Citation: 2013TCC244
Date: 20130806
Docket: 2012-1408(IT)I
BETWEEN:
RICHARD BRADSHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
Preliminary
[1]
Although the Appellant
filed a notice of appeal for his 2007, 2008 and 2009 taxation years, it was
apparent from the documents included with the notice of appeal that he had not
served the Minister of National Revenue (the “Minister”) with a notice of
objection for his 2007 and 2008 taxation years. On April 11, 2012, the
Appellant applied to the Court for an extension of time to serve notices of
objection for those years and the application was allowed by Order dated July
23, 2012.
[2]
At the hearing of this
appeal, the Appellant requested that the appeal for his 2007 and 2008 taxation
years be joined to the present appeal. As more than 90 days had elapsed since
the Appellant sent the notices of objection to the Minister, I granted the
Appellant’s request.
[3]
The witnesses at the
hearing were the Appellant and Melissa Quan.
Issues
[4]
The following issues
relate to the Appellant’s 2007, 2008 and 2009 taxation years:
(i)
whether he had a rental
operation;
(ii)
whether he incurred an
interest expense of $1,462, $1,496 and $1,462 in 2007, 2008 and 2009
respectively; and,
(iii)
whether he was entitled
to claim a non-refundable tax credit in respect of a dependent spouse or
common-law partner.
[5]
An additional issue in
his 2009 taxation year is whether the Appellant had an automobile repair
business.
Rental Operation and Interest Expense
Facts
[6]
According to the
Appellant, he and Melissa Quan (“Melissa”) had been co-workers; and, in 2003,
she started to live with him and his family at 54 Giannarco Way. The house at 54 Giannarco Way was owned by the Appellant, his sister and his brother.
[7]
On December 11, 2005,
the Appellant and Melissa purchased a townhouse at 37 Brahm Court in Vaughn, Ontario (the “Property”) as joint tenants. They purchased the townhouse while it
was under construction and they both testified that they intended the Property
to be an investment which they would use as a rental property. They also both
testified that the Appellant did not have any money for the down-payment and
that Melissa borrowed approximately $21,000 or $22,000 from her parents for the
deposit on the Property.
[8]
It was the Appellant’s
evidence that the interest expenses he claimed were amounts he paid to Melissa
for making the deposit on the Property. In support of his statement, he
tendered an exhibit entitled Promissory Note which was dated February 10, 2006
and signed by him. The Promissory Note read, in part:
FOR VALUE RECEIVED, RICHARD BRADSHAW promises to pay Melissa Quan at
Vauhan (sp) Ontario the sum of $21,000 upon the following terms;
Payment
of the sum of $21,000 with interest at 7% per annum shall be made and payable
on the sale of my property at 54 Giannarco Way, Vaughan, Ontario L6A 3J2.
[9]
In either April or May
2007, the Appellant and his family sold 54 Giannarco Way and he rented an
apartment. The purchase of the Property closed in August 2007. The Appellant
stated that he moved into the Property in August 2007 because he was
unsuccessful in finding a tenant to rent it. He testified that, in September
2007, he found a tenant to share the Property with him and he charged this
tenant $800 monthly.
[10]
In his income tax
returns the Appellant claimed the following rental losses:
|
|
2007
|
2008
|
2009
|
|
Income
|
$3,200.00
|
$7,200.00
|
$7,200.00
|
|
|
|
|
|
|
Maintenance &
Repairs
|
$4,346.00
|
$4,672.50
|
$3,780.00
|
|
Insurance
|
227.50
|
234.00
|
351.18
|
|
Interest
|
2,968.75
|
7,896.00
|
8,415.74
|
|
Property Taxes
|
725.00
|
739.00
|
1,704.47
|
|
Utilities
|
732.92
|
1,563.97
|
1,607.98
|
|
Other Expenses
|
318.00
|
420.00
|
472.50
|
|
Total Expenses
|
$9,318.17
|
$15,495.37[1]
|
$16,331.87
|
|
|
|
|
|
|
Net Loss
|
($6,118.17)
|
($8,295.37)
|
($9,131.87)
|
Analysis
[11]
The Appellant’s
evidence was vague, inconsistent within itself and with some of the documentary
evidence. I have found that his testimony was not trustworthy and some of the
documents which he submitted were fiction.
[12]
Both Melissa and the
Appellant testified that they jointly purchased the Property as an investment
and that Melissa paid the deposit of $21,000 or $22,000. They also testified
that Melissa never lived in the Property. However, their testimony was not
supported by the following documentary evidence.
[13]
According to the
Promissory Note, Melissa made a loan to the Appellant of $21,000 and not an
investment in the Property. The Note reads that the Appellant was to repay
Melissa the sum of $21,000 with interest of 7% per annum.
[14]
The Appellant and
Melissa signed an Agreement of Purchase and Sale for the Property on December
11, 2005. The deposit made was not $21,000 as alleged by them but $5,000
payable forthwith and $25,000 payable over a period of 180 days by post-dated
cheques.
[15]
On April 7, 2008, the
Appellant and Melissa signed an Agreement wherein they agreed that they were
the registered owners as joint tenants of the Property and they wished to
transfer sole ownership of the Property to the Appellant in accordance with a
settlement which they had negotiated between themselves. According to this
Agreement, Melissa had paid $24,000 while the Appellant had paid $46,000
towards the purchase of the Property. In this Agreement, they stated that they
were cohabiting in the Property and that they had separated on or about
November 26, 2007. The Agreement was prepared by their lawyer and signed by
each of them.
[16]
It is my opinion that
this Agreement reflected the true state of affairs between the Appellant and
Melissa and I have concluded that they purchased the Property as their
principal residence and not as an investment property.
[17]
It is my view that the
Appellant did not rent out a portion of his home and the rental expenses
claimed by him were really personal expenses. He was not able to produce any
evidence to show that he tried to find a tenant for the Property prior to his
moving into it in August 2007. In addition, Melissa testified that the Property
was not used as a rental property at any time during the period she owned an
interest in it. She was a joint owner in the Property until April 15, 2008.
[18]
The Appellant’s
credibility with respect to whether the Property was a rental property was so
shaken by Melissa’s evidence that I have concluded that the Property was never
used as a rental property.
[19]
I have not been
persuaded that the Appellant paid any amount to Melissa for interest expenses.
At one point in his testimony the Appellant stated that he paid Melissa an
interest amount in each of 2006, 2007 and 2008. Later, he stated that he paid
Melissa all of the interest expense in May 2008. I note that he claimed an
interest expense in his income tax returns in 2007, 2008 and 2009.
[20]
The Appellant’s
assertion that he paid Melissa any amount as an interest expense conflicted
with his testimony that Melissa had purchased the Property with him as an
investment. If her deposit on the Property was her investment, then I question
why the Appellant would have to pay interest to Melissa on this deposit. No
explanation was given.
Non-refundable Tax Credit
[21]
I have concluded from
the documents submitted by the Appellant that he supported his present spouse
in 2008 and 2009 and he is entitled to deduct amounts for a dependent spouse in
those years.
Automobile Repair Business
[22]
It was the Appellant’s
evidence that he started a roadside automobile repair business in either
January or February 2009. He had no employees and he earned approximately
$4,000 or $6,000. He found his clients through word of mouth. He owned some
tools and he rented other tools which he needed. In early March 2009, he
injured his hand and had to have his friends drive him to his various jobs. He
stopped his automobile repair business in 2009. The Appellant reported a
business loss of $5,116.59 from this endeavour.
[23]
With respect to this
issue, the Appellant’s testimony was vague, imprecise and unconvincing.
Although he claimed to have incurred business expenses of $11,418.59, he was
not able to submit any documents to support his claim. The Appellant has not
established that he had an automobile repair business or that he incurred a
business loss of $5,116.59 in 2009.
[24]
The appeal is allowed
and the Appellant is entitled to deduct amounts for a dependent spouse for the
2008 and 2009 taxation years.
Signed at Halifax, Nova Scotia, this 6th
day of August 2013.
“V.A. Miller”
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