Gaudreault v. R., [1999] 1 CTC 2030

St-Onge T.C.J.: (L4/R4354/T0/BT0) test_marked_paragraph_end (568) 1.032 0205_7587_7755

The appeal of Claude Gaudreault was heard in the City of Chicoutimi, province of Quebec, on June 13, 1998. The question is whether the Minister was entitled to add certain amounts to the appellant’s income for her 1993, 1994 and 1995 taxation years.

In his Reply to the Notice of Appeal the Minister alleged the following.

[TRANSLATION]

2. In calculating her income for the 1993 and 1994 taxation years the appellant reported $1,958.67 and $2,637.91 respectively as other Income.

3. In calculating her income for the 1995 taxation year the appellant claimed $9,227.91 as a loss resulting from the practice of a profession.

4. In a Notice of Reassessment dated May 15, 1997 for the 1993 and 1994 taxation years the Minister of National Revenue (“the Minister”) in calculating the appellant’s income added $4,638 and $4,530, respectively, as interest and other investment income and deleted the amounts of $1,958.67 and $2,637.91 claimed as other income.

5. In a Notice of Reassessment dated May 15, 1997 for the 1995 taxation year the Minister in calculating the appellant’s income added $4,044 as interest and other investment income and disallowed the $9,227.91 claimed as a loss resulting from the practice of a profession.

8. In arriving at the reassessments dated May 15, 1997 for the 1993, 1994 and 1995 taxation years the Minister took into account inter alia the following facts:

(a) the appellant is retired;

(b) in 1992 the appellant inherited the family home at 3550 Route Saint-Léonard in Shipshaw on her husband’s death;

(c) on October 9, 1992 the appellant disposed of the family home to Daniel Bouchard for $33,370;

(d) after disposing of the family home the appellant held a balance of sale in the amount of $33,370, which bore interest at an annual rate of 14.5%;

(e) in December 1995 Daniel Bouchard sold the property to Benoît Girard and Nadia Touzin for $27,000;

(f) in return for the sum of $20,000 the appellant agreed to give Daniel Bouchard a final release for the balance of sale encumbering the property, the amount of which at the time of the sale was $30,856.22;

(g) at the time of his death the appellant’s husband owed a finance company an amount on a loan the purpose of which the Minister never learned;

(h) the appellant negotiated a credit line with a banking institution in order to repay her deceased husband’s debt;

(i) in calculating the appellant’s income, the interest she paid on her credit line was claimed against interest received on the balance of sale on the family home for the 1993 and 1994 taxation years under ‘‘Other income”:

(j) for the 1995 taxation year the appellant, under “Professional income”, reported a loss of $9,227.91 established by the following calculation:

(k) the interest paid by the appellant on the credit line is not deductible since it does not result from a loan for the purpose of producing income;

(1) the appellant’s ordinary business is not the lending of money;

(m) the appellant’s claim in connection with the disposal of the family home is considered to be included in personal-use property;

(n) in the Minister’s opinion any capital loss suffered in respect of personal-use property is nil.

At the hearing the appellant admitted paragraphs 2, 3, 4, 5 and subparagraphs 8(a) to (c), (e), (g) and (j) and denied all the other subparagraphs.

The appellant explained the denied subparagraphs as follows. 8(d): she made a kind of investment two months after her husband’s death on April 19, 1992. She disposed of the single-family home and rented lodgings. In addition to the said house she inherited $60,000 in cash which she invested with General Trust at a rate of about 7 percent. She then obtained a loan of $33,000 from General Trust at a variable rate of interest starting at 10 per

cent in 1992. The payments of $446.20 a month served to pay her credit line. 8(f): after two years her son-in-law Mr. Bouchard was in a bad financial position and the house was in a poor state of repair. She would have lost more if she had not given him a release of $20,000 on the balance of sale encumbering the property, the amount of which at the time of the sale was $30,856.22. 8(h): she negotiated a credit line with General Trust to enable Mr. Bouchard to make an investment. 8(1): she had sold the house. 8(k): she obtained a credit line to make investment income. 8(1): prior to her husband’s death she had no money; she inherited $60,000, which she invested. 8(m): it was the family home, a single-family house.

In cross-examination she testified that she had lived with her husband in the single-family house for 20 years and sold it two months after his death on April 19, 1992. She did not use a real estate agent and asked for $66,000, as a mortgage of $33,000 to Household Finance, payable at the rate of $446.20 a month, remained outstanding. She gave Mr. Bouchard’s wife, who was her daughter, $33,000, and the son-in-law assumed the balance of the $33,000 mortgage payable at $446.20 a month. If payment was not made she could repossess the house, but the notary suggested she let the house go at $20,000. Her son-in-law thus paid her $20,000 and she lost $13,000.

Counsel for the respondent produced the appellant’s tax returns for the taxation years on appeal to establish the interest expenses claimed by the appellant of $2,679.41 in 1993 and $1,892.56 in 1994, whereas Mr. Bouchard paid $4,638.08 in interest on the balance of sale in 1993 and $4,530.47 in 1994.

On the day of the hearing this case was postponed to 3:00 p.m. to allow the appellant to file other documents which merely corroborated the evidence already on record and did not help to refute the subparagraphs denied by the appellant.

The evidence was that the transaction on appeal was simply a disposal of the single-family property to her son-in-law and daughter, that the interest paid on the credit line was not incurred in order to produce income but to assist in the sale to her daughter and her daughter’s husband, and that the appellant has never operated a business of lending money, since she has never lent money either before or after her husband’s death. The appellant simply made a bad investment.

She had the burden of showing that the respondent’s allegations were wrong in fact and in law. She did not succeed in doing this. The appeal is accordingly dismissed.

Appeal dismissed.