Stirling v. R., [1998] 1 CTC 2633

Beaubier T.C.J.:

These appeals were heard together on common evidence at London, Ontario on August 21, 1997 pursuant to the Informal Procedure. The Appellants were the only witnesses. They are father (Leroy) and son (Donald).

Both have appealed reassessments for 1991 and 1992 which disallowed their claims for deductions of expenses in respect to a condominium which they purchased at Brandon, Florida, U.S.A. in August, 1992. It was purchased by them and their wives as joint tenants with right of survivorship. The Appellants each paid 50% of the price and renovation. Each individually deducted their other alleged expenses for travelling to and being in Florida.

Leroy testified that the Appellants wanted to go into the condominium business in the United States. In 1991 Donald and Leroy went to Florida. Donald looked over the eastern side. Leroy looked over the western side. They met and compared notes. They decided that the central area of Florida was the best place for the condominium business.

Neither testified as to the particulars of their alleged expenses. Donald could not give particulars of expenses or events. There is no evidence that they made any offers or examined any particular property in 1991. They were merely checking out an idea. In the Court’s view the Appellants were not in business in 1991. Their claims for expenses in respect to an alleged business in Florida in 1991 are dismissed.

In 1992 Donald was in Florida and arranged for the purchase of a walkup, apartment-like, condominium in a complex in Brandon. He then gutted the premises. His wife chose the colours and the decorating. Donald put in new cupboards, carpet and furnishings. Donald returned to Canada. In November, Leroy and his wife met old friends, an English couple, in Toronto. Together they travelled to Florida to stay in the condominium. When they got there they found that the reports as to storm damage were understated. The roof and air-conditioning had been in the process of replacement when a rain storm had heavily damaged the condominium. They rented accommodation elsewhere and Leroy commenced working on the condominium. He went back to Canada in December. The condominium was finally fixed in February, 1993.

Leroy and Donald hold out the English couple, who are allegedly in the travel business, as people who inspected the condominium for rental to their tourist referrals. They say they advertised the condominium among seniors in the district of their homes in Ridgeway, Ontario. Donald introduced a brochure illustrating this. It pictures the condominium sometime after Donald’s renovation. Their only rental was after February 1993.

After that date, Leroy purchased a manufactured home in Florida, bought out Donald’s interest in the condominium furniture, and moved the furniture into the manufactured home. They then rented the condominium by a long-term lease in 1993. That tenant is still renting the condominium.

The question is whether they were in the rental business in 1992. Leroy testified in cross-examination that he, his wife and the English couple went to Florida in November intending to stay in the condominium. They did not rent it before that date. They did not stay in it due to its damaged condition which was not corrected in 1992. On this basis the Court finds that Leroy and his wife had a personal interest in using the Florida condominium as a vacation property in 1992. The testimony of both Donald and Leroy is that they regarded the condominium as a partnership property.

Schedule A2 to Donald’s Reply to Notice of Appeal describes the expenses claimed and allowed. It should be noted that Donald alleges that he was also in the patent business and that the alleged patent and condominium expenses are all mixed in together and never were broken down by Donald in his testimony. A2 reads:

DONALD STIRLING

Schedule “A2”
1992
Gross revenue reported		$ 400.00
EXPENSES CLAIMED:
Accounting, Legal, Collection Consulting		$4,779.40
Business tax		100.00
Interest, Bank charges		12.85
Management and administra-		1,168.00
tion fees
Meals and Entertainment		1,728.68
office expenses		887.77
Travel		1,615.47
Total expenses		$10,292.17
Net Income (Loss)		($ 9,882.64)
Add: Auto expenses		(6,938.93)
Total loss		($16,821.57)
Expenses allowed by Depart
ment:
Condo fees	$464.00
Insurance	162.00
Screen	300.00
Taxes	809.22
Setlement costs	35.53
Tampa electric	64.65
Plumber	596.31	$ 2,431.41
Expenses disallowed		$14,389.86

Accounting, legal, etc. of $4,779.40 were not explained or itemized, nor were any of the other claims. The auto expenses were not explained or justified. The meals were allegedly for the English couple in some part. Section 67 was pleaded. The figures, on their face, are unreasonable for a modest two-bedroom condominium in central Florida. The Appellants failed to prove that the expenses were either reasonable or incurred for the purpose of gaining income.

The Court finds that the nature of the 1992 expenses allowed by the Minister of National Revenue are such that the Respondent appears to have admitted that the Appellants were in business in respect to the condominium. However those disallowed, based on their headings, amounts, lack of evidence from the Appellants in justification, and having regard to the modesty of the single property and the personal interest of at least one partner which is associated with the condominium, are not reasonable.

For this reason the Appellants’ appeals under this heading in 1992 are dismissed.

Leroy Stirling had two other items which remained subject to dispute in the appeals:

1. In 1991 he deducted $1,302.45 and in 1992, $1,367.57 respecting a second mortgage which he gave to the vendor of the property which he purchased and rented on Weber Street in Waterloo, Ontario. However, his mortgage statement (Exhibit A-2, Tab 6) for this mortgage indicates that no interest was charged on this mortgage. In cross-examination Leroy stated that he deducted interest based on the rate charged by Royal Trust for his first mortgage. He failed to lead any other evidence to justify this deduction.

On the evidence of Exhibit A-2, Tab 6, the Court finds that no interest was charged on this mortgage. Therefore, Leroy cannot claim a deduction in respect to such alleged interest. These claims are dismissed.

2. Leroy owns three cars - a 1934 Air-flow Desoto Coupe, a 1966 Ford Galaxy 500 sedan, and a 1967 Mercury Park Lane convertible. They are all in good running condition. The Respondent acknowledges that these are antique cars which he owns as a business and which are for sale at a profit. He is in the antique car business.

However, the Respondent disallowed various expenses on the basis that they were so extensive that they constitute inventory. His total claim in 1991 was $8,522.92 of which $5,299.14 was for work on the 1967 Mercury which he purchased for $3,500.00. In 1992 he claimed a deduction of $8,633.00 expenses in respect to the Air-flow Desoto for which he paid $25,000.00 Canadian. These were disallowed. The expenses claimed are detailed in Exhibit R-7.

With respect to the 1967 Mercury Park Lane Convertible, the bill for $5,294.14 is dated 91/09/21, within a year after Leroy purchased it it. The following are the items contained in the bill:

The engine and body frame repairs, the parts (which appear to be for the foregoing) and the new top and glass window are all capital. The top well appears to be associated with the new top and glass window and therefore, without any further information, is associated with the capital of the top and glass window. The carpets of $175 may or may not be capital, depending on details. However there is no evidence respecting the details.

In the foregoing circumstances, all of the claim of $5,299.14 for work on the 1967 Mercury is capital, particularly when it is looked at in the light of the purchase price of $3,500.

With respect to the $8,633 deducted on account of the Desoto $3,500 was for upholstering the interior, $2,280 was for new floor boards, rebuilding the brakes, wiring turn signals and other items. Unfortunately, no detailed testimony was given respecting the turn signals and other items. The onus of proof is on the Appellant and therefore this claim fails. Another $1,500 was a finder’s fee “to locate an import”; there is no evidence respecting what this concerns and therefore it fails. $285 was respecting repair and painting the left front fender and $150 was in respect to the exhaust and muffler. Given the lack of detailed evidence respecting some of the items claimed, the Court allows the repair and painting of the left front fender at $285 and $150 spent on the muffler as expenses. A further sum claimed in the statement for $8,867 is $1,292. $1,008 is contained in the $1,292 on account of chrome for front and rear bumpers, tail light stands, etc. There is not sufficient testimony respecting this to determine whether it is capital or income, therefore it fails. As to the remainder of the $1,292, anti-freeze and paint totalling $54 appears to be a noncapital item. The remainder appears to be capital. In the foregoing circumstances, the amounts deductible on account of the Air-flow Desoto are $54, plus $285, plus $50; the remainder is on capital account.

For the foregoing reasons, Donald’s appeals are dismissed in their entirety. For the foregoing reasons, Leroy’s appeal for 1991 is dismissed. Leroy’s appeal for 1992 is referred to the Minister of National Revenue for reconsideration and reassessment on the basis that expenses of $489 claimed on account of the Air flow Desoto are allowed.

Appeals allowed in part.