Citation: 2009 TCC 543
Date: 20091023
Dockets: 2008-711(IT)I
2008-720(IT)I
BETWEEN:
CHANTAL BOURDAGES,
JEAN-MARIE PERREAULT,
appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
The
parties agreed to proceed on common evidence, seeing as the facts that gave
rise to the assessments were the same.
[2]
These
are appeals from assessments for the 2003 taxation year following the sale of a
building, in Sutton, at 49 Maple Street, acquired in January 1995 for the amount of $76,258.
[3]
The
issue to be determined is whether the Minister properly disallowed the rental
losses reported by the appellants in respect of the 2003 taxation year.
[4]
In
making the assessment, the respondent relied on the following assumptions of
fact:
[Translation]
a)
The appellant and her husband acquired a
condominium unit situated at 49 Maple Street, Sutton, in January 1995 for the amount of $76,258;
b)
Between 1995 and 2003, the gross income reported
and the losses claimed by the appellant and her husband are as follows:
|
Taxation year
|
Gross
income
|
Appellant's net losses
|
Spouse's net losses
|
TOTAL
|
|
1995
|
$1,600
|
$0
|
$3,770
|
$7,540
|
|
1996
|
$1,625
|
$0
|
$2,643
|
$5,286
|
|
1997
|
$1,000
|
$2,746
|
$2,746
|
$5,492
|
|
1998
|
$791
|
$2,982
|
$2,982
|
$5,964
|
|
1999
|
$950
|
$2,888
|
$2,888
|
$5,776
|
|
2000
|
$0
|
$0
|
$0
|
$0
|
|
2001
|
$0
|
$0
|
$0
|
$0
|
|
2002
|
$925
|
$2,209
|
$2,209
|
$4,418
|
|
2003
|
$0
|
$20,897
|
$20,897
|
$41,794
|
|
TOTAL
|
$6,891
|
$31,722
|
$38,135
|
$69,857
|
c)
The appellant and her family also used the
property for personal purposes;
d)
The property was sold in 2003 for an amount of
$50,000;
e)
The appellant did not demonstrate that actual
steps were taken to put the unit on the rental market during the periods the unit
was not used for personal purposes by the appellant and her family.
[5]
The appellants
both testified. The appellant indicated that she also acted as agent for her
husband. The respondent called Diane Tremblay, who was in charge of analyzing the
case at the assessment stage.
[6]
The appellant,
Chantal Bourdages, an articulate individual, first expressed her deep disappointment,
and her frustration, over the status of her tax matter and that of her husband.
[7]
At the
outset, she stated that she and her husband were honest, truthful and upstanding
taxpayers who were not guilty of anything whatsoever.
[8]
She maintained
that they are individuals with a professional track record that is beyond
reproach and with a range of business experience. Seeing as their professional
conduct and careers are exemplary from all points of view, it was totally
inappropriate to reassess them.
[9]
Truly
affronted by the situation, the appellants also asked that the Agency be sentenced
to costs, to reimburse multiple expenses and pay compensation for the numerous
inconveniences that resulted.
[10]
Above
all, the appellants expressed sadness, disappointment and surprise at the investigation
and review of their tax matter.
[11]
Ms.
Bourdages explained at the time of the purchase of the condominium in Sutton in
1995, an ideal place for ski and nature lovers, the couple lived in Assomption,
in the Lanaudière region.
[12]
In
August 1997, they decided to leave the area to go to Bonaventure, in Gaspésie, which
was more than ten hours away by car.
[13]
At the
time, the couple owned a residence, a company and the condo involved in the present
appeal. The three were put up for sale. Although the residence and the company sold
quickly, the condo did not. It sold much later and resulted in a financial loss.
[14]
At
this stage, a first question is what was the purpose for purchasing the Sutton
condo? The appellants claimed that it was a commercial venture whose purpose
was to generate revenue.
[15]
The appellants'
explanations in support of their claims were essentially oral and brief. They
also questioned the testimony of auditor Tremblay, specifically with regard to
a telephone conversation during which the appellant stated that it was a mixed
project, in part private and in part commercial.
[16]
To
refute the auditor's testimony, the appellant claimed that her husband did not
even know what that could mean, thus insinuating that the auditor had obviously
made that up.
[17]
As for
her husband, he stated that the conversation was long ago and that he did not
recall using those exact words.
[18]
Over
the course of 1995, 1996 and 1997, the appellants claimed to have used the condo
only twice for them and their immediate family. The evidence also established
that relatives used it as well.
[19]
As for
the appellant Mr. Perreault, he confirmed the words of his wife; he explained
the rarity and the absence of useful documents in support of their claims as to
the use of the condo at the time of purchase which resulted from the fact that
he was more intuitive than rational in his business decisions.
[20]
After
they left for Gaspésie, the appellants stated that they never returned to Sutton,
considering the great distance between the two regions, that is, more than 10
by car.
[21]
During
that period, that is, from 1995 to 2003, the date on which the condo was sold. They
submitted that they did everything they could to rent it. During that period of
nearly nine years, the rental income would have totalled $6,891 and the
total expenses would have been $69,857.
[22]
As
documentary evidence to demonstrate rental tenure, they filed in evidence very
few documents, namely, a few brochures. They also mentioned having entrusted a
task to a third party and having taken out ads in the paper; they were unable
to provide documentary evidence concerning the advertisement contracts.
[23]
The
auditor's various attempts to obtain more facts, evidence or documents aimed at
validating the hypothesis that it was a business were interpreted as being
harassment, abuse or as questioning their honesty.
[24]
Moreover,
I witnessed the same attitude during their cross-examination. Since the appellants
concluded that they operated a commercial business whose aim was to rent out
the condo acquired, and which according to them was its sole purpose, they
became indignant at any question pertaining to facts about the real use of the condo.
[25]
Any
question, any request for information was seen as an attack on their integrity,
as a reprimand, as overzealous, and they did not take kindly to anyone questioning
their interpretation that their business was a commercial venture.
[26]
Quite
surprisingly for individuals who are not guilty of anything, the appellants were
never able to explain the total absence of income for 2000 and 2001, and also
and especially why there were no expenses for those very years.
[27]
Although
no income is a possible circumstance, it is completely impossible that there
were no expenses. One need only think of insurance, heating charges and school
and municipal taxes, etc.
[28]
The cross-examination
revealed that the condo had been rented out for several weeks without
generating any revenue. The explanation provided? it was an error.
[29]
All real
businesses have to report all of their income and expenses; it is not a
discretionary matter for managers.
[30]
Despite
the discrepancies (absence of expenses), (absence of income), (marginal revenue),
the appellants still considered any question and request for information
superfluous, vexing and insulting.
[31]
At
first, it seemed useful to repeat part of the comments made during the hearing,
that is, that generally the appeal of an assessment has nothing to do with the
reputation, honesty and career of the individual being assessed. An assessment
is made based on the facts and objection also involves the same facts. Credibility
obviously had a significant impact but its value is relative to the situation that
gave rise to the assessment.
[32]
It is
not a matter of analyzing the conduct of a person over the course of his or her
life; it is a matter of analyzing the specific facts in the context of the transaction
that resulted in the reassessments and deciding whether the assessment was
founded or not, in accordance with the provisions of the Act.
[33]
When
an analysis must take into account will, intention, interpretation, those
elements are not a mathematical absolute that preferably need to be confirmed and
validated by facts and by documents.
[34]
Such
an analysis or search for pertinent facts to be considered need not take account
of the entire life of the person assessed on the basis of aspects that have
nothing to do with the assessment that is the subject of an objection.
[35]
The appeal
of an assessment essentially aims to take into consideration all the pertinent
facts of a case, to analyze them in the appropriate context so as to be able to
conclude whether or not the assessment was in accordance with provisions of the
Act.
[36]
The
most important argument in support of the Appellant's submissions is
undoubtedly the distance between their new residence and the condo in Sutton.
[37]
That
is certainly a possibly very pertinent but not determining factor as it is
common knowledge that thousands of Canadians have condos far from their
residence which they use privately for a variety of reasons, from sports to
seasons to health.
[38]
In
taxation, there are numerous situations where facts could allow for various
treatments. The most common example is undoubtedly a personal expense as
opposed to an expense incurred with a view to earning income. An expense can sometimes
be personal and sometimes related to the operation of a company and the line
separating the two is often very thin. That is the case for a vast number of
goods: cars, boats, trailers, condos, etc.
[39]
Considering
the possible difference in fiscal treatment, it is even more useful, if not fundamental,
to have in one's possession the necessary documents to expand and validate the
tax treatment claimed.
[40]
When a
person becomes involved in a business activity that could sow confusion, that
person must be prudent and vigilant and keep as many materials and documents as
possible to be able to explain his or her actions, particularly if the determination
resulted in a significant tax benefit.
[41]
In the
case at bar, seeing as the appellants, who were veterans of the business world,
could count on and trust the advice of specialists at their disposal, the
evidence should have been much more detailed and convincing. The reality,
however, was completely different; the evidence was deficient and certainly not
enough to validate the appellants' arguments.
[42]
Anyone
can legitimately organize their affairs so as to reduce the tax burden to the maximum
extent possible. However, such a decision or strategy requires, on the part of
the person concerned, the obligation to have in his or her possession all documents
validating or corroborating his or her choices.
[43]
In the
case at bar, it appears reasonable to me to think that the appellants' family
viewed the acquisition of the condo as a positive thing for the family, even
more so since the setting was appealing, that it gave them a better quality of
life and the possibility to broaden the family's range of recreational
activities, thus proving a good investment.
[44]
Family
and friends took advantage somewhat of the condo, which constitutes private or
personal use; after deciding to leave the Assomption area to go and live in
another area that was very far from where the Sutton condo is situated, the appellants
chose to sell it, just like the principal residence and business. The principal
residence and business sold quickly but the condo did not.
[45]
The appellants
had hoped to sell the condo for a profit. The market deteriorated and no
serious buyer turned up for years.
[46]
In 2003,
the appellants came to terms with the fact that they would have to incur a significant
loss and sell the condo.
[47]
Faced
with this sad reality, the appellants apparently concluded that the condo had
been acquired for a commercial purpose, thus reducing the amount of the loss
incurred through a more advantageous tax treatment. Although they certainly
provided verbal explanations, the numbers speak for themselves and, unfortunately,
they do not support the hypothesis submitted by the appellants.
[48]
In fact,
the appellants claimed that they did not earn any income during certain years; that
is very surprising, if not impossible. They do not report any income for those
years, which, this time, is totally impossible.
[49]
I
highly doubt that the appellants were generous toward taxation authorities to
the point where they paid more taxes than they were required to pay, as it is impossible
that there were no expenses.
[50]
All
the facts revealed by the evidence must be assessed in the context in which the
appellants defined themselves as being alert and aware in business, including professional
services.
[51]
While
I do not doubt the appellants' honesty, I do doubt that they made all the
necessary efforts to ensure a profitable occupancy rate more frequently. The
rental dimension was clearly not the primary objective of the acquisition.
[52]
I do
not believe that the condo project in Sutton was a commercial business; I
believe rather that it was a private venture that could possibly generate a capital
gain, while allowing for a better quality of life during the years of its use.
[53]
The
move led to a change of plans and faced with the difficulty of finding a buyer,
the appellants undoubtedly sought to mitigate expenses by taking certain
unconvincing initiatives to find one or more tenants, their preference
obviously being to sell.
[54]
The
deterioration of the real estate market made it so that a buyer was needed. Faced
with the reality forced upon them, the appellants wanted to retroactively
change their first intention, that is to say, the one they had at the time of
the acquisition.
[55]
The appellants
were seasoned business people, they should have been able to demonstrate a
minimum of discipline, organization and produce the supporting documentation to
validate their claims.
[56]
Discharging
the burden of proof is not limited to proving one's knowledge, experience, notoriety
and integrity; discharging the onus of proof means the ability, in this case, to
show, on a balance of probabilities, that a commercial business was operated
through convincing, objective and determining elements.
[57]
Was
there a business plan? Did the acquisition involve a loan? Did the request for
a loan indicate the purpose sought, the treatment of interest, the mandate
assigned to a specialized rental agency or a recognized agency? A business plan,
an agenda, a detailed description of activities, these are but some of the
common elements one would have expected to see the appellants submit in support
of their claims.
[58]
Since
none of those elements were submitted, the appellants mainly relied on verbal
explanations about which they did not wish to be questioned.
[59]
The
burden of proof rested with the appellants. They failed to discharge that
burden simply because the required copious, convincing and determining elements
simply did not exist.
[60]
I
believe the appellants' tax choice essentially resulted from the difficult
times, the deterioration of the real estate market and the rarity of potential
buyers. This discussion would have never taken place had the condo sold quickly
at a fair price.
[61]
For all
these reasons, the appeals must be dismissed and the reassessments that gave
rise to the appeals are therefore confirmed as being well-founded in fact and
law.
Signed at Ottawa, Canada, this
23 day of October 2009.
"Alain Tardif"
Translation certified true
on this 8th day
of December 2009.
Daniela Possamai,
Translator
Email this Content