Christie,
A.C.J.T.C.
[Orally]:—This
appeal
relates
to
the
appellant's
1982,
1983
and
1984
taxation
years.
In
April
of
1981
he
purchased
a
one-acre
parcel
of
land
in
the
Municipality
of
Aldergrove,
British
Columbia.
The
purchase
price
was
$238,000.
In
payment
he
conveyed
his
home
in
White
Rock
to
the
vendor
for
which
he
received
a
credit
of
$122,018,
and
the
balance
owing
was
secured
by
a
mortgage
in
favour
of
the
Northwest
Trust
Company.There
is
not
dispute
between
the
parties
about
the
amount
of
$122,018.
The
Aldergrove
property
is
somewhat
out
of
the
ordinary
in
that
the
front
one-quarter
acre
is
zoned
for
commercial
purposes.
It
fronts
on
the
Fraser
Highway,
and
at
the
time
of
acquistion
it
was
the
appellant's
intention
to
establish
a
grocery
and
convenience
store
business
on
this
portion
of
the
property.
The
remaining
three-quarters
of
an
acre
is
zoned
for
agricultural
purposes,
and
the
appellant's
home
is
on
this
portion.
The
appellant
placed
a
value
on
the
three-quarter
acre
portion
of
$107,609.
The
respondent
does
not
dispute
this
valuation.
Indeed,
he
relied
on
it.
The
appellant's
conception
of
and
intention
in
relation
to
these
transactions
was
to
allocate
$107,609
of
the
$122,018
he
received
for
his
White
Rock
home
to
the
three-quarter
acre
parcel,
i.e.
to
personal
or
living
expenses,
and
to
allocate
the
balance
of
$14,409
received
for
the
White
Rock
property
and
all
of
the
debt
secured
by
the
mortgage
to
the
one-quarter
acre,
i.e.to
the
business.
I
believe
that
the
appellant
had
two
purposes
in
mind
in
entering
into
these
transactions.
The
motivating
and
primary
purpose
was
to
get
into
business,
and
the
sequential
purpose
was
to
secure
a
suitably
located
residence
in
substitution
for
the
residence
that
he
was
giving
up
in
White
Rock.
He
anticipated
the
realization
of
the
primary
purpose
by
the
use
of
the
$14,409
left
over
from
the
sale
of
the
White
Rock
property
and
the
use
of
the
borrowed
money,
repayment
of
which
was
secured
by
the
mortgage.
He
saw
the
other
purpose
being
realized
by
employing
or
allocating
$107,609
of
what
was
received
for
the
White
Rock
home.
In
reporting
his
income
for
the
years
under
review,
the
appellant
sought
to
deduct
the
whole
of
the
interest
payable
under
the
mortgage.
In
reassessing,
the
respondent
disallowed
claimed
interest
deductions
in
these
amounts:
1982
—
$5,293.55;
1983
—
$5,230.58
and
1984
—
$3,936.35.
These
sums
are
intended
to
reflect
the
relationship
that
$107,609
has
to
the
whole
of
the
purchase
price
of
the
Aldergrove
property.
It
is
in
the
vicinity
of
40
per
cent.
It
is
pointed
out
on
behalf
of
the
respondent
that
although
the
property
is
zoned
in
two
differenct
ways,
it
was
a
single,
unsubdivided
parcel
of
land
that
was
acquired
by
the
appellant
in
one
group
of
interrelated
transactions.
Also,
the
mortgage
relates
to
the
entire
one
acre.
This
is
all
correct
and
prima
facie
justifies
the
approach
adopted
by
the
respondent
in
making
his
reassessments
to
tax.
Nevertheless,
as
I
see
it,
these
reassessments
cannot
prevail
in
the
face
of
the
intentions
and
purposes
of
the
appellant
that
have
already
been
described.
These,
I
believe,
entitled
him
to
make
the
claimed
deductions
under
paragraph
20(1)(c)
of
the
Income
Tax
Act.
It
is
perhaps
superfluous
to
add
that
the
fact
that
repayment
of
money
that
is
borrowed
is
secured
by
a
mortgage
on
the
borrower's
personal
residence
does
not,
of
itself,
preclude
the
interest
payable
on
that
mortgage
being
deductible
in
computing
a
taxpayer's
income
under
paragraph
20(1)(c).
It
is
the
purpose
for
which
the
borrowed
money
is
used
that
determines
the
deductibility
of
interest
payable
thereon,
not
the
manner
in
which
the
loan
is
secured.
The
appeal
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
appellant
is
entitled
to
deduct
these
interest
payments
that
were
disallowed
by
reassessment,
namely:
1982
—
$5,293.55;
1983
—
$5,230.58
and
1984
—
$3,936.35.
The
appellant
is
entitled
to
party-and-party
costs
if
he
has
incurred
any.
Appeal
allowed.
Email this Content