Citation: 2009 TCC 602
Date: 20091127
Docket: 2008-3297(IT)I
BETWEEN:
DILYS MASSICOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
This informal appeal
concerns the denial of two specific categories of expenses claimed by the
appellant in computing her rental losses in 2004 and 2005. The larger of the
two expense categories involves amounts paid to her two sons for maintenance and
repair work. The other disputed amount involves her automobile expenses.
[2]
Ms. Massicotte and
her brother are co-owners of a two-storey Toronto semi‑detached home. It
had originally been their parents’ home decades earlier and then became the
home she and her family shared with her brother and his family. In 1991 Ms. Massicotte
and her brother moved out and converted it into a rental property. They had an
apartment unit built in the basement that could be rented out separately from
the main home. Ms. Massicotte and her brother carry on the rental property
venture jointly as 50:50 co-owners.
[3]
This property was
Ms. Massicotte’s only rental activity in the years in question. She was a
joint registered owner with her husband of another rental property but her
husband solely accounted for all of that property’s rental activity, income or
loss. Her brother also may have independently owned other rental properties.
[4]
Since 1991 Ms. Massicotte’s
rental property has produced losses in most years. In some years it produced
modest profits. Ms. Massicotte and her brother continued to hold the
property nonetheless because they believed the house was appreciating
significantly in value during the period. They have recently listed the
property for sale.
I. Payments to Sons
[5]
Ms. Massicotte’s
two sons were young teenagers in the two years in question. Her evidence is
they were each paid $7,500 each year for garbage removal, lawn cutting, snow
removal, clean-up and repainting of the units between tenants, helping with
floor refinishing, and other similar minor repairs and maintenance.
[6]
The amount was based on
paying each son $12 per hour for 13 hours of work each weekend.
[7]
The $15,000 paid to the
sons each year exceeded the gross rents received each year. The rental losses
from the total property claimed by Ms. Massicotte and her brother exceeded
$15,000 in each of the years in question.
[8]
The amounts paid to the
boys was in part deposited into a Registered Education Savings Plan (“RESP”) for
their benefit for which there are supporting RESP statements of account, which
show approximately $100 per month being invested in the RESP. Part was used to
pay directly for things such as school trips, hockey enrolment fees and hockey
equipment. There is supporting evidence that one son attended a school trip at
a cost of $380. Ms. Massicotte said the balance was paid to her sons in
cash, generally on a weekly basis. The boys spent the cash on things teenaged
boys are wont to do such as video games and gaming systems. There is no other
corroborating evidence, except for lump sum receipts for services rendered for
$7,500 for each year from each son. No detailed or contemporaneous record of
days and times worked nor work performed was maintained. Her sons, now 19 and
17, did not testify.
[9]
With the exception of
the occasional long weekend, the boys only worked at the property on weekends
and not on weekdays. It appears they did not work there on weekdays, including during
school breaks or summer vacation. Ms. Massicotte acknowledged the boys did
not work 13 hours each and every weekend, especially during hockey season, that
they did not go on weekends if an occasion such as a birthday was being celebrated
and that they only worked most Sundays in those years not every Sunday.
However, she believes they largely made up for the lost time on other weekends.
[10]
There were problems
with some tenants. The City issued infraction notices regarding the property’s
lawns not being cut and there being garbage and non‑working automobiles
on the property. These are in evidence. In addition Ms. Massicotte said
there were similar infractions regarding the non-removal of snow from
sidewalks. As a result the boys regularly mowed the lawns and removed garbage
and debris on the weekends. If snow had accumulated during the week they would
also shovel the sidewalk. I accept that this work was done by the boys but note
that the lot is only 25 feet wide and 136 feet deep and that, in addition to
the three-bedroom home, there is a detached garage on the property.
[11]
I do not accept on the
evidence before me that snow removal, lawn cutting and regular vehicle garbage
removal accounted for but a modest fraction of the 26 hours allegedly
worked each weekend at the property.
[12]
In 2004 the main tenant
was evicted and left seemingly all of her possessions in the home in a state of
some disrepair. This required removal with dumpsters of the contents as well as
a number of trips with a trailer to the dump. Extensive cleaning, repairing and
refinishing of floors were needed along with repairs to bathroom damage. The
boys assisted with much of this work in 2004 although, aged 12 and 14, they
were unable to drive or to operate the floor sander.
[13]
There was no comparable
work surge in 2005 although some clean-up and refinishing had to be attended to
between tenants following a further eviction that year as well.
[14]
Ms. Massicotte
said the 13 hours per week included return travel time to the property from
their home. The distance was approximately 30 to 35 kilometres each way
and Ms. Massicotte or her husband did the driving.
[15]
It is certainly
permitted to employ one’s teenaged sons and to pay them a reasonable amount for
work done by them. Garbage removal, lawn maintenance, snow removal and help
with painting are all suitable for boys the ages of Ms. Massicotte’s sons.
It is also not clear to me that the rate of $12 an hour is unreasonable though
it is surely at least at the upper end of reasonable for a 12-year old in 2004.
I also question if, at that rate, paid local travel time to work was
reasonable.
[16]
I find that the
taxpayer’s evidence falls far short of satisfying me that her sons worked as
many hours as she claimed to have paid them for over the two-year period. The
amount claimed worked out to just over 12 hours each weekend of the year for
each son. Since they did not work weekdays, many Sundays, hockey tournament
weekends or on special occasion weekends, I am not satisfied that they actually
worked this much. Further, given the evidence in this case, while I am
satisfied the boys did valuable work at the property over the years in
question, I am not satisfied that the work for which they were responsible
would have involved 1,250 hours between the two of them each year.
[17]
On the evidence in this
case I am satisfied that each son provided valuable services to their mother
and uncle who owned the rental property venture. It would be unrealistic to
conclude that they did not. I do not accept that they worked as much as
Ms. Massicotte claimed nor do I accept that the value of their services
was as high as the $15,000 annual amount claimed. I find that the value of the
work performed by each son each year was $500.
[18]
The evidence in this
case is also unable to support a finding that each son was paid $7,500 each
year. To the extent that they were paid anymore than $500 each per year, I find
that the excess was paid to the children by their mother or their mother and
father as an allowance or other payment for, or of, personal expenses. (There
was no evidence that the co-owner uncle bore 50% of these amounts.)
II. Automobile Expenses
[19]
Ms. Massicotte
claimed a deduction for automobile expenses each year. The expenses on which
the deduction was based were backed up with appropriate supporting
documentation. However, the log in evidence used to allocate the expenses
between business and personal use records approximately 9,000 kilometres
driven in 2004 with respect to the one rental property and approximately
7,500 kilometres in 2005. The rental property was no more than 35 kilometres
from her home. Her log did not record the purpose or destination of any trip.
She acknowledged her log included trips she made to her husband’s rental
property and did not relate to the property in question. She acknowledged that
for days she went to the property after work she logged the entire day’s travel
even though she normally drove to work. In some cases these last two approaches
may be reasonable. In this case however, I cannot begin to comprehend how her
one‑half interest in one rental property reasonably required the
equivalent of more than two round trips from her home to the property each week
of each year.
[20]
The Canada Revenue
Agency had allowed motor vehicle expenses of $260 each year which I understand
was based on $10 bi-weekly. At trial the respondent was prepared to concede
additional amounts of $832 for 2004 and $1,044 for 2005 (being approximately
50% of the amounts claimed remaining in dispute.) Based upon the evidence in
this case I am not satisfied that any amounts beyond those have been established
as business-related automobile expenses.
[21]
I am allowing the
taxpayer’s appeal in part and ordering the Minister of National Revenue to
reconsider and reassess on the basis only that:
(i)
each of the appellant’s
two sons provided and was paid for $500 of services in each of 2004 and 2005;
(ii)
an additional $832 of
automobile expenses is deductible in computing the rental venture’s net loss in
2004; and
(iii)
an additional $1,044 of
automobile expenses is deductible in computing the rental venture’s loss in 2005.
Signed at Ottawa, Canada, this 30th day of November 2009.
"Patrick Boyle"
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