[OFFICIAL ENGLISH TRANSLATION]
Date: 20001101
Docket: 1999-3933(IT)I
BETWEEN:
PAUL LEBLANC,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal for the 1995 and
1996 taxation years.
[2] The issues are as follows:
(a) whether the
expenses claimed in the 1995 and 1996 taxation years in respect
of the property located at Chalk River were made or incurred
by the appellant for the purpose of gaining or producing income
from a business or property; and
(b) whether the
Minister correctly determined the interest on the excess refunded
when he issued the reassessments dated December 14, 1998, against
the appellant in respect of the 1995 and 1996 taxation years.
[3] In making the assessments that are
the subject of this appeal, the Minister of National Revenue (the
"Minister") relied on the following facts:
[TRANSLATION]
(a) the property,
situated at 49 Cook Street in the town of Chalk River in the
province of Ontario, was purchased by the appellant in
1988;
(b) the property was
used as a family residence during the period from 1988 to
1992;
(c) the appellant, a
member of the Canadian Forces, was transferred in 1992 to the
Valcartier military base in the province of Quebec for a
temporary posting of two years;
(d) the appellant
rented his residence to a serviceman for a two-year period ending
in May 1994;
(e) in September
1993, the appellant was informed that he would not be returning
to work at the Petawawa base;
(f) the
appellant, with the assistance of a real estate broker, put his
house on the market as of February 1994;
(g) the appellant's
property was not rented for the period extending from June 1994
until it was sold in March 1996;
(h) the appellant
received a monthly amount of $600 from the Canadian Army, for the
period from June 1994 to May 1995 because his property in
Chalk River was uninhabited;
(i) the
appellant had no reasonable expectation of profit in relation to
the property in Chalk River during the 1995 and 1996 taxation
years;
(j) the rental
expenses claimed for the 1995 and 1996 taxation years in relation
to the Chalk River property were the appellant's personal or
living expenses and were not made or incurred by the said
appellant for the purpose of gaining or producing income from a
business or property;
(k) the income tax
return for the 1995 taxation year had to be filed no later than
April 30, 1996;
(l) on March
18, 1996, the appellant was refunded an amount of $3,575.82 in
excess of what he was entitled to for the 1995 taxation year;
(m) in respect of the 1995
taxation year, the prescribed interest on the excess of
$2,875.34 that was refunded amounted to $717.36 for the
period from April 30, 1996, to December 14, 1998;
(n) the income tax
return for the 1996 taxation year was supposed to be filed no
later than April 30, 1997;
(o) on April 14,
1997, the appellant was refunded an amount of $1,788.09 in excess
of what he was entitled to for the 1996 taxation year;
(p) in respect of
the 1996 taxation year, the prescribed interest on the excess of
$970.12 that was refunded amounted to $140.62 for the period
from April 30, 1997, to December 14, 1998.
[4] Under oath, the appellant admitted
the substance of the facts assumed by the Minister, with the
exception of subparagraphs (i) and (j) of the Reply to the Notice
of Appeal (the "Reply").
[5] The appellant, a serviceman by
training with a long and brilliant career in the Canadian Forces
(the "C.F."), testified in a frank, honest and very cordial
manner.
[6] He explained that he had suffered
major financial losses as a result of his transfers, which he had
agreed to but had not sought.
[7] To begin with, he said that in
1988 he had purchased a residence on Cook Street in
Chalk River, Ontario. In 1992, he was assigned to a mission
requiring him to be away for a two-year period. During that time,
he rented his residence to a colleague.
[8] On his return from the mission,
the military authorities assigned him to another posting that
required him to sell the family residence.
[9] In the meantime, the financial
outlook in the Chalk River area had considerably deteriorated
primarily because of the closing of a military base and several
businesses, thus creating a lot of uncertainty in the real estate
market.
[10] Apart from that problem, he had to
abandon the idea of renting his residence; the C.F. in fact
provided for the payment of compensation on a definite transfer,
on condition that the property was not inhabited so that its sale
would not be adversely affected.
[11] The appellant accordingly suffered a
financial loss of two kinds. First, the rental income and,
subsequently, the compensation paid by the army were below the
actual expenses. Second, the real estate market having
depreciated in value, the appellant had to suffer heavy financial
losses on the sale of his residence.
[12] The appellant having left matters in
the hands of his accountant, the losses suffered were claimed by
the accountant as if they were expenses made or incurred for the
purpose of gaining or producing income from a property or
business.
[13] The appellant himself acknowledged that
what was involved was not a business in that he had not made a
plan or set things up so as to make the operation viable or
profitable. The appellant essentially wanted to reduce his losses
arising from the obligation to sell the family residence as much
as possible; in other words, the appellant essentially did
everything he could to minimize his losses.
[14] The evidence also established that, at
the time in question, the C.F. had no real support program in
cases where a serviceman had to sell his residence because of a
permanent transfer. The only thing the Forces offered was a
monthly compensation for a limited time that bore no relation to
the actual losses and that, moreover, in order to be payable,
required the residence to be unoccupied or unrented.
[15] In the months following the sale of his
residence, the C.F. put an improved, advantageous and, above all,
more realistic system in place. The appellant was not able to
benefit from the revised plan since the program was not
retroactive.
[16] In contending that the expenses
involved were personal and that, as a result, the appeal was
unfounded, the respondent relied on paragraphs 18(1)(a)
and 18(1)(h) of the Income Tax Act (the
"Act"):
. .
.
(a)
General limitation - an outlay or expense except to the
extent that it was made or incurred by the taxpayer for the
purpose of gaining or producing income from the business or
property;
...
(h)
Personal and living expenses - personal or living expenses
of the taxpayer, other than travel expenses incurred by the
taxpayer while away from home in the course of carrying on the
taxpayer's business;
...
and on the relevant case law, including the decisions in
· Audet v.
The Queen, [1999] CarswellNat 296;
· Mastri
v. The Queen, 94 DTC 6499 (F.C.A.);
· Mohammad
v. The Queen, [1998] 1 F.C. 165 (F.C.A.);
· Moldowan
v. The Queen, [1978] 1 S.C.R. 480; and
· Tonn v.
The Queen, [1996] 2 F.C. 73 (F.C.A.).
[17] For his part, the appellant
acknowledged that the case law did not favour him but that there
were surely other decisions supporting the merits of his claim.
Regrettably, the facts disclosed by the evidence do not allow for
any conclusion other than that personal expenses were indeed
involved. The Court understands that the losses incurred by the
appellant as a result of a decision over which he had no control
(his two transfers) were real losses.
[18] However, this Court has an obligation
to abide by the Act and the case law, which, in the case
at bar, requires that the merits of the respondent's position
with regard to the assessments be affirmed. It is not my place to
comment on or criticize the C.F.'s administrative measures as
they apply to servicemen's moves, but it does seem to me that
they should not let their members, who devote their lives to the
well-being of the people of Canada through work, sacrifice and
constraints of all kinds on their family life, be severely
penalized financially as well when duty forces them to leave the
area where they have established their family residence.
[19] The Minister cannot replace the
Department of Defence and assume its obligations. The appellant
was an unfortunate victim of outdated and petty administrative
measures.
[20] Having regard to the foregoing, this
Court must essentially comply with the provisions of the
Act, which, in the case at bar, require me to confirm that
the assessments were correctly made. As for the interest, that is
something over which I have no jurisdiction; the Minister alone
has the discretion to intervene in that matter.
[21] Therefore, the appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of November 2000.
J.T.C.C.
Translation certified true
on this 19th day of September 2003.
Sophie Debbané, Revisor
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