M
J
Bonner:—In
making
the
assessment
for
1977
now
under
appeal
the
respondent
allowed
only
$242
of
a
claimed
deduction
of
$1,321.84
in
respect
of
interest
expense
on
a
rental
property
(hereinafter
called
“House
No
1’’)
owned
by
the
appellant.
The
appellant
lived
in
House
No
1
until
July
of
1977.
During
that
month
he
borrowed
$52,000
on
the
security
of
a
first
mortgage
on
the
house
and
he
used
$10,000
of
the
proceeds
to
discharge
an
existing
first
mortgage.*
The
remainder
of
the
proceeds
were
then
used
to
purchase
a
second
house.
The
appellant
then
moved
into
the
second
house
and
made
attempts
to
rent
House
No
1.
Those
attempts
were
unsuccessful
and
the
appellant
sold
House
No
1
in
October
of
1977.
The
amount
allowed
as
a
deduction
was
interest
to
the
time
of
sale
on
a
$10,000
portion
of
the
new
first
mortgage.
The
amount
claimed
was
interest
to
the
time
of
sale
on
all
of
the
borrowed
money.
The
appellant
testified
that
before
he
arranged
for
the
new
mortgage
he
held
$40,000
in
securities.
He
had
the
option
of
selling
them
to
raise
the
money
to
buy
the
new
home
and
of
mortgaging
the
new
home
to
buy
the
securities
back
again.
While
considering
the
options
open
to
him
he
phoned
the
London
District
Office
of
the
Department
of
National
Revenue,
explained
the
situation
and
was
told
that
the
course
which
he
did
in
fact
ultimately
take
was
such
as
to
entitle
him
to
the
deduction
of
the
mortgage
interest.
This
evidence
was
not
challenged.
Subparagraph
10(1)(c)(i)
of
the
Income
Tax
Act
permits
the
deduction
of
interest
on
.
.
borrowed
money
used
for
the
purpose
of
earning
income
from
.
.
.
property
.
.
If
the
$42,000
could
be
viewed
as
“used”
to
permit
the
appellant
either
to
retain
the
investments
which
he
might
have
sold
or
to
retain
House
No
1
as
an
income-producing
rental
property
then
the
appellant
would
be
entitled
to
succeed.
If,
on
the
other
hand,
the
$42,000
is
to
be
regarded
as
“used”
for
the
purchase
of
the
appellant’s
new
home
then
the
interest
cost
is
a
“personal
expense”,
the
deduction
of
which
is
prohibited
by
paragraph
18(1)(h)
of
the
Income
Tax
Act.
In
my
view
one
must
look
to
the
use
in
fact
made
of
the
borrowed
monies.
Here,
that
use
was
the
purchase
of
a
personal
residence.
The
decision
of
the
Federal
Court
of
Canada
in
Phyllis
Barbara
Bronfman
Trust
v
Her
Majesty
the
Queen,
[1979]
CTC
524;
79
DTC
5438,
is
clear
authority
for
the
proposition
that,
in
circumstances
such
as
this,
one
cannot
look
to
an
indirect
result.
The
appellant
relied
principally
on
the
fact
that
he
had
acted
on
advice
given
to
him
by
one
of
the
respondent’s
employees.
As
it
turns
out
that
advice
was
bad.
There
is
no
authority
for
the
proposition
that
the
fact
that
such
advice
has
been
given
precludes
the
respondent
from
assessing
in
accordance
with
the
law
as
laid
down
by
Parliament.
Liability
to
tax
is
governed
by
the
Income
Tax
Act
properly
interpreted
and
applied.
Such
liability
cannot
be
enlarged
or
restricted
by
the
opinions
of
officials.
The
appeal
will
therefore
be
dismissed.
Appeal
dismissed.
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