DiCaita – Tax Court of Canada allows reconditioning of rental unit as deductible expense
A condo unit, which the taxpayer had been renting-out for many years, was vacated by the current tenant and ceased to be rentable at a reasonable rent as a result of extensive remediation to the exterior of the building that was commissioned by the condo board. The taxpayer used this as an opportunity to attend (at the beginning of 2012) to long overdue repairs to recondition the unit’s interior, which cost about 5% of the FMV of the unit. After this work, the taxpayer increased the rent by almost 50%, and was ultimately able to rent it out (at the end of 2012) at the increased rent.
In rejecting the Crown’s submission that the repair expenditures were not deductible because the unit was not rented out during that year, Masse DJ noted (at para. 23) that “a property does not need to be generating income at every stage of operation in order to be considered a source of income.” Turning to the Crown’s less frivolous argument that the repairs were capital expenditures, he stated (at para. 50):
… The repairs effected by the Appellant did not result in the creation of a different capital asset than what was there before. … They were meant to bring the property to the state that it previously was. There was no material changes to the physical structure, the layout or functionality of the unit. The expenditures were modest compared to the value of the property.
The taxpayer also had a rental property in Phoenix. He and his spouse flew down to Las Vegas on a vacation, but he then rented a car so that he could drive down to Phoenix (accompanied by his spouse) so that he could attend to issues regarding the rental unit – then they flew directly from Phoenix back home (in Vancouver). CRA allowed only the car rental expense. Masse DJ also allowed the cost of air fare of the taxpayer (but not his spouse) back to Vancouver as a deduction.
Neal Armstrong. Summaries of DiCaita v. The Queen, 2021 TCC 5 under s. 18(1)(a) – income –producing purpose, s. 18(1)(b) – capital expenditure v. expense – improvements v. repairs, s. 3(a) - business source and s. 18(12).