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Citation: 2003TCC345
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Date: 20030520
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Docket: 2002-2532(IT)I
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BETWEEN:
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LEKH C. SUKHDEO,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals pursuant to the
Informal Procedure were heard at Kelowna, British Columbia, on
May 9, 2003. The Appellant testified and called
Gerda Kamarauskas to testify.
[2] At the outset, counsel for the
Appellant requested, and it was ordered that the Appellant's
address for service be changed to:
Pushor Mitchell
3rd Floor
1665 Ellis Street
Kelowna, British Columbia
V1Y 2B3
Tel: (250) 869-1140
Fax: (250) 762-9115
Att: Jennifer R. Fairbrother
[3] Paragraphs 4 to 12 of the Reply to
the Notice of Appeal outline the matters in dispute. They
read:
4. In
computing income for the 1997, 1998 and 1999 taxation years the
Appellant:
a) reported
rental losses as follows:
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Gross
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Expenses
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Net loss
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1997
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$3,730
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$18,393
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$14,663
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1998
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$11,610
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$22,165
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$10,555
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1999
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$12,000
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$30,263
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$18,263
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the detailed calculations are shown in Schedules
"A", "B", and "C", to this
Reply;
b) claimed
employment expenses as follows
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1997
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$7,309
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1998
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$1,417; and
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c) in 1998
failed to report employment income of $27,720.
5. The
Minister of National Revenue (the "Minister") initially
assessed the Appellant for the 1997, 1998 and 1999 years by
Notices dated 17th June 1998, 10th June 1999, and 8th June 2000
respectively.
6. In
initially assessing the Appellant's 1999 taxation year the
Minister disallowed the deduction of capital cost allowance of
$12,608.20 reducing the rental loss to $5,665.25.
7. By Notices
dated 22nd May 2001 the Minister reassessed the Appellant to:
a) reduce the
rental losses to
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1997
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$3,653
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1998
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$nil
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1999
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$nil;
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b) disallow
employment expenses of:
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1997
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$7,309
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1998
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$1,417; and
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c) include the
unreported employment income of $27,720 in 1998.
8. On 5th June
2001 the Appellant filed a Notice of Objection to the
reassessments described in paragraph 7.
9. By Notice
dated 3rd April 2002 the Minister further reassessed the
Appellant's 1997 and 1998 taxation years to allow tax credits
for foreign taxes paid on employment income earned in the United
States of America thus resolving the issue of the unreported
income. By Notice dated 4th April 2002 the Minister confirmed the
reassessment dated 22nd May 2001 for the 1999 taxation year.
10. In so reassessing the
Appellant, the Minister relied on the following assumptions:
Rental losses
Ontario
a) in 1997 the
Appellant owned real estate in Mallorytown, Ontario,
("Mallorytown");
b) Mallorytown
was rented for January 1997 at a rent of $650;
c) the
Appellant incurred expenses of $4,303.03 for Mallorytown;
d) the
Appellant's rental loss in 1997 from Mallorytown was
$3,653.03;
e) the
Appellant sold Mallorytown in July 1997;
British Columbia
f) in
July 1997 the Appellant purchased the Vernon Property;
g) the
Appellant purchased the Vernon Property to provide a home for
himself and the Kamarauskas;
h) in
September 1997 the Appellant transferred life interests in the
Vernon Property to the Kamarauskas;
i) the
life interests gave the Kamarauskas full right of beneficial
ownership with the sole and exclusive right to occupy and enjoy
the Vernon Property;
j) the
agreement granted the Kamarauskas life tenancy for and during the
life of the survivor of the Kamarauskas;
k) the
Appellant's relationship with the Kamarauskas was not that of
a landlord;
l) the
Kamarauskas were the Appellant's foster parents;
m) the Appellant
does not have a rental agreement with the Kamarauskas;
n) the
Appellant does not deal with the Kamarauskas at arm's
length;
o) the Vernon
Property is the Appellant's home and the appellant maintains
a room there for his use;
p) the
appellant returns to the Vernon Property for holidays;
q) expenses
paid for the Vernon Property were personal or living expenses of
the Appellant;
r)
expenses paid for the Vernon Property were not incurred in order
to earn income from a property;
Employment expenses
s) the
Appellant was not required by the terms of his employment to work
away from his employer's place of business; and
t) the
Appellant was not required by the terms of his employment to work
in different places.
B. ISSUES
TO BE DECIDED
11. The issues are
whether:
a) the
Appellant is entitled to deduct expenditures related to the
Vernon Property; and
b) the
Appellant incurred expenses in the course of earning employment
income.
C.
STATUTORY PROVISIONS RELIED ON
12. He relies on sections
3, 9 and 248, subsection 8(10), and paragraphs 18(1)(a) and
18(I)(h), of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.), as amended (the "Act"), Land title
Act RSBC 1996, c250 and Property Law Act, RSBC 1996, c
377.
[4] The evidence is that in these
years, the Appellant worked in the following location on union
assignments as a journeyman electrician.
1997 -
Jan 1 - Aug
22
Sault Ste. Marie, Ontario
Remainder
1997
Butte, Montana
1998 -
Jan -
April
Lorrel, Quebec
April - June
Pembroke, Ontario
Later
Perth and Windsor, Ontario
1999 -
Not stated
Presently
Bruce Power Plant. He resides at Southhampton, Ontario.
[5] The Appellant's claim for
employment expenses is denied for the following reasons:
1. He did not submit any
acceptable form T2200.
2. From his testimony the
amounts claimed relate to his living expenses incurred at various
locations where he worked as a journeyman electrician during
these years.
3. He did not produce any
bills or receipts.
4. They are not moving
expenses.
No evidence was lead by the Appellant respecting reply item 4
c), 1998 unreported income of $27,720. If that is appealed, the
appeal is dismissed.
[6] The remainder of these reasons
deals with the Appellant's claim for rental losses.
Respecting those assumptions, assumption 10 a) to f) were not
refuted by the evidence. Respecting the remainder of the rental
loss assumptions, the Court finds:
g) The Appellant purchased
the Vernon Property to rent a home to the Kamarauskas, to whom he
had rented before and who he knew were good and caring
tenants.
h) i) j) In September 1997 both the Appellant and the
Kamarauskas signed a life tenancy agreement respecting the
property which granted the Kamarauskas a life tenancy to the
property. This agreement constitutes a mistake in common in
equity. Both witnesses testified that they thought that they were
signing a lease for the life of the survivor of the Kamarauskas
and the Kamarauskas were therefore tenants of the property for a
rent of $880 per month and the cost of the utilities. The Court
believes them.
k) Their relationship was
that of landlord and tenants.
l) Is false.
m) The parties do have a rental
agreement.
n) The Appellant purchased
the property with a view to renting it, and paying the mortgage
off, whereupon it could be rented profitability. He rented it to
the Kamarauskas whom he knew would take care of the property.
There is no evidence that the rent was not at market value at any
time. The Kamarauskas have a son and a daughter and they are
raising two granddaughters in Vernon. The Appellant likes Vernon
and bought there in part because it has a warm climate.
o) In the first years Vernon was
not the Appellant's home. When he visited to inspect the
property in 1997 he states that he was itinerant and had no home.
He stays in the Kamarauskas' computer room in the basement
when he visits Vernon. He is often without work. He stayed at the
property for 2 or 3 months in 1998 and for 6 weeks in 1999. The
Appellant now owns two vehicles in Vernon. One is a van which the
Kamarauskas use. When it was purchased in 1998, the rent went up
$100 per month. In 1999 the Appellant installed a hot tub and the
rent went up to $1,050 per month.
o) The Appellant does use the
same computer room in the basement when he stays at the property,
but it is not kept for his exclusive use.
p) At present, it appears that
the Appellant returns to Vernon for holidays and at those times
he maintains and repairs the property.
q) The Court finds that the
expenses were not personal or living expenses of the
Appellant.
r) The expenses paid for
the Vernon property were incurred to earn income from the
property.
[7] Where there is a mistake in common
and particularly as here, where both parties honestly agree that
the written document does not contain the true meaning of the
contract which they entered into, then equity finds the agreement
to be that which the parties intended.
[8] In these circumstances, the Court
finds that the Appellant and the Kamarauskas' agreement is
not that of life tenancy. Rather, it is a mere lease, on the
terms which they described in Court.
[9] Therefore, the appeals are allowed
respecting the rental losses as follows:
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For 1997, loss
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$11,010.24
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For 1998, loss
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Revenue
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$11,610.00
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- $10,953.16
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$656.84
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Less allowed depreciation
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NIL
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For 1999
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Revenue
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$12,000.00
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- $17,655.25
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Loss
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$5,655.25
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$5,655.25
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[10] The appeal is allowed and this matter
is referred back to the Minister of National Revenue for
reconsideration and reassessment to allow rental losses to the
Appellant as described in paragraph 9 hereof.
Signed at Ottawa, Canada this 20th day of May 2003.
J.T.C.C.
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