INCOME TAX |
Income Calculation |
Deductions |
Dansereau v. Canada
A-654-00
2001 FCA 305, Noël J.A.
18/10/01
7 pp.
Judicial review of dismissal in part by T.C.C. of appeal from reassessments with respect to 1994, 1995 taxation years--In 1991 real estate recession forcing applicant to sell all but one revenue producing properties--Some sold for less than mortgaged amount so that applicant required to place new mortgages on remaining property in order to repay amounts in full--Minister disallowing deduction for interest payments made on those mortgages, on ground with respect to properties which applicant no longer owned--Applicant argued borrowed funds could be traced to direct eligible use, relying on Tennant v. M.N.R., [1996] 1 S.C.R. 305, or that interest payments deductible as payments made in course of business--T.C.C. holding interest payments not deductible because properties constituted individual sources of property income; no evidence led to establish properties held in course of business--Application allowed--Interest payments on loan used to pay back mortgages of previously held properties not made for purpose of earning income from remaining property--Tennant decision of no assistance to applicant as no replacement property acquired with loans secured by remaining property; rather direct use of borrowed funds reimbursement of mortgaged amounts on properties which applicant no longer owned--Not eligible use--But in concluding applicant not leading evidence properties managed, operated as business, Tax Court either failed to give effect to meaning of "business" under Act, or ignored evidence before him--By 1991, applicant had interest in eight properties all of which rented out to multiple tenants--Applicant sought out tenants through advertisements; rental and income statements detailed repair, maintenance expenses, capital additions to six of eight properties--Inferred from fact no management fee paid that applicant saw to financing, rental, maintenance, improvement of properties himself over years--Applicant pooled income resulting from these endeavours--Conclusion: applicant engaged in business of managing, operating properties as opposed to merely collecting rents--As borrowed funds used by applicant to earn income from that business during two taxation years in issue, interest paid thereon deductible pursuant to Income Tax Act, s. 20(1)(c)(i)--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 20(1)(c)(i).