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Date: 20010525

Docket: A-790-99

Neutral citation: 2001 FCA 166

CORAM:             LINDEN J.A.

SHARLOW J.A.

MALONE J.A.                            

BETWEEN:

         ROCCO DEVITO

        Applicant

                     

              - and -                                                                      

                     

                                                                                                                                                                     

THE ATTORNEY GENERAL OF CANADA

                     

Respondent

           

                     

Heard at Toronto, Ontario, Thursday, May 24, 2001

Judgment delivered at Toronto, Ontario,

on Thursday, May 24, 2001

REASONS FOR JUDGMENT OF THE COURT BY:LINDEN J.A.

CONCURRED IN BY:     SHARLOW J.A.

MALONE J.A.


                     

Date: 20010525

Docket: A-790-99

      Neutral citation: 2001 FCA 166

CORAM:             LINDEN J.A.

SHARLOW J.A.

MALONE J.A.                  

BETWEEN:

     

ROCCO DEVITO

      Applicant

     

      - and -                  

                                         

THE ATTORNEY GENERAL OF CANADA

Respondent

      REASONS FOR JUDGMENT OF THE COURT

     

LINDEN J.A.

This is an application for judicial review of a decision of the Tax Court of Canada, which denied the applicant the deduction of a rental loss which he claimed in his 1990 taxation year, on the basis that there was no reasonable expectation of profit.


The applicant rented out parts of the homes he occupied, but consistently lost money over a period of years. As for the taxation year 1990, the Tax Court Judge held that there was no reasonable expectation of profit from the enterprise, and, hence, dismissed the taxpayer's appeal. The applicant in 1990 rented or tried to rent two units and a spare room in his Burlington home, consisting of a room on the main floor, a basement and a room rented to his babysitter at $50 per week. In order to protect his children's well-being, he was very strict with the behaviour of his tenants which sometimes limited his rental income, as, for example, not accepting smokers. There was evidence that the applicant rented the rooms in order to increase his income to enable him to obtain custody of his children and to provide them with a stable home and reliable child care.

The Tax Court Judge correctly outlined the main elements of the "reasonable expectation of profit" doctrine, which the taxpayer must overcome in order to establish that he is in a business. He wrote:

"The reasonable expectation of profit test is an objective test, not a fanciful dream... The objective test includes an examination of profit and loss experienced in the past year. It also examines the operational plan and the background of the implementation of the operational plan, including the planned course of action. It includes an examination of the time spent in the activity as well as the background of the taxpayer, the education and experience of the taxpayer."


The Tax Court Judge explained that "the mortgage payments alone... exceeded the revenue, not including the other expenses of taxes, maintenance or repair, all these other things. The purpose of maintaining the operation was undoubtedly to provide a home for his children, including the arrangement with the babysitter that included room, board and expenses, long-distance phone calls". Consequently, he concluded that "the personal element in this case was predominant" and there was no reasonable expectation of profit. It is apparent from the context that the Judge was referring to the mortgage interest and of the costs associated with the portion of the applicant's house which he rented or wished to rent.

In our view, the Tax Court Judge's findings of fact should not be overturned, as there was evidence to support them and they were reasonable in the circumstances. The fact that a taxpayer is trying to make profit is important, but he must be reasonable in that effort. The amount of rent collected is relevant to the issue of whether the amount expected was reasonable. Nor can we see any error of law in the Judge's reasoning, nor any denial of fairness or natural justice in the conduct of the hearing.

The application must, therefore, be dismissed.


             "A.M. Linden"                 

    J.A.               

"I agree

Karen R. Sharlow"

"I agree

B. Malone"


                            FEDERAL COURT OF CANADA

       Names of Counsel and Solicitors of Record

DOCKET:                                            A-790-99

STYLE OF CAUSE:                   ROCCO DEVITO

            Applicant

- and -                           

THE ATTORNEY GENERAL OF CANADA

Respondent

                     

DATE OF HEARING:                   THURSDAY, MAY 24, 2001

PLACE OF HEARING:                   TORONTO, ONTARIO

REASONS FOR JUDGMENT

OF THE COURT BY:             LINDEN J.A.

CONCURRED IN BY:             SHARLOW J.A.

MALONE J.A.

DATED:                              FRIDAY, MAY 25, 2001

APPEARANCES BY:                         Mr. Rocco Devito

For the Applicant, on his own behalf

Mr. Eric Noble

For the Respondent

SOLICITORS OF RECORD:       Rocco Devito

205 Penn Drive

Burlington, Ontario

L7N 2B6

For the Applicant

Morris Rosenberg

Deputy Attorney General of Canada                        

For the Respondent


FEDERAL COURT OF APPEAL

Date: 20010525

Docket: A-790-99

BETWEEN:

ROCCO DEVITO

      Applicant

                     

- and -                           

THE ATTORNEY GENERAL OF CANADA

                     

Respondent

                     

                     

                                                                      

REASONS FOR JUDGMENT

OF THE COURT

                                                                     

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