Kempo
J.T.C.C.
(orally):—
These
informal
procedure
appeals
of
Sherilynn
Solnicka
and
Karel
Solnicka
were,
on
consent
application,
joined
and
heard
on
common
evidence.
This
was
appropriate
as
all
of
the
issues
arose
out
of
a
residential
rental
property
owned
by
both
Mr.
and
Mrs.
Solnicka.
Her
appeal
concerned
the
1989
taxation
year
whereas
his
concerned
both
1989
and
1990.
Only
Mr.
Solnicka
testified
regarding
these
appeals,
he
said
he
had
his
wife's
authority
to
appear
for
her
and
that
his
evidence
would
apply
in
her
case.
The
rental
property
was
built
and
rented
for
approximately
18
to
20
months
commencing
November
1,
1986
at
$700
per
month
to
a
priest
of
the
local
Baptist
Church.
Mr.
Solnicka
said
he
was
having
difficulty
in
obtaining
accounting
documents
as
his
wife
had
been
doing
all
of
the
bookkeeping
matters
and
that
there
had
been
severe
marital
difficulties
between
them
for
the
last
several
years.
Once
the
Baptist
Church
minister
had
vacated
the
premises
during
the
late
spring
of
1988,
the
appellants
attempted
to
rent
the
property
through
ads
placed
in
two
of
the
largest
newspapers
in
the
vicinity,
by
notices
placed
in
local
grocery
stores
and
by
putting
a
for
rent
sign
on
the
front
yard.
Having
met
with
no
success,
the
appellants
decided
to
sell
as
the
bank
interest
rate
had
gone
up
and
they
could
not
afford
the
financial
burden
of
carrying
an
empty
house.
It
was
listed
for
sale
in
the
early
fall
of
1989
and
was
sold
in
November
of
1989.
There
are
three
issues
in
these
appeals.
The
first
concerned
a
claimed
loss
for
1989
respecting
rental
expenses
incurred
as
there
was
no
rental
revenue
at
all
for
that
year.
In
my
view
the
subject
property,
from
the
outset
and
until
its
sale,
was
a
rental
property
and
nothing
else.
While
active
rental
activity
may
have
finally
ceased
when
the
house
was
listed
for
sale,
up
to
then
sincere
efforts
were
being
made.
I
find
that
the
rental
operations
ceased
by
September
1,
1989
and
therefore
any
claimed
expenditures
thereafter
for
property
taxes,
utilities
and
interest,
being
expenses
associated
with
the
ownership
of
the
property,
were
capital
outlays
for
its
maintenance
with
a
view
to
its
sale.
A
problem
which
arose
was
Mr.
Solnicka's
inability
to
establish
the
accuracy
of
the
1989
rental
expenditures.
He
said
he
could
not
find
any
supportive
documents
except
for
the
mortgage
papers.
This
obviously
presents
problems
as
the
expense
amounts,
as
claimed,
may
well
be
too
high.
In
my
view
this
situation
calls
for
the
application
of
common
sense
in
that
simple
justice
requires
recognition
of
reasonable
amounts
for
the
eight
month
period
January
1
to
August
31
of
1989.
In
this
respect
the
evidence
justifies
allowing
$4,400
(i.e.
$550
per
month)
for
interest
payments,
and
$800
(i.e.,
$100
per
month)
for
property
taxes,
insurance
and
utilities.
While
these
amounts
may
in
themselves
be
somewhat
arbitrary,
the
matter
should
be
brought
to
finality.
Therefore
the
total
loss
allowable
with
respect
to
the
rental
operation
itself
for
1989
is
$5,200
which
is
to
be
shared
equally
between
the
two
appellants.
The
second
issue
concerns
a
claimed
terminal
loss
respecting
the
sale
of
the
property.
Mr.
Solnicka
very
frankly
admitted
he
was
unable
to
verify
either
the
cost
of
the
land
or
anything
beyond
the
$37,464.43
in
building
expenses
provided
to
Revenue
Canada’s
auditor.
He
said
he
believed
all
of
the
$58,000
in
Royal
Bank
mortgage
funds
had
gone
into
house
construction,
but
was
uncertain.
The
house
was
built
by
himself
and
his
son
on
nights
and
weekends
in
1986.
Mr.
Solnicka
is
a
housebuilaer
by
trade
through
his
incorporated
company.
He
thinks
the
subject
lot
was
acquired
some
years
earlier
at
the
time
his
company
had
acquired
other
lots
in
the
area,
but
he
could
not
say
if
the
one
in
issue
had
been
one
of
them.
In
filing
of
their
tax
returns
the
appellants
valued
the
lot
at
$20,000
and
claimed
a
terminal
loss
arising
on
the
sale
of
the
rental
property.
The
sale
price
was
$88,000
less
a
$5,500
deficiency
regarding
the
septic’tank.
Taking
the
evidence
on
the
second
issue
as
a
whole
Mr.
Solnicka,
regrettably,
failed
to
establish
that
the
adjusted
cost
base
of
the
rental
property
had
in
any
way
exceeded
his
net
proceeds
of
disposition
arising
from
the
sale
of
this
house.
Therefore
there
is
no
relief
available
to
Mr.
or
Mrs.
Solnicka
respecting
any
amount
for
a
purported
terminal
loss
arising
in
1989
out
of
the
disposition
of
the
rental
property,
and
Mr.
Solnicka's
appeal
for
1990
(the
third
issue
in
these
appeals)
fails
because
there
is
no
terminal
loss
arising
from
that
sale
to
carry
forward
into
that
year.
In
conclusion
then
the
appeals
for
1989
are
allowed,
without
costs,
and
the
matters
are
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
and
on
the
basis
that
each
of
the
appellants
are
entitled
to
a
deduction
of
$2,600
for
rental
losses
pursuant
to
paragraph
18(1
)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
appeal
of
Mr.
Solnicka
for
1990
is
dismissed.
Appeal
dismissed.
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