Watson D.J.T.C.:
1 This appeal was heard under the Informal Procedure in Toronto, Ontario on December 9, 1997.
2 In computing income for the 1992 and 1993 taxation years, the Appellant claimed rental losses of $12,635 and $8,904 respectively. The Minister of National Revenue (the “Minister”) in his reassessment for these two years disallowed the deductions claimed. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) in September 1974, the Appellant purchased 714 The West Mall, Suite 1707 in Etobicoke, Ontario (the “Property”), a one bedroom condominium as his principal residence at a cost of $35,000.00;
(b) in 1978, the Appellant began renting part of the Property, and since commencing this purported rental operation, has never reported any profit;
(c) on or about July 24, 1988, the Appellant borrowed $20,000.00, and took second mortgage on the Property;
(d) during 1990, the Appellant refinanced the Property, increasing the total mortgage to $78,000.00;
(e) the Property continued to be the Appellant's principal residence throughout the 1992 and 1993 taxation years;
(f) in the 1992 and 1993 taxation years, the Appellant reported rental income, expenses and losses as per Schedule “A” and “B”, respectively, attached;
(g) the Appellant reported losses from renting the Property in other years as follows:
| Years | Losses |
|---|
| 1987 | $11,836.00 |
| 1988 | $ 9,520.00 |
| 1989 | $10,784.00 |
| 1990 | $15,665.00 |
| 1991 | $20,254.00 |
| 1994 | $12,043.00 |
(h) for the 1992 and 1993 taxation years, the Appellant failed to provide adequate receipts, invoices and other documentation to support the rental expenses incurred;
(i) the rent charged was not sufficient to offset the operating expenses (taxes, insurance, interest, light, heat and water) of the Property;
(j) the Appellant did not have a reasonable expectation of profit from renting the Property during the 1992 and 1993 taxation years;
(k) the claimed expenses were not made or incurred, or if made or incurred, were not made or incurred for the purpose of gaining or producing income;
(l) the rental expenses were personal or living expenses of the Appellant.
Schedule “A” to Barry H. Trodd
Reply to Notice of Appeal
Rental Income and Expenses
For 1992 Taxation Year
| GROSS INCOME | $ 9,150.00 | | | |
| Total Expenses | Personal Portion | Deductible Amount | | |
| EXPENSES | | | | |
| Property Taxes | $ 1,320.00 | 264.00 | 1,106.00 | |
| Maintenance and Repairs | 13,658.00 | 2,732.00 | 10,926.00 | |
| Interest | 8,416.00 | 1,683.00 | 6,733.00 | |
| Insurance | 202.00 | 40.00 | 162.00 | |
| Light, Heat, Water | 3,573.00 | 715.00 | 2,858.00 | |
| Total Deductible Expenses | 21,785.00 | | | |
| Net Income (Loss) before capital cost allowance | | |
| Deduct: reported by co-owner | | | |
| Net Income (Loss) From Real Estate Rentals | | |
| * as reported by the Appellant | | | | |
Schedule “B” to Barry H. Trodd
Reply to Notice of Appeal
Rental Income and Expenses
For 1993 Taxation Year
| GROSS INCOME | $ 8,600.00 | | | |
| Total Expenses | Personal Portion | Deductible Amount | | |
| EXPENSES | | | | |
| Property Taxes | $ 1,320.00 | 330.00 | 990.00 | |
| Maintenance and Repairs | 11,707.00 | 2,927.00 | 8,780.00 | |
| Interest | 6,351.96 | 1,588.00 | 4,764.00 | |
| Insurance | 274.00 | 69.00 | 207.00 | |
| Light, Heat, Water | 3,684.00 | 921.00 | 2,763.00 | |
| Total Deductible Expenses | 17,504.00 | | | |
| Net Income (Loss) before capital cost allowance | | |
| Deduct: reported by co-owner | | | |
| Net Income (Loss) From Real Estate Rentals | | |
| * as reported by the Appellant | | | | |
3 At the hearing, the Appellant admitted paragraphs (a) to (g) and (i) and denied paragraphs (h) and (j) to (l).
4 The question before the Court is whether the Appellant had a reasonable expectation of profit from renting the Property in the 1992 and 1993 taxation years or were the expenses personal or living expenses.
5 In this appeal, the Appellant had the onus of establishing on a balance of probabilities that the Minister's reassessment was ill-founded in fact and in law.
6 Considering all of the circumstances in this case, including the testimony of the witnesses, the admissions and the documentary evidence, I am satisfied that the Appellant has failed in this onus.
7 Accordingly, the appeal is dismissed.
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