An activity carried out with the purpose of making a profit and without any personal or recreational aspect is a business activity, and the pursuit of profit by a taxpayer is established.
Jurisprudence helps to develop criteria, definitions, and tools to interpret laws, but it must be used wisely.
A taxpayer had acquired several units of "condos" with a high degree of debt. According to the anticipated projections, the taxpayer planned to repay the debt over ten years with projected income and income tax deductions for the same period, despite a negative cash flow. As the results turned out worse than anticipated, the taxpayer requested a deduction of losses resulting mainly from the interest paid on the borrowed amounts for the purchase of the condos.
After being assessed, the taxpayer appealed to the Court*, which concluded that an activity carried out with the intention of making a profit and without any personal or recreational aspect is a commercial activity, and that the taxpayer's pursuit of profit is established. In such circumstances, the "reasonable expectation of profit" should not be the criterion for determining whether the taxpayer's activities constitute a source of income. By limiting themselves to this criterion alone, the taxpayer would not be able to carry forward their losses to future income if the activity became profitable. The Court ruled in favor of the taxpayer and reiterated that a tax motivation does not invalidate operations carried out for tax purposes.
In certain circumstances, should we not remember what Tiberius wrote: "the good shepherd must shear the sheep and not flay them"?
* Supreme Court of Canada 46-27860
