Greig v. The Queen, docket 2002-1142(IT)I (Informal Procedure)

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Appeals heard on January 15, 2003 at Toronto, Ontario

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JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.

Signed at Ottawa, Canada, this 23rd day of January 2003.

J.T.C.C.

REASONS FOR JUDGMENT

Rip, J.T.C.C.

[1]      Margaret Greig appeals her income tax assessments for 1997 and 1998 on the basis that she is entitled to deduct rental losses in computing her income from property. The Minister of National Revenue ("Minister") disallowed the expenses resulting in the losses, as they were not incurred for the purpose of gaining or producing income from a business or property.

[2]      In 1991, Ms. Greig and her husband at the time acquired a home in Etobicoke, Ontario, for $264,000. The house was financed with a mortgage of $222,000. The Appellant and her husband separated and divorced in 1994.

[3]      The house, a bungalow, is about 85 years old. Ms. Greig and her daughter lived upstairs. At all relevant times Ms. Greig rented the basement. The rented portion of the basement consisted of a small kitchen area that included some cabinetry, a stove and a refrigerator, as well as a bedroom and a television area; all this was open area. The basement also included a bathroom. The tenant and Ms. Greig shared laundry facilities in the basement. There was a separate entrance to the basement from the exterior of the house.

[4]      Ms. Greig testified that she was "forced into a divorce" and she struggled "to keep things above ground". She had custody of her daughter. She rented the basement to help her keep the house. The house was purchased as a family home, not to rent out, she acknowledged.

[5]      Ms. Greig rented the basement to students. The University of Toronto Housing Department had advised her what students would pay for the basement. Rent included board. Ms. Greig charged rent of $160 to $180 per week. From 1994 to early 1996, students attending the International School of Language in Toronto rented the basement for six to eight months periods, never shorter and never longer, except for one ten month occupancy. In 1996, she rented to students attending the University of Toronto.

[6]      The basement area was about 50 percent of the living area of the house. Ms. Greig cooked for herself and her child as well as the tenant; food was shared accordingly.

[7]      There was no written lease between Ms. Greig and the tenants. All of the rent went into her personal bank account and all expenses were paid out of the account. There was no separate account for the property.

[8]      Gross rental income received by Ms. Greig, according to her income tax returns for 1997 and 1998, was $4,700 and $5,100 respectively.

[9]      In filing her 1997 tax return, Ms. Greig claimed total expenses for the property of $28,994.95, which included $1,800 for food and $25 for advertising. The personal portion of the expenses was $13,584.98. The rental loss claimed was $10,709,97. There were two large components to the total expenses, interest of $11,611.85 and maintenance and repairs of $9,525.61. The interest was the amount paid on the mortgage. The $9,525.61 was incurred to repair the basement after a flood caused by a tenant. Among other things, new drywall and some boards had to be replaced; a portion of the amount claimed as cost of maintenance and repairs may be properly better described as a capital expenditure.

[10]     In her 1998 tax return, Ms. Greig claimed total property expenses of $21,090.03, which included $1,788 for food and telephone and $50 for advertising. She declared $9,626.02 as the personal portion of the expenses. She claimed a rental loss of $6,364.

[11]     Ms. Greig submitted a typewritten "rental log" at trial. The log indicates she rented the basement for only six months in 1997 and received $3,600. In 1998, she rented the basement from August 1 to the end of the year (and into 1999); she would have received $3,250 as rent in 1998. (The log states monthly rent was $650.) In 1999, according to the log, she rented the basement for five months at $650 per month and for five months at $825 per month (aggregating $7,875). She gave up renting the basement due to the flooding and arguments between tenants.

[12]     In a questionnaire she completed for the tax authorities, she included a handwritten log declaring rents in 1997 totalling $3,600 and in 1998, $3,820. In 1997 and 1998, the basement was rented for six months periods. In the questionnaire, she also stated that she rented the property "by necessity. I needed to rent the basement in order to keep the house" as a result of the divorce.

[13]     When respondent's counsel questioned Ms. Greig concerning the difference in rents reported in her tax returns, the questionnaire and the rental log, she stated the amounts described in the typed log are the correct amounts.

[14]     The appeals are dismissed. The basement was not rented out for the purpose of earning income. Ms. Greig rented the basement to subsidize the costs of maintaining the occupancy of her home by her and her child. This was her predominant intention. There was no commercial activity carried out on the property by Ms. Greig. Her rental activity was not undertaken in pursuit of profit but was a personal endeavour to reduce costs of living in the house. This activity was not commercial in nature; there was no evidence of businesslike behaviour: Stewart v. Canada, 2002 SCC 46, paras. 53, 54, 56 and 63.

Signed at Ottawa, Canada, this 23rd day of January, 2003.

J.T.C.C.