Garber – per Tax Court of Canada, 600 LP investors incurred non-deductible losses as the underlying business activities were mere window-dressing

Over 600 taxpayers completely lost their substantial investments in limited partnerships that supposedly were to acquire and charter yachts.  The GP had marketing and other business activities.  However, Rossiter ACJ characterized these as mere "window dressing," and applied Johnson and Hammill to find that because this "was a fraudulent scheme from beginning to end throughout which the investors' contractual rights were not respected," the partnerships had no source of income: their losses were denied.

If the investors had in fact been legally obligated under the interest-bearing notes they issued to the partnerships to pay for most of their units (rather than those notes being unenforceable because of their being issued under a fraud), the interest would have been deductible as the investors had a reasonable expectation of income at the time they issued the notes: it didn’t matter that the partnerships weren't sources of income.  This might contradict Hickman (every s. 20 expense must relate to a source).

Furthermore, a limited partnership cannot satisfy the touchstone (for recognition as a partnership) of carrying on business in common with a view to profit if the subjective intent of the GP was to defraud the LPs.

Neal Armstrong.  Summaries of Garber v. The Queen, 2014 DTC 1045 [at 2812], 2014 TCC 1 under s. 3 - Reasonable Expectation of Profit/Business Activity, s. 96, s. 18(1)(a) – income-producing purpose, 13(21) – depreciable property, Reg. 1102(1)(c) and s. 20(1)(c).