Boulianne v. The Queen, docket 2000-3365-IT-I (Informal Procedure)

Date: 20010525

Docket: 2000-3365-IT-I

BETWEEN:

BENOÎT BOULIANNE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Alain Tardif, J.T.C.C.

[1]            The appellant testified that in 1984, he had taken out a loan for $30,000, which was secured by a mortgage on his family residence. The loan proceeds had been used to purchase an interest in condominium units in Montreal and shares in a stock savings plan ("S.S.P.") (in French, known as an "R.E.A.").

[2]            As a result of that loan, the appellant claimed a deduction for interest based on the following figures:

                                1987                                         $12,436

                                1988                                         $10,603

                                1989                                         $8,476

                                1990                                         $7,071

                                1991                                         $5,012

                                1992                                         $4,020

                                1993                                         $5,008

                                1994                                         $4,541

                                1995                                         $5,090

                                1996                                         $2,556

                                1997                                         $1,816

[3]            In respect of the 1995, 1996 and 1997 taxation years, the Minister of National Revenue (the "Minister") questioned whether the deduction claimed by the appellant was appropriate and could be allowed. The appellant's reply was that he had always assumed his tax burden and had indeed paid the interest on the loan in order to purchase the aforementioned investments, that is, an interest in a building in Montreal and shares in an S.S.P.

[4]            He said that these investments had proved to be a total failure in that he had lost all of the $20,000 invested in Montreal real estate and had also been hit by the collapse of the stock market, losing the money from the proceeds of the loan that had been invested there, too.

[5]            Thus, according to his testimony, he had continued paying interest on a loan the purpose of which had ceased to exist well before the interest on the loan, used to achieve that purpose, had been paid.

[6]            In 1997, again he took out a loan of over $25,000, that is, the difference between $46,773.44 and $73,272.67, which was also secured by a mortgage on the family residence. This time, the loan was used to pay off the appellant's personal line of credit that had been used in 1991 to purchase shares, including some from the Société d'investissements R & D Vivac Inc. (Exhibit A-4).

[7]            Despite my numerous attempts to have the appellant make a direct connection with the loans, he was never able to do so. He continually repeated that he had taken out these loans to make investments and that the Court should believe him, especially since he had always been scrupulous in paying his taxes. He also repeated that because time had elapsed, he was no longer able to provide proper and satisfactory documentary evidence.

[8]            The Court must render a decision on an issue where actions and their dates and nature are highly significant. I cannot draw valid conclusions on the basis of facts that are described in a vague and even confusing manner.

[9]            I am not saying that the appellant concealed certain facts or even the truth since I realize that it is very difficult to go so far back in time and provide specific details. Nonetheless, each year, every taxpayer must have in his possession the documents and information pertaining to his tax return. In a self-assessment system, it is essential that tax returns be prepared on the basis of a serious analysis of the material facts of the year in question and that all relevant documents be available for consultation.

[10]          A taxpayer cannot complete his return on the basis of certain information he does not have, relying on the fact that he was not questioned in previous years. While it is perfectly normal and fully desirable that there be continuity from year to year, each taxation year is a separate unit and must be supported by all proper and relevant documents in order that a valid review can be made.

[11]          In the case at bar, based on the evidence adduced by the appellant, it was not possible to make an objective and rational analysis from which it could be concluded that carrying charges to purchase investments were incurred for the 1995, 1996 and 1997 taxation years. I would have to rely on the testimonial evidence alone, which, in the circumstances, is obviously not the best evidence, especially since the interest paid could have resulted from loans that might have served many purposes other than to purchase one or more investments.

[12]          This is not the only issue that must be addressed to dispose of this appeal. In order for carrying charges to be deductible, it must be established that they were made or incurred for the purpose of gaining or producing income from a business or property during the taxation years for which they are claimed; in the case at bar, the years are 1995, 1996 and 1997.

[13]          The evidence shows that the property that was apparently purchased with the proceeds of the 1984 loan simply no longer existed in 1995, 1996 and 1997; something that no longer existed could obviously no longer produce income. This issue has been dealt with a number of times by this Court and there is no doubt whatsoever that carrying charges incurred to purchase a potential source of income can only be deducted if that source still exists at the time the deduction for those charges is claimed.

[14]          This is a fundamental point since property that no longer exists, has ceased to exist or has since disappeared cannot and never will be able to produce any income at all. It is worth reproducing subsection 20(1) of the Income Tax Act.

                Deductions permitted in computing income from business or property

20(1)        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:

                                                                                                                (Emphasis added.)

[15]          On this point, the appellant acknowledged that the property purchased with the proceeds of the 1984 loan no longer existed in 1995, 1996 and 1997.

[16]          With respect to the carrying charges that might have been incurred on the second loan, the evidence shows that the loan proceeds were not used to purchase any property or business that might potentially have produced income but to pay off the appellant's personal line of credit.

[17]          The burden of proof was on the appellant, and it could be discharged only with clear, consistent and credible evidence showing unequivocally that the carrying charges had been incurred to purchase property that might eventually produce income; to qualify for the deduction for carrying charges, the property or properties purchased for the purpose of producing income must still be included among the taxpayer's assets the year during which the taxpayer claims a deduction for them. The evidence adduced by the appellant established instead that the property that might have produced income no longer existed in the years at issue.

[18]          Having regard to the evidence, the appeals must be dismissed.

Signed at Ottawa, Canada, this 25th day of May 2001.

"Alain Tardif"

J.T.C.C.

Translation certified true on this 14^th day of November 2002.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

2000-3365(IT)I

BETWEEN:

BENOÎT BOULIANNE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on April 30, 2001, at Chicoutimi, Quebec, by

the Honourable Judge Alain Tardif

Appearances

For the Appellant:                                                                 The Appellant himself

Counsel for the Respondent:                              Stéphanie Côté

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1995, 1996, and 1997 taxation years are dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 25th day of May 2001.

"Alain Tardif"

J.T.C.C.

Translation certified true on this 14^th day of November 2002.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]