SEXTON J.A.
SHARLOW J.A.
BETWEEN:
DOUGLAS L. TITUS
Applicant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, Thursday, February 13th, 2003.
Judgment delivered from the Bench at Toronto, Ontario,
on Thursday, February 13, 2003.
REASONS FOR JUDGMENT OF THE COURT: SEXTON J.A.
CONCURRED IN BY:
STRAYER J.A.
SHARLOW J.A.
Date: 20030213
Docket: A-4-02
Neutral citation: 2003 FCA 78
CORAM: STRAYER J.A.
SEXTON J.A.
SHARLOW J.A.
BETWEEN:
DOUGLAS L. TITUS
Applicant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, Ontario,
on Thursday, February 13, 2003)
SEXTON J.A.
[1] This is an application for judicial review of a decision of the Tax Court which dismissed the appeals of the Applicant, from re-assessments of Income Tax for the years 1994, 1995, and 1996.
[2] The re-assessments had disallowed rental losses on a recreational property in Ontario.
[3] The Applicant purchased the property which was situated on a lake where he had vacationed with his parents. The Tax Court judge found that the property was close to his parent's cottage, and this was a factor which influenced him in deciding to purchase the subject property.
[4] The Applicant's position was that he intended to rent out the property, and earn income from it. However, the Tax Court judge also found that the Applicant was interested in spending his holidays at the cottage.
[5] As a result the Tax Court judge found that "personal factors" played a role in the Applicants acquisition of the property. There was evidence on which the Tax Court judge could reach this conclusion.
[6] The Tax Court judge also examined the financing of the property, and concluded that the interest payments on the mortgage alone substantially exceeded in each of the years in issue the gross rental revenue.
[7] He also indicated that the Applicant "did not appear to have made serious efforts with the view to renting this property".
[8] As a result of considering these various factors, he concluded that the Applicant did not have a reasonable expectation of profit from the rental operation.
[9] The Tax Court's decision was rendered prior to the release of the Judgment by the Supreme Court of Canada in Stewart v. Canada, 2002, D.T.C. 6969.
[10] In Stewart the Supreme Court modified the test set out in Moldowan v. The Queen [1978] 1 S.C.R. 480. In Stewart the Supreme Court said at paragraph 60
In summary the issue of whether or not the taxpayer has a source of income is to be determined by looking at the commerciality of the activity in question. Where the activity contains no personal element and is clearly commercial, no further inquiry is necessary. Where the activity could be classified as a personal pursuit, then it must be determined whether or not the activity is being carried on in a sufficiently commercial manner to constitute a source of income.
[11] The Court, in Stewart, held that in determining whether there was a sufficient degree of commerciality in situations where a personal element is involved, the Court can take into account the factors set out in Moldowan such as profit and loss experience in past years, the tax payer's training, the taxpayer's intended course of action, the capabilities of the venture to show a profit, and the reasonable expectation of profit.
[12] In the case before us, the Tax Court judge did direct his mind as to whether or not there was a personal element for the Applicant in the acquisition and use of the property. Having found there was a personal element it was therefore appropriate for him, to then consider whether the Applicant had a reasonable expectation of profit along with other factors such as whether the Applicant had made serious efforts to rent the property.
[13] We are of the view that the Tax Court judge properly considered all of the evidence before him, in making an overall assessment that the Applicant was not carrying on his rental activity in a commercial manner. The Tax Court's analysis was consistent with the tests laid down by the Supreme Court in Stewart and the earlier Moldowan decision.
[14] The appeal will therefore be dismissed, with costs.
"J. E. Sexton"
J.A.
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
DOCKET: A-4-02
STYLE OF CAUSE:DOUGLAS L. TITUS
Applicant
- and -
HER MAJESTY THE QUEEN
Respondent
DATE OF HEARING: THURSDAY, FEBRUARY 13, 2003
PLACE OF HEARING: TORONTO, ONTARIO
REASONS FOR JUDGMENT
OF THE COURTBY: SEXTON J.A.
DATED: THURSDAY, FEBRUARY 13, 2003
APPEARANCES BY: Mr. Douglas L. Titus
For the Applicant
Ms. Catherine Letellier de St-Just
For the Respondent
SOLICITORS OF RECORD: Douglas L. Titus
Toronto, Ontario
For the Applicant
Morris Rosenberg
Deputy Attorney General of Canada
For the Respondent
FEDERAL COURT OF CANADA
Date: 20030213
Docket: A-4-02
BETWEEN:
DOUGLAS L. TITUS
Applicant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR ORDER