Principal Issues: Taxpayer owns a rental property. His daughter moves in. Taxpayer receives monthly payments from his daughter for ten months then sells the property to her. Taxpayer's intention from the start has been to treat the monthly payments received from his daughter as deposits towards her down payment on the property.
1. Whether taxpayer may continue to deduct property taxes, insurance costs, maintenance, and interest expenses after his daughter moved in up until the time it is sold to his daughter.
2. Whether the taxpayer's POD from the eventual sale of the property will include the sum of the monthly payments he received from his daughter, which he treated as deposits towards the down payment for the property.
Position: 1. Depends. 2. Yes.
Reasons: 1. It is a question of fact whether the monthly payments received by the taxpayer from his daughter constitute rental income or refundable deposits held by the taxpayer to be applied in the future against the purchase price of the property. If in fact the monthly payments received by the taxpayer are non-refundable in the event that the sale does not transpire then the amounts received by the taxpayer will likely be considered rental income. In that case, any related outlays or expenses incurred by the taxpayer to earn rental income from the property would be deductible. Conversely, as a question of fact, if the daughter is living rent-free such that the amounts received by the taxpayer are in fact refundable deposits then the taxpayer's outlay and expenditures relating to the property would be personal expenses and would be non-deductible by virtue of paragraph 18(1)(a) of the Act. 2. Regardless of how the daughter's down payment is financed, be it by way of a gift from the taxpayer inter vivos or otherwise, the entire down payment forms part of the sale price and would be fully included in the taxpayer's POD.
