A J Frost:
1 This is an appeal from income tax assessments dated April 13, 1973 in respect of appellant's 1968, 1969, 1970 and 1971 taxation years.
2 By the said assessments, each dated June 26, 1973, the following deductions claimed on account of interest paid on borrowed money were disallowed:
1968 $ 18.50
1969 510.90
1970 548.21
1971 478.95
This disallowance should be considered in connection with the fact that appellant had not reported the following mortgage interest income in his taxable income:1968 $1,540.00
1969 1,517.00
1970 1,492.00
1971 1,465.00
3 On December 15, 1967 the appellant sold his principal residence in Breslau, Ontario and took back as part of the sale proceeds a mortgage in the amount of $21,000. In the same year, the appellant purchased a residential property in Walkerton, Ontario and borrowed $6,000 from the Canadian Imperial Bank of Commerce in Walkerton to assist him in financing his new residence. The mortgage agreement was deposited with the bank but not specifically pledged as security for the bank accommodation. The $6,000 loan proceeds were paid directly to the vendor of the house in Walkerton.
4 Counsel for the respondent, in his argument, contended that the bank interest paid by the appellant was not interest on borrowed money used for the purpose of earning income from property under paragraph 11(1)(c) of the Income Tax Act as the $6,000 of loan proceeds went directly to purchase the appellant's new residence. Appellant, who argued on his own behalf, contended that the funds were borrowed to hold the mortgage as an investment, and that the interest paid constituted a carrying charge to sustain his investment. Otherwise, he said, he could not have held on to his mortgage security.
5 The question at issue in this appeal is whether or not the interest carrying charge can be offset against investment income. As the language of paragraph 11(1)(c) of the Act requires the borrowed money to flow directly to the purchase of the property generating the income, the Board has no alternative but to dismiss the appeal.
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