Roland St-Onge:—These appeals relate to the disallowance of what is referred to in the reassessment as “carrying charges on unproductive real property” with respect to the 1967, 1968 and 1969 taxation years.
There are two properties involved, both of which are located in the Parish of St Vincent de Paul, Province of Quebec: Lot 335 which was purchased in 1955 with a house thereon, and Lot 351 which was vacant land acquired in association with others.
Heard as a witness, Mrs Katie Esar explained that from 1955 to 1964 she rented the house on Lot 335 for about $40 a month, but upon cross-examination she had to admit that the rents were not reported as such in her returns because the rents received were always less than the expenses and only the difference between the rents and the expenses was reported in her financial statements. She testified that, because of the undesirable types of tenants, the house was demolished about the year 1964, but according to her returns for the years 1961 to 1967 the Minister disallowed the property taxes because there was no gross income shown for those years. She also testified that Lot 335 was acquired for the purpose of resale; that because the property taxes were very low at the beginning she did not care about deducting them but now that they are high she seeks their deduction; that Lot 335 was not acquired for personal use or to build thereon and, consequently, no architect was hired and no survey made.
On June 10, 1955 the other lot (351) was acquired by Max Esar, Reuben Esar and Julius Kugler for $80,000, $50,000 of which was to be paid in cash and the balance in five equal consecutive annual instalments (Exhibit A-1). The said purchase price was to be paid in proportions of 50% by Max Esar, 25% by Reuben Esar and 25% by Julius Kugler. To enable Mr Kugler to acquire his interest in the said property he negotiated a loan from the Dominion Bank in the sum of $15,000, which loan was guaranteed by Messrs Max and Reuben Esar. Meanwhile the property title was to be taken in the name of Max Esar alone with the right on the part of the said Reuben Esar at any time to obtain a conveyance to him of an undivided one-quarter interest in such property. The share of Julius Kugler was to be pledged in favour of Max and Reuben Esar to guarantee the due payment of the said bank loan of $15,000, and Julius Kugler would have no right to demand any title or deed for his one-quarter interest in the said property until the bank loan had been paid in full.
After that transaction the land was subdivided by the group. By a deed of transfer dated April 11, 1961, and filed as Exhibit A-2, Max Esar transferred to Reuben Esar and Katie Shapiro Esar an undivided one-quarter interest in Lot 351. Then on December 29, 1961, by deed of sale filed as Exhibit A-3, Max Esar, Reuben Esar and Katie Shapiro Esar sold to Bonjour Investment Corporation the said Lot 351 for the price of $160,000, $400 of which was paid forthwith. On the same day, by a deed of sale filed as Exhibit A-4, Bonjour Investment Corporation transferred to Eliteville Development Corporation 49 lots for. $49,000, on account of which the vendor received $500 cash. By virtue of this deed the purchaser had the right to obtain from the vendor release and mainlevée of its privileges, hypothecs and benefits of the resolutory clause with respect to any subdivision lot sold, on payment on account of the balance of price the sum of $1,000 for every such lot so released.
Mrs Katie Esar explained that in 1961 Eliteville Development Corporation carried on its business to the extent that Bonjour Investment Corporation received $4,000 for lots sold, but apparently this money served to pay the company expenses. Later on Eliteville Development Corporation did not pay and 20 lots were returned in payment of the debt. After this experience, Bonjour Investment Corporation entered into negotiation with Campeau Corporation and 113 lots were optioned in 1966. Campeau got into difficulties with by-laws, used two lots and let the option run out. In 1968 the City of Laval sued Bonjour Investment Corporation for taxes and finally a company bought the shares of Bonjour Investment Corporation for $100. The shareholders received nothing for the accounts receivable. Consequently, the appellant lost personally $19,900.
Counsel for the appellant argued that it is immaterial whether those lots were acquired for capital investment purposes, and in his verbal submissions he elaborated on the following paragraphs of the Notice of Appeal:
2. For the reasons set forth in the judgments in the Mettarlin and Morris cases before the Tax Appeal Board, these charges should have been allowed.
3. The expenses related primarily to interest and taxes on property and these are annual, recurrent expenses in connection with the holding of property acquired to earn income.
4, It is not necessary to trace any expense to a particular item of income, the whole as was established years ago in the judgment in Consolidated Textiles and the Minister of National Revenue.
5. The expenses, being of an annual, recurrent nature and being laid out to earn income, should be recognized as deductible.
All the above is true in law as long as the properties were acquired to earn income. According to the evidence adduced, I am convinced that Lots 335 and 351 located in the Parish of St Vincent de Paul were not acquired by the appellant to earn income.
For the years under appeal, even though Lot 335 was held by the appellant personally, it had become unproductive vacant land, whereas Lot 351 was not held by the appellant personally but by a corporation
— the Bonjour Development Corporation which had to pay the carrying charges.
Consequently, the expenses claimed in 1967, 1968 and 1969 with respect to Lot 335 were not laid out to earn income, and those claimed with respect to Lot 351 were incurred by a corporation and therefore cannot be claimed by the appellant personally.
The reasons for judgment in this case will also apply to the case of Reuben Esar.
For the reasons given, the appeals are dismissed.
Appeals dismissed.
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