Claude Bernard v. Minister of National Revenue, [1985] 2 CTC 2144

Cardin, TCJ [TRANSLATION]:—In his tax returns for the 1977, 1978 and 1979 taxation years, Claude Bernard claimed deductions of $19,756.36, $23,164.47 and $15,765.25 respectively as business expenses.

In a notice of assessment, dated June 22, 1983, the Minister of National Revenue reduced the expenses claimed by disallowing the amounts of $1,550, $1,485 and $725 which represented travelling expenses for each of the years in question. In addition, the appellant claimed $138.78 as representation expenses in 1977 and $90 in 1978 as the cost of promoting the sale of a property.

Summary of Facts

During the 1977, 1978 and 1979 taxation years, the appellant lived in Quebec and was employed full-time by the Government of Quebec. In 1976, the appellant bought a rooming house on St Hubert Street in Montreal, which he sold in 1979.

The property had three storeys and 20 rooms, and included a four and one-half room apartment and two garages. There was a common kitchen on each floor. Regular maintenance was carried out by a janitor.

Neither the appellant nor the janitor performed any services beyond those which a tenant would normally expect from a landlord.

According to the appellant's tax returns and his notice of appeal, he undertook extensive renovations on his St Hubert Street property in 1977,1978 and 1979. These expenses were allowed by the respondent. A brief calculation shows that expenses relating to the improvement of this property amounting approximately to $18,000, $22,000 and $15,000 were allowed for each of the years in question.

The respondent acknowledged that the appellant’s St Hubert Street house was an income-producing property and that the appellant had invested in it with a view to earning income from it . . . but it was income from property, not from business.

Counsel for the respondent quoted several decisions showing how the courts have distinguished between income from property and income from business. The distinction is sometimes rather blurred and hard to make, but one way of approaching it is to look at the number and nature of services rendered by the taxpayer. In this case, the services performed by the appellant for the tenants consisted mainly in providing rooms in a building that he maintained with the result that the income was generated by the property itself and not by any special services rendered by the landlord.

When a landlord offers his tenants services in addition to lodging such as those that might be provided to clients in a hotel or even in an establishment offering room and board, such income may be business income, and the expenses are often deductible. However, the expenses claimed by the appellant do not fall in that category.

In the case at bar, the evidence is clear that the appellant's income derived from property and not business. The cost for the appellant of travel- ling between Quebec and Montreal to supervise work on his property or collect his rents are not expenses made for the purpose of earning income from property within the meaning of paragraph 18(1 )(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which must be interpreted narrowly. Even if it were income from business, the costs of travel between Quebec and Montreal would not be deductible, just as personal expenses are not deductible under paragraph 18(1)(a) of the Act.

Counsel for the respondent thought that the representation expense of $138.78 in 1977 in connection with the appellant’s property was deductible. However, the $90 spent in 1978 in promoting the sale of that property could not be allowed, since this expense was of a capital nature.

The appeal is allowed and the whole referred back to the Minister for reconsideration and reassessment taking into account that the representation expenses of $138.78 in 1977 are deductible. In all other respects, the appeal is dismissed.

Appeal allowed in part.