SUPREME COURT OF CANADA
Deputy Minister of Revenue of Quebec
Appellant
v.
Richard Moufarrège
Respondent
Official English Translation
Coram: McLachlin C.J. and Major, Bastarache, Binnie, LeBel, Deschamps and Charron JJ.
Reasons for judgment:
(paras. 1 to 7)
Deschamps J. (McLachlin C.J. and Major, Bastarache, Binnie, LeBel and Charron JJ. concurring)
Moufarrège v. Quebec (Deputy Minister of Revenue), [2005] 2 S.C.R. 598, 2005 SCC 53
Deputy Minister of Revenue of Quebec Appellant
v.
Richard Moufarrège Respondent
Indexed as: Moufarrège v. Quebec (Deputy Minister of Revenue)
Neutral citation: 2005 SCC 53.
2005: October 12.
Present: McLachlin C.J. and Major, Bastarache, Binnie, LeBel, Deschamps and Charron JJ.
on appeal from the court of appeal for quebec
Income tax – Deduction – Interest – Interest paid on loan used to earn income from business or property – Source of income ceasing to exist – Interest not deductible – Taxation Act, R.S.Q., c. I-3, ss. 128, 160.
Cases Cited
Referred to: Bronfman Trust v. The Queen, 1987 CanLII 76 (SCC), [1987] 1 S.C.R. 32; Tennant v. M.N.R., 1996 CanLII 218 (SCC), [1996] 1 S.C.R. 305; Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622; Ludco Enterprises Ltd. v. Canada, [2001] 2 S.C.R. 1082, 2001 SCC 62; Stewart v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46.
Statutes and Regulations Cited
Taxation Act, R.S.Q., c. I-3, ss. 128, 160.
APPEAL from a judgment of the Quebec Court of Appeal (Baudouin, Morin and Rochon JJ.A.), 2004 CanLII 15842 (QC CA), [2004] R.J.Q. 1117, [2004] R.D.F.Q. 19, 2004 D.T.C. 6356, [2004] Q.J. No. 3783 (QL), setting aside a decision of Barbe J., [2002] Q.J. No. 909 (QL). Appeal allowed.
Jean Lepage and Alain‑François Meunier, for the appellant.
Nicolas X. Cloutier and François A. Barette, for the respondent.
English version of the judgment of the Court delivered orally by
1Deschamps J. — Section 128 of Quebec’s Taxation Act, R.S.Q., c. I-3, authorizes the deduction of expenses relating to a business or property, provided that they were incurred to gain income. Section 160(a) adds that a taxpayer may deduct the interest paid on a loan used to earn income from a business or property.
2In the case at bar, the Deputy Minister disallowed two deductions claimed by the respondent. The first was for interest paid on a loan initially contracted to purchase real property. The property had been sold by the time the deduction was disallowed. The second disallowed deduction related to interest on a loan that had initially been contracted to purchase shares in a company that went bankrupt before the deduction was claimed.
3Bronfman Trust v. The Queen, 1987 CanLII 76 (SCC), [1987] 1 S.C.R. 32, established that it is the current rather than the original use that is relevant in assessing the deductibility of interest payments (see to the same effect: Tennant v. M.N.R., 1996 CanLII 218 (SCC), [1996] 1 S.C.R. 305; Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622; Ludco Enterprises Ltd. v. Canada, [2001] 2 S.C.R. 1082, 2001 SCC 62).
4Stewart v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46, did not alter the principle that when a reasonable expectation of income disappears, so does the right to a deduction. In that decision, the Court stated that “the deductibility of expenses presupposes the existence of a source of income” (para. 57).
5In the instant case, once the properties were sold, the source of income ceased to exist and the loan was no longer being used to earn income from property in accordance with ss. 128 and 160. With regard to the shares, the company in question is bankrupt, and nothing in the record indicates a possibility of a resumption of activities, so here too the source of income has disappeared even though the company has not been dissolved.
6For these reasons, the appeal is allowed, the judgment of the Court of Appeal is reversed, and the judgment of the Court of Québec is restored, with costs.
7The motion for costs is dismissed.
Judgment accordingly.
Solicitors for the appellant: Veillette, Larivière, Montréal.
Solicitors for the respondent: Davies Ward Phillips & Vineberg, Montréal.