Citation: 2008TCC627
Date: 20081124
Docket: 2008-354(IT)I
BETWEEN:
ALLAN E. FIELD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
The Appellant appeals
from a reassessment of his 2003, 2004 and 2005 taxation years wherein the
Minister of National Revenue (the “Minister”) disallowed expenditures of
$4,193.75, $12,833.44 and $11,996.56 which had been claimed against rental
income.
[2]
The expenditures
consisted of the following:
|
|
2003
|
2004
|
2005
|
|
Interest
|
$3,063.54
|
$1,932.16
|
$3,494.82
|
|
Travel
|
1,130.21
|
2,688.74
|
2,267.92
|
|
Maintenance
& Repairs
|
_______
|
8,212.54
|
6,233.82
|
|
Total
|
$4,193.75
|
$12,833.44
|
$11,996.56
|
[3]
In 1994 the Appellant
acquired land at Sun Peaks, B.C. with the hope that this area would
become a successful ski region like Whistler. He built a ski condo (the
“Property”) at a cost of $183,276 which he offered for rent.
INTEREST
[4]
During the relevant
period, the Appellant claimed and was allowed to deduct the entire amount of
the interest that he paid on the mortgage of the Property. He also claimed the
interest amounts stated in paragraph 2 above.
[5]
It was his evidence
that the cost of the Property exceeded the amount of the mortgage and he used
his credit cards and line of credit to finance all other costs associated with
Property. The additional interest expenditures that were claimed were the
interest amounts on his credit cards and his line of credit.
[6]
In support of his claim
the Appellant submitted a letter from a financial advisor who advised that the
Appellant’s line of credit had been increased and various credit cards had been
paid off. The letter was dated April 21, 2004. On the letter, the Appellant
made a chart with two columns which he titled “Sun Peak” and “Personal”. He then estimated the amounts for
each column.
[7]
The relevant provision
of the Income Tax Act reads:
20. (1) Deductions permitted in computing income from
business or property -- Notwithstanding paragraphs 18(1)(a),
(b) and (h), in computing a taxpayer's income for a taxation year
from a business or property, there may be deducted such of the following
amounts as are wholly applicable to that source or such part of the following
amounts as may reasonably be regarded as applicable thereto
(c) interest -- an amount paid in the year or
payable in respect of the year (depending upon the method regularly followed by
the taxpayer in computing the taxpayer's income), pursuant to a legal
obligation to pay interest on
(i) borrowed
money used for the purpose of earning income from a business or property (other
than borrowed money used to acquire property the income from which would be
exempt or to acquire a life insurance policy),
[8]
The letter submitted by the
Appellant is insufficient for me to conclude that any of the amounts were
borrowed to earn income from property. As well, there was nothing in the
letter which verified any amount of interest. There is only the Appellant’s
estimate of interest. This is insufficient to substantiate his claim for
interest beyond what was already allowed by the Minister.
[9]
To claim a deduction for interest,
the Appellant must be able to submit documents that would show that he paid the
interest on money borrowed to earn income from property. The Appellant must
also be able to show the exact amount of the interest he paid.
TRAVEL
[10]
The Appellant stated that both the
Property and its contents are aging and both require repairs. There are no
persons on the mountain who could do the repairs and he had to do them himself.
During the period, he lived in South Surrey and he traveled the approximately
400 kilometers to the Property to do all repairs and to collect the rent.
[11]
The evidence showed that the
Appellant claimed expenses for 10 visits to the Property in 2003; 22 visits to
the Property in 2004; and, 19 visits to the Property in 2005.
[12]
There were no documents to support
the amounts claimed by the Appellant. There were no details given of the
numerous trips the Appellant made to the Property. It is his personal choice to
live in South Surrey and to own a rental in Sun Peaks. The cost of his travel to and from the Property is
personal and is not deductible.
[13]
It is noteworthy to refer to the
decision in Njenga v. R.[1],
at paragraph 3 where it is said:
The Income tax system is based on self monitoring. As a public
policy matter the burden of proof of deductions and claims properly rests with
the taxpayer. The Tax Court Judge held that persons such as the Appellant must
maintain and have available detailed information and documentation in support of
the claims they make. We agree with that finding. Ms. Njenga as the Taxpayer is
responsible for documenting her own personal affairs in a reasonable manner.
Self written receipts and assertion without proof are not sufficient.
REPAIRS &
MAINTENANCE
[14]
The Appellant was allowed a
deduction for repairs and maintenance expenses in the amounts of $4,978.91,
$7,387.41 and $9,554.24 in 2003, 2004 and 2005 respectively. The Minister
disallowed the amounts in paragraph 2 above as it was his position that they
were capital outlays.
[15]
In 2004, the items purchased were
the installation of a gas line, gas furnace, hot water heater, sofa, loveseat,
refrigerator and dryer. In 2005 the amount claimed included the cost of a hot
tub.
[16]
The test often quoted when
deciding whether an expenditure should be capitalized or expensed was stated by
Viscount Cave in British Insulated
& Helsby Cables Ltd. v. Atherton
(1925), [1926] A.C. 205 (U.K. H.L.) at 213
as follows:
...when an
expenditure is made, not only once and for all, but with a view to bringing
into existence an asset or an advantage for the enduring benefit of a trade, I
think that there is very good reason (in the absence of special circumstances
leading to an opposite conclusion) for treating such an expenditure as properly
attributable not to revenue but to capital.
[17]
Although all of the expenditures
in the present case may not have been made “once and for all” they all have the
character of capital expenditures as they bring into existence an asset for the
enduring benefit of the Property. All of the expenditures are major with
respect to the rental Property. All of the expenditures are different from
ordinary annual expenditures[2].
The useful life of all the items purchased will be a relatively long time.
[18]
The appeal is dismissed.
Signed at Halifax, Nova Scotia, this 24th day of November 2008.
“V.A. Miller”
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