Business Judgment

Table of Contents


Leriche v. The Queen, 2010 TCC 416, 2010 DTC 1279 at 3940.

The taxpayer was an insurance sales representative on commission. He deducted various expenses under s. 8(1)(f) including costs for supplies and equipment. The Minister argued that, because the taxpayer's firm provided supplies, it was unreasonable to buy more supplies. The Minister also argued that it was unreasonable for the taxpayer to buy duplicate equipment. D'Arcy J. disagreed on both points. The taxpayer had a business purpose for those expenses. They did not represent an unreasonable error in judgment, and it was not for the Court to question the taxpayer's business judgment in hindsight.

Rich v. Canada, 2003 DTC 5115, 2003 FCA 38

Before finding that the taxpayer was entitled to an allowable business loss with respect to the loan he made to a company of which he was a minority shareholder and his son was the controlling shareholder, Rothstein J.A. (at 5117) stated that

"The Court is not to second-guess the business acumen of taxpayers (see Stewart v. Canada, 2002 SCC 46 at para. 55)."

See Also

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

Sheridan J. permitted the deduction of 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 its purpose was otherwise to collect rental 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.

Génier v. The Queen, 2011 DTC 1058 [at 317], 2011 TCC 641

The taxpayer's retirement home business failed. Even though she was actively trying to sell the property (listing with several different realtors, attempting private sale, continually adjusting asking price and so forth), it took her five years to sell. She deducted her expenses connected with the property, including interest, property taxes and utilities. The Minister argued that the taxpayer's high initial asking price, and the fact that the property was unlisted for long periods (in which she pursued private sales), demonstrated that she was not pursuing the sale in a reasonable manner. Boyle J. allowed the deductions, noting at para. 32:

Mrs. Génier may have made some business mistakes but those were her mistakes to make. Many Canadian businesses have exercised what Monday morning and armchair quarterbacks say was poor business judgment and lost large amounts of money, including banks and other financial institutions, natural resource companies and real estate development companies. Some with names like Eaton, Campeau, and Massey lost their business as a result. Their tax losses were not denied as a result of arguably poor business decisions. It can be no different for the Géniers of Canada.