Roland
St-Onge:—The
appeal
of
Mr
Manfred
Holmann
came
before
me
on
December
11,
1978,
at
the
City
of
Vancouver,
British
Columbia,
and
it
is
with
respect
to
interest
expenses
which
the
appellant
claimed
in
his
1976
taxation
year.
The
facts
of
this
appeal
are
well
spelled
out
in
paragraph
3
of
the
Reply
to
the
Notice
of
Appeal
and
I
quote:
3.
In
so
reassessing
the
appellant,
the
respondent
assumed,
inter
alia,
that:
(a)
in
1976
the
appellant
converted
the
Hamilton
Street
property
from
his
principal
residence
to
a
rental
property;
(b)
the
appellant
mortgaged
the
Hamilton
Street
property
for
$48,000
and
used
the
proceeds
to
acquire
a
vacant
lot
of
10666
Salisbury
Drive,
Surrey,
British
Columbia
and
construct
(s/c)
thereon
a
new
principal
residence;
(c)
the
$48,000
borrowed
by
the
appellant
was
used
to
acquire
a
new
principal
residence
and
not
used
for
the
purpose
of
earning
income
from
a
business
or
property.
Mr
David
Ingram,
a
tax
consultant
representing
the
appellant,
admitted
the
above-mentioned
allegations
in
the
said
paragraph
but
argued
that
the
$48,000
was
borrowed
to
keep
the
rental
property
that
he
had
succeeded
in
establishing;
that
although
the
money
was
used
to
acquire
a
vacant
lot
and
construct
thereon
the
appellant’s
new
principal
residence,
the
appellant’s
intention
was
to
borrow
the
money
in
order
to
keep
the
rental
property
which
would
earn
both
current
rental
income
and
in
future
a
taxable
capital
gain;
that
the
appellant,
by
not
selling
the
rental
house
to
have
cash
to
buy
a
new
home,
would
save
some
$2000
in
legal
and
mortgage
fees.
According
to
Mr
Ingram,
the
intention
to
borrow
money
to
keep
a
rental
house
was
well
established
by
the
appellant
and,
for
this
reason,
the
appeal
should
be
allowed.
Counsel
for
the
respondent
argued
that
the
Board
should
not
examine
what
the
appellant
could
have
done
with
the
money
but
what
he
did;
that
the
borrowed
money
was
used
to
acquire
a
new
home
and
not
to
earn
income
from
a
business
or
property
within
the
meaning
of
subparagraph
20(1
)(c)(i)
of
the
Income
Tax
Act,
and
that
consequently
the
interest
charges
were
purely
personal
or
living
expenses
and,
as
such,
not
deductible.
According
to
the
evidence
adduced,
it
is
quite
obvious
that
the
borrowed
money
was
used
to
acquire
a
new
home
and
not
a
rental
property
since
the
appellant
already
had
that
property.
Even
if
at
first
sight
the
appellant’s
argument
seemed
logical,
the
Board
should
not
forget
the
main
principles
in
income
tax,
one
of
them
being
that
the
exempting
provision
of
a
taxing
Act
must
be
construed
strictly.
Taxation
is
the
rule
and
exemption
the
exception.
(See
W
A
Sheaffer
Pen
Company
of
Canada
Limited
v
MNR,
[1953]
CTC
345;
53
DTC
1223.)
In
the
case
at
bar,
the
exemption
provision
of
subparagraph
20(1)(c)(i)
of
the
Act
says:
(c)
Interest—an
amount
paid
in
the
year
or
payable
in
respect
of
the
year
(depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
income),
pursuant
to
a
legal
obligation
to
pay
interest
on
(i)
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
(other
than
borrowed
money
used
to
acquire
property
the
income
from
which
would
be
exempt
or
to
acquire
a
life
insurance
policy).
As
may
be
seen,
the
borrowed
money
was
not
used
for
the
purchase
of
a
rental
property
but
for
the
acquisition
of
a
new
principal
residence.
It
follows
that
the
appellant,
in
order
to
be
able
to
deduct
the
interest
charges
on
borrowed
money,
must
fall
squarely
within
the
four
corners
of
the
Act.
This
he
has
failed
to
do.
Furthermore,
the
interest
charges
were
personal
or
living
expenses
and,
as
such,
were
not
deductible
because
the
borrowed
money
was
used
for
the
acquisition
of
a
new
residence.
For
this
reason,
the
appeal
is
dismissed.
Appeal
dismissed.
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