Poetker v. MNR, 95 DTC 5614, [1996] 1 CTC 202 (FCA)

Stone J.A.:— This section 28 application attacks a judgment of the Tax Court of Canada of January 30, 1995.

The issue before the Tax Court was whether the applicant was entitled in his 1990 and 1991 taxation years, under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “Act”), to deduct from his income rental losses sustained by him from the ownership of two condominium units located at the Hemlock Valley Recreation resort in British Columbia. The units were purchased in 1980 with a view to earning rental income. In none of the years subsequent to their purchase was any profit derived from the units. Between 1988 and 1992, the losses incurred ranged from $12,200 to $33,600. In 1990 and 1991, the losses amounted to $19,600 and $15,100 respectively. Rental income in this five-year period never exceeded $2600 per annum while expenses were never less than $13,000 per annum. Both units were sold at a loss — one in 1992 and the other in 1995.

The learned Tax Court judge determined that the losses were not deductible in either of the years in question because, on the evidence, the applicant had no reasonable expectation of profit.

It is perhaps necessary to observe that a taxpayer who is able to deduct losses indefinitely where no reasonable expectation of profit from a property business exists, is, in effect, having those losses subsidized by the public at large.

There was evidence before the Tax Court judge to the effect that from the beginning the applicant had anticipated the resort development becoming a year-round operation rather than only a winter skiing resort. In the face of that evidence and the other evidence that was before her, the Tax Court judge found, at page 4:

My analysis of the whole situation is that while Mr. Poetker acted reasonably with a reasonable plan and approach when he acquired these two units in 1980, their profitability was, and remained, fundamentally locked into the resort being a year-round facility, a condition over which he had absolutely no control. What he did decide to do was to continue his high hopes that successive owner/developers would keep their promises in this respect.

In concluding that the applicant had no reasonable expectation of profit in the taxation years in question, the Tax Court judge had regard to the decision of the Supreme Court of Canada in Moldowan v. R. (sub nom. Moldoxvan v. The Queen), [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213 and to subsequent cases.

We are unable to distinguish the present case from that which was decided by the majority of this Court in Landry v. R. (sub nom. Landry v. The Queen), [1995] 2 C.T.C. 3, 94 D.T.C. 6624 (F.C.A.). It was there determined that the reasonable expectation of profit test was applicable. We do not read the majority decision as founded upon the presence of some personal benefit element in the taxpayer’s business activity.

We are all of the view, therefore, that the application must fail. In our view, it has not been demonstrated that the Tax Court judge made any reviewable error either in her appreciation of the evidence or the applicable law.

Accordingly, the section 28 application will be dismissed.

Application dismissed.