Brulé
J.T.C.C.:
The
appellant
is
appealing
assessments
in
respect
to
his
1990,
1991
and
1992
taxation
years
in
which
he
was
denied
claims
for
interest
expense
in
the
amounts
of
$10,625.00,
$8,911.00
and
$6,787.00.
Facts
In
December
1989
the
appellant
advanced
borrowed
funds
in
an
amount
of
$76,210.00
in
response
to
an
offering
of
units
in
a
limited
partnership
known
as
“70
Richmond
Street
East
Limited
Partnership”.
There
was
a
depository
agreement
in
which
the
promoter
would
hold
all
monies
received
from
the
subscribers
pending
the
closing
of
the
purchase
of
the
property.
In
the
event
that
the
purchase
of
the
property
did
not
close
all
funds
paid
by
the
subscribers
would
be
refunded.
Eventually
the
monies
were
repaid
to
the
appellant,
according
to
his
evidence
at
trial.
The
monies
advanced
were
to
purchase
units
in
the
limited
partnership
but
it
appeared
uncertain
whether
or
not
the
appellant
became
a
partner
in
the
limited
partnership.
No
proof
was
offered
to
the
Court.
Issue
The
issue
is
whether
the
Minister
of
National
Revenue
properly
dis
allowed
the
appellant’s
claims
for
carrying
charges
for
the
1990,
1991
and
1992
taxation
years
in
the
amounts
of
$10,625.00,
$8,911.00
and
$6,787.00
respectively.
Appellant’s
position
Simply
stated
the
appellant
contends
that
the
monies
advanced
were
in
contemplation
of
an
investment
on
account
of
capital
and
that
he
is
entitled
to
claim
as
a
deduction
from
income
interest
on
borrowed
money
used
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
within
the
meaning
of
paragraph
20(1
)(c)
of
the
Income
Tax
Act
(the
“Act”).
Respondent’s
position
The
respondent
submitted
that
the
appellant
was
never
a
partner
in
the
limited
partnership.
No
proof
of
such
was
offered
to
the
Court.
It
was
claimed
that
the
appellant
never
carried
on
a
business
with
a
view
of
profit.
The
money
that
the
appellant
had
borrowed
was
not
used
for
the
purpose
of
gaining
or
producing
income
from
a
business
or
property
within
the
meaning
of
paragraph
20(1
)(c)
of
the
Act
and
the
interest
expense
was
properly
disallowed
in
computing
income
for
the
1990,
1991
and
1992
taxation
years.
Analysis
Both
parties
claim
that
paragraph
20(1
)(c)
of
the
Act
provides
them
with
the
authority
needed.
In
view
of
this,
it
is
necessary
to
consider
this
provision
of
the
Act.
The
only
portion
of
paragraph
20(1
)(c)
which
concerns
the
appeal
is
20(l)(c)(i)
and
it
reads:
(c)
Interest
-
an
amount
paid
in
the
year
or
payable
in
respect
of
the
year
(depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
income),
pursuant
to
a
legal
obligation
to
pay
interest
on
(i)
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
Or
property
(other
than
borrowed
money
used
to
acquire
property
the
income
from
which
would
be
exempt
or
to
acquire
a
life
insurance
policy),...
When
the
interpretation
of
such
is
perhaps
confusing
so
that
both
parties
claim
that
the
paragraph
helps
their
cause
it
is
necessary
to
look
at
the
jurisprudence.
The
Supreme
Court
of
Canada
in
Tennant
v.
R.,
[1996]
1
C.T.C.
290,
96
D.T.C.
6121,
stated
that
it
was
the
current
use
of
borrowed
funds
which
is
relevant.
Here
there
was
no
current
use.
The
borrowed
funds
had
never
been
put
to
the
use
to
earn
income.
In
the
case
of
Emerson
v.
R.,
(sub
nom.
Emerson
v.
The
Queen)
[1986]
1
C.T.C.
422,
86
D.T.C.
6184,
the
Federal
Court
of
Appeal
said
that
the
essential
requirement
for
interest
deduction
under
paragraph
20(1
)(c)
of
the
Act
was
the
continued
existence
of
the
source
of
income
to
which
the
interest
expense
relates.
Here
no
source
was
shown
to
be
in
existence.
The
Emerson
case
(supra)
was
cited
in
Ko
me
low
v.
Minister
of
National
Revenue,
[1991]
1
C.T.C.
2403,
91
D.T.C.
431,
as
well
as
in
Mandryk
v.
R.,
(sub
nom.
Mandryk
v.
Canada)
[1992]
1
C.T.C.
317,
(sub
nom.
R.
v.
Mandryk)
92
D.T.C.
6329,
a
decision
of
the
Federal
Court
of
Appeal.
In
both
of
these
cases
the
absence
of
a
source
meant
no
interest
could
be
deducted.
The
result
then
on
analysing
the
jurisprudence
is
that
the
appeal
must
be
dismissed.
Appeal
dismissed.
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