Bonner
T.C.J.:
The
Appellant
appeals
from
assessments
under
the
Income
Tax
Act
(“Act”)
for
the
1990,
1991
and
1992
taxation
years.
On
assessment
the
Minister
of
National
Revenue
(“Minister”)
disallowed
the
deduction
of
rental
losses
on
the
Appellant’s
property
at
80
Yorkville
Drive
in
Courtice,
Ontario.
The
Minister
acted
on
the
assumption
that
the
losses
were
personal
or
living
expenses
by
reason
of
the
absence
of
reasonable
expectation
of
profit.
The
property
was
bought
in
1989,
that
is
to
say
the
agreement
of
purchase
and
sale
was
signed
in
that
year.
However,
the
building
was
not
in
existence
and
was
subsequently
constructed
with
the
purchase
being
completed
in
1990.
In
the
meantime,
between
the
time
of
the
agreement
of
purchase
and
sale
and
the
closing,
the
real
estate
market,
which
I
gather
had
been
rising
rapidly,
ceased
to
rise
and,
in
fact,
declined
abruptly.
The
consequence
of
this
from
the
standpoint
of
the
Appellant’s
rental
operation,
or
proposed
rental
operation,
was
that
the
increase
in
rents
which
is
usually
attendant
on
a
rising
real
estate
market
came
to
an
abrupt
halt.
The
Appellant
was
not
able
to
rent
the
property
for
as
much
as
I
gather
he
had
anticipated,
and
his
ability
to
raise
rents
over
time
was
restricted
by
the
flat
real
estate
market
which
followed.
It
is
relevant
to
note
that
the
Appellant
did
succeed
in
renting
the
property
and
that
he
made
improvements
which
enabled
him
to
increase
rents,
at
least
recently
anyway,
and
that
he
took
measures,
including
the
payment
of
a
penalty
to
a
mortgagee,
in
order
to
reduce
his
interest
costs.
The
reasonable
expectation
of
profit
test
relevant
in
this
case
and
in
so
many
similar
cases
is
not
a
test
involving
the
use
of
hindsight.
The
test
is
one
that,
as
may
be
gathered
from
the
language
used
in
describing
the
test,
as
one
of
expectation.
Expectations
are
tested
by
reference
to
the
factual
situation
existing
during
the
year
in
question
and
reasonably
foreseeable
during
the
year
in
question.
Here,
in
my
view,
it
was
entirely
reasonable
for
the
Appellant
to
expect
that
rents
would
rise
and
that
a
profit
would
be
realized
within
a
few
years
and
I
accept
his
evidence
that
the
time
has
arrived,
as
a
matter
of
fact,
this
year.
He
expects
to
realize
a
profit
this
year
and,
given
the
evidence,
I
am
inclined
to
think
that
he
probably
will.
The
expectation
of
profit
within
a
period
of
that
duration
is
sufficient
to
meet
the
test.
The
representative
of
the
Appellant
referred
to
a
decision
of
mine
in
Clair
Baker,
a
1987
decision
which
I
think
is
on
point
[reported
as
Baker
v.
Minister
of
National
Revenue,
[1987]
2
C.T.C.
2271
(T.C.C.)].
In
the
circumstances,
I
am
of
the
view
that
the
assessment
was
based
on
an
erroneous
premise,
that
is
to
say
the
finding
or
assumption
that
no
reasonable
expectation
of
profit
existed.
The
appeals
will
therefore
be
allowed
and
the
assessments
referred
back
for
reassessment
on
the
basis
that
the
losses
are
deductible
as
claimed.
The
Appellant
will
have
any
costs
to
which
he
is
entitled
by
virtue
of
the
Act.
Appeal
allowed.
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