[OFFICIAL ENGLISH TRANSLATION]
98-864(IT)I
BETWEEN:
PRESCYLLA M. CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Jean-Louis Caron (98-860(IT)I), on April 28, 1999, at Rimouski, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Jean-Louis Caron
Counsel for the Respondent: Suzanne Morin
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years is allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of May 1999.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-860(IT)I
BETWEEN:
JEAN-LOUIS CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeal of
Prescylla M. Caron (98-864(IT)I), on April 28, 1999, at Rimouski, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Suzanne Morin
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1994, 1995 and 1996 taxation years is allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 20th day of May 1999.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 19990520
Docket: 98-864(IT)I
BETWEEN:
PRESCYLLA M. CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND:
98-860(IT)I
JEAN-LOUIS CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] The parties agreed to proceed on common evidence. Only the male appellant testified in support of the two appeals.
[2] Sergine Charest, the person responsible for analysing the appellants' case, also testified at the respondent's request.
[3] The evidence has established that the appellants purchased the two buildings at the heart of the dispute and made a very small cash payment.
[4] It has also been established that these buildings were very old, one built in 1929 or 1930, and the other some time in the 1910s. Both buildings needed substantial repairs, given the time that had passed since they were built.
[5] Mr. Caron explained that it had taken longer than expected to turn a profit for a number of reasons, particularly the much higher than anticipated cost of the substantial repairs, high interest rates, and significant price competition for apartments in the small community of Notre-Dame-du-Lac.
[6] On this point, he explained that the community assumed responsibility for several dozen apartments, the rents of which were so low that they had to be subsidized.
[7] The first building at 1149, rue Commerciale, holding three apartments, was purchased in 1986 for $15,000 by means of a loan for this amount. The second building located at 686 on the same street, holding five apartments, was purchased on October 29, 1976, for $35,000 by means of a loan for $28,000-the appellants had to put up the$7,000 difference. They received an additional loan of $15,000 to make repairs.
[8] Mr. Caron also explained that he planned to take early retirement and therefore did everything that was needed to restore the buildings to their original condition, so as to avoid the unexpected that might jeopardize his financial planning, given the ultimate reduction in his income. Lastly, he said that he also counted on the profit generated by the two buildings to boost his retirement income.
[9] Ms. Charest said that she had the benefit of specific training in evaluating reasonable expectation of profit. In the weeks following her training, she was assigned to several cases in this field, including the appellants' case.
[10] Ms. Charest described the procedure she followed and said that she noted that the appellants had charged to the buildings certain inadmissible expenses including the cost of renovating a bathroom, the purchase of a refrigerator, decorator's fees, and car expenses. As well, most of these expenses proved to be excessive and even inordinately high, given the standard of apartments located in the building.
[11] This observation, combined with Ms. Charest's personal perception of the taxpayers' tax liability, undoubtedly guided or at the very least influenced the assessment of all the facts that formed the basis of her findings. Indeed, the exclusively personal ''Expenses'' category and the substantial maintenance costs were in themselves signs that gave rise to some suspicion.
[12] In addition to the expenses, there were financial costs. These observations could justify the findings that formed the basis of the assessments.
[13] However, Mr. Caron's testimony somewhat downplayed the relevance of the basis for the assessment. He provided explanations and justifications for the maintenance costs in light of the age of the buildings.
[14] I consider it important to analyse the entire case in light of the age of the buildings. I also note that the financial costs are directly related to the extent of the financing.
[15] In this case, the buildings required major, substantial repairs, the cost of which was difficult to foresee. The same was true for the maintenance required by old buildings, which usually involves significantly higher and often unforeseeable outlays.
[16] These points are essential and must be taken into account in evaluating the profitability of a project. In fact, profitability is always directly related to costs in these two major categories. Given the specific circumstances of the present cases, I believe that the appellants had a reasonable expectation of profit that would ultimately provide them with additional income.
[17] Indeed, the waiting period was long and perhaps questionable in some regards; indeed, the appellants revised their plans as a result of the respondent's action. Nevertheless, I do not believe that the appellants' project should be disqualified as a result, given the explanations provided-keeping in mind that profitability must be a consideration; that in the opposite circumstances, the arguments made are no longer admissible.
[18] Concerning the appellants' personal expenses, these expenses cannot be charged in part to the building that benefited from them, as was argued by Mr. Caron. Essentially, they are personal expenses that have nothing at all to do with the other apartments.
[19] All the personal-use expenses for renovating the apartment occupied by the appellants must be excluded from the calculation of the building expenses.
[20] For these reasons, the appeals are allowed, in that the assessments are returned to the Minister of National Revenue for reconsideration and reassessment on the basis that all the appellants' personal expenses must be excluded from the operating expenses of the two buildings, all without costs.
Signed at Ottawa, Canada, this 20th day of May 1999.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 9th day of July 2003.
Sophie Debbané, Revisor