Tax Court of Canada Judgments

Date: 20000405

Dockets: 1999-814-IT-I; 1999-816-IT-I

BETWEEN:

NORMAND CHARTRAND, MICHEL LAROCQUE,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Archambault, J.T.C.C.

[1] These are appeals by Normand Chartrand and Michel Larocque, who are contesting notices of assessment issued by the Minister of National Revenue (Minister) for the 1994 taxation year. The Minister disallowed each of the two appellants' deduction of a loss with respect to an alleged investment in a resort complex in Magog known by the firm name "O'Berge du Village Magog" (complex).

Facts

[2] The facts on which the Minister relied in making his assessments are set out in paragraph 9 of each Reply to the Notice of Appeal. The facts are basically similar in both. For the purposes of these Reasons, I will reproduce only those set out in the Reply filed in Mr. Larocque's appeal:

[TRANSLATION]

9. In making this reassessment, the Minister assumed, inter alia, the following facts:

(a) under an agreement for the sale of rights of usufruct dated February 9, 1991, the appellant and his spouse, Diane Roy, purchased from 2314-8463 Québec Inc., operating as O'Berge du Village Magog, a right of usufruct in respect of apartment B-305 in the immovable property located at 261, rue Merry Sud in the town of Magog;

(b) the right of usufruct is limited to one week a year and will be extinguished on June 30, 2026;

(c) the appellant and his spouse paid $8,115 to purchase that right of usufruct on a time-sharing basis;

(d) the appellant did not report any income from a business or property for 1991 to 1993 resulting from the purchase of the right of usufruct;

(e) 2314-8463 Québec Inc. went bankrupt in 1994;

(f) the appellant is not a shareholder in 2314-8463 Québec Inc.;

(g) in the Minister's view, the purchase of the right of usufruct was an investment in personal-use property;

(h) the appellant never established that he invested in a partnership as a silent partner;

(i) accordingly, the partnership loss claimed by the appellant was not allowed.

At the start of the hearing, the agent for the two appellants admitted the facts set out in subparagraphs 9(a), (b), (c), (d), (e) and (g) of each Reply.

[3] Only Mr. Chartrand testified at the hearing. His testimony showed that he purchased his right of usufruct in one unit (unit) in the complex for $4,500 in 1987. This entitled him to occupy it for one week each year, namely the third week of August. The resort complex was therefore what is commonly called a "time-share". He said that 2314-8463 Québec Inc, the developer-vendor corporation, described the property to him as an investment.

[4] However, Mr. Chartrand admitted that he had always occupied his unit himself or occasionally exchanged the use of his unit for the use of another unit in a similar resort complex in another area. Mr. Chartrand also acknowledged that he never rented his unit and therefore never earned any rental income from the time he purchased the unit until the time he lost it when the developer-vendor corporation went bankrupt in 1994.

Analysis

[5] As I noted at the start of the hearing, the appellants bore the burden of demolishing the facts on which the Minister relied in making his assessments. In Mr. Larocque's case, just as in Mr. Chartrand's, the Minister assumed that the unit purchased had been held as personal-use property.[1] As Mr. Chartrand's testimony shows, his unit was indeed personal-use property. He occupied it for personal purposes and never rented it. Since Mr. Larocque did not adduce any evidence to the contrary and did not demolish the facts assumed by the Minister, his unit was also personal-use property.

[6] Under section 40[2] of the Act, a taxpayer who holds immovable property for personal purposes may not deduct a capital loss in respect of that property. The loss in such a case is deemed to be nil.

[7] The appellants' agent argued that Mr. Chartrand's loss should be a deductible capital loss because he was a partner in the complex. She relied in particular on the fact that Mr. Chartrand had the possibility of becoming a shareholder in the developer-vendor corporation.

[8] The evidence did not show that Mr. Chartrand held any interest in that corporation. Even the appellants' agent admitted in her argument that Mr. Chartrand did not hold any shares in the corporation.

[9] The fact that the usufruct contract filed at the hearing shows, as the agent argued, that a portion of the amounts paid by the appellants to purchase their units could be used in part to pay the mortgage on the complex in no way changes the fact that the units were acquired for personal use.

[10] The same is true of the provision in the usufruct contract that all the usufructuaries could choose the manager of the complex once 60 percent of the rights of usufruct had been sold. Even though that fact is not relevant, it may be added that Mr. Chartrand did not participate in any meeting of the usufructuaries. The only meeting he remembered and said he took part in was one held in the summer that was purely a social gathering.

[11] The position taken by the appellants' agent is clearly mistaken. The appellants' appeals are dismissed.

Signed at Montréal, Quebec, this 5th day of April 2000.

"Pierre Archambault"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 28th day of February 2001.

Erich Klein, Revisor

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