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Docket: 2002-1086(IT)I
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BETWEEN:
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AHSAN M. KHAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Appeals heard on December 17, 2002 at Vancouver,
British Columbia
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Before: The Honourable Judge L.M. Little
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Appearances:
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For the Appellant:
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The Appellant himself
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Agent for the Respondent:
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Bruce Senkpiel
Student-at-law
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____________________________________________________________________
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1998 and 1999 taxation years are allowed, without costs,
and the assessments are referred back to the Minister of National
Revenue for reconsideration and reassessment in accordance with
the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 24th day of
February 2003.
J.T.C.C.
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Citation: 2003TCC72
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Date: 20030220
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Docket: 2002-1086(IT)I
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BETWEEN:
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AHSAN M. KHAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little, J.
A.
FACTS
[1] The Appellant,
the Appellant's spouse (Rafat Khan) and the Appellant's
daughter (Mehre Yousuff Khan) (the spouse and the daughter are
hereinafter referred to as the "Joint Owners") were the
registered owners of a house located at 10271 Odlin Road,
Richmond, British Columbia (the "Property").
[2] In March 1995 the
Appellant and the Joint Owners borrowed $369,166.00 from Bawa
Singh Bains and Gurmej Kaur Bains. To secure the loan a mortgage
was registered against the Property.
[3] During the 1998
and 1999 taxation years the Property was the principal residence
of the Appellant and the Joint Owners.
[4] The Appellant
claimed that he suffered rental losses in connection with the
Property. The Minister of National Revenue (the
"Minister") denied the rental losses.
[5] In the Reply
counsel for the Respondent alleged that during the 1998 and
1999 taxation years no portion of the Property was rented to
tenants.
B.
ISSUES
[6](a) Did the Appellant rent any
portion of the Property to tenants in the 1998 and 1999 taxation
years?
(b) Did the Appellant incur any
expenses in connection with the Property?
(c) Is the Appellant entitled to
deduct all or a portion of the rental losses that were claimed in
determining his income for the 1998 and 1999 taxation years?
C.
ANALYSIS
[7] It is clear from
the evidence that was presented to the Court that the Appellant
did rent a portion of the Property to tenants in the 1998
taxation year and for the months of January to April in the 1999
taxation year. The Appellant presented evidence which established
that the following rental payments had been received:
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1998
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1999
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$8,400.00
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$2,100.00
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(See Exhibit A-6.)
[8] During the
hearing of the appeal the Appellant maintained that he paid
interest on the mortgage of $18,404.00 in 1998 and $18,102.24 in
1999.
[9] Based on the
evidence that was presented to the Court, I have concluded that
the interest expense in 1998 and 1999 should be determined as
follows:
1998 -
$18,404.00 ÷ 2 = $9,202.00
(Note - one-half of the interest expense is
business and one-half is personal.)
1999 -
$18,102.24 ÷ 2 = $9,051.12
(Note - I have concluded that interest should
only be recognized for the months of January, February, March and
April 1999.)
$9,051.00 ÷ 3 = $3,017.00
[10] The interest expense
of $18,404.00 for 1998 should be allocated as follows:
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The Appellant
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$3,067.33
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Rafat Khan
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$3,067.33
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Mehre Yousuff Khan
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$3,067.33
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[11] The interest expense
of $3,017.00 in 1999 should be allocated as follows:
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The Appellant
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$1,005.66
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Rafat Khan
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$1,005.66
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Mehre Yousuff Khan
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$1,005.66
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[12] Based on the evidence
that was presented to the Court (Exhibit A-9) the Appellant and
the Joint Owners should include the following rent in their
income:
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1998
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1999
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The Appellant
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$2,800.00
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$700.00
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Rafat Khan
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$2,800.00
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$700.00
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Mehre Yousuff Khan
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$2,800.00
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$700.00
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[13] The evidence that was
presented to the Court did not convince me that the Appellant
paid property taxes, utilities and water and sewage expenses in
the 1998 and 1999 years. (Note: In a Petition to the Supreme
Court of British Columbia filed by Bawa Singh Bains and Gurmej
Kaur Bains dated May 6, 1999 (Exhibit A-3) it is stated that the
Appellant and the Joint Owners failed to pay to the City of
Richmond all property taxes for the 1997 and 1998 years.)
[14] The appeal is allowed
to permit the Appellant to claim interest expenses as
follows:
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1998
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1999
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$3,067.33
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$1,005.66
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[15] The Appellant would
also be required to include the following rent in his income:
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1998
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1999
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$2,800.00
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$700.00
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[16] I am not prepared to
accept the authorizations of the Appellant's spouse and the
Appellant's daughter authorizing the Court to allocate all of
the rental losses from the Property to the Appellant. However, to
be fair and consistent the Minister should reassess the
Appellant's spouse and the Appellant's daughter on the
following basis:
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Spouse
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1998
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1999
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Rental Income
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$2,800.00
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$700.00
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Interest Deduction
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$3,067.33
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$1,005.66
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Daughter
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1998
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1999
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Rental Income
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$2,800.00
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$700.00
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Interest Deduction
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$3,067.33
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$1,005.66
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[17] The appeals from the
assessments made under the Income Tax Act for the 1998 and
1999 taxation years are allowed, without costs, and the
assessments are referred back to the Minister of National Revenue
for reconsideration and reassessment.
Signed at Vancouver, British Columbia, this
24th day of February 2003.
J.T.C.C.
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