Taylor
J.T.C.C.:
—
This
is
an
appeal
heard
in
Toronto,
Ontario,
on
July
29,
1996
under
the
informal
procedure,
against
an
income
tax
assessment
for
the
year
1991
in
which
the
Respondent
had
disallowed
as
a
deduction
an
amount
of
$27,630.66
claimed
as
interest
paid.
The
Notice
of
Appeal
read:
I
am
appealing
the
reassessment
of
my
1991
personal
tax
return.
The
date
of
reassessment
was
August
9,
1994.
A
Notice
of
Objection
was
filed
with
the
Minister
within
90
days
of
August
9,
1994.
Revenue
Canada
Appeals
Division
did
not
allow
my
objection
and
confirmed
the
assessment
for
1991
of
$9,990.79
additional
tax
plus
interest
to
date.
I
have
chosen
to
represent
myself
in
Court
using
the
Informal
Procedure.
The
appeals
division
of
Revenue
Canada
in
their
summation
obviously
did
not
consider
all
of
the
facts,
neither
did
they
reconsider
the
reassessment
from
a
reasonableness
or
fairness
point
of
view.
I
have
been
asked
to
pay
income
tax
on
interest
income
I
never
received.
In
addition
the
structuring
of
the
purchase
deal
by
vendor
(Walden
Pond
Developments
Ltd.)
was
so
designed
to
benefit
only
them,
yet
I
am
being
asked
to
pay
income
tax
in
a
situation
from
which
I
received
no
personal
benefit,
however,
Walden
Pond
Developments
Ltd.,
benefited
a
great
deal.
It
would
appear
by
comments
made
by
the
appeals
officer
and
in
a
letter
from
Revenue
Canada
to
my
accountant
that
one
of
the
main
underlying
reasons
for
denying
my
objection
to
the
reassessment
is
that
all
taxpayers
in
a
similar
situation
must
be
treated
the
same,
even
if
it
is
incorrect.
The
relevant
facts
of
the
case
are
as
follows:
-
On
November
28,
1990,
we
closed
on
the
purchase
of
a
condominium
in
Unionville
known
as
Unit
614,
“The
Hunt
Club”
Condominium
Project.
This
unit
was
to
be
our
principal
residence.
—
We
paid
$464,100.
cash
for
the
condominium
unit,
however,
as
it
was
a
new
building
and
not
yet
registered
under
the
Ontario
Condominium
Act,
money
due
on
closing
was
paid
to
vendors
lawyers
“In
Trust”
total
paid
in
trust-
$332,775.
—
The
Vendor
(Walden
Pond
Developments
Ltd.)
was
not
willing
to
wait
until
registration
of
the
building
under
Ontario
Condominium
Act
to
obtain
funds
parked
“In
Trust”
with
their
lawyers.
—
To
receive
these
funds
on
occupancy
of
Unit
614,
November
28,
1990,
the
Vendor
arranged
the
following
flow
of
funds.
(a)
I,
as
occupant
of
Unit
614
was
to
lend
Walden
Pond
Developments
Ltd.
$372,775.
under
a
Promissory
Note
—
bearing
interest
initially
at
13
1/2
per
cent
reduced
to
11
per
cent.
This
note
was
due
on
transfer
of
title
of
unit
to
myself
(May
28,
1991).
(b)
The
funds
for
this
note
were
obtained
from
a
Vendor
take-back
first
mortgage
of
$372,775.
from
Walden
Pond
Developments
Ltd.
bearing
interest
at
the
same
rate
as
the
Promissory
Note
in
(a)
(13
1/2
per
cent
per
annum
reduced
to
11
per
cent).
To
be
repaid
on
transfer
of
title
(May
28,
1991).
(c)
The
interest
to
be
paid
to
myself
on
the
Promissory
Note
was
equal
to
the
interest
paid
on
the
mortgage
financing
from
the
Vendor.
We
paid
cash
for
the
condominium
unit.
The
mortgage
financing
was
only
to
facilitate
the
transfer
of
the
principal
amount
of
$372,775.
to
the
Vendor
upon
our
occupancy
of
Unit
614,
(November
28,
1990)
instead
of
waiting
until
registration
of
the
building
and
transfer
of
title
to
myself
(May
28,
1991).
I
never
received
$18,152.19
of
interest
paid
on
the
Promissory
Note
in
1990
and
1991,
as
it
was
offset
by
the
interest
due
on
the
1st
mortgage
delivered
to
the
Vendor
upon
occupancy,
yet
I
received
a
T-5
for
it
in
1990
and
1991.
(d)
I
am
being
assessed
income
tax
on
the
interest
I
allegedly
received
yet
am
denied
a
deduction
of
the
interest
expense
paid
and
offset
against
the
income.
(e)
I
do
not
object
to
receiving
a
T-5
for
the
interest
income,
however,
I
should
be
allowed
to
deduct
the
offsetting
interest
expense
of
$18,152.19
incurred
in
order
to
earn
the
interest
income
See
20(1
)(c)
C.I.T.A.
When
these
same
facts
were
presented
to
Revenue
Canada
Appeals
they
were
ignored.
They
feel
the
alleged
interest
paid
monthly
on
the
Vendor
Take-Back
Mortgage
was
rent
paid
so
I
could
occupy
Unit
614,
and
therefore,
not
interest
expense
at
all
but
personal
rent.
First
of
all,
the
interest
was
not
paid
as
it
was
offset
against
the
interest
income
on
the
Promissory
Note.
All
that
was
paid
was
Maintenance
and
Taxes
of
$861.39
per
month.
Secondly,
one
does
not
pay
rent
on
a
property
that
one
has
paid
cash
for
in
full.
The
appeals
officer
was
unable
to
comprehend
this
fact
that
I
occupied
Unit
614
on
November
28,
1990,
because
I
had
paid
for
it
in
full.
There
was
no
legal
requirement
to
pay
a
monthly
rent,
only
taxes
and
maintenance.
From
a
legal
and
reasonableness
and
fairness
point
of
view
asking
a
taxpayer
to
pay
income
tax
on
money
never
received
and
from
which
I
have
derived
no
benefit
at
all
is
ludicrous.
I
should
be
allowed
to
deduct
interest
paid
of
$18,152.19
in
years
1990
and
1991,
and
offset
against
the
income
I
have
received
a
T-5
for.
I
have
the
supporting
documentation
for
all
the
facts
detailed
above
and
will
present
them
to
the
Court
at
time
of
trial,
unless
they
are
requested
beforehand.
Revenue
Canada
is
in
possession
of
all
the
relevant
documents,
as
they
were
attached
to
the
Notice
of
Objection.
The
Reply
to
Notice
of
Appeal
read:
In
reply
to
the
Notice
of
Appeal
for
the
1991
taxation
year,
the
Deputy
Attorney
General
of
Canada
says:
A.
STATEMENT
OF
FACTS
1.
Except
as
expressly
admitted
hereinafter,
he
denies
the
facts
alleged
in
the
Notice
of
Appeal.
2.
He
admits
the
first
sentence
of
paragraph
(a)
of
page
2
of
the
Notice
of
Appeal.
3.
In
computing
income
for
the
1991
taxation
year,
the
Appellant
failed
to
include
interest
income
in
the
amount
of
$28,343
(the
“Amount”).
4.
The
Minister
of
National
Revenue
(the
“Minister”)
assessed
the
Appellant
for
the
1991
taxation
year
by
Notice
of
Assessment
mailed
on
July
7,
1992.
5.
In
reassessing
the
Appellant
for
the
1991
taxation
year,
by
Notice
of
Reassessment
mailed
on
August
9,
1994,
the
Minister
included
the
Amount
in
income.
6.
The
Appellant,
in
her
Notice
of
Objection
dated
October
5,
1994,
requested
an
adjustment
to
her
return
of
income
for
the
1991
taxation
year
for
interest
expense
of
$27,630.66.
7.
The
Minister,
in
confirming
the
Reassessment
by
Notification
of
Confirmation
dated
October
12,
1995,
denied
the
Appellant’s
request
to
deduct
interest
expense
of
$27,630.66.
8.
In
so
reassessing
the
Appellant
and
confirming
the
Reassessment,
the
Minister
made
the
following
assumptions
of
fact:
(a)
the
Amount
was
received
by
the
Appellant
in
the
1991
taxation
year;
(b)
TS
slips
were
issued
for
the
Amount
for
the
1991
taxation
year
by
the
following
companies:
—
Walden
Pond
Developments
Ltd.:
$27,606.11
—
Canada
Trust
Co.:
737.87
$28,343.98
(c)
the
Appellant
earned
interest
income
of
$27,606.11
from
funds
she
advanced
to
Walden
Pond
Developments
Ltd.
for
the
construction
of
a
condominium;
(d)
the
interest
expense
of
$27,630.66
the
Appellant
sought
to
deduct
for
the
1991
taxation
year
pertains
to
a
condominium
the
Appellant
purchased
as
her
principal
residence
from
Walden
Pond
Developments
Ltd.;
(e)
the
Appellant
did
not
pay
interest
in
the
1991
taxation
year
pursuant
to
a
legal
obligation
to
pay
interest
on
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
;
(f)
the
interest
expenses
pertaining
to
the
Appellant’s
principal
residence
condominium
are
personal
or
living
expenses
of
the
Appellant.
B.
ISSUES
TO
BE
DECIDED
9.
The
issues
to
be
decided
are:
(a)
whether
the
Amount
received
by
the
Appellant
in
the
1991
taxation
year
is
to
be
included
in
computing
income
for
that
year;
and
(b)
whether
the
Appellant
paid
interest
in
the
1991
taxation
year
pursuant
to
a
legal
obligation
to
pay
interest
on
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property.
C.
STATUTORY
PROVISIONS,
GROUNDS
RELIED
ON
AND
RELIEF
SOUGHT
10.
He
relies
on
sections
3
and
9
and
on
paragraphs
12(1
)(c),
18(1
)(h)
and
20(1
)(c)
of
the
Income
Tax
Act
(the
“Act”)
as
amended
for
the
1991
taxation
year.
11.
He
submits
that
the
Amount
is
to
be
included
in
computing
the
Appellant’s
income
for
the
1991
taxation
year
in
accordance
with
paragraph
12(1
)(c)
of
the
Act.
12.
He
submits
that
the
Appellant
did
not
pay
interest
in
the
1991
taxation
year
pursuant
to
a
legal
obligation
to
pay
interest
on
borrowed
money
used
for
the
purpose
of
earning
income
from
a
business
or
property
and
that
the
Appellant
was
properly
assessed
in
accordance
with
paragraph
20(1
)(c)
of
the
Act.
13.
He
requests
that
the
appeal
be
dismissed.
The
Appellant
read
into
the
record
the
substantive
parts
of
the
Notice
of
Appeal
—
as
her
presentation
in
Court
-
she
filed
no
documents
or
proof
of
the
statements
contained
therein.
In
cross-examination,
Counsel
for
the
Respondent,
had
the
Appellant
identify
only
two
documents.
Exhibit
R-l
-
which
consisted
of
two
pages,
the
first
headed
Schedule
“A”,
dated
July
8,
1989,
which
was
part
of
the
Agreement
of
Purchase
and
Sale,
which
had
been
dated
September
15,
1988;
and
a
second
page,
headed
schedule
“B”,
also
dated
July
8,
1989,
headed
Amending
Agreement
for
Vendor
Take-Back
Mortgage.
“Exhibit
R-2
was
headed
“Statement
of
Adjustments”,
and
it
was
undated.
Little
purpose
would
be
served
by
providing
more
detail
from
these
documents
—
but
they
are
taken
at
face
value
for
these
reasons
for
judgment.
First,
I
would
point
out
that
the
paucity
of
documentary
evidence
did
little
to
aid
the
Court
in
understanding
the
position
of
Mrs.
Scott,
and
in
reaching
a
decision.
I
would
note
that
the
final
paragraph
of
the
Notice
of
Appeal
was
not
fulfilled
in
my
view
—
although
attempts
were
made
by
the
Respondent
to
ensure
that
anything
which
might
be
helpful
to
Mrs.
Scott
—
and
which
was
available
—
would
be
presented
to
the
Court.
Mrs.
Scott
was
asked
at
different
times
to
be
sure
that
the
statement
“we
had
paid
$464,100
cash”
(Notice
of
Appeal
supra)
was
correct,
and
she
asserted
it
was.
Further,
she
was
asked
if
there
was
any
possibility
the
amount
of
$332,775
-
funds
in
trust
(Notice
of
Appeal
—
supra)
was
confused
with
the
later
amounts
of
$372,775
—
her
view
was
that
they
were
quite
different
—
just
coincidentally
somewhat
similar.
In
addition
she
was
unable
to
determine
the
basis
for
the
amount
of
$18,152.19
in
the
Notice
of
Appeal.
In
some
of
the
earlier
information
supplied
to
Mrs.
Scott
from
Revenue
Canada,
there
had
been
reference
to
“rental”
of
some
kind,
presumably
(and
it
is
only
a
presumption)
that
during
the
period
between
occupancy
(apparently
November
28,
1990)
and
ownership
(apparently
May
28,
1991)
the
amount
disallowed
by
Revenue
Canada
was
thought
of
as
rent
from
Mrs.
Scott,
and
therefore
a
personal
payment.
I
do
not
know
that
to
be
the
case,
and
I
only
point
out
that
there
is
no
reference
to
rent
in
the
Reply
to
Notice
of
Appeal
(supra)
which
is
the
legal
position
of
the
Respondent
facing
the
Appellant,
and
which
must
be
dealt
with.
While
I
could
continue
to
detail
the
various
other
apparent
circumstances
and
inadequacies
in
this
matter,
I
am
only
required
to
determine
whether
support
for
the
deduction
claimed
has
been
presented
by
the
Appellant.
That
conclusion
is
quite
simple
and
direct;
there
is
no
evidence
to
support
the
claim
for
some
kind
of
“set-off’
for
the
interest
income,
as
contended
in
the
Notice
of
Appeal.
Nevertheless,
my
examination
of
the
information
available
leads
me
to
question
whether:
(1)
there
ever
was
any
“promissory
note”
for
$372,775.
There
was
one
for
$332,775
apparently.
The
most
critical
reference
to
that,
relevant
to
this
appeal,
was
paragraph
4
of
Exhibit
R-2:
4.
The
Purchaser
acknowledges
that
the
Vendor
shall
be
obliged
to
issue
to
the
Purchaser
a
T-5
interest
income
tax
information
return
(in
the
prescribed
form)
pursuant
to
the
provisions
of
Regulation
201(l)(b)(II)B
of
the
Income
Tax
Act
R.S.C.
1980,
as
amended.
(2)
there
ever
was
a
Vendor
take-back
mortgage
for
$372,775.
There
is
one
contemplated
in
the
Amending
Agreement
-
part
of
Exhibit
R-l
(above)
for
a
seven
day
period
following
registration
of
the
condominium
-
presumably
(and
it
is
only
a
presumption)
to
provide
that
time
for
final
payment
and
transfer
of
title.
(3)
the
Appellant
did
pay
in
cash,
or
in
any
other
final
way
the
amount
of
$464,100
before
or
on
November
28,
1990,
which
is
the
basic
assertion
in
her
appeal.
The
amount
of
interest
earned
(calculated,
but
not
actually
paid)
on
the
Promissory
Note
(above)
and
charged
to
the
Appellant
as
certified
by
the
TS-slip
represented
a
cost
to
her
for
the
condominium
for
the
period
November
28,
1990
to
May
28,
1991
during
which
time
she
was
occupant
and
not
owner
as
far
as
I
can
determine.
But,
it
is
not
necessary
for
the
Court
to
reach
any
other
conclusion
in
order
to
decide
this
matter,
nor
to
determine
whether
the
identification
as
“interest”
was
proper.
The
simple
fact
is
that
the
Respondent’s
assessment
must
be
upheld.
The
appeal
is
dismissed.
Appeal
dismissed.