Kelian v. The Queen, 2003 TCC 162 (Informal Procedure)

Citation: 2003TCC162 Date: 20030424 Docket: 2002-3412(IT)I

BETWEEN:

YEGHSABETH KELIAN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(delivered orally from the Bench at

Kitchener, Ontario on January 24, 2003)

Beaubier, J.T.C.C.

[1]      This appeal pursuant to the Informal Procedure was heard at Kitchener, Ontario on January 23, 2003. the Appellant is 81 years old and is not well. Her son Vatcho and her daughter Anouche both testified.

[2]      Paragraphs 3 to 8 inclusive of the Reply to the Notice of Appeal (without the Schedules) outline the matters in dispute. They read:

3.          In computing income for the 1998, 1999 and 2000 taxation years, the Appellant claimed rental losses in the amounts of $2,666.23, $1,697.88 and $2,956.30 respectively.

4.          The Minister of National Revenue (the "Minister") assessed the Appellant for the 1998, 1999 and 2000 taxation years as filed, Notices of Assessment thereof dated May 25, 1999, May 11, 2000 and May 3, 2001 respectively.

5.          In reassessing the Appellant for the 1998, 1999 and 2000 taxation years, concurrent Notices of Reassessment thereof dated January 28, 2002, the Minister disallowed the deduction of the rental expenses in the amounts of $14,222.01, $14,417.31 and $12,024.18 respectively.

6.          In so reassessing the Appellant, the Minister made the following assumptions of fact:

(a)         at all material times, the Appellant resided at 2051 Victoria Street, Gorrie, Ontario (the "Property");

(b)         The Property consisted of four units;

(c)         the Appellant resided in one unit with her son, the second unit was rented out to a non-arms length tenant, the third unit was used by the Appellant's son as a workshop and the fourth unit was partially vacant and balance was occupied by the Appellant's daughter rent free;

(d)         Based on the above information, calculation of personal use of the Property was determined to be 70%;

(e)         during the 1998, 1999 and 2000 taxation years, the Appellant reported rental income, expenses and losses as per exhibits A, B and C attached hereto;

(f)          during the 1998, 1999 and 2000 taxation years, the Minister revised the Appellant's claim for the expenses as per exhibits A,B and C attached hereto and denied the claim for expenses in the amounts of $14,222.01, $14,417.31 and $12,024.18;

(g)         the rental expenses in excess of the amounts allowed were not made for the purpose of gaining or producing income from a business or property;

(j)          the rental expenses disallowed were personal or living expenses of the Appellant.

B. ISSUES TO BE DECIDED

7.          The issues are:

(i)          whether the rental expenses in excess of the amounts allowed by the Minister were made by the Appellant in the 1998, 1999 and 2000 taxation years for the purpose of gaining or producing income from a business or property; and

(ii)         in the alternative, whether the disallowed expenses were reasonable in the circumstances.

C.         STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT

8.          He relies on sections 3, 9 and 67, subsection 248(1) and paragraphs 18(1)(a) and 18(1)(h) of the Income tax Act (the "Act"), R.S.C. 1985, C.1 (5th Supp) as amended for the 1998, 1999 and 2000 taxation years.

[3]      All the assumptions are correct except 6(c) should state that the fourth unit was not occupied in 1998, 1999 and 2000.

[4]      The Respondent allowed 30% of the expenses which the Appellant claimed and restricted the CCA claim to prevent a loss occurring on the rental property.

[5]      The Respondent's calculations were based on Exhibit R-1 prepared by Vatcho on behalf of the Appellant.

[6]      In particular, only 2050 square feet were rented by the Appellant to her tenant, Gary Harrison. The Total square footage of units was 9958. The Appellant's residence was 2868 square feet. During the years in question the balance was used for storage and invention purposes by Vatcho. Vatcho testified that he worked to renovate and improve 1190 square feet to create a luxury rental unit. This was occupied by his sister Anouche after the years in question. Vatcho was clear that he was fixing it up as a quality unit, not an ordinary rental apartment. Because of this, the Court finds that it was always being fixed up for Anouche.

[7]      Anouche does not pay rent. She trades her services of care for the Appellant in return for the apartment. She and Vatcho value these trades at $500 each. However no money changes hands. There is no written lease. Because the Appellant and Anouche have no written lease, do not exchange money, and are mother and daughter, the Court finds that the apartment is not rented by Anouche. In these circumstances, the Court also finds that these facts confirm the finding that the apartment was always intended to be used by Anouche rent free when it was in the course of the renovations.

[8]      Based on the facts found herein by the Court, the Appellant has not upset the Minister's assumptions.

[9]      Therefore, the appeal is dismissed.

Signed at Saskatoon, Saskatchewan this 24th day of April 2003.

"D.W. Beaubier"

J.T.C.C.