Richard Gobeil

The appellant, an experienced real estate investor, acquired four condominium units from which he earned rental income.

The properties were highly leveraged, resulting in significant interest expenses and rental losses.

The Minister of National Revenue disallowed the deduction of these losses on the basis that the appellant had no 'reasonable expectation of profit' and therefore no source of income under section 9 of the Income Tax Act.

The Supreme Court of Canada allowed the appeal, rejecting the 'reasonable expectation of profit' test as a stand-alone test for determining a source of income.

The Court established a two-stage approach, finding that the appellant's rental activities lacked any personal element and were clearly commercial, thus constituting a valid source of income from which interest expenses could be deducted.

The respondents were limited partners in a partnership that purchased a mini-warehouse.

The partnership generated losses, which the respondents deducted for income tax purposes.

The Minister reassessed the respondents, disallowing the losses on the basis that the partnership did not carry on business with a reasonable expectation of profit.

The Supreme Court of Canada, applying the test from the companion case of Stewart v. Canada, held that the storage park operation was commercial in nature and lacked any personal element.

Therefore, the reasonable expectation of profit test did not apply, and the operation constituted a source of income under s. 9 of the Income Tax Act.

The Crown's appeal was dismissed.