[OFFICIAL ENGLISH TRANSLATION]
98-864(IT)I
BETWEEN:
PRESCYLLA M. CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal
of
Jean-Louis Caron (98-860(IT)I), on
April 28, 1999, at Rimouski, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the
Appellant:
Jean-Louis Caron
Counsel for the Respondent: Suzanne
Morin
JUDGMENT
The
appeal from the assessments made under the Income Tax Act
for the 1994, 1995 and 1996 taxation years is allowed, without
costs, and the assessments are referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of May 1999.
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-860(IT)I
BETWEEN:
JEAN-LOUIS CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal
of
Prescylla M. Caron (98-864(IT)I), on
April 28, 1999, at Rimouski, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the
Appellant:
The Appellant himself
Counsel for the Respondent: Suzanne
Morin
JUDGMENT
The
appeal from the assessments made under the Income Tax Act
for the 1994, 1995 and 1996 taxation years is allowed, without
costs, and the assessments are referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of May 1999.
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 19990520
Docket: 98-864(IT)I
BETWEEN:
PRESCYLLA M. CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND:
98-860(IT)I
JEAN-LOUIS CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The parties agreed to proceed on
common evidence. Only the male appellant testified in support of
the two appeals.
[2] Sergine Charest, the person responsible
for analysing the appellants' case, also testified at the
respondent's request.
[3] The evidence has established that
the appellants purchased the two buildings at the heart of the
dispute and made a very small cash payment.
[4] It has also been established that
these buildings were very old, one built in 1929 or 1930, and the
other some time in the 1910s. Both buildings needed substantial
repairs, given the time that had passed since they were
built.
[5] Mr. Caron explained that it had
taken longer than expected to turn a profit for a number of
reasons, particularly the much higher than anticipated cost of
the substantial repairs, high interest rates, and significant
price competition for apartments in the small community of
Notre-Dame-du-Lac.
[6] On this point, he explained that
the community assumed responsibility for several dozen
apartments, the rents of which were so low that they had to be
subsidized.
[7] The first building at 1149, rue
Commerciale, holding three apartments, was purchased in 1986 for
$15,000 by means of a loan for this amount. The second building
located at 686 on the same street, holding five apartments, was
purchased on October 29, 1976, for $35,000 by means of a
loan for $28,000-the appellants had to put up the$7,000
difference. They received an additional loan of $15,000 to make
repairs.
[8] Mr. Caron also explained that
he planned to take early retirement and therefore did everything
that was needed to restore the buildings to their original
condition, so as to avoid the unexpected that might jeopardize
his financial planning, given the ultimate reduction in his
income. Lastly, he said that he also counted on the profit
generated by the two buildings to boost his retirement
income.
[9] Ms. Charest said that she had
the benefit of specific training in evaluating reasonable
expectation of profit. In the weeks following her training, she
was assigned to several cases in this field, including the
appellants' case.
[10] Ms. Charest described the procedure she
followed and said that she noted that the appellants had charged
to the buildings certain inadmissible expenses including the cost
of renovating a bathroom, the purchase of a refrigerator,
decorator's fees, and car expenses. As well, most of these
expenses proved to be excessive and even inordinately high, given
the standard of apartments located in the building.
[11] This observation, combined with
Ms. Charest's personal perception of the taxpayers'
tax liability, undoubtedly guided or at the very least influenced
the assessment of all the facts that formed the basis of her
findings. Indeed, the exclusively personal
''Expenses'' category and the substantial
maintenance costs were in themselves signs that gave rise to some
suspicion.
[12] In addition to the expenses, there were
financial costs. These observations could justify the findings
that formed the basis of the assessments.
[13] However, Mr. Caron's testimony
somewhat downplayed the relevance of the basis for the
assessment. He provided explanations and justifications for the
maintenance costs in light of the age of the buildings.
[14] I consider it important to analyse the
entire case in light of the age of the buildings. I also note
that the financial costs are directly related to the extent of
the financing.
[15] In this case, the buildings required
major, substantial repairs, the cost of which was difficult to
foresee. The same was true for the maintenance required by old
buildings, which usually involves significantly higher and often
unforeseeable outlays.
[16] These points are essential and must be
taken into account in evaluating the profitability of a project.
In fact, profitability is always directly related to costs in
these two major categories. Given the specific circumstances of
the present cases, I believe that the appellants had a reasonable
expectation of profit that would ultimately provide them with
additional income.
[17] Indeed, the waiting period was long and
perhaps questionable in some regards; indeed, the appellants
revised their plans as a result of the respondent's action.
Nevertheless, I do not believe that the appellants' project
should be disqualified as a result, given the explanations
provided-keeping in mind that profitability must be a
consideration; that in the opposite circumstances, the arguments
made are no longer admissible.
[18] Concerning the appellants' personal
expenses, these expenses cannot be charged in part to the
building that benefited from them, as was argued by Mr. Caron.
Essentially, they are personal expenses that have nothing at all
to do with the other apartments.
[19] All the personal-use expenses for
renovating the apartment occupied by the appellants must be
excluded from the calculation of the building expenses.
[20] For these reasons, the appeals are
allowed, in that the assessments are returned to the Minister of
National Revenue for reconsideration and reassessment on the
basis that all the appellants' personal expenses must be
excluded from the operating expenses of the two buildings, all
without costs.
Signed at Ottawa, Canada, this 20th day of May 1999.
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
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