J Vincent Toolsie v. Minister of National Revenue, [1980] CTC 2239, 80 DTC 1209

The Chairman:—This is the appeal of Mr J Vincent Toolsie from income tax assessments in respect to the 1973, 1974 and 1975 taxation years.

By notices of assessment dated May 3, 1977, the respondent disallowed the following expenses:

In assessing the appellant for his 1973 taxation year the respondent disallowed the following expenses:

In assessing the appellant for his 1974 taxation year the respondent disallowed the following expenses:

In assessing the appellant for his 1975 taxation year the respondent disallowed the following expenses:

The assumptions on which the respondent based his assessments are:

In assessing the appellant for his 1973, 1974 and 1975 taxation years the respondent assumed that:

(a) with respect to the Appellant’s 1973 taxation year: the mortgage interest expense, bank loan interest expense, mortgage fee, and expense for office in personal residence were personal in nature and not expended for the purpose of producing income from a business or property;

(b) with respect to the Appellant’s 1974 taxation year, the mortgage interest expense, bank loan interest expense and expenses for office in personal residence were personal in nature and not expended for the purpose of producing income from a business or property;

(c) With respect to the property known as 147 Merner Avenue, Kitchener:

(i) the property was acquired for the purpose of trading or otherwise turning it to account by way of sale; and

(ii) the possibility of reselling the property was an operating motivation for the acquisition of the property; and

(iii) the profit realized by the Appellant on the sale of the property was income from a business or adventure in the nature of trade;

(d) with respect to the 1975 taxation year, the mortgage interest expense, and bank loan interest expense were personal in nature and not expended for the purpose of producing income from a business or property:

(e) with respect to the property known as 44 Walton Avenue, Kitchener:

(i) the property was acquired for the purpose of trading or otherwise turning it to account by way of sale; and

(ii) the possibility of reselling the property was an operating motivation for the acquisition of the property; and

(iii) the profit realized by the Appellant on the sale of the property was income from a business or adventure in the nature of trade.

The appellant submits:

1. That the mortgage claimed in each of the taxation years were paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property, and is deductible by virtue of paragraph 20(1)(c) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and does not come within the exclusion of paragraph 18(1)(a) of the Income Tax Act.

2. That the interest on bank loans in each of the taxation years is also deductible pursuant to paragraph 20(1)(c) because the interest was paid on borrowed money used for purpose of earning income from a business.

3. The mortgage fee of $375 is deductible since it was incurred in the 1974 taxation year in relation to a mortgage on property acquired by the appellant for the purpose of producing rental income.

4. The amounts of $368.93 and $250.90 claimed by the appellant in the 1974 and 1975 taxation years are deductible as office expenses in per-

sonal residence because they were incurred for the purpose of producing income from the taxpayer’s practice of law.

5. That the amount of $2,071 the balance of the capital gain on sale of the Merner Avenue property, should not be included in the appellant’s income for 1974 and that the amount of $8,516, the balance of capital gain on sale of 44 Walton Street property should not have been included in the appellant’s 1975 income.

The facts which are pertinent to the instant issues can be summarized by stating that the appellant was practising law in Kitchener, Ontario, during the pertinent taxation years. He also held interests in R J T Holdings, Inc, and Vinsina Construction Co, Ltd, both incorporated in 1972 and both dealing in real estate.

The real estate transactions in which the appellant participated personally are found in Schedule 1(a) of Exhibit A-1:

J VINCENT TOOLSIE

Schedule 1(a)

HISTORY OF PROPERTIES PURCHASED

FROM 1955 TO PRESENT

	Date Purchased	Date Disposed Of
1. 1961 to 1964—Personal residence-
83 Hickory Street, Waterloo	1961	August 1, 1964
2. St Jacobs	March 31, 1969
3. 139 Meaford Drive, Waterloo	July 8, 1969	March 15, 1972
4. 19 Furness Drive, Kitchener	April 17, 1970	March 15, 1972
5. 44 Walton Avenue, Kitchener	March 15, 1972	May 31, 1974
6. Louisa Street, Kitchener	September 15, 1971	March 15, 1972
7. 194 Stirling	June 30, 1972
8. 147 Merner Avenue, Kitchener	June 1, 1973	June 8, 1973
	(offer—April 23, 1973)
	April, 1970
9. Holiday Beach—120 acres sold		September 15, 1971

80 acres retained

At the hearing the appellant discussed at length and in detail the various items which were the subject matter of the respondent’s reassessment. He contended that the Minister was wrong in assuming that the amounts which the appellant had borrowed had been used to finance the purchase of his private dwelling, and that the Minister’s conclusion that the interest expenses could not legally be deducted from the appellant’s income was equally wrong.

The appellant seemed to underestimate what was required of him in order to be successful in refuting the Minister’s assumptions. The appellant Simply denied the Minister’s allegation without producing proper evidence of the source and the application of the borrowed funds. Without the information the Board simply cannot conclude how and where the borrowed funds were used. It was counsel’s contention that the evidence given by the appellant was credible and should be accepted by the Board.

The Board gives the credibility of witnesses due consideration. However when the personal testimony of an appellant comes in conflict with the Minister’s allegations which are based on plausible grounds, the Board must have supporting evidence of the appellant’s word in order to conclude that the appellant has effectively refuted the Minister’s allegation and has succeeded in satisfying the onus which is on him. This the appellant failed to do. He did not submit to the Board any hard evidence which might have proven the Minister’s assumptions wrong.

The same is true of the nature of the profits the appellant made on the disposal of real properties in the Kitchener area. The appellant had been involved in several real estate transactions and was a director and shareholder of two real estate companies. There are indications in the evidence that the appellant had intended to dispose of the properties soon after their acquisition and the fact is that the properties were held but for a very short time after their acquisition. No valid evidence was adduced to support the appellant’s declared intention that the subject properties were acquired for the purpose of producing rental income.

On the basis of the evidence given by the appellant, I am satisfied that the appellant did maintain an office in his residence for the purpose of carrying on his legal practice and that the amounts of $368.93 and $250.90 claimed by him in the 1973 and 1974 taxation years appear to me to be reasonable expenses.

For these reasons the appeal is allowed and referred back to the Minister for reassessment and variation on the basis that the amounts of $368.93 and $250.90 claimed by the appellant in 1973 and 1974 respectively as expenses for maintaining an office in his residence were in fact incurred and are deductible. In all other respects the appeal is dismissed.

Appeal allowed in part.