A rental property partnership between two brothers (A and B) was wound-up pursuant to s. 98(3) so as to convert ownership to a 50-50 co-ownership, then the property was partitioned into two lots. B then determined that the lot he received did not reflect a 50% share and negotiated a compensation payment from A. The settlement included the assumption of a portion of the mortgage which had been assumed by B on the partition and the payment of a lump sum by A to B to compensate for the periodic payments that had been made by B on the assumed portion of the mortgage.
In finding that such compensation payments was included in B’s income pursuant to s. 12(1)(x)(iv), the Directorate stated:
- it is reasonable to consider the amount received as a reimbursement in the form of assistance in respect of an outlay or expense. This includes the reimbursement of a deductible expense or a non-deductible expense such as a capital expenditure.
- the amount was received by [B] in the course of earning income from a business or property. In our view, this condition is satisfied since [B[ received income from his rental properties and the reimbursement received … related to those rental properties. In fact, it entailed a reimbursement of mortgage payments that he had made to earn rental income and for which an interest deduction had been granted.
- [A] paid the amount … in the course of earning income from a business or property or with a view to obtaining a benefit for himself. The assumption of a new mortgage and the reimbursement of mortgage payments that he had to make in respect of that mortgage enabled him to keep all his rental properties and retain all his rental income, which constituted a benefit to him. The mortgage payments were expenses that he would have had to incur to earn his rental income if the mortgage had been assumed by him at the time of partition. Consequently, we are of the view that the amount was also paid in earning rental income.