Beaubier T.C.J.:
1 This appeal was heard pursuant to the Informal Procedure at Toronto, Ontario on April 10, 1997. The Appellant and her husband Minh Dia Lieu testified.
2 The Appellant has appealed an assessment for 1994 disallowing rental expenses she claimed in respect to two homes she and her husband owned and lived in. They also rented approximately one-third of the space as a suite to tenants in each property They lived in and rented the second floor of 18 Grant Street, Toronto. They moved from it on May 31 and sold it on August 31. The second floor suite was rented from June 1 until August 31. They purchased and lived in 2 Kintyre Avenue, Toronto, from June 1, 1994. As soon as they moved in they built a basement suite to rent. It was available for rental from September and was rented for November and December, 1994. Thus, overall, the commercial spaces in both buildings amounted to approximately one-third of the total space for all of 1994. The two spaces were rented for a total of ten months of the twelve months in 1994 and the space at 2 Kintyre was for lease for the other two months, namely, September and October.
3 The Appellant and her husband are both hardworking and have modest incomes. They need the rent to pay for the houses and they rented to strangers. For these reasons the Court regards the rent received as at market value. Respondent's counsel regarded the rental as having a strong personal factor due to the Appellant's modest income. However, historically, Canadian immigrants of modest means have acquired businesses, property and homes in the same way as the Appellant and the Court is of the view that in a situation such as the Appellant's, the actual rental of the suites was a business. She rented a suite of approximately one-third of her home for a profit. Whether she had a reasonable expectation of profit is for the Court to decide.
4 In 1994 the Appellant claimed all household expenses and disbursements (including capital items) herself as rental expenses and reported all of the rental income as her own. In fact, she only owned one-half of the houses. Her husband owned the other one-half. Therefore, the figures she claimed and which were used by the Respondent must be cut in half.
5 Using one-half of the number used by parties, the Court's calculation follows:
1/2 Expenses claimed $12,815.35
Less 1/2 capital disbursement
claimed as expense - 3,000.00
__________
Balance $ 9,815.35
Less 2/3 of total expenses based on
personal usage of the houses - 6,543.57
__________
Suite expenses $ 3,271.78
1/2 rent reported - 2,950.00
__________
(10 months' rent)
Balance (Loss) ($ 321.78)
6 Had the suites been rented for twelve months there would have been a profit. Pursuant to the Income Tax Act, the depreciation for the Appellant's cost of the suite (1/2× $6,000 = $3,000) in an appropriate amount could have been used to offset such a profit. In this case the prospect of twelve months' rent is reasonable; the Appellant's Grant Street tenant is still renting that suite.
7 In the Court's view the allocations described in the foregoing calculations are reasonable expenses and accord with the evidence presented in this case.
8 The appeal is allowed. This matter is referred to the Minister of National Revenue for reconsideration and reassessment pursuant to these reasons.
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