaubier"
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