An individual purchased vacant land (the Property) to hold as investment property jointly with an unrelated individual, with each owning a one-half interest. In a subsequent year the co-owners leased the Property to the neighbouring farmer, which the correspondent stated was to protect against a potential claim of adverse possession. The individual subsequently sold her interest in the Property. In the meantime, for income tax purposes, she reported her share of the rents as rental income and claimed her portion of the property taxes as the only expense. The representative stated that other expenses incurred, such as legal fees and travel expenses, were not claimed for income tax purposes. After ruling that this sale was not exempt under s. 9(2) of Part I of Sched. V, on the basis that immediately before the sale the Property was used primarily in a business carried on by the individual with a reasonable expectation of profit, CRA stated.
[T]he fact that the gross income generated from the lease of the Property was greater than the expenses attributed thereto for most of the years the Property was rented suggests that the business had a reasonable expectation of profit.