Roland
St
Onge:—The
appeal
of
Mr
Allan
J
Darling
came
before
me
on
November
12,
1981,
in
the
City
of
Ottawa,
Ontario
and
it
has
to
do
with
interest
expenses
incurred
in
the
appellant’s
1976
and
1977
taxation
years.
The
facts
of
this
appeal
are
well
spelled
out
at
paragraph
3,
subparagraphs
(a),
(b),
(c),
(d),
(e)
and
(h)
of
the
reply
to
the
notice
of
appeal
which
reads
as
follows:
3.
In
reassessing
the
Appellant
for
the
1976
and
1977
taxation
years,
the
Minister
of
National
Revenue
assumed
the
following
facts:
(a)
On
January
1,
1976,
the
Appellant
and
his
wife
jointly
owned
the
“Sadler
house”,
(b)
On
June
29,
1976,
the
Appellant
received
a
loan
from
the
Bank
of
Montreal
in
the
amount
of
$62,500
(c)
On
June
30,
1976,
the
appellant’s
wife
purchased
in
her
name
a
new
principal
residence
for
herself
and
the
Appellant,
by
means
of
a
cash
down
payment
of
$119,400
and
a
mortgage
of
$20,000;
(d)
The
“Sadler
house”
was
rented
from
July
1,1976
until
June
20,
1977,
and
sold
on
June
20,
1977,
at
which
time
it
was
still
owned
jointly
by
the
Appellant
and
his
wife;
(e)
The
taxpayer
claimed
the
interest
on
the
$62,500
loan
against
the
rental
income
received
from
the
“Sadler
house”
during
the
1976
and
1977
taxation
years;
(h)
He
submits
that
the
Appellant
did
not
in
the
taxation
years
1976
and
1977
pay
$4,069.97
and
$3,675.42
in
the
respective
years
pursuant
to
a
legal
obligation
to
pay
interest
on
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property,
or
an
amount
payable
for
property
acquired
for
the
purpose
of
producing
income
from
a
business
or
property.
On
January
1,
1976,
the
appellant
and
his
wife
jointly
owned
the
“Sadler
house”
in
which
they
lived.
On
June
29,
1976,
the
appellant
borrowed
$62,500
from
the
Bank
of
Montreal,
which
amount
was
deposited
in
a
joint
bank
account
of
the
husband
and
wife.
According
to
them,
this
money
was
borrowed
by
the
husband
to
purchase
his
wife’s
share
in
the
“Sadler
house”
property,
but
there
is
no
document
to
substantiate
this
transaction.
When
the
property
was
sold
it
was
still
in
both
names
and
the
wife
had
to
sign
as
joint
owner.
In
the
1976-1977
taxation
years,
the
husband
declared
all
the
rental
income
and
deducted
all
the
operation
expenses
including
the
interest
paid
on
the
$62,500
loan.
The
Minister
disallowed
the
interest
on
the
assumptions
that
the
money
was
borrowed
to
buy
a
new
residence.
The
appellant
explained
that:
1.
The
reasons
for
not
formalizing
the
sale
to
him
of
his
spouse’s
ownership
share
in
the
“Sadler
house”
in
June
1976,
were
business
and
economic
in
nature:
(a)
To
save
costly
cost
of
transfer;
(b)
To
save
substantial
amounts
of
interest
because
in
case
of
sale
the
mortgage
in
the
“Sadler
house”
had
to
be
renegotiated
(difference
between
7%%
and
11%).
2.
The
fact
that
the
appellant
reported
all
the
rental
income
and
the
wife
none,
shows
their
real
intention
to
transfer
the
wife’s
share
to
the
husband.
The
Minister
contended
that
the
borrowed
money
was
not
used
to
earn
income
but
to
acquire
a
new
residence,
since:
1.
The
money
was
borrowed
on
June
29,
1976,
and
the
new
residence
acquired
the
next
day;
2.
The
account
solely
in
the
wife’s
name
was
made
a
joint
account
at
the
request
of
the
bank,
so
that
the
borrowed
money
be
deposited
in
the
husband
and
wife
joint
account.
3.
Mrs.
Darling
admitted
that
most
of
the
borrowing
money
went
to
buy
the
new
residence.
The
fact
that
the
appellant
reported
in
full
the
rental
income
from
the
“Sadler
house”
property
does
not
prove
that
he
was
the
sole
owner
thereof.
The
Board
has
to
look
at
the
facts
as
they
are.
There
is
no
document
to
show
that
Mrs.
Darling
sold
her
share
to
her
husband
and
moreover
at
the
time
of
sale
one
year
later,
the
appellant
and
his
spouse
are
still
joint
owners
of
the
said
property.
Furthermore,
there
are
some
indications
to
show
that
the
money
was
borrowed
to
acquire
the
new
residence:The
money
was
borrowed
on
June
29,
1976,
and
the
new
residence
acquired
the
next
day.
Mrs.
Darling
testified
that
most
of
the
borrowed
money
went
to
buy
the
new
residence.
This
evidence
is
sufficient
for
the
Board
to
dismiss
the
appeal.
The
appeal
is
dismissed.
Appeal
dismissed.
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