Cases
The Queen v. Gulf Canada Resources Ltd., 96 DTC 6065, [1996] 2 CTC 55 (FCA)
Pratte J.A. noted (at p. 6067) (and Linden J.A. concurred at p. 6069) that the reasonable expectation of profit doctrine had no application where...
Walls v. The Queen, 2000 D.TC 6025 (F.C.A.), aff'd 2002 SCC 47
A limited partnership purchased a mini-warehouse for a purchase price ($2.2 million) that was approximately twice the cost to the...
Kuhlmann v. Canada, 98 DTC 6652, [1999] 1 CTC 38 (FCA)
The Court reversed a finding of the trial judge that a husband and wife team of practising physicians were not engaged in operating an "English...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | a minimum of 5 or 6 years was required for a riding school to become profitable | 107 |
Mohammad v. R., 97 DTC 5503, [1997] 3 C.T.C. 321 (FCA)
The taxpayer had acquired a co-ownership interest in a residential property by assuming his share of a first mortgage and borrowing money for the...
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| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | 85 | |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 160 | |
| Tax Topics - Income Tax Act - Section 67 | s. 67 does not embed a reasonable expectation of profit requirement | 104 |
R. v. Donnelly, 97 DTC 5499, [1998] 1 CTC 23 (FCA)
Before going on to find that the deduction of farming losses by the taxpayer was restricted by s. 31(1) f the Act, Robertson J.A. stated (at p....
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | REOP test satisfied with reasonable expectation of $1 of profit | 84 |
Watt Estate v. The Queen, 97 DTC 5459 (FCA)
In finding that the taxpayer could not deduct the costs incurred by her in seeking to develop her daughter (who was in the taxation years in issue...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 104 |
Mastri v. R., 97 DTC 5420, [1997] 3 C.T.C. 234 (FCA)
The Court reversed a finding of the Tax Court judge that the taxpayers were entitled to deduct their net loss from a rental property...
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| Tax Topics - General Concepts - Stare Decisis | 85 | |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 144 |
Hickman Motors Limited, Appellant v. Her Majesty the Queen, Respondent, 97 DTC 5363, [1997] 2 S.C.R. 336, [1998] 1 CTC 213
Before finding that equipment that the taxpayer received on the winding-up of one subsidiary and held for five days before transferring it to...
Walls v. The Queen, 96 DTC 6142, [1996] 2 CTC 14 (FCTD), rev'd 2002 SCC 47
A limited partnership purchased a mini-warehouse for a purchase price ($2.2 million) that was approximately twice the cost to the...
Tonn v. The Queen, [1996] 1 CTC 205 (FCA)
In 1989 the taxpayer purchased a vacant residential property in Scarborough, containing two residential rental units, with the expectation that...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | expenses must be incurred within business framework | 70 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 154 |
Yaki v. The Queen, 94 DTC 6637, [1994] 2 CTC 361 (FCTD)
In finding that the taxpayer operated his farm in his 1986, 1987 and 1988 taxation years with a reasonable expectation of profit Jerome A.C.J....
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 90 |
Landry v. The Queen, 94 DTC 6624, [1995] 2 CTC 3 (FCA)
Before finding that the taxpayer - who returned to the practice of law in 1979 at the age of 71, organized his practice in a similar manner to...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 157 |
McGovern v. The Queen, 94 DTC 6527, [1994] 2 CTC 231 (FCTD)
A condominium rental unit located at Paul Lake, near Kamloops, was found to have been purchased in December of 1980 with a reasonable expectation...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 154 |
Engler v. The Queen, 94 DTC 6280, [1994] 2 CTC 64 (FCTD)
A venture of buying and selling various gift items, was marginally profitable while it was conducted by the taxpayer on a part-time basis or...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | prospect of small profit is sufficient | 173 |
| Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) | channels expense deductions | 91 |
Johnson v. The Queen, 93 DTC 5462 (FCTD)
An employee of M.L.W. Bombardier who only visited his farm once a week except on summer vacations, and whose farming operation suffered consistent...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 44 |
DesChênes v. The Queen, 93 DTC 5234, [1993] 2 CTC 107 (FCTD)
The taxpayers, who were full-time employees of the federal government, were found not to have engaged in the leasing of a yacht with a reasonable...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 82 |
Edwardes v. The Queen, 91 DTC 5635, [1991] 2 CTC 269 (FCTD)
A full-time teacher was prohibited from deducting losses incurred in automobile performance rallying in the absence of any record of achieving...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 52 |
Blake v. The Queen, 91 DTC 5574 (FCTD)
A teacher who earned approximately $1,000 per year in farm revenues in the taxation years in question was unsuccessful in deducting farm losses...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 40 |
Bigelow v. The Queen, 90 DTC 6262, [1990] 1 CTC 351 (FCTD)
The taxpayer, who in his 1978 and 1979 taxation years was a full-time employee in a potash mine, was found not to be carrying on a thoroughbred...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 102 |
The Queen v. Demers, 90 DTC 6216, [1990] 1 CTC 317 (FCTD)
A husband and wife, who were full-time employees, and who in 1981 purchased farmland which required considerable work before it would become...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 89 |
McNeill v. The Queen, 89 DTC 5516, [1989] 2 CTC 310 (FCTD)
The taxpayer was found to have held his condominium with a reasonable expectation of profit after the time that he abandoned his intention to hold...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 48 |
Posno v. The Queen, 89 DTC 5423, [1989] 2 CTC 234 (FCTD)
The taxpayer, who worked full time as a co-ordinator of special education but had a passion for flying, purchased a high performance aircraft and...
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| Tax Topics - Income Tax Act - Section 13 - Subsection 13(4) | 34 | |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 130 |
Madronich v. The Queen, 89 DTC 5093, [1989] 1 CTC 247 (FCTD)
The taxpayer's tree farm was found to have a reasonable expectation of profit in light of the reforestation operation being undertaken in a...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | tree farm had REOP notwithstanding 30 or 40 years to harvest | 70 |
Coupland v. The Queen, [1988] 1 CTC 414, 88 DTC 6252 (FCTD)
A campground operation on land in the Calabogie area of Lanark which an Ottawa resident with a full-time job had originally purchased as a holiday...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 65 |
Chequer v. The Queen, 88 DTC 6169, [1988] 1 CTC 257 (FCTD)
Although the taxpayer purchased a 48-foot diesel cruiser with a sincere belief that he eventually would make a financial success of an operation...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 41 |
The Queen v. Gorjup, 87 DTC 5348, [1987] 2 CTC 129 (FCTD)
The taxpayer, who at all relevant times had a full-time job, purchased 1/2 of his father-in-law's run-down 200-acre farm in 1975 with the...
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| Tax Topics - General Concepts - Evidence | his subsequent actions corroborated the taxpayer's intentions | 63 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 134 |
London Life Insurance Co. v. The Queen, 87 DTC 5312, [1987] 2 CTC 90 (FCTD), aff'd 90 DTC 6001 (FCA)
London Life provided excess computer capacity to its subsidiary ("LDS") and charged LDS a fee that was calculated so as to avoid any profit or...
Magee v. The Queen, 87 DTC 5282, [1987] 2 CTC 17 (FCTD)
Two spouses, who carried on a truck repair service and an accounting service for truckers, were held not to be carrying on a small operation of...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 105 |
Meech v. The Queen, 87 DTC 5251, [1987] 1 CTC 421 (FCTD)
The taxpayer failed to establish that he acquired two Florida condominium units with a reasonable expectation of profit. One unit showed losses...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 96 |
Firestone v. The Queen, 87 DTC 5237, [1987] 2 CTC 1 (FCA), rev'g 86 DTC 6405, [1986] 2 CTC 251 (FCTD)
A taxpayer's expenses may be deductible even if "there is neither immediate income nor an immediate source of income in his business." In the...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Oversight or Investment Management | fees for expansion of portfolio | 131 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 102 |
Croutch v. The Queen, 86 DTC 6453, [1986] 2 CTC 246 (FCTD)
A part-time farmer who realized farming losses for his 1977-1980 taxation years which were approximately twice his revenues was prohibited from...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 71 |
Gillis v. The Queen, 78 DTC 6103, [1978] CTC 44 (FCTD)
A full-time professor at the University of Prince Edward Island who purchased an 117 acre farm 7 miles away in dilapidated condition, built his...
Moldowan v. The Queen, 77 DTC 5213, [1977] CTC 310, [1978] 1 S.C.R. 480
Dickson, J. stated that "if the taxpayer in operating his farm is merely indulging in a hobby with no reasonable expectation of profit, he is...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | hobby with no reasonable expectation of profit is not a business | 166 |
| Tax Topics - Income Tax Act - Section 31 - Subsection 31(1) | farming was not the taxpayer's chief source of income in light of limited capital and time commitment | 76 |
Tobias v. The Queen, 78 DTC 6028, [1978] CTC 113 (FCTD)
An unsuccessful 8-year search by the taxpayer for buried pirate treasure was a business rather than a hobby.
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| Tax Topics - General Concepts - Onus | 42 | |
| Tax Topics - General Concepts - Personality | 48 | |
| Tax Topics - General Concepts - Separate Existence | 51 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Timing | 57 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense | 69 | |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 20 | |
| Tax Topics - Income Tax Act - Section 67 | high pay-off if unlikely prospect of success was achieved justified the expenditure | 91 |
McLaws v. The Queen, 76 DTC 6005, [1976] CTC 15 (FCTD)
An operation of breeding and keeping horses for racing purposes was held to be carried on as a commercial venture and with a reasonable...
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| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming | 27 | |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 82 |
See Also
Allen v. R., 99 DTC 968, [1999] 4 CTC 2371 (TCC)
The Minister's position, as revealed in the examinations for discovery, was that the taxpayers, who invested in what quickly became a profitable...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | REOP doctrine inapplicable to leveraged investment in LP that became profitable | 148 |
Witkin v. R., 98 DTC 1933, [1998] 3 CTC 2869 (TCC)
The taxpayers and other Canadians purchased a 99% interest in a partnership ("CL 1") which, in turn, owned a 99% interest in a Texas general...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 105 | |
| Tax Topics - Income Tax Act - Section 96 | 70 |
Graham v. R., 97 DTC 1258, [1998] 1 CTC 2333 (TCC)
Before finding that the taxpayers were able to deduct amounts paid by them to a third party to help fund legal expenses to be incurred by the...
Heier v. The Queen, 97 DTC 739, [1997] 1 CTC 2471 (TCC)
The taxpayer was not entitled to deduct her losses from operating a bookstore and selling religious artifacts. Her initial purpose in starting the...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 94 |
Griffin v. The Queen, 96 DTC 1731 (TCC)
The taxpayer, who had a successful medical practice, was unable to deduct any of his losses incurred in respect of an import/export business given...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 65 |
Heenan v. The Queen, 96 DTC 1344 (TCC)
A partnership in which the taxpayer allegedly invested as a general partner was found not to have a reasonable expectation of profit and,...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 91 |
Roopchan v. The Queen, 96 DTC 1338, [1995] 2 CTC 2415 (TCC)
It was not appropriate for the Minister to aggregate the small operating profit realized by the taxpayer in renting out a basement apartment in...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 155 |
Mattison v. The Queen, 95 DTC 489 (TCC)
In finding that the Minister had been "premature" in disallowing initial losses sustained by the taxpayer in his operation of selling Amway...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 87 |
Administrative Policy
Income Tax Technical News, No. 16, 8 March 1999
Comments on Tonn, Mastri, Mohammad and Kaye cases.
Income Tax Technical News, No. 16
"The Department recognizes that a start-up period often involves incurring extra costs in order to get a business up and running but taxpayers...
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| Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) | 75 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(4) | 42 |
11 December 1998 Internal T.I. 9828647 - PARAGRAPH 18(1)(A)
Discussion on whether certain swap transactions were entered into for the purpose of producing income in a situation where the swap contracts were...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 41 |
28 May 1990 T.I. (October 1990 Access Letter, ¶1446)
Where as a result of a temporary move to another city, an employee rents out his house at a rent which is less than the expenses of maintaining...
October 1989 Revenue Canada Round Table - Q. 2 (Jan. 90 Access Letter, ¶1075)
The test of reasonable expectation of profit is applied at the level of the partnership, not at that of the partners. Therefore, in the case of a...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 73 |
87 C.R. - Q.35
In determining whether an activity has a reasonable expectation of profit, discretionary deductions should be considered if they are relevant in...
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 27 |
84 C.R. - Q.75
List of criteria that are applied in assessing whether an enterprise has a reasonable expectation of profit.
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 17 |
Articles
Joel A. Nitikman, "Reasonable Expectation of Profit - Where Are We Now?", Canadian Current Tax, Vol 8, No. 8, May 1998, p. 81.
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 0 |
John R. Owen, "The Reasonable Expectation of Profit Test: Is There a Better Approach?", 1996 Canadian Tax Journal, Vol. 44, No. 4, p. 979. [cited in the Hickman Motors case, supra, at p. 5373].
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 0 |
Silver, "Great Expectations: Are They Reasonable?", 1995 Corporate Management Tax Conference Report, c. 6.
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| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | 0 |