Steele v. The Queen, docket 2002-148(IT)I (Informal Procedure)

Date: 20020730

Docket: 2002-148-IT-I

BETWEEN:

GARY C. STEELE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

O'Connor, J.T.C.C.

[1]            These appeals relate to the 1996, 1997 and 1998 taxation years and the issues are what expenses are to be allowed to the Appellant in the calculation of rental losses in those years. At the hearing the Appellant and his wife and the auditor for Canada Customs and Revenue Agency ("CCRA") reviewed Exhibits A, B and C to the Reply to the Notice of Appeal, which Exhibits are attached to and form part of these Reasons.

[2]            At the hearing certain items were conceded by the Appellant and it was agreed that, where a particular expense is to be allowed, it will only be the percentage thereof shown in the last column of the said Exhibits.

[3]            The following sets forth the items conceded or agreed to and my judgment on the remaining items.

Exhibit A

With respect to maintenance and repairs it was conceded by the Appellant that the siding and soffit expense in the amount of $3,832.85 is indeed a capital amount and is not to be allowed as an expense. Consequently the figure to be allowed as a deductible expense is 53% of $155.25 or $82.28.

With respect to the microwave island, $69.97, the mattress, posture bed, $159.00 and the VCR $346.14, I allow 100% of the mattress, posture bed and 53% of the other two items for a total of $379.53 instead of the figure $575.11.

The result is that the total of the allowable maintenance and repairs expenses is $82.28 + $ 379.53 or $461.81.

With respect to the personal items, namely lawn spinner and pool, $144.82, water pump for pool, $83.93, and telephone and batteries, $59.63, I allow the percentages indicated and therefore a total deductible expense of $180.86.

With respect to other items - wrong year, the amount $4.82 is to be allowed for the 1997 year and is therefore removed from the 1996 year as a deductible expense. Also the figure $20.97 was an expense in the 1995 year and is therefore also to be removed as a deductible expense in 1996.

The total food expenses in each year will be dealt with separately at the end of the analysis of Exhibits A, B and C.

Exhibit B

With respect to maintenance and repairs I allow 53% of the total windows expense, i.e. 53% of $815.17 or $432.04. The windows were broken and, in my opinion, the entire cost of the repair and not only the cost of replacing windowpanes should be allowed as a legitimate repair expense.

The carpet, $516.70 and floor underlay $59.79, in my opinion, constitute capital items and are not to be allowed as an expense.

With respect to the dryer, $582.51, the lazy-boy, $819.25 and the sofa-recliner, $1,658.30 the Appellant concedes that these are capital items and are not to be allowed as deductible expenses.

However, I allow 53% of the lamp expense $144.88 and of the TV/VCR stand, $217.35, i.e. 53% of $362.23 or $191.98 as a deductible expense.

The bird feeder, $29.82 has either been conceded or simply is a capital item and is not to be allowed.

With respect to the personal items totalling $1,100.96, the details of which are shown on page 2 of Exhibit B, in my opinion, it is reasonable to allow all of those items at the percentages shown in the last column on page 2 of Exhibit B. Consequently the total of the items to be allowed as a deductible expense is $638.32.

Also to be allowed as deductible expenses in 1997 are the $4.82 amount mistakenly shown as a 1996 expense and the $19.87 expense mistakenly shown as a 1998 expense.

Exhibit C

I allow the mattress expenses of $672.72 and $181.44 and 53% of the vacuum cleaner, $344.97, and 53% of the air conditioner, $379.30. Thus in respect of all these items a total of $1,238.02 is to be allowed as a deductible expense.

With respect to the "personal" items, I would allow all of them at the percentages shown in the last column of Exhibit C. Consequently the total of the "personal" items to be allowed as a deductible expense is $725.44.

With respect to other items disallowed, the $19.87 has been taken back to the 1997 year and consequently is not to be allowed as an expense in 1998.

Further I am satisfied that the $28.68 figure for Giant Tiger and the $33.35 for LDS waterproof are acceptable expenses and 53% thereof is to be allowed. Thus the figure to be allowed is $32.87.

With respect to the unvouchered amount of $471.44, the Appellant has conceded that this is not an allowable expense.

Food Expenses

The Appellant's agent points to the three lease agreements filed as Exhibits A-1 which indicate that the $450.00 monthly rent includes heat, hydro, telephone, cable, groceries and sundries and argues that the amounts claimed for food expenses of $1,993, $2,117 and $3,031.60 in the 1996, 1997 and 1998 years respectively should be allowed.

By way of background the Appellant's daughter Stephanie, who was born in 1977 left the family home of her own volition and became a single mother. Thereafter she decided to move back into the family home and occupy part thereof. Her parents indicated to her that it would have to be on a fair market rental basis for the space that she would occupy. The figure of $450 was arrived at and it was not contested by the respondent. The question remains however as to whether the food expenses in each of the years is a permitted deductible expense. The Appellant's wife pointed out that in years prior to the rental to their daughter she had rented out certain rooms to students on a room and board basis and the amounts allocated as to food were never questioned by the Minister of National Revenue.

However the general rule is that food expenses are considered personal and are not deductible.

In the case of Valldolid v. R., 2001 DTC 696, Mogan, T.C.J. in relatively similar circumstances to those in these appeals distinguished between the rental operations and the food operation and with respect to food supplied to family members of the Appellant in that case, he concluded that the Appellant was providing subsidized meals to part of her family and in essence did not allow the deduction of the loss caused by the food expenses. I have reviewed other cases dealing with the deduction of food expenses and although there is some authority to the effect that providing room and board to strangers may justify the deduction of food expenses, I was unable to find any authority to the effect that food expenses in relation to a person's daughter can be considered as a deductible expense. Consequently the food expenses claimed in each of the three years are not deductible.

[4]            In conclusion the appeals are allowed to the extent set forth above. There shall be no costs.

Signed at Ottawa, Canada, this 30^h day of July, 2002.

"T. O'Connor"

J.T.C.C.

COURT FILE NO.:                                                 2002-148(IT)I

STYLE OF CAUSE:                                               Gary C. Steele v. Her Majesty the Queen

PLACE OF HEARING:                                         Belleville, Ontario

DATE OF HEARING:                                           July 3, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge T. O'Connor

DATE OF JUDGMENT:                                       July 30, 2002

APPEARANCES:

Agent for the Appellant:                     Arthur Lucas

Counsel for the Respondent:              Marlyse Dumel

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

Gary A. Steele

Amounts under appeal

1996

EXHIBIT A

	Gross Exp	Rental %
Maintenance and Repairs
Items disallowed - capital	Class 1
Door awning	$                75.00	53%
Material and labour re awning	80.25	53%
Siding and soffit	3,832.85	53%
	$              3,988.10

	Class 8
Microwave island	$                69.97	53%
Mattress, posture bed	159.00	100%
VCR	346.14	53%
	$               575.11

Total of capital items disallowed - gross amounts - classes 1 & 8

$              4,563.21

Other items disallowed - personal
Lawn spinner & pool	$               144.82	53%
Water pump for pool	83.93	53%
Telephone and batteries	59.63	100%
	$               288.38

Other items disallowed - wrong year
Mini blind (1997)	$                 4.82	100%
Scatter mats (1995)	20.97	100%
	$                25.79

Total of other items disallowed - gross amounts

$               314.17

Total maintenance & repairs expenses under appeal - gross amounts

$              4,877.38

Various

Office expenses (food)
Total food expenses under appeal	$              1,993.00	100%
TOTAL UNDER APPEAL - gross amounts - 1996	$              6,870.38

Gary A. Steele

Amounts under appeal

1997

EXHIBIT B

	Gross Expense	Rental %
Maintenance and Repairs
Items disallowed - capital	Class 1
Carpet - family room	$               516.70	53%
Floor underlay	59.79	53%
Windows	650.00	53%
Windows	165.17	53%
	$              1,391.66

	Class 8
Lamp	$               144.88	53%
Dryer	582.51	53%
TV/VCR stand	217.35	53%
Lazy-boy	819.25	53%
Sofa-recliner	1,658.30	53%
	$              3,422.29

Total of capital items disallowed - gross amounts    - classes 1 & 8

$              4,813.95

Other items

Other items disallowed - wrong year
Bird feeder (1996) (also personal)	$                29.82	53%

Total of other items disallowed - personal     - see page 2 for details of items disallowed

$              1,100.96

various

Total of other items disallowed - gross amounts

$              1,130.78

Total maintenance & repairs expenses under appeal - gross amounts

$              5,944.73

various

Office expenses (food)

Total food expenses under appeal

$              2,117.00

100%

TOTAL UNDER APPEAL - gross amounts - 1997

$              8,061.73

Gary A. Steele

Amounts under appeal

1997

EXHIBIT B

	Gross Expense	Rental %
Maintenance and Repairs (cont'd)
Other items disallowed - personal - see page 1
Fan	$ 20.69	100%
Pans, face cloth, aluminum foil	69.26	53%
Gate	49.99	100%
Dishcloths	3.44	53%
Pillow	45.94	100%
Pliers	35.47	53%
Dishwasher drying solution, sink mat	17.84	53%
Cookware set	91.97	53%
Kitchen utensils - 'pampered chef'	51.75	53%
Candle, ibuprofen (OTC medication)	12.20	53%
Paper towels, hand mixer, sink caddy	72.40	53%
BBQ brush, paper towels	11.85	53%
Pans, ladle, paper towels	29.57	53%
Cookie pan, paper towels	15.39	53%
Roaster	2.29	53%
Pans, wastebasket	33.30	53%
Analgesic (OTC medication), pans	41.46	53%
Kitchen Tools	13.77	53%
Bathroom tissue, pan, blankets	42.76	53%
Analgesic (OTC medication), pans	11.86	53%
Roaster	22.99	53%
Utensil rack, pans	10.33	53%
Bathroom tissue	9.36	53%
Tablecloth, pool light	10.15	53%
Cookware, set	11.47	53%
2 x 20 piece flatware, 1 scumbuster	114.67	53%
Kitchen utensils, CO2 detector, Bounty	67.86	53%
Outdoor light set, soap, flowers	55.10	53%
Face cloths, bathroom tissue	15.46	53%
Foam plates, tablecover	10.72	53%
Electrical tape, cords	6.87	53%
Furnishings, nail polish	92.78	53%
Total other items disallowed - personal - see page 1	$              1,100.96

Page 2

Gary A. Steele

Amounts under appeal

1998

EXHIBIT C

	Gross Exp	Rental %
Maintenance and Repairs
Items disallowed - capital	Class 8
Mattress	$               672.72	100%
Mattress	181.44	100%
Vacuum cleaner	344.97	53%
Air conditioner	379.30	53%
Total of capital items disallowed - gross amounts     - class 8	$              1,578.43

Other items disallowed - personal
Tablecloth, flowers, beachtowel, etc	$ 73.49	53%
Plates	34.29	53%
Hamper	27.58	53%
Cake pans	33.33	53%
Cake pan	9.19	100%
2 photo frames	14.33	100%
Mattress pad	100.53	100%
Roasting pan	34.47	53%
Dinnerware	51.72	53%
Cookware, spoons, ladle	135.71	53%
Fan, kitchen organisers	96.52	53%
pillows	22.99	100%
Frosty mug, broom	10.27	53%
Silverware	31.01	53%
Disney clock	119.06	53%
Bedding	111.44	100%
Pillow	45.98	100%
Comforter bottom	45.91	100%
Pillows	22.99	100%
Cups	8.94	100%
	$              1,029.75

Other items disallowed - wrong year, missing date/detail
1997 - LDS Waterproof	$                33.35	53%
No date	19.87	100%
Giant Tiger - no detail	28.68	53%
	$                81.90
Other items - unvouchered amounts	$               471.44	53%

Total of other items disallowed - gross amounts	$              1,583.09
Total maintenance & repairs expenses under appeal    - gross amounts (carried forward to page 2)	$              3,161.52	Various

Gary A. Steele

1998

EXHIBIT C

Total maintenance & repairs expenses under appeal - gross amounts (from page 1)

$              3,161.52

various

Office expenses (food)

Total food expenses under appeal

$              3,031.60

100%

TOTAL UNDER APPEAL - gross amounts - 1998

$              6,193.12

Page 2

2002-148(IT)I

BETWEEN:

GARY C. STEELE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on July 3, 2002 at Belleville, Ontario, by

the Honourable Judge Terrence O'Connor

Appearances

Agent for the Appellant:                       Arthur Lucas

Counsel for the Respondent:                Marlyse Dumel

____________________________________________________________________

JUDGMENT

          The appeals from the reassessments made under the Income Tax Act for the 1996, 1997 and 1998 taxation years are allowed, and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment to the extent of and in accordance with the attached Reasons for Judgment.

          Signed at Ottawa, Canada, this 30^th day of July, 2002.

"T. O'Connor"

J.T.C.C.