Date: 20010525
Docket: A-790-99
Neutral citation: 2001 FCA 166
CORAM: LINDEN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
ROCCO DEVITO
Applicant
- and -
THE ATTORNEY GENERAL OF CANADA
Respondent
Heard at Toronto, Ontario, Thursday, May 24, 2001
Judgment delivered at Toronto, Ontario,
on Thursday, May 24, 2001
REASONS FOR JUDGMENT OF THE COURT BY:LINDEN J.A.
CONCURRED IN BY: SHARLOW J.A.
MALONE J.A.
Date: 20010525
Docket: A-790-99
Neutral citation: 2001 FCA 166
CORAM: LINDEN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
ROCCO DEVITO
Applicant
- and -
THE ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT OF THE COURT
LINDEN J.A.
This is an application for judicial review of a decision of the Tax Court of Canada, which denied the applicant the deduction of a rental loss which he claimed in his 1990 taxation year, on the basis that there was no reasonable expectation of profit.
The applicant rented out parts of the homes he occupied, but consistently lost money over a period of years. As for the taxation year 1990, the Tax Court Judge held that there was no reasonable expectation of profit from the enterprise, and, hence, dismissed the taxpayer's appeal. The applicant in 1990 rented or tried to rent two units and a spare room in his Burlington home, consisting of a room on the main floor, a basement and a room rented to his babysitter at $50 per week. In order to protect his children's well-being, he was very strict with the behaviour of his tenants which sometimes limited his rental income, as, for example, not accepting smokers. There was evidence that the applicant rented the rooms in order to increase his income to enable him to obtain custody of his children and to provide them with a stable home and reliable child care.
The Tax Court Judge correctly outlined the main elements of the "reasonable expectation of profit" doctrine, which the taxpayer must overcome in order to establish that he is in a business. He wrote:
"The reasonable expectation of profit test is an objective test, not a fanciful dream... The objective test includes an examination of profit and loss experienced in the past year. It also examines the operational plan and the background of the implementation of the operational plan, including the planned course of action. It includes an examination of the time spent in the activity as well as the background of the taxpayer, the education and experience of the taxpayer."
The Tax Court Judge explained that "the mortgage payments alone... exceeded the revenue, not including the other expenses of taxes, maintenance or repair, all these other things. The purpose of maintaining the operation was undoubtedly to provide a home for his children, including the arrangement with the babysitter that included room, board and expenses, long-distance phone calls". Consequently, he concluded that "the personal element in this case was predominant" and there was no reasonable expectation of profit. It is apparent from the context that the Judge was referring to the mortgage interest and of the costs associated with the portion of the applicant's house which he rented or wished to rent.
In our view, the Tax Court Judge's findings of fact should not be overturned, as there was evidence to support them and they were reasonable in the circumstances. The fact that a taxpayer is trying to make profit is important, but he must be reasonable in that effort. The amount of rent collected is relevant to the issue of whether the amount expected was reasonable. Nor can we see any error of law in the Judge's reasoning, nor any denial of fairness or natural justice in the conduct of the hearing.
The application must, therefore, be dismissed.
"A.M. Linden"
J.A.
"I agree
Karen R. Sharlow"
"I agree
B. Malone"
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
DOCKET: A-790-99
STYLE OF CAUSE: ROCCO DEVITO
Applicant
- and -
THE ATTORNEY GENERAL OF CANADA
Respondent
DATE OF HEARING: THURSDAY, MAY 24, 2001
PLACE OF HEARING: TORONTO, ONTARIO
REASONS FOR JUDGMENT
OF THE COURT BY: LINDEN J.A.
CONCURRED IN BY: SHARLOW J.A.
MALONE J.A.
DATED: FRIDAY, MAY 25, 2001
APPEARANCES BY: Mr. Rocco Devito
For the Applicant, on his own behalf
Mr. Eric Noble
For the Respondent
SOLICITORS OF RECORD: Rocco Devito
205 Penn Drive
Burlington, Ontario
L7N 2B6
For the Applicant
Morris Rosenberg
Deputy Attorney General of Canada
For the Respondent
FEDERAL COURT OF APPEAL
Date: 20010525
Docket: A-790-99
BETWEEN:
ROCCO DEVITO
Applicant
- and -
THE ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT
OF THE COURT
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