Date: 20010502
Docket: 2000-3970-IT-I; 2000-4009-IT-I
BETWEEN:
SHARON REYNOLDS, DARREN W. CASTON,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] These two appeals were heard on common evidence at Toronto, Ontario on April 10, 2001 pursuant to the Informal Procedure of this Court.
[2] The issues in the appeal of Sharon Reynolds are whether the Appellant is entitled to the following, namely:
|
1994 |
1995 |
1996 |
1997 |
1998 |
|
|
1. Rental Income/(Losses) from a house at 409 Manley Street, Midland, Ontario ("Property") |
$ 603 |
($2,815) |
$1,021 |
($2,563) |
($3,851) |
|
2. Business Expenses related to capital cost allowance in respect of 1994 class 3 additions to the property |
- |
- |
$1,706 |
$1,621 |
- |
|
3. Non-refundable tax credit for equivalent to spouse amount |
$5,380 |
$5,380 |
$5,380 |
$5,380 |
$5,380 |
|
4. Loss Carry-forward to 1998 of rental loss claimed in 1995 |
- |
- |
- |
- |
$ 715 |
[3] Counsel for the Respondent maintains that Ms. Reynolds and Mr. Caston, in all of the years in question were cohabiting in a conjugal relationship. Ms. Reynolds and Mr. Caston state that they separated in 1993 and that from that year on, Mr. Caston lived in a separate apartment in the Property, with a separate entrance and separate utility meters, that they never slept together and that their acquaintanceship, although on good terms, was definitely not a spousal relationship. It was accentuated that very few meals were shared and that there was no sexual relationship in all of the years on question.
[4] Counsel for the Respondent points to a continuing bond between Mr. Caston and at least two of the three children of Ms. Reynolds (from a former marriage), that the rent allegedly paid by Mr. Caston was in effect the equivalent of the utility bills and that it should not be considered as rent but merely as a contribution to maintenance of the Property.
[5] The two Appellants maintain that, yes, the rent was fixed in relation to the utility bills but that nevertheless the rent was actually paid to Ms. Reynolds who in turn used those amounts to pay the utility bills.
[6] Counsel for the Respondent also points to the fact that Ms. Reynolds applied for a group health insurance policy in 1990 in connection with her employment, that it was a family policy and that Mr. Caston made certain claims under the policy in 1995 and 1996 and further that neither Appellant advised the insurance company of their change in common-law status as required by the terms of the policy. The Appellants maintain that is not conclusive of their common-law relationship continuing to exist but, that if anything, it was an issue between them and the insurance company.
[7] Counsel for the Respondent also points to Mr. Caston's personal bankruptcy assignment on November 14, 1989 and indications in the bankruptcy proceedings that the parties were still living common-law.
[8] I accept the credibility of both Appellants and find as a fact that they indeed did separate in 1993 and that Mr. Caston was living separate and apart in the separate apartment on the Property, at least during all of the years in question. I do not believe that the factors surrounding the insurance policy and the bankruptcy are sufficient proof of the continuing common-law relationship.
[9] I also find that although the rent was directly related to the amount of the utility bills, that is not sufficient to change the fact that rent was being paid, although admittedly in varying amounts over the years in question.
[10] Therefore the appeal of Sharon Reynolds is allowed and the matter is referred back to the Minister of National Revenue for readjustment and reassessment on the basis that Ms. Reynolds was entitled to the amounts claimed as set forth above and further it follows that there should be no penalty imposed under subsection 163(2) of the Income Tax Act ("Act").
[11] The issues in the appeal of Mr. Caston (ignoring the issue related to an Ontario Credit which is properly before an Ontario Court) relate to whether in the years 1994 through 1998 the Appellant was entitled to certain business expenses and a non-refundable tax credit for premiums paid to insurance companies. The business expenses originally claimed were $7,246 in 1994, $4,498 in 1995, $6,076 in 1996, $6,447 in 1997 and $2,541 in 1998 and the non-refundable tax credits claimed were $2,469 in 1994 and $2,954 in 1995. The business expenses represented the rent allegedly paid to Ms. Reynolds for the apartment where Mr. Caston lived and carried on a business. At the hearing Mr. Caston confirmed that he should not have claimed the full amount of the rents for the apartment in the years in question and that the correct amounts he was claiming were in effect $3,623 in 1994, $2,249 in 1995, $3,037 in 1996, $3,223 in 1997 and $1,270 in 1998 essentially representing fifty percent of the amounts originally claimed. In my opinion Mr. Caston has established that he did pay the reduced amounts mentioned above in the years in question and consequently he is entitled to deductions for said reduced amounts. The amounts were reduced because a portion of the apartment was for personal living space and another portion, namely fifty percent, was for office premises and equipment in the apartment.
[12] With respect to the medical expense credits claimed in 1994 and 1995 of $2,469 and $2,954 respectively, counsel for the Respondent points to subsection 118(2)(1) of the Act and argues that the medical expenses claimed must be proven by filing receipts therefor with the Minister. Mr. Caston explained that he was unable to get receipts because the amounts in effect had been withheld from his pay and remitted by his employer to the insurance companies. He also pointed out that he advised a representative of Revenue Canada in this regard and was more or less advised that someone would contact the insurance companies to make sure that the payments had been made.
[13] Subsection 118(2)(1) of the Act permits a medical expense credit with respect to certain expenses, including premiums paid on health insurance coverage but only if the expenses are "proven by filing receipts therefor with the Minister".
[14] Notwithstanding the explanations of Mr. Caston, in my opinion it is a clear condition precedent for the claiming of the medical expenses that receipts be filed with the Minister. No receipts were filed and consequently Mr. Caston is not entitled to the amounts claimed as non-refundable tax credits of $2,469 and $2,954 in 1994 and 1995 respectively. Mr. Caston should have insisted on getting receipts from the insurance companies. He simply relied on advice received from Revenue Canada. It is well established that advice of that nature is not binding on the Minister.
[15] Considering the degree of success of Mr. Caston there shall be no penalty imposed by virtue of subsection 163(2) of the Act.
[16] Consequently the appeal of Mr. Caston is allowed but only to the extent of allowing him the following deductions as business expenses, namely, $3,623 in 1994, $2,249 in 1995, $3,037 in 1996, $3,223 in 1997 and $1,270 in 1998 and the appeals are referred back to the Minister of National Revenue for readjustment and reassessment on this basis.
Signed at Ottawa, Canada, this 2nd day of May, 2001.
J.T.C.C.