The taxpayer's wife purchased a home, which had been their principal residence, from the taxpayer in order to convert it to rental property. They implemented substantial touch-ups on the property, including roof repair, replacement of the kitchen floor and faucets and closets, and landscaping (including fence repairs and a bridge renovation). The taxpayer claimed losses for two years, which arose from deducting mortgage interest, property taxes, insurance and utilities. The Minister denied the deduction of these expenses (whose claiming by the taxpayer rather than his wife was not discussed) on several grounds, including the limitation in s. 18(3.1).
Campbell J allowed the taxpayer's appeal. The work did not rise to the level of "construction, renovation or alteration," as they were "simply general repairs and cosmetic touch-ups" (para. 28). In the alternative, there was no evidence that the mortgage proceeds were used to finance any of the repair work (para. 29).