Teskey T.C.J. (orally):
HIS HONOUR: In this appeal the issue is what is the proper income and the proper expenses for a series of rental properties and what are the proper expenses on the Guaranteed Immigration Service business of the appellant.
The parties agreed as to the items that were in dispute under the sole proprietorship of Guaranteed Immigration Services and an order will go reflecting that agreement.
Concerning the rental properties, the first major item in dispute is the income that was received. Although there were several mathematical errors in it, the appellant did produce a handwritten memo to Revenue Canada when his tax position was first looked at and that was entered into an exhibit as R-3. Now the appellant claims that that was prepared in 1992 but solely from memory and then two years later he claims that the income was not as he had said it was in 1992 but some $6,700.00 less.
The appellant is very quick to answer questions. The appellant’s stories changed slightly from in-chief to cross-examination back to in-chief to an extent that it cannot be relied upon in total at face value.
When discussing certain matters he said, “Well, I got my rent in cheque: and I got it in cash and we just used the cash out of our pocket to pay bills” And yet when he attempted to justify his 1994 figures, he said he looked al the deposit books. Well, if, in his previous evidence in-chief, his deposit books did not mean anything, then they did not mean anything when he estimated his rentals. So I find, as a fact, that the rental figure income, as produced by Revenue Canada in the second column in R-1, is the true and correct figure.
In fact, going through all the testimony, I find that the most reliable figures for the various expenses, save and except in one area, the figures that the respondent is prepared to accede to are the proper figures. There is one error that I am concerned about and that is the mortgage that the appellant put on 275 McDonnell Avenue. He did claim that he purchased it for $72,000, that he borrowed money from hither and yon and renovated it and that the deal was not conditional and he could not arrange a mortgage and that, after he had renovated it, he was able to process the mortgage and obtained it.
Interest is not a deductible expense unless the borrowing was for the purpose of earning income. On top of the purchase price of $72,000.00 he says he spent $45,000.00 in repairs, that is the $117,000.00, and the mortgage was $125,000.00.
We are short of documentation but when I go through all of this, these rental projects just don’t look to be floating in cash. Whether it was robbing Peter to pay Paul and how he got the purchase price paid and how he got the renovations paid for, it would have been so easy to have demonstrated with proper books.
I do believe that he should be entitled to some write-off on the interest on that mortgage and I find as a fact that half the mortgage advanced was used to pay off loans which were used for the purpose of purchase and renovation, and the other half was not. So I am going to accept all the figures of the respondent on R-l except I am going to add $7,000.00 of further expenses which will change the rental profit for 1989 to $5,383.78.
So that there will be a judgment sending the 1989 assessment back for reconsideration and reassessment on the basis that the appellant had a total rental income of $62,355.00 and allowable expenses of $56,971.22, producing a rental income of $5,383.78. And that, on consent, he is entitled to further expenses on his Guaranteed Immigration Services business of $6,664.00.
There will be no costs awarded.
Now have I made some mistakes in mathematics?
THE CROWN: I have just checked that last figure Your Honour.
HIS HONOUR: What I did is took $13,711.00 and subtracted $7,047.00 from it.
THE CROWN: Okay, that should work. It all seems correct Your Honour.
HIS HONOUR: All right.
Then there will be an order issued out of Ottawa reflecting that.
THE CROWN: Thank you Your Honour.
Appeal allowed in part.
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