Les Immeubles Sylvio Gendron Inc. v. Minister of National Revenue, [1989] 2 CTC 2339

Tremblay T.CJ.:—This appeal was heard on October 14, 1987 at Quebec, Quebec, on common evidence with the appeal of Sylvio Gendron (85-1635 (IT)).

1. Issue

It must be determined whether the appellant correctly (a) treated rental income as income from a business carried on actively in computing its income for 1980 and (b) deducted sums of $2,977.39 and $2,820.23 as rental losses in respect of a bungalow in Florida that were incurred for the purpose of earning income in computing its income for the fiscal years ending on May 31 of each of 1982 and 1983 respectively.

According to the respondent, these sums were the excess over $1,000 in rent paid by the principal shareholder Sylvio Gendron for a bungalow located in Florida. This bungalow, which was purchased by the appellant in 1977, was purchased, according to the respondent, for the sole benefit of the said shareholder. These sums were not therefore paid for the purpose of earning income and are accordingly not deductible.

With respect to the 1980 taxation year, the respondent argued that the company did not offer its tenants any service in addition to those normally offered by an ordinary landlord and no permanent real estate rental service. Consequently, this was not a business carried on actively.

2. Burden of Proof

2.01 The appellant has the burden of showing that the respondent's assessments are incorrect. This onus of proof is based on several judicial decisions, including the judgment rendered by the Supreme Court of Canada in Johnston v. Minister of National Revenue, [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In this judgment the Court held that presumptions of fact made by the respondent to support his assessments or reassessments are also assumed to be true until the contrary is proved. In the instant case the facts presumed by the respondent are described in subparagraphs (a) to (s) of paragraph 4 of the respondent's reply to the notice of appeal. This paragraph reads as follows:

4. In reassessing the appellant for the 1980, 1982 and 1983 taxation years the respondent relied on the following facts:

(a) the appellant is a private corporation under Canadian control and was incorporated under the Statutes of Quebec on February 2, 1959 [admitted by

(b) the appellant's fiscal year begins on June 1 of each year [admitted by

(c) during its 1980 taxation year the appellant had two principal sources of income that were not otherwise related to each other, namely:

— business income obtained by performing construction contracts [admitted

and

— Canadian investment income from real estate held for the purpose of earning rental income [denied by appellant];

(d) during its 1980 taxation year the net income from rentals was $24,706 obtained from four (4) buildings belonging to the appellant and located as follows:

LOCATION	NUMBER OF BUILDINGS
	RESIDENTIAL	COMMERCIAL
BAIE-COMEAU	12	3
SEPT-ILES	8
SHAWINIGAN	9
SHAWINIGAN-SUD	2
[admitted by appellant];

(e) during its 1980 taxation year the activities and efforts of the appellant as owner of the properties described above were not more important or considerable than those of other investors in such properties [admitted by appellant];

(f) during its 1980 taxation year the appellant negotiated leases, collected rents, paid expenses, repaid mortgages and kept a superintendent where necessary; all these acts are normal for a property owner [admitted by appellant] and are not comparable to those of a person actively carrying on a rental business [denied by appellant];

(g) during its 1980 taxation year the appellant did not offer any additional services other than those normally offered and it also did not offer the public a permanent property rental services; not did the appellant have any full-time employees responsible for rentals [admitted by appellant];

(h) during its 1980 taxation year the appellant's rental income was not income from a business that was carried on actively [denied by appellant];

(i) during its 1977 taxation year the appellant purchased a bungalow-style property in Hollywood, Florida [admitted by appellant];

(j) the cost of this property in Florida as of May 31, 1982 and as of May 31,1983 was $47,849, namely:

	COST OF PROPERTY
	BUILDING	FURNITURE
Purchase cost in 1977	37,750	5,361
Improvements and additions:
1978	3,236	361
1980		1,141
1980	—
	40,986	6,863
[admitted by appellant];

(k) the appellant obtained a long-term mortgage to 1993 at a rate of 8% per year, the balance of which as of May 31, 1982 was $11,803 and as of May 31, 1983 $11,166 [admitted by appellant];

(l) the sole purpose of the purchase of the property in Hollywood, Florida was to obtain a personal benefit for the principal shareholder of the appellant, Sylvio Gendron, by providing him with a place to stay in a popular vacation area

(m) the said property was placed solely at the disposition of the principal shareholder, Sylvio Gendron, twelve (12) months per year [denied by appellant];

(n) the said property is the only one owned by the appellant outside Quebec and the only one located in a vacation area;

(o) it is the only property that the appellant has never been able to let, except at a ridiculously low price to Sylvio Gendron, even though it has owned the property since 1977 [denied by appellant];

(p) no evidence was adduced suggesting that the appellant tried, even once, to sell the property or lease it to persons other than Sylvio Gendron [denied by

(q) the expenses, which exceed the rent received from Mr. Gendron, were not incurred by the appellant for the purpose of earning income and are not deductible [denied by appellant];

(r) these excess expenditures that are not deductible totalled $2,977.39 in 1982 and $2,820.23 in 1983 [denied by appellant];

(s) losses other than capital losses in 1982 did not exceed $2,977 [this paragraph

was added at the hearing and was admitted by the appellant].

3. Evidence and Analysis

3.01 Rental losses

Concerning the sums of $2,977.39 (1982) and $2,820.23 (1983) claimed as rental losses relating to the bungalow, the reassessments must be upheld and the appeals dismissed, given the evidence and the conclusions I reached in Sylvio Gendron (85-1635 (IT)).

In that case I concluded that the bungalow purchased by the appellant in this appeal had been purchased to satisfy the personal needs of Sylvio Gendron. The appellant cannot therefore claim the losses in respect of the bungalow for 1982 and 1983.

3.02 Concerning the dispute relating to the 1980 taxation year, I have concluded, on the basis of the evidence adduced and described in my decision in Sylvio Gendron (85-1635 (IT), paragraphs 3.10, 3.11 and 3.12), that the appellant's income from his apartment buildings was income from property and could not constitute business income for the appellant.

The fact that the said properties could be used as collateral for the company's loans is not sufficient to change the nature of the property income derived from these buildings into business income. It was the services rendered that were the deciding factors in this respect.

4. Conclusion

The appeal is dismissed for the reasons given above.

Appeal dismissed.