INCOME TAX |
Income Calculation |
Deductions |
Canada v. Milewski
A-596-99
Létourneau and Rothstein JJ.A.
26/9/00
7 pp.
Appeal from Tax Court decision partnership losses, interest expenses incurred by appellant in 1993, 1994 deductible--Taxpayer investing in rental property with very small initial cash payment--Balance of investment financed by borrowing--Principal to be paid according to amortization schedule of 25 years--Minister disallowing certain partnership losses, interest expenses on ground appellant not having reasonable expectation of profit because of significant borrowing to finance investment--Tax Court holding investment clearly long-term, bona fide, with expectation that in fullness of time debt would be paid off and taxpayer would have lasting investment i.e. to realize profit from holding rental property--Appeal dismissed--Létourneau J.A. (McDonald J.A. concurring) concurring with Rothstein J.A, but adding following: appellant contending taxpayer having no reasonable expectation of profit because financing arrangements for investment in limited partnership consisting of condominium rental operation involved payments of interest exceeding income from partnership--However, limited partnership viable business with reasonable expectation of profit--In fact partnership started making profit in second year of operation--Taxpayer's investment in viable business devoid of personal interest, business genuine--Appellant's position would extend application of "no reasonable expectation of profit" doctrine to individual partners for their involvement in partnership which, in all respects, carries on profitable business--Position postulates that, as result of respondent's financial arrangements, partnership in which respondent invested not carrying on business and not source of income, but only for amount of interest losses exceeding income produced by business--Agreeing with Tax Court Judge's view that this was wrong as matter of logic, law, common sense--Per Rothstein J.A.: Reasonable expectation of profit test met--Not unusually long amortization period for long-term investments in real estate--As principal paid down interest expense decreasing, profitability will be achieved.