Andreone v. The Queen, 2005 TCC 240 (Informal Procedure)

Appeals heard on common evidence with the appeals of

Jo-Anne Y. Andreone 2004-3413(IT)I

on March 7, 2005 at Ottawa, Canada

JUDGMENT

The appeals from the reassessments made under the Income Tax Act for the 1999, 2000 and 2001 taxation years are dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada this 8th day of April, 2005.

Sheridan, J.

Appeals heard on common evidence with the appeals of

Goffredo E. Andreone 2004-3412(IT)I

on March 7, 2005 at Ottawa, Canada

JUDGMENT

The appeals from the reassessments made under the Income Tax Act for the 1999, 2000 and 2001 taxation years are dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada this 8th day of April, 2005.

Sheridan, J.

REASONS FOR JUDGMENT

Sheridan, J.

[1]      The Appellants, Goffredo and Jo-Anne Andreone, are appealing the reassessments of the Minister of National Revenue for their 1999, 2000 and 2001 taxation years. The appeals were heard on common evidence with Mr. Andreone representing himself and Mrs. Andreone. Mr. and Mrs. Andreone are partners in a business in which they have an 80% and 20% participation, respectively. The partnership is engaged in managing the computer software testing business of a corporation controlled by the Andreones. The partnership business operates out of a home office located in the basement of their residence in Rockcliffe. The issue is whether they are entitled to deduct from their business income amounts spent on exterior painting, brickwork repair, snow removal and lawn care at the residence.

[2]      Pursuant to paragraph 18(1)(a) of the Income Tax Act, no deduction for an outlay or expense shall be made from business income "... except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business ...". The Minister's reassessments were based on the assumption that these expenditures were personal in which case, paragraph 18(1)(h) operates to exclude their deduction from partnership income. In arguing that there was no "business purpose" to these expenses, the Crown relied on the test set out in the Supreme Court of Canada decision Symes v. Canada[1] as expressed by Iacobucci, J. at page 738:

... Would the need exist apart from the business? If a need exists even in the absence of a business activity, and irrespective of whether the need was or might have been satisfied by an expenditure to a third party or by the opportunity cost of personal labour, then an expense to meet the need would traditionally be viewed as a personal expense. Expenses which can be identified in this way are expenses which are incurred by a taxpayer in order to relieve the taxpayer from personal duties and to make the taxpayer available to the business. Traditionally, expenses that simply make the taxpayer available to the business are not considered business expenses since the taxpayer is expected to be available to the business as a quid pro quo for business income received. This translates into the fundamental distinction often drawn between the earning or source of income on the one hand, and the receipt or use of income on the other hand.

[3]      The Andreones bear the evidentiary burden of proving their expenditures were incurred for the purpose of gaining business income. Applying the Symes test to the facts at hand, is clear that the need to keep the exterior of the residence in good repair and its thoroughfares clear and grounds maintained existed quite apart from the partnership's management business; for that reason alone, I am satisfied that the Symes test precludes these expenditures from being categorized as business expenses. The amounts spent on improvements to the exterior of the Andreones' residence and the maintenance of the yard, driveway and walkways were primarily beneficial to and necessary for the Andreones' personal use of the property. Their failure to see to these deficiencies would, no doubt, have led to difficulties with the municipal authorities and left them vulnerable to potential liability. Although the home office was the partnership's principal place of business, Mr. Andreone testified that only occasionally did the business receive clients there. In fact, the partnership's only real client was the Andreones' corporation, whose registered office is the partnership's home office. All in all, there is no evidence to show a link between producing income and the decision to incur these expenses.

[4]      Citing Fuller v. The Queen[2] and Marklib Investments II-A Limited[3], Mr. Andreone argued that the partnership was analogous to a landlord taxpayer who is entitled to deduct expenses for repairs and maintenance to the leased property. These cases are not helpful to Mr. Andreone's position. Expressed in terms of Symes, a landlord's "need" to spend money improving his rental property does not (generally speaking) exist apart from the business of enhancing the property's income-generating potential. The partnership is in the business of managing the Andreone corporation's software testing enterprise, not property leasing where a link may be made between incurring such expenses and earning income. In the present case, I am not satisfied on the evidence presented that there is any connection between the costs incurred and the production of business income, or that the need to incur such costs existed apart from the business. Accordingly, the appeals are dismissed.

Signed at Ottawa, Canada this 8th day of April, 2005.

Sheridan, J.