Citation: 2008TCC553
Date: 20080930
Docket: 2007-4815(IT)I
BETWEEN:
CARMINA M. VENDITTI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
Docket: 2007-4870(IT)I
AND BETWEEN:
SAM RUBERTO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2007-4919(IT)I
AND BETWEEN:
ANTHONY DISANTO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
These appeals were
heard on common evidence and involve a property owned in partnership by the
three Appellants (the “Partnership”). The appeals were in respect of the 2001
and 2002 taxation years for each of the Appellants.
[2]
The issues are: 1)
whether the losses claimed by the Partnership were from business or property;
2) whether the claimed motor vehicle expenses were incurred to earn income or
were personal expenses; and 3) whether expenditures for furniture were capital
or current expenditures. An additional issue for Ms. Venditti was whether she
was allowed to deduct an additional interest expense beyond the amount paid as
interest on the mortgage against the property.
BUSINESS LOSSES OR PROPERTY LOSSES
Facts
[3]
The Appellants live
full time in Ontario, Canada. Carmina Venditti is a management
consultant, Anthony Disanto is an account manager and Sam Roberto is a project
manager. During the relevant time they were all employed on a full time basis
in Ontario, Canada.
[4]
On October 18, 1996 the
Partnership acquired Unit 418 at 3950
South Pointe Drive, Orlando, Florida. The unit is a three bedroom condominium in a
development called The Oasis II.
[5]
The Appellants stated
that prior to purchasing the property they had consulted with Ventura Resort
Rentals, Inc. (“Ventura”) to ascertain the expected rentals for
the property. They were told that a reasonable occupancy was 26 weeks and the
rate for short term rentals was between $75 and $90 a night; whereas for long
term rentals the rate was approximately $52 a night.
[6]
It was the Appellants
evidence that their primary intention in purchasing the property was to
register it as a business. In this regard they hired Ventura
to assist them with the rental of the property. The Appellants did not produce
any documentation to show that they registered their property as a business.
[7]
The Appellants tendered
an exhibit which showed that the Appellants’ rental had “met the sales and use
tax registration requirements for the business location as required by Florida
Law”. The property was inspected and approved for short term rentals on October
30, 1996. According to the Appellants’ evidence the property had to be
inspected before it could be rented.
[8]
The Appellants agreed
that all expenses with respect to the property were shared. The rental of the
property included various amenities. These amenities were utilities,
toiletries, furnishings, linen and a heated pool.
[9]
The Appellants were
required to inspect the property and to do any major repairs such as painting
and replacing furniture. It was their evidence that they visited the property
twice a year for these purposes and they lived in the property on these
occasions.
[10]
In 2001 and 2002 only
Carmina Venditti and Sam Roberto and their spouses visited the property.
[11]
The Appellants stated
that they treated their endeavour as a business and not a rental property. In
support of this statement they tendered exhibit A-6 which detailed the capital
cost allowance for the furniture and a 1999 vehicle which they assert was
designated solely for the business purpose of traveling to the vacation
property for regular inspection and condo meetings.
[12]
The Appellants had a
Canadian and a US bank account for the property. All
partners had signing authority on the Canadian bank account whereas only Ms.
Venditti and her spouse had signing authority on the US
bank account. Ms. Venditti stated that all expenses which had to be paid in Florida were paid through the US
bank account.
[13]
There were cash flow
problems with the property and each Appellant was required to put additional
funds in the bank account each year. In 2001 and 2002 the property generated
gross income of $8,492.67 and $12,475.20 respectively. The expenses claimed
before capital cost allowance (CCA) were $22,956.98 and $19, 511.46 in 2001 and
2002 respectively.
[14]
There was no evidence
concerning the number of days the property was rented in 2001 and 2002.
Likewise, there no evidence of the rental rate received in 2001 and 2002.
[15]
There was no evidence
that there were books kept for the property. The evidence established that the
indicia of a commercial enterprise were missing.
The Law
[16]
It is a question of
fact whether income derived from the rental of a property is income from
property or income from business. In Walsh v. Minister of National
Revenue, [1965] C.T.C. 478 (Ex.Ct.) Justice Cattanach said at paragraph 22:
In my view, prima facie the perception of rent as land owner
is not the conduct of a business, but cases can arise where the extent of the
various services provided by the landlord under the terms of a leasing contract
and the time and labour devoted by him are such that the rental paid by the
tenant can be regarded as in a substantial measure payment for such services as
well as for the use of the property and the interrelation of the use of the
premises with the use of such services may be so extensive that the whole sum
could readily be regarded not as mere rental of property, but as true receipts
of a business of providing apartment suites and services to tenants. It is a
question of fact as to what point mere ownership of real property and the
letting thereof has passed into commercial enterprise and administration.
[17]
Judge Bowman, as he then was,
dealt with this issue in Arbutus Gardens Apartments Corp. v. R., [1998]
3 C.T.C. 2972 (TCC). In that case the Arbutus Gardens Apartments Corp.
(“Arbutus”) owned an apartment complex which consisted of seven buildings
containing 302 units on 12 acres in Vancouver. It engaged five full time managers, who lived in the
project with their spouses, two full time maintenance persons and two full time
gardeners. When the project had problems with a high vacancy rate, Arbutus
hired an individual to help improve the situation. Justice Bowman found that
far more services were provided to the tenants than would normally be the case
in an apartment building. He concluded that on the facts before him, Arbutus
carried on a business.
[18]
In Orcheson v. R, 2004 TCC
247, the taxpayers claimed that their rental income was business income. They
rented out three fully furnished cottages which were located on Lake Simcoe.
They provided various services including firewood, barbecues, picnic tables,
swimming, fishing, boat and snowmobiles. Judge Teskey, at paragraphs 30 and 31
of his decision concluded:
30 The
use of Lake Simcoe for boating, swimming or fishing is not a
service. The use of a barbeque, a picnic table, a phone, a television and deck
chairs are likewise not a service. Clean linen changed daily as well as daily
cleaning of the cottages would be services. There is no evidence that this
volume of service was performed. Both appellants have full time jobs in Toronto.
31 Since
income herein is rental income, the Court must start with the premises that it
is income from property, as opposed to income from a business. Since the
evidence has not established that a substantial portion of the rents were for
services, I can only find that the income was from property.
[19]
The evidence presented
by the Appellants does not allow me to conclude that a substantial portion of
the rentals they received from the property was for the services they offered.
The Appellants stated that the property was fully furnished including linen.
There was no evidence that the services provided by the Appellants were
anything beyond what would have been provided by any landlord offering
furnished apartments for rent.
[20]
On the evidence before
me I have concluded that the income received from the rental of the Appellants’
property was income from property. Likewise, the losses incurred by the
Appellants are losses from property.
MOTOR VEHICLE EXPENSES
[21]
The Minister disallowed
the travel and motor vehicle expenses on the basis that:
a) the property was managed by an
independent company;
b) the Partnership did not
do the necessary repairs and maintenance of the Property;
c) the Partnership did not
transport tools and materials to the Property;
d) the Property was not
located in the area where the Partnership resides;
e) the disallowed travel and motor
vehicle expenses were the personal or living expenses of one or more members of
the Partnership and are prohibited pursuant to paragraph 18(1)(h).
[22]
Each of the Appellants
testified that Ms. Venditti and her spouse travelled to Florida in February 2001 to inspect the property and meet
with the condo association to review the interview process for renting the
property. They lived in the property for two days.
[23]
In August 2001 Ms.
Venditti, Mr. Roberto and their spouses travelled to Florida
in two separate vehicles to repair and paint the property. It was the first
time they had painted the property since they purchased it in 1996. They said
that they required the two vehicles as they carried their tools with them. It
was cheaper to buy the materials in Canada than it would have been to purchase
them in Florida. They lived in the property for two weeks
as they repaired and painted it.
[24]
Ms. Venditti, Mr.
Roberto and their spouses drove to Florida in February
and August 2002 again to inspect the property, meet with the property manager
and purchase minor items for the property. On the trip in August the Appellants
unsuccessfully searched for a second rental property.
[25]
In 2002 the Appellants
lived in the property for two days in February and two weeks in August.
[26]
According to the
Appellants the trips did not have a personal component and the travel and motor
vehicle expenses were incurred to generate income. I accept their evidence. The
Appellants tendered a log (exhibit A-10) on which they recorded 14,596
kilometres for the trips in 2001 and 10,927 kilometres for the trips in 2002.
There was no evidence as to when this log was made.
[27]
I have concluded from
the testimony of the Appellants that the Partnership is entitled to deduct
travel and motor vehicle expenses as it had originally claimed in the amount of
$2,456.30 and $2,373.25 for 2001 and 2002 respectively. Each Appellant’s share
of the motor vehicle expenses is $818.77 in 2001 and $791.08 in 2002.
FURNITURE
[28]
In 2000 when the
Appellants inspected the property, they found that the sofa had been destroyed
by one of their tenants. Exhibit A-7 shows that the Appellants replaced the
sofa on July 31, 2000 at a cost of $1,228.54. They included this amount as a
current expense in 2001 in their calculation of rental income and expenses for
the property.
[29]
There was no evidence
to substantiate that the purchase price for the sofa was paid in 2001. The
evidence submitted is insufficient to allow me to conclude that the amount paid
for the sofa was a current or a capital expense in the 2001 year.
INTEREST EXPENSE – Carmina Venditti
[30]
In her income tax
returns Ms. Venditti claimed interest expense in the amount of $4,724.39 and
$5,225.27 in 2001 and 2002 respectively. At the hearing of the appeal she asked
that she be allowed an interest expense in the amount of $2,297.71 and
$1,151.50 in 2001 and 2002 respectively.
[31]
Ms. Venditti stated
that she had to borrow the monies that she invested in the property. The
amounts of $2,297.71 and $1,151.50 are the interest that she paid on the monies
borrowed to make the investment.
[32]
In support of the
interest expense Ms. Venditti submitted the statements from her Line of Credit
as of January 31, 2002 and January 31, 2003. There was no evidence to support
that the interest expense claimed was incurred to earn income from property or
business. In fact, the advances shown on these statements were transferred to
Ms. Venditti’s personal bank account.
[33]
There was no evidence
before me that would allow me to conclude that Ms. Venditti had to pay interest
on borrowed money used for the purpose of earning income from a business or
property.
[34]
In conclusion the
appeals are allowed with respect to the travel and motor vehicle expenses.
Signed at Ottawa,
Canada, this 30th day of September 2008.
“V.A. Miller”
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