Citation: 2013 TCC 250
Date: 20130808
Docket: 2011-3160(IT)G
BETWEEN:
DENIS GÉLINAS,
Appellant,
and
HER MAJESTY THE QUEEN
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
[1]
The Appellant is
appealing from an assessment established for the 2009 taxation year.
[2]
There is no
disagreement as to the facts. The disagreement relates to the computation of
the alternative minimum tax and, specifically, to whether, in computing the minimum
tax, $338,300 must be added to the taxable income, as this is the amount of a
loss incurred in 2008.
[3]
The appellant holds
several rental properties and the parties agree that the table at paragraph 11 of Annex A of the reply to the Notice of
Appeal reflects all the income and expenditures for these rental properties for
the period of 2006 to 2008 inclusive.
[4]
Six important facts
should be noted:
a) In 2008, the appellant
had a rental loss of $469,975.
b) The other years saw a net
income varying from approximately $1,000 to $240,000.
c) In 2008, the appellant
had an exceptional expenditure of nearly $900,000 to keep a client.
d) There is no dispute
that there were no other expenditures comparable to the $900,000 in the period from
2006 to 2010.
e) There was one interest
expenditure of $1,073,792 in 2008.
f) In the other years of
the period, the interest expenditures varied from approximately $954,000 to
$1,113,000.
[5]
Yvon Renaud, an accountant,
testified and explained that he prepared the appellant’s income tax returns. He
used very sophisticated commercial software to prepare the appellant’s returns.
[6]
When he computed the
minimum tax, the question was raised as to whether to include an amount to line
41 of form T691, which is used to calculate the alternative minimum tax. On
line 41, the relevant parts of the text are as follows:
[translation]
If
you have requested an amount on line 251 or 252 of your 2009 return for a loss
incurred in another year, indicate which part of this loss can be attributed to
limited partnership losses and/or the CCA or carrying charges requested for … rental properties … . (Note
6)
[7]
Note 6 is at the end of
the form and the relevant parts are the following:
[translation]
Note
6 — Compute the losses as partnership losses … and
the losses other than capital losses from other years attributable … to carrying
charges using the rules for the year. Please contact us if you require
assistance.
[8]
Line 252 (“losses other
than capital losses from other years”) from the appellant’s T1 form for 2009, shows
an amount of $338,300.
[9]
Mr. Renaud concluded
that this loss of $338,300, which came from the loss incurred in 2008, was not attributable
to carrying charges or the interest, because, in other years from 2006 to 2010,
there were no losses despite more or less comparable carrying charges. According
to the appellant, the loss resulted from the exceptional expenditure of $900,000
in 2008. Therefore, he did not add the $338,300.
[10]
The appellant claimed
that this was the correct approach and, thus, that the appeal should be allowed.
In the Minister’s view, however, this amount should be added.
[11]
Given the text at line
41 of form T691, I understand Mr. Renaud’s reasoning with respect to the attribution
of the loss, but I must apply the provisions of the Income Tax Act (ITA).
[12]
The relevant provisions
are section E.1 of Part I of the ITA and paragraph 20(1)(c) of the ITA.
[13]
Since interest is generally
a capital expenditure, it is only deductible under paragraph 20(1)(c)
of the ITA.
[14]
I reproduce below the applicable
provisions of section E.1. For ease of reading, I have removed the parts that
do not apply.
127.51 An individual’s minimum
amount for a taxation year is the amount determined by the formula:
A(B -
C) - D
where
A is the appropriate percentage for
the year;
B is the individual’s adjusted
taxable income for the year determined under section 127.52;
C is the individual’s basic
exemption for the year determined under section 127.53; and
D is the individual’s basic
minimum tax credit for the year determined under section 127.531.
…
127.52(1) …,an individual’s
adjusted taxable income for a taxation year is the amount that would be the
individual’s taxable income for the year … if it were computed on the
assumption that
(a) …
(b) the total of all
amounts each of which is an amount deductible under paragraph 20(1)(a)
or any of paragraphs 20(1)(c) to 20(1)(f) in computing the
individual’s income for the year in respect of a rental or leasing property …
were the lesser of the total of all amounts otherwise so deductible and the
amount, if any, by which the total of
(i) the total of all
amounts each of which is the individual’s income for the year from the renting
or leasing of a rental or leasing property owned by the individual … computed
without reference to paragraphs 20(1)(a) and 20(1)(c) to 20(1)(f),
and
…
exceeds
the total of all amounts each of which is the individual’s loss for the year
from the renting or leasing of a rental or leasing property owned by the
individual … computed without reference to paragraphs 20(1)(a) and
20(1)(c) to 20(1)(f);
…
(i) in computing the
individual’s taxable income for the year or the individual’s taxable income … the
only amounts deductible under
(i) paragraphs 111(1)(a),
111(1)(c), 111(1)(d) and 111(1)(e) were the lesser of
…
(B) the total of all
amounts that would be deductible under those paragraphs for the year if … paragraphs
(b) … of this subsection … applied in computing the individual’s
non-capital loss …
…
[15]
The issue here concerns
the computation of the taxable income amended within the meaning of section
127.51(B) above.
[16]
The effect of paragraph
127.52(1)(b) is to limit, among other things, the amounts deducted for the
amortization and for the interest paid. For the computation of the amended taxable
income, the total of the deductible amounts subject to paragraph 127.52(1)(b)
is limited in such a way that the total deductible for these amounts des not create
a loss. For example, if there is an interest expenditure of $100,000 and there
is a further loss of $40,000 for the purposes of the minimum tax, the deduction
of interest will be limited to $60,000 so that the income drawn from the rental
property is set at $0. The provision does not require that the amortization or
the interest is the cause of the loss.
[17]
Furthermore, if we review
the appellant’s T1 form for 2008,
we see that this is exactly what occurred. At line 126 of the return, we see
that for all the rental properties there was one rental loss of nearly $470,000.
In form T691, at lines 5 to 7, we see that there was a deduction of interest of
nearly $1,073,000 and that for the purpose of the computation of the amended taxable
income, the deduction of interest was decreased by approximately $470,000 and
income was increased by the same amount for the purposes of the alternative
minimum tax.
[18]
As for the year under appeal,
paragraph 127.52(1)(i) applies. This paragraph means that when the
losses of other years are taken into account in the computation of the amended taxable
income, paragraph 127.52(1)(b) must be applied to the computation of losses
in these previous years.
[19]
The loss of $338,300 at
line 252 of the appellant’s T1 form for 2009 was incurred in 2008. This loss
would not have been incurred without the deduction of interest. Thus, $338,300
must be added in computing the amended taxable income for 2009 for the purposes
of the alternative minimum tax.
[20]
For these reasons, the appeal
is dismissed with costs.
[21]
I note that, depending
on the circumstances, the appellant may recover his minimum tax in other taxation
years.
Signed at Ottawa, Ontario, this 8th day of August, 2013.
“Gaston Jorré”
Translation
certified true
on this 11th day
of February 2014.
François Brunet,
Revisor
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