Chalmers v. The Queen, docket 2000-5065(IT)I (Informal Procedure)

Date: 20020402

Docket: 2000-5065-IT-I

BETWEEN:

SAMUEL CHALMERS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Amended Reasons for Judgment

O'Connor, J.T.C.C.

[1]            This appeal was heard on December 5, 2001 at Toronto, Ontario pursuant to the Informal Procedure of this Court.

[2]            The issue relates principally to the proper calculation of rental losses, which in turn depends upon what expenses were properly disallowed in the 1995, 1996, 1997 and 1998 taxation years with respect to a property ("Property") at 27 Toffee Court, Etobicoke, Ontario which the Appellant purchased in 1989. Numerous expenses were either allowed or disallowed, as appears from Schedules A-1 and A-3 and the Parties have agreed that the only areas of disagreement are as discussed below.

[3]            The first category of expense upon which there is disagreement relates to a pickup truck, which the Appellant and his wife stated was used in the business of operating the Property in 1995, 1996 and 1997. Although many receipts for gas, oil, repairs and other expenses were destroyed in a flood, I believe the Appellant and his wife when they stated in their evidence that the truck was definitely required for the business principally to move supplies, wood and other materials and to move belongings out of the rental property when lodgers left their rooms and that the expenses they claimed for the truck were legitimately incurred and are to be allowed. It should be noted that the Property was more of a rooming house or small hotel than another type of rental property. Consequently, the motor vehicle expenses claimed on Exhibit A-1 attached to the Reply to the Notice of Appeal are all allowed for the 1995, 1996 and 1997 taxation years.

[4]            The second category of expense upon which there is disagreement relates to a salary paid to the Appellant's wife for the maintenance of the Property. In the four years in question, the Appellant was the sole owner of the Property and engaged his wife for the maintenance work and there is no doubt that she carried out that work. There is no paper proof of deposits but I believe the Appellant and his wife that the salary was paid in all of the years under appeal and this is backed up by the fact that the salary was declared on the wife's own personal income tax returns. Consequently the salaries, wages of $9,000, $9,000, $9,000 and $10,000 in the years 1995, 1996, 1997 and 1998 respectively are to be allowed as legitimate expenses.

[5]            With respect to maintenance expenses, some have been accepted by appeals as indicated on said Exhibit A-1 and are to be allowed. Many of the maintenance expenses were disallowed because they constituted capital items or were considered as personal use. However, in my opinion, in addition to the maintenance expenses that have been allowed the following further expenses should be allowed for the reasons noted below, namely:

1995         - Maintenance

1.              Deleted

2.              The window renewals expense of $2,000 in Exhibit R-2 appears to be more of a maintenance and repair nature than a capital item and is allowed.

3.              The landscaping expense of $1,000 in Exhibit R-2 represents essentially an annual expenditure and is allowed.

4.              Door replacements expense of $800 resulted from a requirement of the fire inspector and, in my view it is more of an essential maintenance and repair item than a capital item. It is allowed.

1996 - Maintenance

1.              First sentence deleted. With respect to the replacement stoves, fridges and sinks - $3,600 Exhibit R-2, they have been properly disallowed: see Minister of National Revenue v. Haddon Hall Realty, Inc., a decision of the Supreme Court of Canada reported at (1961) C.T.C. 509 and Baker v. Her Majesty the Queen reported at (1993) 2 C.T.C. 2318.

1997

I allow the deduction of the $1,759.44 computer, the $195.49 workstation, the $61.49 CD Rom and the $32.24 computer part. This computer assembly was used in the running of the business and since it frequently required updates, renewals and replacements, it appears to be more in the nature of a maintenance and repair expense than capital.

[6]            After the expenses have been revised as set forth above, the total revised expenses for all four years are to be reduced by 17% as representing the agreed personal portion of the Property occupied by the Appellant and his wife.

[7]            Since my allowance in 1998 of the $10,000 salary expense produces a rental loss in 1998, Regulation 1100(15) of the Income Tax Act prevents the Appellant from claiming capital cost allowance to increase that loss.

[8]            Consequently the appeals are allowed to the foregoing extent and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the foregoing basis.

[9]            At the closing of the hearing counsel for the Respondent made a suggestion that depending upon the outcome of my judgment I should hear her representations as to costs because of an alleged settlement offer that the Respondent had made and which had been refused. Having considered that but

bearing in mind that this is the informal procedure and that the agent for the Appellant is not a practicing member of a bar in Canada and considering the divided results, I am of the view that each party should pay its own costs.

Signed at Ottawa, Canada, this 2nd day of April, 2002.

"T. O'Connor"

J.T.C.C.

COURT FILE NO.:                                                 2000-5065(IT)I

STYLE OF CAUSE:                                               Samuel Chalmers v. The Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           December 5, 2001

AMENDED REASONS FOR

JUDGMENT BY:                                                   The Honourable Judge T. O'Connor

DATE OF AMENDED

JUDGMENT:                                                          April 2, 2002

APPEARANCES:

Agent for the Appellant:                     Richard Kirzeniewski

Counsel for the Respondent:              Sointula Kirkpatrick

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-5065(IT)I

BETWEEN:

SAMUEL CHALMERS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on December 5, 2001 at Toronto, Ontario, by

the Honourable Judge Terrence O'Connor

Appearances

Agent for the Appellant:                                     Richard Korzeniewski

Counsel for the Respondent:                              Sointula Kirkpatrick

Judgment

                The appeals from the reassessments made under the Income Tax Act for the 1995, 1996, 1997 and 1998 taxation years are allowed, and the matters are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

                Signed at Ottawa, Canada, this 21st day of December, 2001.

"T. O'Connor"

J.T.C.C.

Date: 20011221

Docket: 2000-5065(IT)I

BETWEEN:

SAMUEL CHALMERS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

O'Connor, J.T.C.C.

[1]            This appeal was heard on December 5, 2001 at Toronto, Ontario pursuant to the Informal Procedure of this Court.

[2]            The issue relates principally to the proper calculation of rental losses, which in turn depends upon what expenses were properly disallowed in the 1995, 1996, 1997 and 1998 taxation years with respect to a property ("Property") at 27 Toffee Court, Etobicoke, Ontario which the Appellant purchased in 1989. Numerous expenses were either allowed or disallowed, as appears from Schedules A-1 and A-3 and the Parties have agreed that the only areas of disagreement are as discussed below.

[3]            The first category of expense upon which there is disagreement relates to a pickup truck, which the Appellant and his wife stated was used in the business of operating the Property in 1995, 1996 and 1997. Although many receipts for gas, oil, repairs and other expenses were destroyed in a flood, I believe the Appellant and his wife when they stated in their evidence that the truck was definitely required for the business principally to move supplies, wood and other materials and to move belongings out of the rental property when lodgers left their rooms and that the expenses they claimed for the truck were legitimately incurred and are to be allowed. It should be noted that the Property was more of a rooming house or small hotel than another type of rental property. Consequently, the motor vehicle expenses claimed on Exhibit A-1 attached to the Reply to the Notice of Appeal are all allowed for the 1995, 1996 and 1997 taxation years.

[4]            The second category of expense upon which there is disagreement relates to a salary paid to the Appellant's wife for the maintenance of the Property. In the four years in question, the Appellant was the sole owner of the Property and engaged his wife for the maintenance work and there is no doubt that she carried out that work. There is no paper proof of deposits but I believe the Appellant and his wife that the salary was paid in all of the years under appeal and this is backed up by the fact that the salary was declared on the wife's own personal income tax returns. Consequently the salaries, wages of $9,000, $9,000, $9,000 and $10,000 in the years 1995, 1996, 1997 and 1998 respectively are to be allowed as legitimate expenses.

[5]            With respect to maintenance expenses, some have been accepted by appeals as indicated on said Exhibit A-1 and are to be allowed. Many of the maintenance expenses were disallowed because they constituted capital items or were considered as personal use. However, in my opinion, in addition to the maintenance expenses that have been allowed the following further expenses should be allowed for the reasons noted below, namely:

1995         - Maintenance

1.              The expenses allowed in Exhibit A-1 to the Reply ($3,000) are allowed and those in Exhibit A-3 to the Reply ($1,000 and $2,000) are allowed.

2.              The window renewals expense of $2,000 in Exhibit R-2 appears to be more of a maintenance and repair nature than a capital item and is allowed.

3.              The landscaping expense of $1,000 in Exhibit R-2 represents essentially an annual expenditure and is allowed.

4.              Door replacements expense of $800 resulted from a requirement of the fire inspector and, in my view it is more of an essential maintenance and repair item than a capital item. It is allowed.

1996 - Maintenance

1.              All expenses disallowed per appeals (Exhibit A-1 to the Reply) were properly disallowed and those that were allowed per appeals are to be allowed including those in Exhibit A-1 ($3,500) and those in Exhibit A-3 ($1,500 + $2,000) were properly allowed. With respect to the replacement stoves, fridges and sinks - $3,600 Exhibit R-2, they have been properly disallowed: see Minister of National Revenue v. Haddon Hall Realty, Inc., a decision of the Supreme Court of Canada reported at (1961) C.T.C. 509 and Baker v. Her Majesty the Queen reported at (1993) 2 C.T.C. 2318.

1997

I allow the deduction of the $1,759.44 computer, the $195.49 workstation, the $61.49 CD Rom and the $32.24 computer part. This computer assembly was used in the running of the business and since it frequently required updates, renewals and replacements, it appears to be more in the nature of a maintenance and repair expense than capital.

[6]            After the expenses have been revised as set forth above, the total revised expenses for all four years are to be reduced by 17% as representing the agreed personal portion of the Property occupied by the Appellant and his wife.

[7]            Since my allowance in 1998 of the $10,000 salary expense produces a rental loss in 1998, Regulation 1100(15) of the Income Tax Act prevents the Appellant from claiming capital cost allowance to increase that loss.

[8]            Consequently the appeals are allowed to the foregoing extent and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the foregoing basis.

[9]            At the closing of the hearing counsel for the Respondent made a suggestion that depending upon the outcome of my judgment I should hear her representations as to costs because of an alleged settlement offer that the Respondent had made and which had been refused. Having considered that but bearing in mind that this is the informal procedure and that the agent for the Appellant is not a practicing member of a bar in Canada and considering the divided results, I am of the view that each party should pay its own costs.

Signed at Ottawa, Canada, this 21st day of December, 2001.

"T. O'Connor"

J.T.C.C.

COURT FILE NO.:                                                 2000-5065(IT)I

STYLE OF CAUSE:                                               Samuel Chalmers v. The Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           December 5, 2001

REASONS FOR JUDGMENT BY:      The Honourable Judge T. O'Connor

DATE OF JUDGMENT:                                       December 21, 2001

APPEARANCES:

Agent for the Appellant:                     Richard Kirzeniewski

Counsel for the Respondent:              Sointula Kirkpatrick

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-5065(IT)I

BETWEEN:

SAMUEL CHALMERS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on December 5, 2001 at Toronto, Ontario, by

the Honourable Judge Terrence O'Connor

Appearances

Agent for the Appellant:                       Richard Korzeniewski

Counsel for the Respondent:                Sointula Kirkpatrick

AMENDED JUDGMENT

          The appeals from the reassessments made under the Income Tax Act for the 1995, 1996, 1997 and 1998 taxation years are allowed, and the matters are referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Amended Reasons for Judgment.

          Signed at Ottawa, Canada, this 2nd day of April, 2002.

"T. O'Connor"

J.T.C.C.