NRT Technology – Federal Court of Appeal confirms the application of REOP tests in a loss-streaming case

Although the reasonable expectation of profit doctrine has been largely defunct since Stewart and Walls in the context in which it was originally most often applied by CRA (businesses financed as tax shelters and losses of part-time "farmers"), its existence has been preserved in various statutory provisions, including the GST definition of "commercial activity," and the loss-streaming rule in s. 111(5)(a).

The Federal Court of Appeal has briefly affirmed a decision of Campbell Miller J, where he applied the criteria developed in the pre-Stewart cases for determining the existence of "REOP" (e.g., Tonn) to find that a loss business of a purchased corporation was not carried on with a REOP, as required by s. 111(5)(a) (and, in fact, the business was essentially dormant following the acquisition).  Accordingly, the losses could not be utilized.

Neal Armstrong.  Summary of NRT Technology Group v. The Queen, 2013 DTC 1021, 2012 TCC 420, briefly aff’d 2013 FCA 221, under s. 111(5)(a).