M
J
Bonner
[ORALLY]:—The
appellant
appeals
from
assessments
of
income
tax
for
the
1979
and
1980
taxation
years.
On
assessment
the
Minister
disallowed
the
deduction
of
rental
losses
on
a
house
owned
by
the
appellant.
During
the
period
for
which
losses
were
claimed,
which
period
ran
from
July
1979
to
June
1980,
gross
rentals
of
only
$1,750
were
earned.
Both
before
and
after
that
period
the
house
served
as
the
appellant’s
personal
residence.
The
question
of
rentals
arose
when
the
appellant
accepted
employment
at
a
school
which
required
that
he
live
on
the
school
premises.
The
house
in
question
was
located
near
Wolfville,
Nova
Scotia.
The
appellant
testified
tht
he
checked
with
real
estate
firms
in
the
area
before
deciding
to
rent
the
house
and
was
told
that
he
could
expect
gross
rentals
of
about
$400
to
$425
a
month.
He
believed
that
there
was
a
good
market
for
rental
properties,
at
least
during
the
academic
year.
The
house
needed
renovations.
The
appellant
testified
that
he
planned
to
borrow
money
to
renovate
and
to
refinance
all
the
debts
into
one
new
first
mortgage
when
the
work
was
completed.
Interest
costs
rose
sharply
following
the
summer
of
1979
when
the
plan
was
formed.
That
rise,
of
course,
could
not
have
been
foreseen.
The
Minister’s
counsel
argued
that
the
losses
were
the
result
of
personal
or
living
expenses,
the
deduction
of
which
is
prohibited
by
paragraph
18(1)(h)
of
the
Income
Tax
Act.
The
term
“personal
or
living
expenses’’
is
defined
in
subsection
248(1)
of
the
Act.
That
definition
reads
as
follows:
248.
(1)
In
this
Act,
“personal
or
living
expenses’’
includes
(a)
the
expenses
of
properties
maintained
by
any
person
for
the
use
or
benefit
of
the
taxpayer
or
any
person
connected
with
the
taxpayer
by
blood
relationship,
marriage
or
adoption,
and
not
maintained
in
connection
with
a
business
carried
on
for
profit
or
with
a
reasonable
expectation
of
profit,
The
contract
of
employment
between
the
appellant
and
the
school
which
required
the
appellant
to
move
was
one
of
indefinite
duration.
The
appellant
lived
in
the
house
except
during
the
period
while
teaching
at
the
school.
In
the
circumstances
it
is
reasonable
to
conclude
that
when
the
appellant
moved
to
take
up
residence
at
the
school
he
retained
ownership
of
the
house
with
his
own
future
use
of
that
house
in
view
even
though
he
did
not
know
exactly
when
in
the
future
he
would
be
able
to
move
back
in.
The
expectation
of
profit
referred
to
in
the
definition
of
“personal
or
living
expenses”
must
be
assessed
objectively.
Subjective
optimism,
no
matter
how
sincere,
does
not
meet
the
test.
The
appellant,
in
reaching
a
conclusion
that
the
rent
obtainable
would
cover
carrying
costs
and
then
some,
appears
to
have
been
more
optimistic
than
realistic.
His
optimism
was
particularly
pronounced
in
arriving
at
his
projections
of
future
rental
revenues.
The
$400
to
$425
a
month
figure
was
one
based
on
that
which
could
be
expected
only
if
the
house
were
completely
renovated.
It
was
not
shown,
however,
that
the
appellant
had
any
sort
of
realistic
plan
for
completing
the
renovations.
In
the
result,
he
did
not
complete
them
and
he
was
able
to
secure
a
rent
of
only
$250
a
month.
Furthermore,
on
the
expense
side
his
calculations
made
no
allowance
for
vacancies
or
for
repairs
or
marketing
costs.
I
therefore
cannot
find
that
a
reasonable
expectation
of
profit
existed.
The
appeals
will
be
dismissed.
Appeals
dismissed.
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