Giulio Ravasi v. Minister of National Revenue, [1979] CTC 2808

The Chairman [TRANSLATION]:—This is an appeal by Mr Giulio Ravasi from income tax assessments dated April 20, 1976, in which the Minister of National Revenue claimed tax amounting to $2,187.45, that is 15% of $14,583 paid or credited to a non-resident in 1971, and the sum of $3,750, that is 15% of $25,000 paid or credited to a non-resident in 1972, for interest. Additional, for the 1972 taxation year, the Minister claimed tax of $15,464.71, that is 15% of $103,098.10 paid or credited to a non-resident in 1972, and tax of $38,032.98, that is 15% of $253,553.22 paid or credited to a non-resident in 1973, as rental, in accordance with paragraph 106(1)(b), sections 109 and 123 of the Income Tax Act, RSC 1952, c 148, for the 1971 taxation year, and paragraphs 212(1)(b) and 212(1 )(d), sections 216, 227 and 248 of the Income Tax Act, SC 1970-71-72, c 63, as amended. Interest in the amount of 6% was charged on the unpaid taxes.

Facts

The appellant is a businessman residing in Milan, Italy, and owns personally or through companies several apartment buildings in various countries around the world. On May 19, 1971 the appellant purchased from Central Holdings Corp a property located at 2175 De Maisonneuve Blvd West, in Montreal, for the sum of $2,150,000, and took possession of it on May 31, 1971 (Exhibit A-4). On the same day, by contract (Exhibit A-1), the appellant made Central Holdings Corp responsible for managing the building for a period running from May 31, 1971 to June 30, 1972. By this contract Central Holdings Corp guaranteed the appellant a net income equivalent to 10% of the initial payment and the payments to be made by the appellant according to the terms of the contract of purchase; Central Holdings Corp became the owner of any net income from the property beyond 10% of the amounts invested by the appellant, while Central Holdings Corp was responsible for management.

The appellant, who had to testify through an interpreter, stated that the building had not been completed at the time of purchase, and that refrigerators and stoves had to be purchased and certain repairs made to the structure. As manager, Central Holdings Corp collected rent and paid expenses incurred, taxes and the salaries of four or five employees, and according to the appellant’s testimony never paid him the amounts he had been guaranteed. He further stated that these amounts were assumed to have been used by Central Holdings Corp to make expenditures necessary on the buildings, and he alleged that the had to invest in addition to the purchase price of $2,150,000 a further sum of $700,000 in expenses of all kinds. It appeared that no financial statement of the building’s operations was received by the appellant from Central Holdings Corp, and that when it ceased management the appellant did not realize the irregularities which were allegedly committed in the management of the building.

After the Central Holdings Corp management contract had been terminated, the appellant hired Mr Joseph Ottomano as manager of the building.

On June 20, 1972 (Exhibit A-2), an estimate of repairs necessary to the building totalled $35,428, which the appellant alleged he had to provide to make repairs. However, in 1973 Mr Ottomano disappeared, taking with him a considerable sum belonging to the appellant.

The appellant called Mr Milgalo Michaly, a chartered accountant residing in Italy, who had prepared two income and expenditure statements for the appellant’s property during the periods ending August 31, 1973 and August 31, 1974 (Exhibit A-5). Counsel for the respondent properly objected to the introduction of these statements, on the grounds that as the accountant, Mr Michaly, had received no report on the building’s operation, he could not testify as to the accuracy of the figures. Mr Michaly in fact stated that it was a vague estimate of the operation. Even in such unhappy circumstances, the Board cannot take into account figures which were apparently obtained at random. The appellant must show that the amounts used by the respondent in this assessment are incorrect, and he was unable to do so.

Issue

The question is whether the appellant, a non-resident, was carrying on a business in Canada.

Although the appellant was perhaps unlucky in his choice of the managers whom he hired to administer his property, the fact remains that the evidence clearly showed that the appellant, a non-resident who personally owned a building in Montreal, invested in an apartment building in order to obtain rental income. The services offered in the building were exclusively those which tenants in a modern apartment building could expect. The courts and the Board have always maintained a clear distinction between the special services rendered by a rental business and the normal and necessary services pertaining to rental or apartments in a building. Although the evidence that the appellant owned several buildings in other countries around the world was conclusive, in my opinion that does not in any way alter the nature of the appellant’s investment in Montreal.

Of the case law cited at the hearing, the facts in Louis de Villard v MNR, [1978] CTC 2044; 78 DTC 1047, are in my view identical to those of the case now before the Board. In De Villard (supra), my learned colleague Mr Tremblay, after meticulously considering the distinction which must be made between business income and income from property, dismissed Mr De Villard’s appeal. I concur in the reasoning of my learned colleague in the case cited, and I must conclude a fortiori that the amounts which were credited to the appellant during the 1971, 1972 and 1973 taxation years derived from property and not from a business. The fact that the managers in charge of the appellant’s property were incompetent does not in any way alter the nature of the income from his building. The amounts of interest to which the appellant was entitled under the contract were, according to the evidence, reinvested in the building as additional capital, and the losses which may well have been incurred in operating the building are not business operating losses, but losses on capital property.

However, that is not the point at issue in the case at bar. The question here is whether the appellant was required to remit 15% of the interest and the rental from the building paid or credited to the appellant.

As I have found that the appellant, a non-resident, was not carrying on a business in Canada, and that the interest and rental received derived from property, paragraph 2(3)(b) of the Income Tax Act for the relevant years does not apply. The Minister of National Revenue therefore did not err in applying Part XIII of the Act to the facts of this appeal. The appellant did not show that the amounts which were paid or credited to him for interest amounting to $14,583 and $25,000 during the 1971 and 1972 taxation years, and the rental amounting to $103,098.10 and $253,553.22 paid or credited to the appellant for the 1972 and 1973 taxation years, are incorrect, and they are therefore subject to a 15% tax, as prescribed by the sections of Part XIII of the Income Tax Act cited above, since the appellant made no return pursuant to subsection 216(1) of the Act. Since the appellant did not deduct or remit this 15% tax to the Minister of National Revenue when it became due, interest was charged on the amounts of unpaid tax, pursuant to subsection 161(1) of the Income Tax Act.

Conclusion

For these reasons, the appeal is dismissed.

Appeal dismissed.