Date: 20000731

Docket: 1999-1453-IT-I

BETWEEN:

TERRENCE M.A. BARTER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

McArthur J.T.C.C.

[1] The Appellant appeals the decision of the Minister of National Revenue wherein he was denied deductions for rental losses in the amounts of $643 and $572 for the 1994 and 1995 taxation years, respectively. At the outset of the hearing, the Appellant abandoned his claim for those expenses described as employment expenses in the amount of $520, $427 and $1,736 for the 1994, 1995 and 1996 taxation years. The Appellant decided he was not entitled to deduct these expenses after he considered the decision of my colleague, Bell J., in Cuddie et al v. The Queen.[1]

[2] The Appellant presented his own appeal and was the only witness. He is a member of the Royal Canadian Mounted Police where he has been a dog handler for about 30 years. Over the years, his employer has paid him rent for keeping a kennel space on his property for a RCMP dog. He and his wife acquired their present residence in the 1990s. His employer paid for the installation of a 20' by 40' concrete pad together with two dog houses and an inner chain link or hedge fence contained within the larger parameter of their fenced backyard. The Appellant reported the payment of $972 annually as rental income for the kennel space and deducted expenses in 1994 of $1,625 for a net loss of $643 and in 1995, expenses of $1,542, resulting in a net loss of $572. The largest expenditures were for mortgage interest, taxes and utilities. He allocated 10% of these for the kennel area. They totalled approximately $1,400 in 1994 and $1,150 in 1995.

[3] The question boils down to whether the Appellant carried on a kennel space rental business during the relevant years. The Appellant confirmed the accuracy of the following statement set out in his 1995 income tax return form T776(E)" Statement of Real Estate Rentals":[2]

I am a member of the Royal Canadian Mounted Police Police Dog Services & required to maintain a Police Service Dog at my residence. The Dog is owned by Govt of Canada RCMP. RCM Policy compensates members of PDS for maintaining dog at their res. by Renting of Kennel space on which RCMP owned kennel is situated. In addition, food related work equip. is stored at my res. Compensation is $81.00/month.

As mentioned to the Appellant at the conclusion of the hearing of these appeals, I have struggled to answer the above question in the affirmative but cannot. The Appellant acknowledges that should the kennel payment be considered payment in the performance of his duties of office or employment, then he is not entitled to claim his expenses as the cost of carrying on business.

[4] I conclude that the Appellant was not in the kennel space rental business for the following reasons:

(a) Having allocated 10% of his home costs as business expenses, these costs alone exceed the rental income with little evidence that they will decrease.

(b) There is a strong personal element and Linden J. suggests in Tonn et al v. The Queen[3] that under such circumstances, the situation must be scrutinized carefully. The Appellant obviously wants to keep a dog.

(c) It is a requirement of the Appellant's employment that he keep the Police dog.[4]

(d) The kennel structures are owned by the RCMP and the Appellant does not pay for their use.

(e) The $81 per month for rent is an amount arrived at arbitrarily by the RCMP.

(f) The Appellant is restricted to renting the space to the RCMP only.

(g) The Appellant does not and cannot advertise for other users.

(h) Most of the expenses claimed were unproved and arbitrary.

(i) The Appellant claimed 100% rental payments and expenses yet owned 50% of the rented land area.

(j) The Appellant continues to receive the RCMP rental payment but did not report the rental activity in his 1996 income tax return.

[5] I find that the Appellant was not in the business of renting kennel space in his backyard. He had a private arrangement in which the RCMP paid him a determined amount for use of an area of his backyard. This was a requirement of his employment. Having found that the Appellant was not in the land rental business, for the Appellant to be entitled to deduct employment expenses, he must look to section 8 of the Income Tax Act wherein allowable expenses are set out. Subparagraph 8(1)(i)(iii) is the only one that may be relevant and it states:

8(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

...

(i) amounts paid by the taxpayer in the year as

...

(iii) the cost of supplies that were consumed directly in the performance of the duties of his office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

...

to the extent that he has not been reimbursed, and is not entitled to be reimbursed in respect thereof;

[6] In analyzing the above paragraph, I have relied on the decision of Bell J. in Cuddie et al v. The Queen, supra. I agree with his reasoning and adopt it as my own. For the Appellant to be successful, his expenses related to the dog kennel must be for "supplies that were consumed".[5] For reasons stated in Cuddie, which need not be repeated, the expenses incurred did not come within the meaning of "supplies that were consumed directly in the performance of the duties of the office or employment". The appeals are dismissed.

Signed at Ottawa, Canada, this 31st day of July, 2000.

"C.H. McArthur"

J.T.C.C.

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