Date: 20000731
Docket: 1999-1453-IT-I
BETWEEN:
TERRENCE M.A. BARTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur J.T.C.C.
[1] The Appellant appeals the decision of the Minister of
National Revenue wherein he was denied deductions for rental
losses in the amounts of $643 and $572 for the 1994 and 1995
taxation years, respectively. At the outset of the hearing, the
Appellant abandoned his claim for those expenses described as
employment expenses in the amount of $520, $427 and $1,736 for
the 1994, 1995 and 1996 taxation years. The Appellant decided he
was not entitled to deduct these expenses after he considered the
decision of my colleague, Bell J., in Cuddie et al v. The
Queen.[1]
[2] The Appellant presented his own appeal and was the only
witness. He is a member of the Royal Canadian Mounted Police
where he has been a dog handler for about 30 years. Over the
years, his employer has paid him rent for keeping a kennel space
on his property for a RCMP dog. He and his wife acquired their
present residence in the 1990s. His employer paid for the
installation of a 20' by 40' concrete pad together with
two dog houses and an inner chain link or hedge fence contained
within the larger parameter of their fenced backyard. The
Appellant reported the payment of $972 annually as rental income
for the kennel space and deducted expenses in 1994 of $1,625 for
a net loss of $643 and in 1995, expenses of $1,542, resulting in
a net loss of $572. The largest expenditures were for mortgage
interest, taxes and utilities. He allocated 10% of these for the
kennel area. They totalled approximately $1,400 in 1994 and
$1,150 in 1995.
[3] The question boils down to whether the Appellant carried
on a kennel space rental business during the relevant years. The
Appellant confirmed the accuracy of the following statement set
out in his 1995 income tax return form T776(E)" Statement of
Real Estate Rentals":[2]
I am a member of the Royal Canadian Mounted Police Police Dog
Services & required to maintain a Police Service Dog at my
residence. The Dog is owned by Govt of Canada RCMP. RCM Policy
compensates members of PDS for maintaining dog at their res. by
Renting of Kennel space on which RCMP owned kennel is situated.
In addition, food related work equip. is stored at my res.
Compensation is $81.00/month.
As mentioned to the Appellant at the conclusion of the hearing
of these appeals, I have struggled to answer the above question
in the affirmative but cannot. The Appellant acknowledges that
should the kennel payment be considered payment in the
performance of his duties of office or employment, then he is not
entitled to claim his expenses as the cost of carrying on
business.
[4] I conclude that the Appellant was not in the kennel space
rental business for the following reasons:
(a) Having allocated 10% of his home costs as business
expenses, these costs alone exceed the rental income with little
evidence that they will decrease.
(b) There is a strong personal element and Linden J. suggests
in Tonn et al v. The Queen[3] that under such circumstances, the situation
must be scrutinized carefully. The Appellant obviously wants to
keep a dog.
(c) It is a requirement of the Appellant's employment that
he keep the Police dog.[4]
(d) The kennel structures are owned by the RCMP and the
Appellant does not pay for their use.
(e) The $81 per month for rent is an amount arrived at
arbitrarily by the RCMP.
(f) The Appellant is restricted to renting the space to the
RCMP only.
(g) The Appellant does not and cannot advertise for other
users.
(h) Most of the expenses claimed were unproved and
arbitrary.
(i) The Appellant claimed 100% rental payments and expenses
yet owned 50% of the rented land area.
(j) The Appellant continues to receive the RCMP rental payment
but did not report the rental activity in his 1996 income tax
return.
[5] I find that the Appellant was not in the business of
renting kennel space in his backyard. He had a private
arrangement in which the RCMP paid him a determined amount for
use of an area of his backyard. This was a requirement of his
employment. Having found that the Appellant was not in the land
rental business, for the Appellant to be entitled to deduct
employment expenses, he must look to section 8 of the Income
Tax Act wherein allowable expenses are set out. Subparagraph
8(1)(i)(iii) is the only one that may be relevant and it
states:
8(1) In computing a taxpayer's income for a taxation year
from an office or employment, there may be deducted such of the
following amounts as are wholly applicable to that source or such
part of the following amounts as may reasonably be regarded as
applicable thereto:
...
(i) amounts paid by the taxpayer in the year as
...
(iii) the cost of supplies that were consumed directly in the
performance of the duties of his office or employment and that
the officer or employee was required by the contract of
employment to supply and pay for,
...
to the extent that he has not been reimbursed, and is not
entitled to be reimbursed in respect thereof;
[6] In analyzing the above paragraph, I have relied on the
decision of Bell J. in Cuddie et al v. The Queen, supra. I
agree with his reasoning and adopt it as my own. For the
Appellant to be successful, his expenses related to the dog
kennel must be for "supplies that were consumed".[5] For reasons stated
in Cuddie, which need not be repeated, the expenses
incurred did not come within the meaning of "supplies that
were consumed directly in the performance of the duties of the
office or employment". The appeals are dismissed.
Signed at Ottawa, Canada, this 31st day of July, 2000.
"C.H. McArthur"
J.T.C.C.
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