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October 1997


Reasonable Expectation of Profit — Strike one up for the good guys

By Grace Chow, CA, TEP
Cadesky and Associates LLP (Toronto)

Imagine making an investment of a purely commercial nature. You make money, and you pay tax. Sounds fair. What if it doesn't make money? You should be able to get tax relief. Well, it's not always that easy.

Our client made an investment in a condominium project in 1986 and took possession in 1989 (the peak of the market). By the time she had sold it, her $1,000 down investment turned into a $54,000 realized loss. It nearly wiped her out.

Then the tax department came along two years later, saying that the whole thing was a tax motivated scheme. The Tax Court would have no part of this. The judge believed that our client purchased the condominium to sell it at a profit, not to rent it. This made the condominium inventory of a business, and her losses were deductible on sale of the condominium.

While, in our view, justice finally prevailed, it did so at an enormous emotional and financial cost. Moreover, Revenue Canada is still considering whether they will appeal the decision.

Meanwhile, strike up one for the good guys.