Section 3


S. 3(a) requires the inclusion in income for purposes of the Act of income from sources inside and outside Canada "including, without restricting the generality of the foregoing" the taxpayer's income from each office, employment, business or property. Detailed provisions of the Act govern the determination of whether an amount is income from one of these sources. Accordingly, the situation may arise where a taxpayer receives an amount which might appear to have the character of income but where the amount is not included in income from one of the specifically enumerated sources. It is not clear whether such an amount can be included in income as being income from a source other than one specifically enumerated in s. 3 (Schwartz - see also Curran).

Somewhat similar to the mooted proposition that amounts from an unenumerated source of income are not income, is the better established proposition that receipts may not be income if they represent an unexpected windfall (see Cranswick) or otherwise are not earned (see Fries, Fortiono, Atkins) or do not have any source (see Bray v. Best, Fogazzi - although this latter case is inconsistent with other receipts-of-crime cases (see s. 9 - exempt receipts) and Humphrey).

Expenses incurred with a view to potentially earning income from a business generally will be considered to applicable to that source even though, with the benefit of hindsight, they were unproductive (e.g., a loss from fraud, see Ruff).


Fiducie financière Satoma v. Canada, 2018 FCA 74

pervasive rule that the same income is not to be taxed in 2 persons’ hands

A tax plan turned upon a dividend that in fact was paid to a trust (Satoma Trust) being attributed under s. 75(2) to a corporation (“9134”) that was connected to the dividend payer. Before turning to the application of s. 245(2), Noël CJ first found that such application of s. 75(2) to 9134 effectively precluded the dividend’s inclusion in the hands of Satoma Trust, even though s. 75(2), unlike other attribution provisions, was silent on this point, stating (at para. 36, TaxInterpretations translation):

In my view, express exclusions of this type only confirm an already-present rule. In this regard, the subjecting to tax under the Act of a “taxpayer,” applies in the singular (section 3). Nothing permits the belief that the legislator intended that the same income would be taxable in the hands of more the one taxpayer… . The same dividend cannot be simultaneously received by two persons.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit tax benefit to trust from tax-free dividend even though not distributed to a beneficiary 265
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) using ss. 75(2) and 112(1) for tax-free dividends to trust thwarted s. 112(1) object to tax earnings when ultimately distributed 299
Tax Topics - Statutory Interpretation - Double Taxation (Presumption Against) inclusion of income in more than one taxpayer’s hands is contrary to s. 3 161
Tax Topics - Income Tax Act - Section 112 - Subsection 112(1) abusive to use s. 112(1) so as to avoid ultimate taxation of individuals 168
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) use of s. 75(2) to access s. 112(1) deduction for dividend in fact received by family trust, was abusive 257

Bellingham v. The Queen, 96 DTC 6075 (FCA)

An award of "additional interest" received by taxpayer pursuant to s. 66(4) of the Expropriation Act (Alberta) (a provision which required repayment of such amount in circumstances where an expropriating authority offered less than 80% of the amount ultimately awarded and the Expropriation Board was of the opinion that such lower figure was due to the fault of the expropriating authority) did not, by its nature, constitute compensation for the lands that had been taken, nor compensation for the loss of use of money. Instead, its true nature was in the nature of a punitive damage award intended to discourage token or unrealistic payments from being tendered. Accordingly, the payment was simply a windfall and, therefore, not income under s. 3(a).

R. v. Fogazzi, 92 DTC 6421 (Ont. C.J. (G.D.)), rev'd 93 DTC 5183 (Ont. CA)

rev'd on other grounds, 93 DTC 5183 (Ont. CA)

In finding that an amount misappropriated by the accused was not income under section 3, Sheppard J. stated (p. 6430):

"So not only must the word 'income' be given its ordinary meaning, the law also requires that a 'source' be identified with the receipt. If no source can be identified, (and assuming there has been no disposition of property for capital gains purposes) then the receipt will not be included in income ... If 'income' is to be interpreted by 'the ordinary concepts and usages of mankind' I would suggest that the ordinary person would have difficulty in accepting the proposition that stolen money is income."

Canada v. Fries, 90 DTC 6662, [1990] 2 S.C.R. 1322

Amounts received by an employee of the Saskatchewan Liquor Board from the Saskatchewan Government Employees' Union (the "SGEU") in consideration of his agreement in support of a strike by government employees who were not Liquor Board employees, to withdraw his services from the Liquor Board, were not taxable to him as income from a source.

The Queen v. McLaren, 90 DTC 6566 (FCTD)

Before dealing specifically with the interpretation of s. 63(2), MacKay J. found (p. 6572) "that the word 'income', both in its ordinary usage and that employed in the context of the Act imputes the existence of a positive amount" and found, with respect to section 3 "which is the closest thing to a definition of 'income' under the Act" that "the very explicit use of the words 'remainder, if any' in the final phrase of the section truly mandates the existence of something positive before the taxpayer can be said to have income for purposes of the Act" (p. 6572).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 63 - Subsection 63(2) "income" imports positive income 26
Tax Topics - Statutory Interpretation - Resolving Ambiguity 37

Laxton v. The Queen, 89 DTC 5327 (FCA)

In a joint venture agreement it was agreed that an individual member of the joint venture ("Laxton") would be paid an annual management fee equal to $450,000 minus the product of the Bank of Montreal prime rate and the amount of interest free loans made by the joint venture to Laxton. Imputed interest on interest-free loans made to Laxton by the other members of the joint venture (who previously had borrowed from the Bank) was included in his income as "amounts" of income (which were defined in s. 248(1) as value of rights or things). "[T]he interest free loan ... was linked to and was in reality part of the overall management fee arrangement in favour of the Appellant."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 real estate JV not a partnership 68

The Queen v. Cranswick, 82 DTC 6073, [1982] CTC 69 (FCA)

After a sale of the household appliance business of a Canadian corporation ("Westinghouse Canada") fell through due to failure to obtain approval under the Foreign Investment Review Act, the business was sold to another purchaser at a lower price. The US parent of Westinghouse then made an offer to the minority shareholders, including the taxpayer, to (at their option) (i) purchase their shares for $26 a share, or (ii) pay them the sum of $3.35 per share. The second alternative offer was intended by the US parent to avoid any litigation respecting the sale of the appliance business at a less advantageous price (although no action had been launched, and the taxpayer testified that the offer of $3.35 per share, which he accepted, came as a complete surprise.)

In finding that the payment to the taxpayer was a windfall that was not includable in his income, LeDain J indicated (at p. 6076) that the only possible source of the payment received by the taxpayer was his shares, and that the payment was not income because it was not typical of what is typically earned by shares, i.e., dividends, and it was in fact a payment "of an unusual and unexpected kind that one could not set out to earn as income from shares, and it was from a source to which the respondent had no reason to look for income from his shares."

The Queen v. Atkins, 76 DTC 6258, [1976] CTC 497 (FCA)

Damages for wrongful dismissal were not income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) damages for termination of employment contract were not received under the contract 54

Curran v. Minister of National Revenue, 59 DTC 1247, [1959] S.C.R. 850

The taxpayer, who was a highly-regarded senior geologist at Imperial Oil, received a lump sum from an indirect major shareholder of Home Oil upon becoming the president and managing director of Home Oil at the same salary as his previous salary at Imperial Oil. The agreement between the shareholder and the taxpayer pursuant to which the payment was made indicated that the sum was paid "in consideration of the loss of pension rights, chances for advancement and opportunities for re-employment in the oil industry, consequent upon the resignation of the [taxpayer] from his present position with Imperial Oil". In finding the sum to be taxable, Kerwin CJ stated (p. 1250):

"It is true that in order to fulfill his obligations under the contracts the appellant was obliged to resign his position with Imperial Oil Limited and thereby gave up not only the annual salary, a like amount which he was to receive, but also his pension rights and further prospects. However, the payment of $250,000 was made for personal service only and that conclusion really disposes of the matter as it is impossible to divide the consideration."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) 57

See Also

Robinson v. The Queen, 2019 TCC 181 (Informal Procedure)

activities of developing assets with a view to their drop-down to corporation likely was a property income source rather than business

The taxpayer (with modest success) sought to follow a pattern of first investigating and developing opportunities and then dropping any resulting assets (e.g., a patent portfolio) to a corporation (one for each such venture) for an equity interest therein. In first addressing whether these activities constituted a business, Monaghan J stated (at para. 35):

[H]is actions have more of the hallmarks of seeking an investment opportunity to earn income from property than business. He was clear he would not be earning income for his services. Nonetheless, as the Respondent did not suggest that the source was not business, for purposes of this case I will proceed on the basis that Mr. Robinson’s activities could constitute a business.

In going on to find that the expenses that he directly incurred in this “business” prior to any such drop-down transaction were capital expenditures, Monaghan J stated (at paras 52, 53 and 57):

Mr. Robinson’s circumstances are strikingly similar to the circumstances in the Neonex and Firestone cases. In other words, the expenses were not incurred in the course of the operation or running of a business, but as part of the process of creating, or acquiring the assets for a business, the objective of which was to acquire investments in entities engaged in innovation from which he might derive income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Start-Up and Close-Down Expenditures pre-incorporation expenses incurred in developing e.g., a patent portfolio for drop down to a corporation were capital expenditures 205

Smith v. The Queen, 2018 TCC 61 (Informal Procedure)

income is to be computed on a “sub-source” basis

Graham J found that a status Indian, who earned exempt income from employment and non-exempt investment income, could only deduct a registered pension plan contribution in computing his employment income (and not from his income generally), so that the deduction effectively was denied. Before so concluding, Graham J referred (at paras15, 20) with approval to the statement in the dissenting reasons of Iacobucci J in Hickman Motors (also picked up in FLSmidth) that there was a “requirement to segregate income according to various sub-sources” (e.g., to distinguish the income arising from each business, property or employment of a taxpayer).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 147.2 - Subsection 147.2(4) RPP contribution deductible only from employment income rather than income generally 282
Tax Topics - Statutory Interpretation - Headings heading provided guidance on the overall framework 221

Henco Industries Limited v. The Queen, 2014 DTC 1161 [at 3528], 2014 TCC 192

compensation payment for destroyed business was non-taxable

A subdivision property of the taxpayer, a developer, was blockaded by Six Nations protesters. To diffuse the conflict, the Ontario government passed a by-law prohibiting any use of the property (rendering it valueless), and then agreed to pay the taxpayer $15,800,000 in exchange for relinquishing its rights to the property and under a court order against the protesters, and for a release.

C Miller J found that although the taxpayer relinquished its claim to the property, it had not "received $15,800,000 for the sale of worthless land" (para. 163). The property also "lost its character as inventory by being made legally useless for development" (para. 168) so that, even if the payment were for the property, it would be taxable only as a capital gain (para. 169). He concluded (at para. 203):

Henco's business was destroyed. By the time it struck an arrangement with Ontario, Henco had no value as a business ... : there could not be and there was not a source of income. The capital receipt was non-taxable.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence parol evidence rule not applying to surrounding evidence/press releases admitted 227
Tax Topics - General Concepts - Fair Market Value - Land deference to taxpayer's figure within appraiser's range of values 105
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) compensation received in course of business but not in course of earning income 184
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital payment to withdraw from business was not an eligible capital amount 138
Tax Topics - Income Tax Act - Section 23 - Subsection 23(1) land ceased to be inventory through sterilization rather than business cessation 176
Tax Topics - Income Tax Act - Section 9 - Compensation Payments compensation payment for destroyed business was non-taxable 163

Malo v. The Queen, 2012 DTC 1214 [at 3588], 2012 TCC 75 (Informal Procedure)

The taxpayer bought a stake in his brother-in-law's tree farm, who was in financial trouble and had several judgments against him preventing him from selling securities in respect of the planting operation. After finding that the taxpayer's losses could not be deducted under s. 237.1 (for failure to submit a tax shelter identification number), Hogan J. stated obiter dicta that the taxpayer's planting activities constituted a business. Although the taxpayer had little personal involvement in the planting operation and was motivated to help his brother-in-law, Hogan J. stated (at para. 20):

The evidence shows that the appellant did operate a business, or at least, that the purchase of the trees constituted a business activity. The appellant's sole purpose, when he participated in Mr. Maheux's project, was to resell the 750 trees for a profit. That was the only way he could profit from his investment. Accordingly, I conclude that the expenses were business expenses.

Kelly v. The Queen, 2012 DTC 1109 [at 3055], 2012 TCC 66

Sheridan J. permitted the taxpayer's rental losses from the studio apartment she had purchased in a condominium near a ski resort. Her personal use of the apartment in any given year never exceeded 10% of the days she had it available, and she otherwise left it to a management team in order to collect business income. While the taxpayer's business judgment was questionable in the circumstances (having failed to predict the increasing competition for rental units in the area and the extent of the expenses involved in the business of renting), it was not for the Minister to second-guess the taxpayer's business judgment.

On the question of whether there was a reasonable expectation of profit, Sheridan J. noted that the taxpayer in the present case ought to be held to a lesser standard than the taxpayer in Stewart. Mr. Stewart was an experienced businessman who had held senior positions in the Toronto Transit Commission, while the present taxpayer was a registered nurse who had previously rented out her house's basement suite for a few years. Moreover, as the units in the building all had a third-party manager, the operation "did not lend itself to the same level of active involvement that Mr. Stewart enjoyed in his business venture. It is against this factual backdrop that the Appellant's conduct in the face of losses must be considered" (para. 14). It was reasonable for the taxpayer to rely on management's assurances that the situation would improve.

Ruff v. The Queen, 2012 TCC 105

The taxpayer, a lawyer, was bilked of $400,000 by scam artists, posing as clients, who induced him to incur "processing " fees in connection with the recovery of a supposed container in the Ivory Coast containing US$8.5 million of cash.

Before finding that deduction of the taxpayer's outlays was barred by s. 67, Webb J. found that the outlays arose out of activities (seeking to act as a trustee for supposed clients) that were undertaken as part of his law practice and, thus, related to a source of income (that business).

Lyncorp International Ltd. v. The Queen, 2010 DTC 1351 [at 4335], 2010 TCC 532, aff'd 2012 DTC 5032 [at 6684], 2011 FCA 352

The taxpayer, owned and operated by Mr. Mullen, invested in shares and made non-interest bearing loans to a number of corporate ventures to which Mr. Mullen provided management services free of charge by him or the taxpayer. In the course of denying income deductions for these expenses, Miller J. dismissed the taxpayer's argument that, because the expenses were made to produce income from dividends, the expenses related to income from a property rather than a business source. He stated (at para. 73):

[C]learly, the remaining disputed flight expenses relate directly to the business income of the business ventures. The expenses were incurred to make the business ventures profitable. Yes, that might yield at some future point dividend income, but the direct cause and effect link is between the expenses and the business income of the business property ventures, not the relationship with any property source of income.

Humphrey v. The Queen, 2006 DTC 2730, 2006 TCC 168 (Informal Procedure)

The taxpayer was assessed for amounts that she embezzled from her employer in 2000, declared bankruptcy because of this claim against her and, after her discharge (without having paid any of the assessment), began paying back to her employer the amount she had take pursuant to a court order. In finding that the taxpayer was not entitled to deduct these amounts in computing her income from a business, Bowman C.J. stated (at p. 2733) that "I start from the premise that income from criminal activity is income from a business" and that (at p. 2734) that it is "settled law that a business continues to be carried on so long as the obligations arising out of the business remain unfulfilled" but went on to state:

"I think it may be a little unrealistic to say that the appellant here continued in 2002 and subsequent years, to carry on the business that she carried on in 1997 to 2000, simply by reason of her complying with the restitution order".

The amounts paid by her pursuant to the restitution order were not deductible in computing her income.

Fortino v. The Queen, 97 DTC 55 (TCC), briefly aff'd on procedural grounds 2000 DTC 6060 (FCA)

Lump sums received by individual vendors of shares in consideration for their entering into non-competition agreements with the purchaser were characterized as being for their surrender of a potential source of profit and, therefore, represented capital receipts that were not taxable under s. 3.

Abrahamson v. MNR, 91 DTC 213 (TCC)

Rip TCJ. applied the principle in the Ansell Estate case (66 DTC 5508) that "when amounts are withdrawn from a trust they are capital except for the amount of any income that has been earned by the trust in the year of payment" in finding that withdrawals by the taxpayer from his U.S. IRA were not taxable to him.

Bray v. Best, [1989] BTC 102, [1989] UKHL TC_61_705 (HL)

"It is a well established principle deriving from the nature of income tax as an annual tax, that a receipt or entitlement arising in a year of assessment is not chargeable to tax unless there exists during that year a source from which it arises." A payment which the taxpayer received on the winding up of trusts which had been established for employees of a subsidiary before the taxpayer was transferred to the parent were not taxable under Schedule E (albeit, they were taxable as retirement payments) because he had ceased to be employed.

The Queen v. Kuhl, 74 DTC 6024, [1973] CTC 846 (FCTD)

The source of services fees received by two brothers from a company that was controlled by them and engaged in the farming business was farming. The source of income "originated from farming, even though some of this income may have been channelled to defendants through a corporation which has an independent existence".

Dorfman v. M.N.R., 72 DTC 6231 (FCTD)

Collier J. indicated (at p. 6134) that the words "source of income" in s. 13(1) of the pre-1972 Act (now s. 31(1)) "were used in the sense of a business, employment, or property from which a net profit might reasonably be expected to come".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 31 - Subsection 31(1) 83

Administrative Policy

31 August 2020 Internal T.I. 2020-0851811I7 - US Economic Impact Payment

“US EIP” payments received under the CARES Act are not income from a source

A permanent resident of Canada receives payments under the U.S. Economic Income Payment Program (US EIP) pursuant to the CARES Act, being a refundable tax credit for U.S. citizens and U.S. resident aliens, that is recaptured if adjusted gross income reaches certain thresholds.

The Directorate indicated (as per its summary):

The amount is considered an advanced payment of a 2020 refundable tax credit, and therefore is likely not income from a source under the Income Tax Act.

4 October 2019 External T.I. 2019-0825431E5 - Tenant relocation assistance

compensation received by residential tenants from a developer to compensate them for their dislocation costs was non-taxable

The City’s approval of a rezoning application (involving demolition or renovation of various rental units) required the developer to make a lump-sum amount to be paid to each displaced tenant, in order to compensate for moving expenses, utility reconnection fees, and relocation costs. However, where a displaced tenant was required to temporarily reside in a residence at a higher rent, the tenant likely would have the option to receive a top-up supplement amount (equal to the increment but subject to a cap) while awaiting return to the original or rebuilt unit. Each displaced tenant would have the option to either receive the lump-sum amount or receive the top-up supplement amount. Eligibility to receive the lump-sum or the top-up supplement amount was not based on a financial means, needs or income test of the displaced tenant.

CRA stated:

[R]egarding the lump-sum and top-up supplement amounts, it does not appear that these amounts would constitute income from a source, including social assistance under paragraph 56(1)(u) … and therefore would not be included in income … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(u) non-means-tested compensation received by residential tenants from a developer to compensate them for their dislocation costs was non-taxable 110

19 March 2019 External T.I. 2018-0748731E5 - Taxation of Settlement Amounts

award received by unionized employees based on an unfair labour practice of their employer was a non-taxable receipt

The Labour Board issued an order determining that the Employer had committed an unfair labour practice and ordered the Employer to pay a lump-sum amount (“Order Amount”) to each full-time employee in the bargaining unit when the unfair labour practice was committed (“Employee”) pursuant to a provision of the applicable Labour Relations Act (LRA). Before concluding that

the Order Amount was likely provided to compensate each Employee for interference with his or her rights under the LRA, and would constitute non-taxable damages that are excluded from income

CRA stated:

Notwithstanding that a payment made pursuant to XXXXXXXXXX of the LRA is provided in the context of employment, such payments are limited to situations where an employee has not otherwise suffered a loss of income, benefits, etc. as a result of the unfair labour practice. By contrast, payments made pursuant to XXXXXXXXXX of the LRA are specifically intended to compensate for financial losses (i.e., income, benefits, etc.) that arise as a result of an unfair labour practice.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) award received by unionized employees based on an unfair labour practice of their employer was not referable to lost remuneration 80

29 July 2015 External T.I. 2015-0575631E5 - social assistance

payments in kind by social assistance organization

A social assistance organization may purchase items such as cookware, cutlery, furniture and food cards to assist its clients, and may also assist in paying rent and purchasing clothes for a job interview. After discussing whether there would be an inclusion in the recipient's income under s. 56(1)(u), CRA stated:

[I]f it is not social assistance included in income under paragraph 56(1)(u), [it] would likely not be included in income of the client under any other provision of the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(u) potential exclusion of payments in kind 290
Tax Topics - Income Tax Regulations - Regulation 233 - Subsection 233(2) potential exclusion of payments in kind 259

18 February 2013 Internal T.I. 2013-0477821I7 F - Montants forfaitaires - XXXXXXXXXX

damages received in wage discrimination suit for pain and suffering were non-taxable
This was followed by 20 March 2013 Internal T.I. 2013-0480201I7 F, which is similar but somewhat more detailed.

In discussing the treatment of lump sums paid to federal employees following a finding by the Human Rights Tribunal that a discriminatory practice had been committed at their workplace and pursuant to a settlement agreement concluded with the Treasury Board, CRA first stated that if the amounts “represent compensation for loss of salary, they constitute income from an office or employment,” and then stated:

[W]ith respect to the amount … for pain and suffering under paragraph 53(2)(e) of the Canadian Human Rights Act … this amount qualifies as general damages received in connection with a human rights violation and may therefore be considered to be unrelated to the employment of the Workers. Consequently, the amount … would not have to be included in the computation of the income of the Workers.

S2-F1-C2 - Retiring Allowances

Harrassment or defamation damages

2.17 General damages relating to personal injuries sustained before or after a loss of employment, may be viewed as unrelated to the loss of employment and therefore are non-taxable. This would include, for example, damages for harassment during employment or damages for defamation after dismissal. In order to claim that damages received upon loss of employment are for personal injuries and unrelated to the loss of employment, it must be clearly demonstrated that the damages relate to events or actions separate from the loss of employment. In making such a determination, the amount of severance that the employee would reasonably be entitled to will be taken into consideration.

Human rights violations

2.18 Similarly, general damages relating to human rights violations can be considered unrelated to a loss of employment. This is despite the fact that the loss of employment is often a direct result of the human rights complaint. If a human rights tribunal awards an individual an amount for general damages, the amount is normally not required to be included in income. When a loss of employment involves a human rights violation and is settled out of court, a reasonable amount in respect of general damages can be excluded from income. ...

28 November 2014 Internal T.I. 2014-0531221I7 F - Montants forfaitaires accordés aux témoins

witness protection payments not income if for protection

A lump sum paid to a witness by the Sureté du Québec (Quebec police) was potentially income to him. CRA stated (TaxInterpretations translation):

[T]he collection of information by the witness for the SQ is the provision of a service. Thus, the witness will be considered to be carrying on a business… .

[However] a witness is placed under the protection of the SQ where there are legitimate concerns as to his and his family's security. In such a situation…the payments received or receivable from the SQ do not result in enrichment of the witnesses thus protected and do not represent a source of usual and recurring income for them. Consequently…the portion of the payment (other than living expenses) tied to the expenses incurred for the protection of the witness and his family is generally not taxable as it does not represent a social assistance benefit under paragraph 56(1)(u) and does not represent income from a source under section 3.

2 October 2014 External T.I. 2013-0491411E5 F - Allocation pour une automobile

compensation for car rides not received in the course of employment or a business

What is the tax treatment of amounts paid to taxpayers for using their cars in providing lifts for the organization? CRA stated (TaxInterpretations translation):

Where the amounts received by a taxpayer are not derived from an employment, it must be determined whether the taxpayer's activities are a business. ... In making this determination, the following factors should be considered in relation to the taxpayer's activities: time spent by the taxpayer on the activity; the number of days per week the taxpayer is available; the annual number of kilometers driven; and the total annual amount received by the taxpayer. In a situation where the activities of a taxpayer are carried on in a sufficiently commercial manner, we are of the view that such activities are usually the carrying on of a business. ...

In situations similar to the particular situation, where the services are not performed in the course of an employment or business, we are of the view that the amounts received do not have to be included in the computation of income of the taxpayer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) compensation for providing car rides not received in course of employment 140

S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

non-enumerated sources included/hobby receipts, windfalls and true gifts excluded

1.1 For tax purposes, section 3 brings into income a taxpayer's income from all sources inside or outside of Canada, whether or not the particular source is enumerated in section 3…. In addition, section 3 and various other sections of the Act describe specific sources of income and the specific rules applicable in determining taxable capital gains and allowable capital losses. In the case of hobbies, neither amounts received nor expenses incurred are included in the income computation for tax purposes and any excess of expenses over receipts is a personal or living expense, the deduction of which is denied by paragraph 18(1)(h).


1.2 Subject to the comments in ¶1.3 and ¶1.11 - 1.29, an amount received as a windfall is not subject to tax. Factors indicating that a particular receipt is a windfall include the following:

a) the taxpayer had no enforceable claim to the payment,

b) the taxpayer made no organized effort to receive the payment,

c )the taxpayer neither sought after nor solicited the payment,

d) the taxpayer had no customary or specific expectation to receive the payment,

e) the taxpayer had no reason to expect the payment would recur,

f) the payment was from a source that is not a customary source of income for the taxpayer,

g) the payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the taxpayer, and

h )the payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.

i) The factors above are based on those set out in the decision of The Queen v. Cranswick, [1982] CTC 69, 82 DTC 6073 (F.C.A.).

Gifts and other voluntary payments

1.4 ...Amounts received as gifts, that is, voluntary transfers without consideration and which cannot be attributed to an income-earning source, are not subject to tax in the hands of the recipient.

1.5 ...[V]oluntary payments (or other transfers or benefits) received by virtue of a profession or in the course of carrying on a business are taxable receipts.

Example 1Assume a lawyer was retained to perform certain services for the class "A" shareholders of a corporation. If the class "B" shareholders considered that the lawyer's work had also benefited them, any payment made by the class "B" shareholders to the lawyer would be taxable income. ...

Example 2Assume a business uses crowdfunding as a method of raising funds for the development of a new product and the contributors do not receive any form of equity. The amounts received by the business would be included in its income pursuant to subsection 9(1).

Gambling profits

1.11 Profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business. It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax. See for example, the decisions in The Queen v. Poynton, [1972] CTC 411, 72 DTC 6329 (Ont. C.A.) and MNR v. Eldridge, [1964] CTC 545, 64 DTC 5338 (Ex. Ct.). …

1.13 Usually the frequency and systematic nature of an activity would be indicative of a business. In addition to the definition of business in subsection 248(1) of the Act, the traditional common law definition of business is "anything which occupies the time and attention and labour of a man for the purpose of profit", see Smith v. Anderson, (1880) 15 Ch. D. 247. More recently, the Tax Court of Canada went on to state that:

… Gambling - even regular, frequent and systematic gambling - is something that by its nature is not generally regarded as a commercial activity except under very exceptional circumstances. Leblanc v. The Queen, 2006 TCC 680, 2007 DTC 307.

1.14 There are some exceptional cases, which are noted in Leblanc, where gambling activities have been held to be taxable. However, these cases relate to taxpayers who applied inside information, knowledge and skill to their activities. For example, in Luprypa v. The Queen, [1997] 3 CTC 2363, 97 DTC 1416, a pool player who in cold sobriety would challenge inebriated pool players to a game of pool was held to be taxable on his winnings.

1.15 …[T] he following criteria should be considered in making the determination [of business]:

  • the degree of organization that is present in the pursuit of this activity by the taxpayer,
  • the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,
  • the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and
  • the extent of the taxpayer's gambling activities, including the number and frequency of bets.

Lottery schemes

1.16 The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income. This will be the case unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property, or a prize for achievement referred to in paragraph 56(1)(n). Lottery ticket retailers who sell winning tickets must include in their income the amount or value of any prize commissions they received from a provincial lottery corporation. For more information, see Lottery Prize Commissions.

Fraudulent investment schemes

1.42 Amounts paid to taxpayers that are a return on their investment should be included in the taxpayer's income. This was confirmed by the Federal Court of Appeal in The Queen v. Johnson, 2012 FCA 253, 2013 DTC 5004.

2013 Ruling 2012-0464921R3 - Payment in lieu of continued PHSP coverage

commutation of PHSP under CCAA

Former employees of Canco or of its subsidiaries are creditors of Canco, following Canco going into CCAA proceedings, by virtue of having been covered under private health services plans of Canco.


A payment made by Canco to them in settlement of their claims under the CCAA Plan will not be taxable under the Act

27 January 2012 External T.I. 2011-0421551E5 F - Pompiers volontaires

modest amounts received by volunteers are not taxable

Before addressing the volunteer firefighter tax credit, CRA addressed whether amounts received by a part-time firefighter with modest remuneration might be exempt on general principles, stating:

Generally, a volunteer is defined as someone who does something without being remunerated and without being required to do so. In that situation, the volunteer is involved willingly and for the satisfaction of serving his or her community. As a result, it is quite common for a volunteer to be neither an employee nor a contractor serving an organization.

However, many volunteer acts are no longer done entirely without remuneration. Some volunteers receive modest amounts of money, gift certificates, goods or services as compensation. Those payments are not very representative of the amount of work done or the quality of the services rendered.

They are not in themselves real motivators for volunteers to get involved and do not reflect the fair market value of services rendered. Therefore, those payments are not taxable.

However, the volunteer firefighters to which we were referred are not necessarily volunteers as defined above. If that had been the case, the $1,000 exemption and the volunteer firefighter tax credit would be meaningless as they only apply to taxable income.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.06 - Subsection 118.06(1) “volunteer” firefighters are not true volunteers 183

18 October 2011 External T.I. 2011-0394041E5 F - Fiducie personnelle- revenu brut

capital gains not included in computing income from a source

S. 110.6(1.3)(b)(i)(A) referenced a basis for a property being considered to be being used in the course of carrying on a farming business in Canada based inter alia on a two-year test of the “gross revenue from farming” exceeding the income of the operator from all other sources during that period. CRA stated:

[A] capital gain is not income from a source. … [A]ny capital gain realized by an individual referred to in paragraph 110.6(1.3)(a) that is not included in computing that individual's gross revenue should also not be included in the calculation of that individual's income from all other sources.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Gross Revenue gross revenue from farming business did not include capital gains 107

12 April 2010 Internal T.I. 2009-0342871I7 F - Subvention aux naissances multiples

Quebec multiple birth subsidy is not income

Respecting the multiple birth subsidy paid by the Ministère de la Santé et des Services sociaux to the mother of triplets, quadruplets, etc., CRA stated:

[T]his subsidy is not income from a source to be included in computing income under paragraph 3(a) and is not required to be included in computing the income of the recipient under any other provisions … .

12 April 2010 External T.I. 2009-0327161E5 F - Revenu de location

notwithstanding Guide T4036, rental property can be rented at an arm’s length rent to related persons to generate losses if there is a source of income

Regarding whether a taxpayer who rented her co-ownership interest in a house to her stepfather and mother, CRA stated:

Guide T4036, Rental Income 2009, states that if a taxpayer rents property to a family member for less than the rent that would be charged to another tenant, resulting in a rental loss, the taxpayer cannot deduct that loss.

Furthermore, if rental expenses are always higher than rental income, rental losses may not be deductible because the rental activities would not be considered a source of income. However, if the rent is the same as what you would charge another tenant, you can claim a rental loss if you reasonably expect to make a profit.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership CRA can be bound by a counter letter rather than the apparent contract 233

IT-232R3 "Losses - Their Deductibility in the Loss Year or in Other Years"

Losses, to the extent they do not reduce income to nil, must be used in the loss year or forfeited.

24 June 1992 External T.I. 5-920948 -

flow-through shares a source

"For the purpose of paragraph 3(a) a flow-through share is a source of property income. However, when the share is held in conjunction with the business carried on by the owner, it would be a source of income from that business. In computing income for the purpose of paragraph 3(a) of the Act, a Canadian resident shareholder may deduct renounced Canadian exploration expenses to the extent permitted by subdivision E of the Act and in so doing may create a non-capital loss".

91 C.R. - Q.44

strike pay

Strike pay is non-taxable even if the member performs picketing duties as a requirement of membership in the union.

2 October 1991 T.I. (Tax Window, No. 10, p. 20, ¶1493)

Union members who recieve a portion of the strike fund when they lose their jobs as the result of automation or a plant closure will not be taxable on the payment.

20 April 1990 T.I. (September 1990 Access Letter, ¶1404)

A flow-through share is a source of income for purposes of s. 3(a) and, accordingly, the deductions of CEE under s. 66.1(3) and CDE under s. 66.2(2) related to those shares would be referrable to a source of income and a non-capital loss could be created.

20 April 1990 TI 5-9269

A taxpayer (which is not a principal business corporation) may deduct CEE or CDE without restriction to its income so as to create a non-capital loss provided that the deduction under s. 66.1(3) or 66.2(2) is referable to a source that is business or property. For purposes of s. 3(a), flow-through shares constitute a source.

1989 Canadian Petroleum Taxes Society Roundtable, Q. 4

Where CEE is renounced under a flow-through share structure (either directly or where CEE renounced to a limited partnership is allocated to its partners) the resulting CEE claims can give rise to a deduction for the year from business or property pursuant to paragraph 3(a).

89 CPTJ - Q4

Where a JEC renounces CEE to its parent corporation, which is not a principal business corporation and has no resource property or resource business, the parent corporation will be able to claim CEE in computing its income for a year from business or property pursuant to paragraph 3(a). If the CEE is renounced through a flow-through share structure, the answer is the same.

ATR-40 (18 March 1991) "Structured Settlements"

Description of the non-taxable receipt of periodic payments for damages in a personal injury case.

IT-334R2 "Miscellaneous Receipts"

"In order for any activity or pursuit to be regarded as a source of income, there must be a reasonable expectation of profit."



Joel A. Nitikman, "Reasonable Expectation of Profit - Where Are We Now?", Business Vehicle, Vol IV, No. 3, 1998, p. 204.

Paragraph 3(a)

Business Source/Reasonable Expectation of Profit


One of the sources of income enumerated in s. 3 is a business. Based on a dictum in the Moldowan case, many subsequent cases found that a taxpayer was not carrying on a business if there was no reasonable expectation that the activities in question would generate a profit. The Stewart and Walls cases placed a significant limitation on this doctrine: if the activities in question do not contain significant elements to suggest that they are a hobby or other personal pursuit, then the reasonable-expectation-of-profit test should not be applied to find that the activities do not qualify as a business. The Walls case also found (consistently with Ludco) that the activities can qualify as a business even if they would not have been engaged in but for a tax motivation (but cf. where tax motivation is the only element - Caputo).

If the mooted source of income has substantial personal elements and is not carried on with a reasonable expectation of profit, it may follow that the taxpayer is not required to include any of the receipts of this activity in income (Schwartz, Landriault). This approach is implicitly accepted in the numerous cases where CRA denied the deduction by the taxpayer of the taxpayer's loss with respect to the activity. For example, if the taxpayer had $20,000 of expenses and $1,000 of rental receipts for a Florida condo, only the $19,000 loss would be denied so that the taxpayer effectively was not required to include the receipts in income. Various cases appear to treat the reasonable-expectation-of-profit test as being applicable to rental properties or other mooted sources of property income as well as to a mooted business (see Jarquio, Titus, Nadoryk, Mendoza, Daoust.)

Various criteria that might be applied to determine whether a concern has a reasonable expectation of profit were listed in the Moldowan case, and quoted and applied in numerous subsequent cases. Where the activity requires the incurring of substantial and extended losses before profitability may be achieved, the test may still be satisfied (Kuhlman, Madronich). It has been suggested that a reasonable expectation of only nominal profit may be sufficient to satisfy the test (Donnelly, Timmins).

A draft proposal (draft s. 3.1) to enact a statutory reasonable-expectation-of-profit test that is more exacting than the jurisprudential test described in the paragraph above is under further review by the Department of Finance.


Renaud v. Canada, 2019 CAF 154

a benevolent law practice for indigent clients thereby had a “personal aspect, justifying use of REOP test to deny losses

The taxpayer (a member of the Quebec bar) who worked in a legal services department of Transport Canada as a full-time employee, also taught a law course at the University of Ottawa as a contract worker. Furthermore, she worked 5 to 15 hours a week providing legal services to clients of modest means. Of the four years in issue, practice revenues ranged between $850 (or 5% of claimed expenses) and $3,850 (37% of claimed expenses). Jorré J below had found that the taxpayer’s teaching activities were a distinct source of income from her law practice and also made the factual finding that her part-time law practice verged on charitable volunteerism (“du bénévolat”) – and, more generally, found that as such practice had a personal aspect, the question as to whether her practice was a business could (consistently with Stewart) be tested through determining whether it had a reasonable expectation of profit, as to which there was none. Her claimed losses were non-deductible.

In affirming the decision below, Nadon JA stated (at paras. 50-51, TaxInterpretations translation):

[S]he invoiced her clients for the expenses related to the file as well as for honoraria adjusted as a function of the capacity of the client to pay and … her primary goal was to exercise her profession in a conscientious and professional manner without necessarily making money. …

[T]here is no doubt that the law practice of the appellant, when the relevant circumstances are considered in their entirety, certainly qualifies as having a personal aspect.

Ludmer v. Attorney General of Canada, 2018 QCCS 3381, aff'd 2020 QCCA 697

recurring fee reduction amounts received for no work were income from a source

Two of the taxpayers (“Ludmer” and Steinberg”) were invested along with family, friends and acquaintances (all resident in Canada) in a BVI company (“SLT”) whose investments were managed by a non-resident hedge fund manager (“GAM”). When GAM proposed that SLT be merged with another fund managed by GAM in which non-residents were investors, it was agreed that, in light of the merged fund being subject to a higher level of fees than those to which SLT had been subject, that a Bermuda company owned indirectly by two Steinberg and Ludmer non-resident trusts would receive annual “fees” from the time of the 1994 merger that effectively represented a rebate of the higher fees imposed on the Canadian investors (although they were described to be consideration for services that, in fact, were never provided). This arrangement was replaced in 2007 by a new agreement in which the “fees” were paid directly to two newly-established Canadian-resident family trusts.

In finding that it was not unreasonable for CRA to assess on the basis that these payments were includible in the income of Steinberg and Ludmer under s. 56(2), Hamilton JCS addressed the question whether such amounts would have been income form a source if they had been paid directly to such taxpayers stated (at paras. 614-615):

The GAM payments were not in the nature of a windfall. They were made pursuant to a contract. They were enforceable, organized, foreseeable and customary since 1995. …[T]he contracts provided for services to be provided as consideration for the payments. …

The argument put forward by Bowman that they are “nothings” for Canadian tax purposes because they are merely reputational payments arising in a non-business circumstance may ultimately be upheld by the Tax Court, but it is not so clear at this stage as to render the CRA’s position unreasonable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) recurring fee reduction amounts received for no work were income and taxable under s. 56(2) when directed to controlled company 289
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) nature of the legal advice relied upon was unclear 417
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) improper advancing of “settlement” elements that were not sustainable 45
Tax Topics - Income Tax Act - Section 94.1 - Subsection 94.1(1) equity-linked notes held in BVI company were portfolio investments held with a tax avoidance purpose, but were not subject to 7000(2)(d) interest accrual 576
Tax Topics - Income Tax Regulations - Regulation 7000 - Subsection 7000(2) - Paragraph 7000(2)(d) mere possibility of locking in value accretion each year did not crystallize the maximum amount of interest respecting the year 484
Tax Topics - General Concepts - Negligence, Fiduciary Duty and Fault damages awarded against CRA for inter alia making unreasonable reassessments 260

Radonjic v. Canada Revenue Agency, 2013 DTC 5152 [at 6352], 2013 FC 916

substantial online poker winnings were not income

Russel J found that the Minister's decision (in a s. 152(4.2) application) to treat the taxpayer's online poker winnings as income lacked intelligibility and justification. The Minister indicated that the taxpayer had a "system" to win, but did not identify what that system might be - moreover, winning does not prove the existence of a system - this is exactly the kind of retrospective approach rejected in Leblanc (para. 52). Russel J also stated (at para. 52):

  • "chance remains the predominant factor in whether they [online poker players] win or lose";
  • the use of winnings to finance a mortgage was no indication of running a business; and
  • the taxpayer's cutting back on other work and income during poker wins was no indicator of running a business with a reasonable expectation of profit.

Canada v. Johnson, 2013 DTC 5004 [at 5515], 2012 FCA 253

contractual payments derived from Ponzi scheme were income

The taxpayer realized gains of $1.3 million from periodically placing funds with a rogue ("Lech") who, it was later discovered, had not invested the funds in options trading but instead used them in a Ponzi scheme. The taxpayer made periodic payments to Mr. Lech, who would in return issue approximately nine weekly post-dated cheques for (in aggregate ) a larger amount, which he then honoured with the exception of the last such transaction.

In finding that the net gains of the taxpayer were income from a source, Sharlow J.A. stated (at para. 46):

[The taxpayer] is not being taxed because she profited innocently from a Ponzi scheme. She is being taxed because she entered into a series of agreements with Mr. Lech to receive a profit on her investments with him, and she received what she bargained for. The fact that Mr. Lech funded her payments with the proceeds of a Ponzi scheme is irrelevant.

Regarding the taxpayer's contention that Ponzi schemes cannot be a source of income because the are "by their very nature, doomed to collapse," Sharlow J.A. stated (at para. 43):

A Ponzi scheme may well be a source of income for some participants during some part of its existence. This case suggests how that could be so. Hypothetically, if Ms. Johnson had made her payments to Mr. Lech knowing that he would use the money to operate a Ponzi scheme, she would have profited exactly as she did in the years in issue in this case, 2002 and 2003.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) failure to seek confirmatory independent advice 196
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business taxable gains from contract with Ponzi operator 249

Tarascio v. Canada, 2012 DTC 5046 [at 6785], 2012 FCA 30

thrill-seeking gambling not business

The taxpayer's degree in mathematics and experience with various forms of gambling were not a sufficient basis to reverse the trial judge's finding that the taxpayer's gambling losses were not incurred as part of a business, given evidence that the taxpayer's principal motivation in gambling was thrill-seeking and that he lacked any systematic gambling practice or methodology (for example, a portion of his losses were incurred on slot machines).

Vankerk v. Canada, 2006 FCA 96

fraudulent activity not business

The taxpayers claimed deductions relating to their investments in purported partnerships whose purported business would be the production of sound recordings. In fact, the bulk of the moneys invested were simply re-routed into the pockets of the fraudulent promoters, and the small amounts which were not so diverted were spent on window-dressing to give the appearance of business activities by the partnerships.

In dismissing the taxpayers' appeals, Sharlow JA stated (at para. 3):

This is not a case of a business that suffered losses because it was ill conceived or poorly managed, and the tax authorities are second guessing the business acumen of a taxpayer. This is a case where, in fact, there was no business. There were no business expenses.

Hammill v. Canada, 2005 DTC 5397, 2005 FCA 252

The taxpayer was a co-owner in a clothing manufacturing company. He acquired a gem inventory over several years. A business contact informed him of an interested offshore purchaser, and offered to sell the gems on his behalf at approximately a tenfold profit in exchange for substantial up-front fees, variously described as performance bonds, insurance, shipping, sales commissions and administration charges.

The business contact was a rogue, and absconded with the fees, which exceeded $1.6 million, and the gems. The Minister allowed a business loss for the gems but not for the professional fees.

Noël JA dismissed the taxpayer's appeal. He stated (at para. 28):

A fraudulent scheme from beginning to end or a sting operation, if that be the case, cannot give rise to a source of income from the victim's point of view and hence cannot be considered as a business under any definition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business fraudulent scheme foisted on taxpayer was not a business 61
Tax Topics - Income Tax Act - Section 67 102

McClelland v. Canada, 2004 DTC 6019, 2003 FCA 483


The taxpayer was not entitled to deduct losses from an alleged business as an artist given the finding of the trial judge (supported by the evidence) that his endeavours had a personal element and were not carried out in a commercial manner.

Nadoryk v. Canada, 2003 DTC 5744, 2003 FCA 458

The Tax Court had correctly found that the taxpayer, who worked as a full-time employee, was not using his residence in connection with an auto sales business. As there was a personal element in his use of the residence, it was appropriate for the Tax Court Judge to apply the reasonable expectation of profit test.

Maysky v. Canada (Attorney General), 2003 DTC 5337, 2003 FCA 237

The fact that a rental property of the taxpayer had formerly been his home and that he used the property as collateral for a line of credit pertaining to his realty business were not elements sufficient to make the taxpayer's dealings in respect of the property something other than a commercial activity. Accordingly, the trial judge erred in applying the reasonable expectation of profit test to find that the property did not constitute a source of income to the taxpayer.

Jarquio v. Canada, 2003 DTC 5164, 2003 FCA 80 (FCA)

The taxpayer, who derived personal benefits from the ownership of a two storey residence containing four bedrooms by having her family live on the premises with her, was correctly found to not have a reasonable expectation of profit given that she did not advertise, she took no steps to rent a vacant room when her mother died, she experienced expenses that consistently exceeded her rental income, and her calculations as to future profitability were not realistic.

Titus v. Canada, 2003 DTC 5158, 2003 FCA 78 (FCA)

There was a personal element in the acquisition by the taxpayer of a cottage property close to that of his parents, and the Tax Court judge had properly considered all the evidence, including the fact that interest payments on the mortgage substantially exceeded gross rental revenue, in concluding that the taxpayer did not have a reasonable expectation of profit from the operation of renting the property.

Morris v. Canada, 2003 DTC 5236, 2003 FCA 116 (FCA)

The manner in which a full-time employee of BC Rail conducted a fishing guide activity from which he reported revenues under 5% of expenses was not necessarily incompatible with an intention to pursue profit. The decision of the Tax Court Judge was set aside and the matter remitted for decision by a different judge.

Partridge v. Canada, 2003 DTC 5175, 2003 FCA 91 (FCA)

The Tax Court Judge did not commit a reviewable error when he found that the taxpayer's activities lacked commercial flavour and that the taxpayer was not engaged in farming activities to make a profit, but primarily to provide food for his table. As such, his activities did not amount to a business.

Mendoza v. Canada, 2003 DTC 5071, 2003 FCA 17 (FCA)

The trial judge had not erred in finding that a property owned "under" a partnership of the taxpayers, which was rented at a significant loss to their handicapped son, was not operated with a reasonable expectation of profit.

Walls v. Canada, 2002 DTC 6960, 2002 SCC 47, [2002] 2 S.C.R. 684

no REOP test in non-personal investment/ tax motivation not relevant

A limited partnership that had purchased mini-warehouses was found to have a source of income for purposes of s. 9 of the Act with respect to the resulting storage park operation, given that there was no evidence of any element of personal use or benefit in the operation. The Court noted that "although we state in Stewart supra, at para. 55, that reasonable expectation of profit may be used as one factor in making the overall determination as to whether or not the taxpayer's activities are personal or commercial, where, as here, the activities have no personal aspect, reasonable expectation of profit does not arise for consideration."

In addition, "although the respondents in this case were clearly motivated by tax considerations when they purchased their interests in the Partnership, this does not detract from the commercial nature of the storage park operation or its characterization as a source of income ... ."

Stewart v. Canada, 2002 DTC 6969, 2002 SCC 46, [2002] 2 S.C.R. 645

no reasonable expectation of profit test if no personal element

There was no evidence that the taxpayer had acquired condominium rental units for his personal benefit. Accordingly, his property rental activity was clearly a commercial activity, so that it was a source of income. Only where the nature of a taxpayer's venture contained elements which suggested that it could be considered a hobby or other personal pursuit did it become necessary to establish that the taxpayer had an objective intention of profit and that there was evidence of businesslike behaviour which supported that intention.

Carter v. The Queen, 2001 DTC 5560, 2001 FCA 275 (FCA)

In response to a submission of the taxpayer that he should be treated as an individual and that the involvement of his wife and company with respect to hedging transactions should be ignored, Rothstein J.A. stated (at p. 5561):

"Viewing the appellant in his own right, it is inescapable that he had no reasonable expectation of profit from his own transactions; no source of income and therefore no basis for deducting expenses."

Keeping v. Canada, 2001 DTC 5358, 2001 FCA 182 (FCA)

In reversing a finding of the Tax Court Judge that a teacher was not entitled to deduct the losses of his Amway distributorship, Rothstein J.A. stated (at p. 5359):

"There is no indication that the Amway distributorship was being operated for any non-business motive. In the circumstances, the reasonable expectation of profit test should be applied sparingly and not to second-guess the business judgment of the appellant."

Devito v. Canada (Attorney General), 2001 DTC 5394, 2001 FCA 166 (FCA)

An operation of the taxpayer in renting or trying to rent out two units and a spare room in his Burlington home was not engaged in with a reasonable expectation of profit given the predominance of the personal element (the spare room was rented to the babysitter, and in order to protect his children he sometimes limited his rental income) and the fact that the pro rata portion of the mortgage interest alone exceeded the rental income.

King v. Canada, 2001 DTC 5116 (FCA)

The Court affirmed a finding of the Tax Court that partnerships in which the taxpayer invested did not have a reasonable expectation of profit in light of the commercially unrealistic nature of the arrangements they had entered into including the lack of clarity that even if the entity from which they had acquired a royalty produced a "mega hit", either partnership would be in a position to claim any benefit from it.

Cardella c. Canada, 2001 DTC 5251, 2001 FCA 39

The realization of profit from its rental operation was found not to motivate the partners of a limited partnership in which the taxpayer was a limited partner given the heavy debt load which was projected to remain undiminished throughout the first ten years of its operation. In the case of a second partnership in which the taxpayer was a limited partner such an expectation is found to be present given that the partnership enjoyed profits in two of the three years in issue.

Kuhlmann v. Canada, 98 DTC 6652 (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 riding" school and raising horses for competition in jumping events with a reasonable expectation of profit. The trial judge erred in finding that love for one's work attracted the scrutiny mandated by the Tonn case; in second-guessing the business decisions made by the taxpayer; and in failing to recognize that a minimum of five or six years was needed in the best of circumstances for such an activity to become profitable.

Mohammad v. The Queen, 97 DTC 5503 (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 balance of the purchase price. Mogan T.C.J. had applied s. 67 to disallow the deduction of the interest paid on the personal loan, and found that, after such adjustment, the taxpayer had a reasonable expectation of profit. Before going on to find that such resort to s. 67 was improper, Robertson J.A. noted (at p. 5506) that where a property has been acquired on which the interest expenses exceed the revenue, "the taxpayer must establish to the satisfaction of the Tax Court that he or she had a realistic plan to reduce the principal amount of the borrowed monies", and further stated (at p. 5510) that "the judicial doctrine of reasonable expectation of profit and the concept of reasonable expenses under section 67 of the Act are to be invoked and applied independently of one another".

The Queen v. Donnelly, 97 DTC 5499 (FCA)

Before going on to find that the deduction of farming losses by the taxpayer was restricted by s. 31(1) of the Act, Robertson J.A. stated (at p. 5501) that in the case of the reasonable expectation of profit test:

"The taxpayer need only show that there is or was an expectation of profit, be it $1 or $1 million. It is well recognized in tax law that a 'reasonable expectation of profit' is not synonymous with an 'expectation of reasonable profit'."

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 between 13 and 15 years of age) as an Olympic-calibre equestrian show jumper, Décary J.A. stated (at p. 5461 that "the start-up period, in a case such as this one, can only begin, not when the rider is reasonably expected to become an accomplished rider, but when she has become one", and that "until then, the cost of training the rider can only be described as training expenses prior to the day the business is commenced".

Attorney General of Canada v. Mastri, 97 DTC 5420 (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 notwithstanding that they had no reasonable expectation of profit. The reference in the Tonn decision to applying the Moldowan test "sparingly" where, for example, there was no personal element in the venture, meant only that the judge should apply the reasonable expectation of profit test less assiduously than he or she might do if such a factor were present. There also was no basis for postulating (as alleged by the Crown in this case) that the Court in Tonn had confused the concept of deductibility of an expense with the concept of deductibility of rental losses from income derived from other sources: it recognized that the latter was the issue before it.

Hickman Motors Ltd. v. Canada, 97 DTC 5363, [1997] 2 S.C.R. 336

reasonable expectation of profit test directed only at existence of business source

Before finding that equipment that the taxpayer received on the winding-up of one subsidiary and held for five days before transferring it to another subsidiary satisfied the income-producing purpose test in Regulation 1102(1)(c), the L'Heureux-Dubé J. stated that the income-producing purpose test in Regulation 1102(1)(c) and paragraph 18(1)(a) was distinct from the reasonable expectation of profit test, which was principally directed at differentiating between a business and personal pursuit, and was not suited to determining whether a particular item of expense was deductible.

Schwartz v. Canada, 96 DTC 6103, [1996] 1 SCR 254

Major J. stated, in an obiter dictum (at p. 6120) that "in the long line decisions that distinguish a 'business' from a 'hobby', it has been consistently held that where the activity in question falls outside the definition of 'business', any profits recognized are not subject to tax under s. 3."

The Queen v. Gulf Canada Resources Ltd., 96 DTC 6065 (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 it was admitted that the taxpayer's activities were a business.

Tonn v. The Queen, 96 DTC 6001 (FCA)

In 1989 the taxpayer purchased a vacant residential property in Scarborough, containing two residential rental units, with the expectation that the initially-anticipated monthly rental revenues of $1,900 per month would increase by approximately 6% per annum in succeeding years. Before going on to reverse a finding of the Tax Court that the properties had not been acquired with a reasonable expectation of profit, Linden J.A. stated (at p. 6009) that the reasonable expectation of profit test appearing in the Moldowan case:

"is a useful tool by which the tax-inappropriateness of an activity may be reasonably inferred when other, more direct forms of evidence are lacking. Consequently, when the circumstances do not admit of any suspicion that a business loss was made for a personal or non-business motive, the test should be applied sparingly and with a latitude favouring the taxpayer, whose business judgment may have been less that competent."

Yaki v. The Queen, 94 DTC 6637 (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. noted that the farm showed a profit in 1992 and presumably would have continued to do so had it not been for severe drainage problems, and that the taxpayer in 1981 and 1982 had spent an amount approximately equal to the cost of the land in rehabilitating the land (which Jerome A.C.J. characterized (p. 6640) as "the act of an individual who has a long term commitment").

Landry v. The Queen, 94 DTC 6624 (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 that in which he had conducted a law practice commencing in 1936, and was only able to identify two clients for the period 1979 to 1992 - was not able to deduct his losses for his 1987 and 1988 taxation years, Décary J.A. stated (at p. 6625) that:

"It is possible for someone, with the best will in the world, to practise an activity that takes all his or her time and that activity may still not be a business".

In his dissenting reasons, Marceau J.A. stated (at p. 6628) that a finding of no reasonable expectation of profit "necessarily affects all expenses and not only, as the Minister's assessments would have it, those in excess of the fees earned". [Emphasis in original]

McGovern v. The Queen, 94 DTC 6527 (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 of profit. Unfortunately, three months later, a condominium association was formed in the complex and one of its first steps was to pass by-laws prohibiting short-term rentals by owners, or occupation by children under 12 years. Furthermore, the local economy suffered a significant decline.

In finding that the taxpayers were entitled to deduct their losses on the unit for their 1984 taxation year notwithstanding the total absence of rental income for that year, Jerome A.C.J. stated (p. 6528):

"... where the business venture, under normal circumstances, would have realized a profit but fails to do so because of a dramatic change in conditions, a taxpayer should be granted a reasonable period of time in which to ascertain that no income is likely to be earned."

Engler v. The Queen, 94 DTC 6280 (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 attended to by his wife. However, when he commenced devoting his whole-time efforts to the venture, he charged expenses to it that were substantially in excess of sales revenue and generated correspondingly large losses. Joyal J. found that in the first year of full-time operation, there was a reasonable expectation of profit given the past history of profitability, but for the subsequent taxation years there no longer was such a reasonable expectation. Consequently, for those subsequent years the resulting losses were not deductible from the taxpayer's other sources of income. Before reaching this conclusion, Joyal J. stated (p. 6282) that:

"... although a profit, expressed in percentage terms as a return on investment, on energy and time and effort expended, might not be of a nature to invite a take-over bid ..., the test of reasonableness is met if a profit has been realized."

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 and significant losses, was not able to deduct any portion of such losses from his employment income.

DesChênes v. The Queen, 93 DTC 5234 (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 expectation of profit given the minimal income generated (revenues were approximately 1/3 of the interest expense and were also significantly less than capital cost allowance claims) and given that the chartering of the yacht in the Lake Ontario region rather than in the Caribbean ensured that revenues could only be generated for part of the year.

Edwardes v. The Queen, 91 DTC 5635 (FCTD)

A full-time teacher was prohibited from deducting losses incurred in automobile performance rallying in the absence of any record of achieving profit over the life of the venture, the relatively small size of purses, the difficulties of obtaining sponsors and the lack of evidence of systematic planning on her part.

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 arising from expenses of approximately $8,000 per year. The taxpayer's professed expectations of profit reflected "invincible optimism".

Bigelow v. The Queen, 90 DTC 6262 (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 horse breeding and raising operation with a reasonable expectation of profit in light of the facts that he did not achieve a profit in any of the subsequent taxation years (up to 1986) in evidence, with the exception of a small gain in 1985 (attributable to an accounting change), his lack of formal training in horse breeding, and the fact that he did not begin investing more money and time in the operations until subsequent taxation years.

The Queen v. Demers, 90 DTC 6216 (FCTD)

A husband and wife, who were full-time employees, and who in 1981 purchased farmland which required considerable work before it would become suitable for farming, were able to establish that the farming operation would be a paying proposition once the mortgage was paid off and that the complete liquidation of the mortgage was at all times their goal. The considerable delay before the farm became profitable was attributable to some unexpected setbacks in 1984. Accordingly, losses which they incurred in 1981 and 1982 were deductible subject to the $5,000 limit in s. 31(1).

McNeill v. The Queen, 89 DTC 5516 (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 it for use as a residence notwithstanding that during the taxation years in question he was unable to rent it out.

Posno v. The Queen, 89 DTC 5423 (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 made it available to various flying academies. Revenues which he received from the academies consistently were small in relation to the expenses borne by him (including maintenance expenses, interest and CCA) and, in fact, a large portion of the revenues were attributable to his personal use of the plane, for which he paid regular rates to the academies.

Muldoon, J. held that the taxpayer's projections of profitability had been unrealistically optimistic and "that personal use was the principal reason for the plaintiff's acquisition of the aeroplane. The leasing business venture was his means of supporting his own flying of that high-performance aircraft."

Madronich v. The Queen, 89 DTC 5093 (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 systematic way and in accordance with accepted reforestation practices. "The fact that the ultimate harvest from the anticipated crop was some thirty or forty years removed does not operate, in my view, to make the operation less of a business and more of a hobby."

Coupland v. The Queen, 88 DTC 6251, [1988] 1 CTC 414 (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 property was found not to be run as a business in light of its under-capitalization, the lack of any concerted effort to obtain anything approaching full occupancy, and the result of revenues as low as 1% of reported expenses.

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 of chartering the vessel, he was unable to provide objective evidence that this expectation was reasonable.

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 intention of farming in co-operation with him. However, his father-in-law was forced to retire completely from farming in 1977 as a result of a severe stroke and a plunge in cattle prices, and the taxpayer was forced during 1978 to 1983 to use his land for cash crops. Despite persistent losses until 1986, the taxpayer was held to have a reasonable expectation of profit, and his 1979 and 1980 losses were deductible subject to the s. 31(1) limit. "Unlike other businessmen, a farmer cannot simply change his location or line of products as the market shifts. He is restricted to dealing in what the land can produce, and his choices in that regard are determined by available capital."

London Life Insurance Co. v. The Queen, 87 DTC 5312, [1987] 2 CTC 90 (FCTD), aff'd 90 DTC 6001 (FCA)

rev'd on other grounds 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 loss on the basis of accounting prescribed by the Superintendent of Insurance for life insurance companies. Since this basis of accounting still permitted London Life to realize a profit on a more normal basis of accounting, London Life had a reasonable expectation of profit from the arrangement and for purposes of the Act properly characterized the revenue from LDS as income from a business.

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 breeding and training horses with a reasonable expectation of profit, and accordingly were not permitted to deduct their losses for 1981 and 1982. Revenues as a percent of expenses ranged from 0% to 68% over the period 1977 to 1985, substantial annual expenses were built into their operation in the form of mortgage interest expenses and the contracting out of training (necessitated by their lack of background in the training of horses), and there was no clear plan for making the operation profitable.

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 for both of the years that he held it and with respect to the other unit, in only two years, 1982 and 1985, had there been sufficient return for CCA to be deducted (one criterion for reasonable expectation of profit being the probability of the venture, as capitalized, to show a profit after the deduction of CCA). Nothing turned on the fact that the plaintiff made no personal use of one of the units.

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 Trial Division, McNair stated, obiter: "Expenditures that are part of a taxpayer's working expenses and that are laid out as part of the process of profit earning are deductible in the year in which they are made, even though no profit results therefrom. Nor is there any limitation as to time in s. 18(1)(a) to prevent the deduction of such expenses against income in other years than that in which the expenditure was made."

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 deducting those losses. He had no background in horse breeding, he devoted little time to his operation, there was no evidence of any plan wherein he indicated how he expected ever to make a profit from his operation and he had had consistent losses from the farm since 1968.

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 home there and during each of the following 5 years earned farming revenues equal, at most, to 20% of his expenses, was held not to be engaged in farming with a reasonable expectation of profit. His losses were non-deductible.

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 disentitled to claim any deduction at all in respect of expenses incurred ... [W]hether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance."

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 expectation of profit rather than as a hobby of the partners. The partners were successful businessmen with relatively little personal interest in horse racing (suggesting that they had not entered into the venture for amusement) and "very little additional luck in the various races by the partnership horses would have resulted in a favourable balance sheet".

See Also

Larkin v. The Queen, 2020 TCC 98 (Informal Procedure)

geologist with past successes but no current income was carrying on business

The taxpayer was a 76 year old geologist with decades of successful experience as a prospector, entrepreneur and inventor, with a B.Sc. degree in geology and an MBA. During 201 and for some time before and after 2011, he worked on a variety of resource projects (described as “high risk and high speculation”) (para. 13), for example, seeking to exploit a novel graphene production process, unsuccessfully bidding on an oil sands property and then a kerogen property, developing a new technique to liberate nickel from ore, and a down hole water separation project. He generated no business income in his 2011 taxation year, and the Minister disallowed claimed deductions of $20,156 as business expenses on the basis that activities were not carried out with a sufficient enough degree of commerciality to constitute a source of business income.

In finding that the taxpayer had a business, Masse DJ stated (at paras 34, 35, 40):

[I]t is not uncommon for high risk and speculative ventures such as prospecting, mining, resource extraction and indeed many other entrepreneurial activities, not to show any profit for many years. …

Stewart confirms … that the non-existence of income is not determinative of whether a taxpayer’s activities constitute a source of income.

… He certainly could demonstrate better business practices and I note that his record keeping leaves much to be desired but I still conclude that he conducted his activities with a level of commerciality sufficient to constitute a business. His activities represented sustained efforts on his behalf to secure avenues of profit. His ventures have seen prior successes and he has earned profits in the past. He is continuing to pursue similar opportunities in hopes of repeating his prior success.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) a geologist with no current income could deduct various expenses documented only in spreadsheets 210
Tax Topics - General Concepts - Evidence spreadsheet was sufficient documentation of various claimed expenses 99

Agence du revenu du Québec v. Weaver, 2019 QCCA 1687

REOP doctrine applied to a “gentleman farmer”

The taxpayer, a full-time engineer working for a multinational (but also a self-described “gentleman farmer”), maintained two horses which his two daughters rode in equestrian competitions. He had visions of his elder daughter (aged 16 to 19 in the years in question) competing in the junior Olympics and making a career of her riding. Revenues from the equestrian operation over a six-year period averaged less than 10% of claimed expenses. In reversing the finding below that the taxpayer was carrying on a business and was entitled to deduct the claimed losses, the Court stated (at paras. 12, 16, TaxInterpretations translation):

[T]he judge did not analyze the activities of the respondent in relation to the objective factors laid out … in Stewart, namely, (1) the profit and loss experience in past years; (2) the taxpayer’s training; (3) the taxpayer’s intended course of action; and (4) the capability of the venture to show a profit.

… [I]t is difficult to conclude that the predominant intention of the respondent was to derive profit from the equestrian activities of his daughters and that he showed serious businesslike conduct.

Savage v. The Queen, 2017 TCC 247 (Informal Procedure)

“dog kennel” operation was a source of revenue, but not of income

The taxpayers worked full time but stated that they were building up a dog kennel business, which they had started in 1999, in order to supplement their income when they retired. Their losses for their 2010 to 2012 taxation years, in which they had revenues of about $2,000 per year and claimed expenses of between $13,000 and $22,000 per year, were denied. In 2010, they lost their prize dog, and thereafter only had two dogs, who were not registered and, therefore, could not be shown. They had the capacity to accommodate two dogs in addition to their own two dogs.

In finding that the losses were non-deductible as the taxpayers were not carrying on a business, as the evidence weighed against “objective finding of commerciality” (para. 19), C. Miller J stated (at paras 24 - 25):

Regarding the capability to make a profit, the Savages produced no financial forecast setting out projections of revenue… . I was left with no appreciation of how, in its current form, the operation could possibly make a profit.

[F]or the years in question and up to the present, I could at best describe them as dabbling, which certainly smacks more of a hobby than a business.

Abenaim v. The Queen, 2017 CCI 223

oppression damages were non-taxable

A senior employee who, in the somewhat distant past, had also been a shareholder, received damages following his termination, and pursuant to a court-mediated settlement agreement, that were well in excess of the going rate for compensation in lieu of notice of 18 months, and received a T4 that treating the full amount as a taxable retiring allowance. D’Auray J treated the portion of the damages in excess of 18 months’ salary as a non-taxable receipt given her characterization of his claim against his former employer as being grounded principally in oppression as contemplated in the CBCA and her finding that, indeed, he had been oppressed a lot.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance amount received by a terminated employee (claiming oppression) exceeding 18 months’ salary was non-taxable 456

Mazo v. The Queen, 2016 TCC 232 (Informal Procedure)

pyramid scheme a source of business income

Graham J found that whereas successful participation in a Ponzi scheme gives rise to property income, successful participation in a pyramid scheme gives rise to business income, stating (at para. 16):

[A] participant in a Ponzi scheme is conned by the promoter into investing in something fake. A participant in a pyramid scheme is conned by the promoter into believing that the scheme will actually work and that he or she will profit through his or her own efforts [in recruiting “sales” people lower in the pyramid].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business pyramid scheme gives rise to business, not property, income 275
Tax Topics - Income Tax Act - Section 9 - Timing revenue earned when credited to taxpayer's account with promoter 208

Berger v. The Queen, 2015 TCC 153 (Informal Procedure)

sports blog was business in start-up phase notwithstanding modest revenues and "sports fan" personal element

In 2011, the taxpayer lost his job at a radio station as a sports broadcaster. He started blogging on the Maple Leafs with a view to generating revenues from advertisers, and used his severance package to cover expenses (amounting to $37,000 in 2012) including paying a consulting firm to design a professional website and travel expenses associated with following the team for their away games. During the period under review (being the first 18 months of the blog/website), there was only one sponsor, who paid $7,500.

C Miller J found that there was a personal element to the activities of the taxpayer, who was a sports fan, also stating (at para. 20) that "'blogging' is by its nature as much a recreational pastime as possibly a commercial practice."

However, notwithstanding that the taxpayer had not actively pursued finding sponsors an focused on his website's content, C Miller J allowed the taxpayer's losses as business losses given that the period under review was the start-up phase, this activity was an extension of his previous experience, and his course of conduct was "not so devoid of commercial reasoning to conclude the venture was personal and nothing more" (para. 30).

Hakki v. Secretary of State for Work and Pensions & Anor, [2014] BTC 22, [2014] EWCA Civ 530

careful and successful poker playing was not a trade or business

The question of whether the appellant was obligated to pay child support maintenance out of his poker winnings turned on whether, under the Social Security Contributions and Benefits Act 1992, he was "a person gainfully employed in Great Britain," with "employment" including any trade, business, profession or vocation, and "employed" having a corresponding meaning. After noting findings that the appellant appeared on television for a few weeks and won a prize, communicated his strategies for online poker online and, when gambling in person, carefully selected favourable tables and set a target sum to win after which he stopped, Longmore LJ stated (at para. 20):

Even in combination these findings do not to my mind amount to such organisation as to constitute a trade, profession or vocation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business careful and successful poker playing was not a trade or business 124

Roszko v. The Queen, 2014 DTC 1083 [at 3099], 2014 TCC 59

contractual payments derived from fraud v. contract itself is a fraud

The taxpayer innocently advanced $800,000 to a corporation ("TransCap") which was engaged in a Ponzi scheme. He received $408,000 in total, styled as interest under promissory notes and loan terms which it had issued to him, including $156,000 in the year in issue, before the scheme collapsed.

C Miller J found that the $156,000 (which originally had been reported as interest) was not income. In distinguishing Johnson, he noted (at para. 13) that the funds were not invested as stipulated so that the "$156,000 payment ... was not derived as contracted," and (at para. 19) made "a distinction between earning income based on a fraudulent act or illegal activity versus a finding that the contract itself is a fraud," stating that in the latter situation there is no source of income.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence finding of fraud by securities commission is a legal conclusion, not a factual allegation 98

Garber v. The Queen, 2014 DTC 1045 [at 2812], 2014 TCC 1

fraudulent scheme not a source

Each appellant (along with 600 other taxpayers over several taxation years in the 1980's) bought units in a limited partnership. Each of the 36 limited partnerships was to acquire a large yacht to be used for catered vacation charters. The general partner ("OCGC") engaged in marketing activities and purchased a smaller yacht to be used for the provisioning of supplies to the envisaged fleet, and belatedly bought two more yachts, although none of the yachts was acquired by any particular partnership (paras. 348, 402). As the unit purchases were mostly financed with interest-bearing promissory notes of the investors which were not paid, the capital raised was grossly insufficient for accomplishing the marketed objectives. Rossiter ACJ found (at para. 113, see also paras. 280, 261, 352) that "any yacht building and charter development efforts by OCGC and its related companies were mere window-dressing [to induce further investments]" and characterized the arrangements as a "Ponzi-like scheme [which] was set to collapse eventually" (para. 344, see also 356).

In confirming the Minister's denial of the partnership losses claimed by the taxpayers, Rossiter ACJ stated (at para. 329):

[T]he OCGC yacht chartering business was a fraudulent scheme from beginning to end throughout which the investors' contractual rights were not respected. As such, per... Johnson and Hammill, it cannot give rise to a source of income ... and cannot be considered a business under any definition.

Drouin v. The Queen, 2014 DTC 1016 [at 2564], 2013 TCC 139

arrangement looking like Barbados tax shelter was in fact genuine business

A Barbados corporation ("PIN") allegedly developed marketing software. It did business mainly through franchise arrangements, under which it would often operate the franchisee's franchise as an agent. The taxpayer was one such franchisee. He covered the $200,000 franchise purchase price with a promissory note at 7.5% interest.

The Minister disallowed all the taxpayer's business deductions in connection with the franchise, on the basis that there was no business activity, and that the franchise and note were shams entered into predominantly for tax reasons. In the alternative, the deductions were unreasonable.

Bédard J disagreed. A thorough review of the evidence showed extensive and varied development efforts that were founded on a serious business plan. Accordingly, the expenses were also reasonable.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus late disclosure of assumptions does not reverse onus 118

Bouchard v. The Queen, 2013 DTC 1203 [at 1083], 2013 TCC 247 (Informal Procedure)

LP for daughter's tennis training expenses

When his daughter was nine years old, the taxpayer created the "Tennis Mania LP," which used the funds contributed by him to reimburse him for expenses incurred by him in connection with her training and development as a tennis player. Over a 10 year period, the partnership generated no revenues, and the professed objective of receiving a share of her future professional earnings was not binding on her.

Masse DJ found (at para. 22) that the partnership activity was not "being carried out ... in a sufficiently commercial manner so as to constitute a source of income," so that the purported losses allocated to him by the partnership were not deductible in computing his income.

Kuhlmann v. The Queen, 2011 DTC 1297 [at 1675], 2011 TCC 410 (Informal Procedure)

The taxpayer and his wife carried on a consulting business through a partnership. They taxpayer subsequently became employed by the partnership's principal client, but his employment was terminated after a change in management. Various expenses incurred after the termination were deducted in computing the losses from the partnership. In denying these deductions, Bowie J. found that the partnership had ceased to be a source of income as (para. 7)

There is no commerciality or businesslike activity here. There is simply someone looking [unsuccessfully] for work.

Hanna v. The Queen, 2011 DTC 1279 [at 1584], 2011 TCC 382 (Informal Procedure)

The taxpayers held a rental property, which they intended to use to assist refugees coming to Canada. Campbell J. found that their expenses in connection with the property, including mortgage expenses, were not deductible. As there was a personal element involved in operating the rental property, the appropriate test was pursuit of profit (para. 12), and the sporadic nature of the rental activity and the lack of business-like behaviour with respect to the property did not suggest that profit was being pursued.

Perreault v. The Queen, 2011 DTC 1256 [at 1469], 2011 TCC 270 (Informal Procedure)

V.A. Miller J. allowed the taxpayer to deduct 50% of approximately $24,000 of business losses incurred in connection with a pyramid sales organization called Advantage Conferences. Evidence demonstrated that the taxpayer had been pursuing the sale of further memberships in a businesslike manner, using a website to promote sales and advertising that website for over $10,000 on Google Adwords. Favreau J. stated (at para. 21):

The absence of a business plan specific to the business activities of the appellant and her spouse is also not determinative because they were following the plan proposed or imposed by the Advantage Conferences to the letter.

Cohen v. The Queen, 2011 DTC 1195 [at 1080], 2011 TCC 262

The taxpayer attempted to claim $121,991 in poker losses on the basis that his gambling was a commercial activity. Pizzitelli J. found that the losses should be disallowed. He stated (at para. 41):

The only evidence is that he lost money, consistently throughout the year, and he has not demonstrated the venture has a capacity to show a profit.

Evidence demonstrated that the taxpayer lacked any formal or otherwise meaningful poker training, had no business plan, lacked discipline (he abandoned his strategy of playing low-stakes games against inebriated players after three months, to his detriment), failed to manage risk (he maxed out his credit cards to cover the losses), and had a personal element (he had been a hobby player for years) - all these factors contradicted there being a reasonable expectation of profit.

Dickson v. The Queen, 2011 DTC 1123 [at 681], 2011 TCC 153 (Informal Procedure)

The taxpayer did not have a reasonable expectation of profit in various business activities. She did not invest enough time in her flight instruction business to even cover the costs of maintaining her pilot certification. Her revenue as a church organist did not cover her transportation expenses. Her biography on an early Canadian female aviator was more in the nature of a project undertaken for personal interest, given that the book had already taken her four years, she had yet to complete a first draft, and there was no reasonable prospect of readership large enough to turn a profit.

Daoust v. The Queen, 2010 DTC 1331 [at 4265], 2010 TCC 330 (Informal Procedure)

The taxpayer could not claim a loss on the cottage he rented out. He used the cottage personally, and his rental activities did not demonstrate a pursuit of profit. D'Arcy J. remarked at para. 22: "It appears to me that the combination of a a very high rental rate and a limited target market of friends and relatives resulted in the rental of the cottage not having the capacity to show a profit."

Landriault v. The Queen, 2009 DTC 1334, 2009 DTC 1243, 2009 TCC 378 (Informal Procedure)

The taxpayers rented out the upper floor of a residential property to their disabled son at a minimal rent which helped to defray operating costs, which would have been too low to permit the generation of a profit. In finding that the resulting rental losses were non-deductible, Favreau, J. stated (at para. 14) that "the rental activities were not carried out on a commercial basis and hence cannot be a source of income for the purposes of the Act".

Saint-Laurent v. The Queen, 2008 DTC 3668 (TCC)

In investing in a partnership the taxpayer had no intention of deriving any profit whatsoever and his only motivation was to generate a tax refund to himself. Accordingly, the taxpayer did not operate a business in respect of the partnership, and his losses were not deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 103

Caputo v. The Queen, 2008 DTC 3596, 2008 TCC 263

A tax shelter arrangement under which the taxpayer agreed to pay licence fees for the right to market customer loyalty cards in specified areas was not a business in light of the fact that no marketing or other business activity actually occurred.

Allard v. The Queen, 2007 DTC 1667, 2005 TCC 91 (Informal Procedure)

The taxpayer, who rented out a property to his parents at a modest monthly amount, without any rental increases from 1997 to 2002, so that it was impossible to cover the major expenses associated with the property, was unable to demonstrate that his predominant intention in renting the property was to profit from that activity.

Coome v. The Queen, 2007 DTC 1522, 2007 TCC 493 (Informal Procedure)

A real estate agent who showed persistent losses and who in the taxation years in question earned minimal revenue from his activity was found not to be engaged in his activity in a commercial manner or with businesslike behaviour, with the result that his claimed losses were non-deductible.

Leblanc v. The Queen, 2007 DTC 307, 2006 TCC 680

compulsive gamblers rather than professionals

The two taxpayers, who together won over $5.5 million during a four year period from playing sports lottery parlay games, were found to not be subject to tax under s. 9 on those winnings and to have realized the gains as exempt capital gains under s. 40(2)(f). Bowman C.J. found that the large number of bets placed by them was not itself indicative of anything other than a tendency to bet heavily and accepted expert testimony that given the rigid game structure, artificial winning caps and the minimal impact (if any) of sports-related knowledge, sports lottery parlay games offered overwhelming odds against players succeeding on a regular basis, so that they could not reasonably expect to earn a profit. The taxpayers were not professional gamblers who assessed the risks, minimized them and relied on inside information and knowledge and skill but, instead, would more accurately be described as compulsive gamblers.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business winnings on internet gaiming were non-taxable 149
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business compulsive gamblers rather than professionals 149
Tax Topics - Income Tax Act - Section 9 - Expense Reimbursement 149

Partridge v. The Queen, 2004 TCC 471 (Informal Procedure)

The taxpayer's a farming loss of $26,142 was allowed given that the only reason for the disallowance of the loss given by the Minister was the reasonable expectation of profit doctrine, and it was not pleaded as an assumption or as an additional reason that there was any personal element in the taxpayer's farming operation. Bowman A.C.J. further indicated that although the taxpayer's farming operation was a commercially unsuccessful farming operation, it was not a hobby or engaged in to satisfy purely personal as opposed to commercial goals.

Shaughnessy v. The Queen, 2002 DTC 1272 (TCC)

After finding that the taxpayer had incurred deductible interest respecting an investment in a rental condominium in Whister, B.C. on the basis of satisfying the eleven principles laid out in Donyina v. The Queen, [2001] 3 CTC 2741 (TCC), Bowman A.C.J. stated (at p. 1277):

"Any realistic analysis of what the CCRA was doing in this case makes it crystal-clear that it was in essence disallowing the interest expense because it did not result in the production of net income. This is precisely the approach rejected by the Supreme Court of Canada in Ludco."

Rikley v. The Queen, 2001 DTC 756 (TCC)

Before finding that the taxpayer was entitled to deduct losses incurred by him in operating a yacht for charter in the Caribbean, Bowman A.C.J. noted that there is no personal element, that "the Minister should not second guess the appellant's business judgment", that the taxpayer was entitled to a reasonable period to get the business established, that the utilization by the taxpayer of accelerated capital cost allowance could not be used to enhance the Minister's reasonable expectation of profit argument, and that there was nothing irrational, absurd or ridiculous in the taxpayer's expectation of profit.

Allen v. The Queen, 99 DTC 968 (TCC)

The Minister's position, as revealed in the examinations for discovery, was that the taxpayers, who invested in what quickly became a profitable limited partnership, were not able to deduct losses that arose as a result of their debt financing of their purchase of units. In allowing the taxpayers' appeal, Bowman T.C.J. stated:

"Whatever else may be said about 99% financing of an investment, it certainly cannot be said that its result is that the vehicle in which the taxpayer has invested did not carry on a business ... . Where there is no personal element and a genuine business exists the NREOP doctrine has no application ... . To use it to restrict the deduction of interest that is specifically permitted by paragraph 20(1)(c) ignores not only the plain meaning of that paragraph, but the highest pronouncements as to the purpose of the interest deduction ..."

Witkin v. The Queen, 98 DTC 1933 (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 partnership "(CL A") that had constructed a luxury residential condominium apartment complex in Dallas. In finding that the taxpayers had no reasonable expectation of profit from their investment in CL 1, Beaubier T.C.J. noted that CL A had lost over $59 million in about four years and that the taxpayers had no right to reduce the costs of CL A given that all decisions regarding management of the partnership were required to be made by unanimous written consent of the partners.

Balanko v. MNR, 88 DTC 6228, [1988] 1 CTC 317 (FCTD)

The gains of an inveterate gambler were not taxable. A statement of Judge Bonner was adopted that "there is a total absence of any evidence here which indicates the presence of any organized system for the minimization or management of risk." [C.R.: 248(1) - "Business"]

Hawkes v. The Queen, 97 DTC 1258 (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 third party in bringing a law suit, with a portion of any damages ultimately received being assigned to the taxpayers, Margeson T.C.J. stated (at p. 1272):

"To conclude that a reasonable businessman would have decided otherwise, on these facts, would be tantamount to allowing Revenue Canada to substitute its decision for that of the Appellants, to refuse to consider the economic situation facing the Appellants at the time they made their decision or to penalize honest business decisions that have not, to this date, been shown to have been erroneous."

Heier v. The Queen, 97 DTC 739 (TCC)

The taxpayer was not entitled to deduct her losses from operating a bookstore and selling religious artifacts. Her initial purpose in starting the operation was not to make a profit but to propagate the Roman Catholic faith and in the years in question she did not take measures such as charging an adequate mark-up or reducing expenses to deal with her operating losses. Beaubier T.C.J. stated (at p. 742) that "it is hard to find a reasonable expectation of profit if the Appellant does not set out to make a profit".

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 that the expenses were inordinately high and no income was received. Brulé T.C.J. stated (at p. 1732): "There must be income, or the possibility of income to come, before there can be a reasonable expectation of profit."

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, therefore, to not be carrying on a business given that the venture had very limited prospects of success (it was "pitifully undercapitalized", the business in question, i.e., distribution of musical records was difficult to break into and the personnel involved had little experience), and the venture was structured so as to not produce substantial profit for the partnership even if excessive sales forecasts were achieved.

Roopchan v. The Queen, 96 DTC 1338 (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 her home with the operating results of a second property which she had not acquired for personal use but was unsuccessful in renting out, in assessing whether she had a reasonable expectation of profit with respect to a combined operation.

Viewing each property separately, she clearly had a reasonable expectation of profit with respect to her basement apartment, whereas it was not appropriate to apply the concept of reasonable expectation of profit to the second property because there is no hobby or personal use aspect to its acquisition. In any event, she planned not only to rent it out but to turn it to account by sale at the earliest possible opportunity (as evidenced by her listing of the property for sale even before she took possession).

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 products, Sobier T.C.J. stated (p. 491):

"I do not believe that the taxpayer's previous profit and loss experience in a totally different business has any bearing ... . The denial of the business losses after only six months of operation seems more motivated by the type of business the Appellant was carrying on than whether it was capable of profitability."

Administrative Policy

S4-F14-C1 - Artists and Writers

Stewart and Walls criteria of a business

1.22 It was determined in the Stewart decision that in order for an activity to be classified as commercial in nature, the taxpayer must have the subjective intention to profit and there must be evidence of business-like behaviour which supports that intention. Some objective factors to be considered when determining if there is an intention to profit identified in Stewart were: the profitability of prior years, the taxpayer’s training, the taxpayer’s intended course of action, and the capability of the venture to show a profit.

Factors considered in determining whether the artist’s activity is a business

1.24 Factors which should be considered by the artist or writer in determining whether the artist’s or writer’s activity is undertaken in a sufficiently commercial or business‑like manner include:

  1. the amount of time devoted to the artistic or literary endeavours;
  2. the extent to which an artist or writer has presented their works in public and private settings including, but not limited to, exhibiting, publishing, and reading as is appropriate to the nature of the work;
  3. the extent to which an artist is represented by an art dealer, agent, or mandatary and the extent to which a writer is represented by a publisher or literary agent;
  4. the amount of time devoted to, and type of activity normally pursued in, promoting and marketing the artist's or writer's own works;
  5. the amount of revenue received that is relevant to the artist's or writer's own works including, but not limited to, revenue from sales, commissions, royalties, fees, grants, and awards which may reasonably be included in business income;
  6. the historical record, spanning a significant number of years, of annual profits or losses relevant to the artist's or writer's exploitation of their own works;
  7. the type of expenses claimed and their relevance to the endeavour(s) (for example, in the case of a writer there would be a positive indication of business activity if a substantial portion of the expenses were incurred for research);
  8. the artist's or writer's qualifications as an artist or writer, respectively (for example, as evidenced by training, education, or by public and peer recognition received in the form of honours, awards, prizes, and/or critical appraisal);
  9. membership in any professional association of artists or writers whose membership or categories of membership are limited under standards established by that association; and
  10. the significance of the amount of gross revenue derived by an artist or writer from the exploitation of that individual's own works and the growth of such gross revenue over time. In applying this factor, external influences such as economic conditions may affect the sale of artistic or literary works, will be taken into consideration.

1.25 No particular factor described in ¶1.24 is more important than another … .

1.26 In the case of an artist or writer, it is possible they may not realize a profit during their lifetime. In order for the taxpayer to be considered to have undertaken the activity in pursuit of profit, i.e. to be considered to be carrying on business, the artistic or literary endeavours must be carried on in a sufficiently commercial or business-like manner.

17 January 2020 External T.I. 2017-0685341E5 - Tax Comparison of the FIT & Net Metering Programs

credits received under the Ontario Net Metering Program respecting electricity generated for personal consumption are not income

Under the Net Metering Program administered by the Ontario Power Authority, a participant who generates electricity primarily for the participant’s own use from a renewable energy source is billed only for the difference between the value of the electricity consumed by the participant and the value of the electricity supplied to the provincial electrical distribution system, so that where the value of the participant’s electricity consumption is less than the value of the excess electricity supplied, the participant will accumulate a credit, which is available for use against the participant’s future electricity consumption in the next billing period – and if the accumulated credit cannot be used in its entirety within a given 12-month period, it will be forfeited as of the next billing period. CRA stated:

Generally, where the accumulated credit, which is not transferable or redeemable and that cannot be carried forward beyond a limited period, is received by a participant who generates electricity for purely personal consumption (i.e., a participant that does not receive such credit in connection with a commercial activity that is carried on with a view to earning a profit), the amount of the credit would typically not be subject to tax under the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit a credit generated by a business under the Ontario Net Metering Program is only income when applied, and is offset by a deduction for the electricity consumed 261
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 general Class 43.1 or 43.2 treatment of specified energy property rules to equipment used in the Ontario Feed-in Tariff program 157
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(25) application of exception to the specified energy property rules to equipment used in the Ontario Feed-in Tariff program 364

S4-F11-C1 - Meaning of Farming and Farming Business

Business source: Whether farm activities are a business

1.20 In order to determine if a farming business exists, it is important to consider whether the farming activities are undertaken in pursuit of profit, or whether they are simply a personal endeavour. This is consistent with the approach taken by the Supreme Court of Canada in Stewart v Canada, [2002] 2 S.C.R. 645, 2002 DTC 6969 and Walls v Canada [2002] 2 S.C.R. 684, 2002 DTC 6960. Where there is a personal element to the farm activity, it must be determined if the operation is carried out in a sufficiently commercial manner. If it is, the income or a loss from the activities is generally considered to be from a business and will be treated as such for income tax purposes.

1.21 The following factors are relevant to determining whether farm activities are carried out in a commercial or business-like manner:

  • the gross revenue and income or losses generated by the farm in the past;
  • the extent and type of activity compared to farming businesses of a similar kind, size and location. If the size of the operation or property is too small to make a profit, the activity would not generally be considered to be carried out in a commercial or business-like manner. This might be the case if a taxpayer buys a rural property but uses only a small portion of the land for one or two cows;
  • time spent on the farm operation compared to time spent in employment or other income-earning activity. For example, if the taxpayer spends most of the crop season working on the farm operation, then the taxpayer is likely carrying on a farming business, particularly if the taxpayer has farming experience; and
  • the development of the farm operation and plans to expand based on the taxpayer's resources. ...
Words and Phrases

26 March 2015 Internal T.I. 2013-0503031I7 F - Existence d’une source de revenu

individual’s sideline activity not a business so that revenues exempt

Although an individual’s activity, which he engaged in in order to generate funds for recreational activities, hade a certain level of commerciality and entailed the monthly tabulation of results by him, they likely did not constitute a business in light inter alia of repeated losses, the absence of intention to increase the scale of his activities, what appeared to be below-market charges by him. As the activity was a hobby allowing the taxpayer to raise money rather than being a source of income, his expenses were non-deductible, and his revenues non-includible, in computing his income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose criteria for determining whether a home is a principal place of business 164

12 February 2015 External T.I. 2014-0550771E5 F - Allocation à des bénévoles - chantier particulier

modest compensation to volunteers qua independent contractors not income

A registered charity sends volunteers on missions to developing countries and pays them an allowance of $X per day based on the National Joint Council Travel Directive. Respecting the treatment of this allowance, CRA stated (TaxInterpretations translation):

[R]emuneration that is quite unrepresentative of the services rendered would not be taxable. However, when it is significant enough to influence the participation of the volunteer, it generally will become taxable as employment or business income.

In this case, in the absence of remuneration…the volunteers would be neither employees nor independent contractors. Consequently, the allowance would not be taxable… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts mission work volunteers foregoing allowances 123
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) quite unrepresentative remuneration: exempt 106
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6) mission work under 2 years in LDCs 109

3 October 2014 Internal T.I. 2014-0532051I7 - Rent and Part XIII Tax

rents from personal rental property not required to be reported

A non-resident individual not carrying on business in Canada leases a Canadian property to a related resident individual at less than fair market value rent. The Directorate stated:

…[W]here rent does not represent a source of income (e.g., where below market rent is charged to a related person…) no income need be reported and no expense may be claimed by the owner… .[However] a non-resident does not have to have a source of income in order to be taxed [under Part XIII] on the payments or credits which such person receives from Canada.

See summary under s. 212(1)(d).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) non-commercial arrangement not subject to s. 247 but is subject to Part XIII/property taxes included in rent/no Part XII tax on imputed rent 247
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) non-commercial arrangement not subject to s. 247 99

2 July 2014 Ministerial Correspondence 2014-0537231M4 - Local Exchange Trading System

participation in local bartering network

Respecting whether participation in a local bartering exchange network would give rise to income, CRA stated:

Paragraph 5 of IT-490 indicates that where a person occasionally gives help to a friend or neighbour in exchange for something, the value of the goods or service received would not be taxable unless the person made a regular habit of providing such services for cash or barter. …CRA does not have general guidelines on when a taxpayer is bartering as a regular habit.

25 April 2014 External T.I. 2013-0485421E5 - Payments to Spouse for Attendant Care

Maurice and Pellerin personal care cases accepted

The common law spouse of Mr. X, who was incapable of taking care of himself and was moved into a care facility, received expense reimbursement payments "as well as a reasonable indemnity for the time spent with Mr. X." After referring to Maurice v. The Queen [2002] 1 TCC 2172 and Pellerin v. The Queen 2008 DTC 3210, where amounts received by parents who were caring for disable children were found not to be taxable, CRA stated:

[A]mounts that a parent or spouse receives to take care of a child or a spouse represents taxable income for the year from an office, employment or business. However, for situations similar to the cases noted above, the CRA's position is that the amounts do not have to be included in income. It is not clear to us whether the situation described is sufficiently similar to those situations.

3 April 2014 External T.I. 2013-0512371E5 F - Qualification des montants gagnés au jeu de poker

on-line poker winnings were from more than a pastime

In connection with concluding that a taxpayer, who began to devote a substantial portion of his time to online poker gambling, earned income from a business, and after quoting from IT-334R2, paras. 10 and 11, CRA stated (TaxInterpretations translation):

[W]here the principal source of income of a taxpayer is on-line poker games (as compared to other taxpayers who are employed full time and indulge in poker in their free time), such taxpayer is considered to derive business income from such games.

28 March 2014 External T.I. 2014-0525191E5 - Virtual Currencies (Bitcoins)

bitcoin mining business

After stating that "if it is clear that a personal endeavour or hobby is pursued in a sufficiently commercial and businesslike way, it can be considered to be a business activity," CRA stated that "we agree that you are operating a bitcoin mining business."

4 March 2014 External T.I. 2013-0491981E5 F - Soins à un conjoint inapte

personal care amounts received by a committee may be non-taxable

What is the tax treatment of amounts received by an individual (who has been appointed as a mandatary by the Superior Court of Quebec) for the care of the individual’s spouse? CRA responded:

In Lise Pellerin v. The Queen, [2006] DTC 3341, the Appellant's son, who was the victim of a very serious accident, received a sum from the Société de l 'assurance automobile du Québec, inter alia, to enable him to obtain personal assistance at home. He chose to pay an amount to his mother to compensate for the care she provided him. …

In Johanne Maurice v. The Queen, 2001 DTC 3710, Mrs. Maurice was receiving amounts in her capacity as a tutor for home help services she personally provided to her mentally incompetent daughter, a minor. In that case, the judge concluded that these amounts were not taxable because the appellant had a support obligation to her daughter and she did not intend to make a profit in this particular situation.

…[T]he CRA's position is that the amounts received by a parent or spouse to care for a child or a spouse represent income derived either from a business or from an office or employment. However, in situations similar to those of Ms. Maurice and Ms. Pellerin, the position of the CRA is that the amounts received in respect of home help do not have to be included in the income computation of the person who receives them.

26 July 2010 External T.I. 2010-0364721E5 F - Revenus de bien et d'entreprise

reduction of personal expenses is not the pursuit of profit

In the course of discussing the deductibility of expenses incurred in a rental or bed and breakfast operation, CRA stated:

a taxpayer may deduct, from all other income, a loss from a business or property arising when the total expenses from one of these sources is greater than the income generated. However, the taxpayer cannot deduct a loss if the taxpayer’s rental activity is primarily aimed at sharing personal expenses related to a building and not for the purpose of making a profit or with a reasonable expectation of profit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(12) bed and breakfast operation was business rather than property source (and thus subject to s. 18(12) limitation) since more than normal essential services provided 166
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(14) rental property restriction rule applies to business properties as well/"principally" references over 50% of the time 127

9 November 2009 External T.I. 2009-0337281E5 F - Paris sportifs sur Internet

earning of $20,000 from sports betting indicated it was a business

Regarding whether a taxpayer deriving income from placing sports bets had a source of income, CRA stated:

[A]n activity that does not have a reasonable expectation of profit cannot be a source of income. Where there is no expectation of profit, neither amounts received nor expenses incurred are to be included in computing income and any excess of expenses over revenues is a personal or living expense, whose deduction is not permitted under paragraph 18(1)(h). However, if the hobby results in more revenue than expenses, this is a clear indication that the pastime is a business carried on with the expectation of profit.

... [T]he fact that your client has earned more than $20,000 as of October 2009 … [indicates] that there is a source of income … .

6 July 2012 Internal T.I. 2012-0453461I7 F - rental losses Canada-France Treaty

no requirement to establish reasonable expectation of profit re deducting loss from French rental property if no personal element

Subject to the rental property restriction rule respecting CCA, a Canadian resident individual generally can deduct rental losses incurred in respect of an immovable property situated in France in computing income. CRA stated:

The CRA's general position is to apply the "reasonable expectation of profit" test to determine whether a taxpayer has a source of income within the meaning of the Income Tax Act when the activity in question has some personal or hobby element. Where the commercial activity in question does not involve any personal element, that criterion will not generally be applied.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 24 s. 126(1) FTC re French income tax on rental income 86

18 September 2012 External T.I. 2012-0442581E5 F - Fiducie au profit d'un athlète amateur

tests for source of business income for amateur athlete

A world-class amateur athlete (the “Athlete”) deposits qualifying performance income (as defined in s. 143.1(1)) to an athlete trust (the "Trust"). How would the income be treated if it instead were received directly by the Athlete? CRA responded:

According to the jurisprudence, the elements that can support this intention are the profit and loss statements for previous years, the taxpayer's training, the path the taxpayer intends to follow and the taxpayer’s ability to earn a profit from the taxpayer’s activities. Of course, this list is not exhaustive.

Although the question of whether an amateur athlete practises the athlete’s sport for profit is a question of fact, we have no hesitation, in the light of the facts you have presented to us, to conclude that the Athlete in this case carries on a business through the Athlete’s sports activities.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 143.1 - Subsection 143.1(2) amounts distributed from athlete trust were business income 123
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose expenses of athlete with athlete trust 124

29 March 2012 Internal T.I. 2011-0430871I7 F - Participation à une étude de recherche clinique

compensation received by participants in clinical drug studies were business income even where they had a personal interest in the study

Pharmaco, which is engaged in the development of pharmaceutical drugs, recruits volunteers to be tested in clinical trials and agrees to pay them compensation or remuneration, which varies based on the duration of the study, the number of overnight stays or the number of visits to the clinic. During clinical trials, participants are housed and fed at Pharmaco's place of business as various protocols are performed by Pharmaco professionals. Are such amounts business income? CRA responded:

[T]o the extent that there was no personal aspect to the activities undertaken by the participant, the latter acted, in our opinion, pursuant to business or services contracts. In some specific cases, if there was a personal aspect to the activities of the participant, we are still of the opinion that the activities were undertaken in a sufficiently commercial way so that there was a source of income and that the activities surrounding participation in this clinical research study were undertaken in order to make a profit (the promoter agreed to pay "compensation" and to cover all costs and expenses related to the study.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) "volunteers" for drug clinical trials earned business rather than employment income 26

10 April 2012 Internal T.I. 2011-0430291I7 F - Montant d'aide versé par la SAAQ à un conjoint

automobile insurance payments received for care of injured spouse were non-taxable

Are amounts received from the Société de l 'assurance automobile du Québec ("SAAQ") by a taxpayer for personal home assistance services rendered by her to her injured husband taxable? The Directorate stated:

# 2007-022925 and # 2004-0107761E5 … stat[ed] that in situations similar to those of Ms. Maurice [2001 DTC 3710] and Ms. Pellerin [2006 DTC 3341], the amounts received in respect of home assistance would not be taxable. Similarly, in situations involving home-based personal assistance services provided between spouses, we are of the view that the amounts described above (reimbursements and/or allowances) paid by the SAAQ and received by a taxpayer providing personal assistance to her husband, a victim of an automobile accident, do not have to be included in the computation of her income.

3 March 2011 External T.I. 2010-0379181E5 F - Jeux de hasard sur Internet

on-line poker winnings generally non-taxable

Respecting winnings of an individual from daily internet poker gambling, CRA stated:

Generally such activities will not be a source of income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business on-line poker winnings would be non-taxable if absence of conduct of serious business person 143

3 February 2011 External T.I. 2010-0389601E5 F - Allocation de transport

allowance from school in “consideration” for arranging child transport was non-taxable

Under an agreement with the School Board (which previously provided student free transportation), the parent was required to personally arrange for the transportation of the child in consideration for a specified daily sum received from the School Board as a transportation allowance. In finding that these receipts were not income, CRA stated:

[W]here a payment is a reimbursement of personal expenses, it is our view that the payment would not be taxable.

Although the transportation allowance in this situation is not strictly speaking a reimbursement of expenses … it is intended to compensate parents for an expense that would normally be borne by the … Board and not to generate income to them.

28 September 2010 External T.I. 2010-0372461E5 F - Exploitation d'une entreprise à perte

reasonable expectation of profit test not applied where no personal element

An individual, a pharmacist, operates a pharmacy at a profit but also, as part of the same business, has a commercial department which sells other products generating a loss, but with that commercial division helping to generate revenues for the pharmacy department. If he drops the pharmacy department down into a newly-incorporated corporation and continues to operate the commercial department directly at a loss, could the reasonable expectation of profit doctrine be applied to deny such losses? CRA responded:

[T]he CRA's general position on the "reasonable expectation of profit" test is to apply it only in determining whether a taxpayer has a source of income within the meaning of the Act where the activity in question involves a personal or hobby element. Where there is no personal element to the business activity in question, as appears to be the case in the Particular Situation, this test will generally not be applied.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Goodwill, Trademarks and Customer Lists per Canada Starch, a payment made to preserve goodwill or a business is not a capital expenditure 157

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 entered into with related persons and they were terminated early giving rise to a termination payment.

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 the property, the taxpayer will not be entitled to claim a rental loss assuming that there is no reasonable expectation that the rental operation will show a profit after expenses.

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 limited partner in a film partnership, the application of the reasonable expectation of profit test is ascertained with regard to the net before-tax revenues resulting from the commercial expectation of the film, rather than with reference to the after-tax return at the partner level.

IT334R2 "Miscellaneous receipts" 1 January 1995

10. Profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business. In addition, an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling; see the decision of MNR v. Morden, (1961) CTC 484, 61 DTC 1266 (Ex. Ct.). The issue of whether or not an individual's activities are such that he or she can be considered to be carrying on a gambling business is a question of fact that can be determined only by an examination of all of the circumstances and the taxpayer's entire course of conduct. Although no one factor may be conclusive, the following criteria should be considered in making the determination:

  • (a) the degree of organization that is present in the pursuit of this activity by the taxpayer,
  • (b) the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,
  • (c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and
  • (d) the extent of the taxpayer's gambling activities, including the number and frequency of bets.

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 computing "profit" as determined under GAAP.

84 C.R. - Q.75

List of criteria that are applied in assessing whether an enterprise has a reasonable expectation of profit.


Benjamin Alarie, "The Taxation of Winnings from Poker and Other Gambling Activities in Canada", 2011 Canadian Tax Journal, Vol 59, p. 731, at p. 757

"Only when a taxpayer as established a clear and consistent record of accomplishment in poker will there be sufficient evidence to take the position that he or she has the requisite skill or knowledge to ensure profitability," so as to make the winnings taxable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business 44

John Saunders, "The Empire Strikes Back - The Rebirth of the Reasonable Expectation of Profit Test", 2003 British Columbia Tax Conference Report.

Joel A. Nitikman, "Reasonable Expectation of Profit - Where Are We Now?", Canadian Current Tax, Vol 8, No. 8, May 1998, p. 81.

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].

Silver, "Great Expectations: Are They Reasonable?", 1995 Corporate Management Tax Conference Report, c. 6.

Paragraph 3(c)

Administrative Policy

11 August 2020 Internal T.I. 2018-0782181I7 - Successored CCEE and Non-Capital Losses

s. 3(c) deduction (e.g., under s. 67.3) cannot generate a non-capital loss

CRA indicated that even though taking deductions under s. 66.7(3) to (5) from successored resource pools against income from successored properties can have the effect of preserving all or part of a current year’s loss from another business, such deductions cannot create or increase a taxpayer’s non-capital loss, stating that:

This is because a deduction under section 66.7 may only be applied to reduce current year income under paragraph 3(c) as it is a deduction that is permitted only pursuant to a specific provision within subdivision e.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 66.7 - Subsection 66.7(3) deductions of successored resource expenditures cannot generate a non-capital loss 322
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense successored resource expenses are not deductible under s. 9 165