Massé v. Canada (Minister of National Revenue)

Massé v. Canada (Minister of National Revenue) Court (s) Database Federal Court of Appeal Decisions Date 2003-09-26 Neutral citation 2003 FCA 351 File numbers A-649-00 Notes Digest Decision Content Date: 20030926 Docket: A-649-00 Citation: 2003 FCA 351 CORAM: Desjardins J.A. Létourneau J.A. Noël J.A. BETWEEN: JEAN-ROCK MASSÉ Applicant and THE MINISTER OF NATIONAL REVENUE Respondent Hearing held at Québec, Quebec, September 16, 2003. Judgment delivered at Ottawa, Ontario, September 26, 2003. REASONS FOR JUDGMENT: NOËL J.A. CONCURRING: DESJARDINS J.A. LÉTOURNEAU J.A. Date: 20030926 Docket: A-649-00 Citation: 2003 FCA 351 CORAM: Desjardins J.A. Létourneau J.A. Noël J.A. BETWEEN: JEAN-ROCK MASSÉ Applicant and THE MINISTER OF NATIONAL REVENUE Respondent REASONS FOR JUDGMENT NOËL J.A. [1] This is an application for judicial review of a judgment delivered by Tardif J. of the Tax Court of Canada (2002 D.T.C. 6823; [2002] 3 C.T.C. 431), dismissing the applicant's appeal against assessments issued for the 1994, 1995, 1996 and 1997 taxation years. [2] At issue is the deduction of rental losses incurred by the applicant in regard to a condominium situated in Florida. Procedural context [3] This is the second time that this application for judicial review has come before us. It was initially dismissed on February 28, 2002. The reasons delivered in support of this decision explain that the Court was unable to distinguish this case from the decision of this Court in Stewart v. Canada, 2000 D.T.C. 6163, which was then pending before the Supreme Court. [4] The applicant filed an application for leave to appeal in order to protect his rights until the Supreme Court had handed down its decision in the Stewart case. The appeal was eventually allowed (Stewart v. Canada, 2002 D.T.C. 6969). [5] Consequently, the Supreme Court ordered that the present case be sent back to this Court for redetermination in light of its decision in Stewart. That is the context in which this Court is called upon to consider the application for judicial review filed by the applicant for a second time. Facts [6] The applicant, a businessman in Québec, purchased a condominium in Florida in March 1992. The major portion of the purchase price, which amounted to $113,485 (Can.), was financed by a mortgage. [7] At the time of acquisition, the real estate promoter pointed out that a rental service was available to lease the units that were purchased. The applicant claims that he purchased his unit with the intention of availing himself of this service. [8] The revenues generated by the leasing of the condominium proved very disappointing. In 1995, the applicant decided to charge a neighbour, the owner of a condo on the same site, to look after the leasing of his unit. [9] The Tax Court judge noted that the applicant, during his testimony, was unable to indicate or describe the steps taken by this neighbour to lease his condo, except to say that he thought she was publishing classified ads in various places. [10] According to the information supplied by the applicant, the condominium was leased 4 weeks in 1993, 4 weeks in 1994, 5 weeks in 1995, 4 weeks in 1996 and 4 weeks in 1997. [11] The applicant used his condominium for personal purposes for two to four weeks during each of the years in dispute. In the 1996 taxation year, he personally is the source of the reported rental income for two of the four rental weeks. [12] Finally, the record also disclosed that a number of tenants were either friends or business acquaintances. [13] The appellant reported the following gross income and net losses: Years 1993 1994 1995 1996 1997 Gross income 5,250 2,926 3,569 2,454 3,252 Net losses (11,654) (10,719) (10,793) (9,813) (6,973) [14] The net losses result for the most part from financing costs, which amounted to $8,340, $8,001, $7,603 and $7,400 for the years 1994, 1995, 1996 and 1997 respectively. [15] By way of reassessments issued on January 5, 1998, the Minister refused the rental losses claimed by the applicant. Impugned decision [16] The Tax Court judge concluded that the applicant had no reasonable expectation of profit in respect of his condo. In the judge's view, the applicant's main consideration was not profit but rather the personal benefit of owning a condo in Florida, a portion of the costs of which would be paid by the government. [17] The Tax Court judge noted the high cost of the mortgage and insisted on the fact that the applicant had no serious business plan. The applicant, he said, "consulted no one and prepared no business or recovery plan. He let things go and continued to rely on an arrangement which, over several years, had yield[ed] only highly disappointing results" (reasons, paragraph 29). Analysis and decision [18] As I said previously, this Court had already ruled on the merits of the application for judicial review in light of the cases and authorities as they existed prior to the Supreme Court decision in Stewart. The question that is posed is whether the Supreme Court decision in that case can be of any assistance to the applicant. [19] In Stewart, the Supreme Court held that the reasonable expectation of profit test in judging the existence of a source of income applies only in certain circumstances (paragraph 60): In summary, the issue of whether or not a 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. [20] Henceforth, the Court may consider the factors enumerated in Moldowan v. The Queen, [1978] 1 S.C.R. 480, only to the extent that the activity bears some personal element. More specifically, the existence of a personal element ... requires the taxpayer to establish that his or her predominant intention is to make a profit from the activity and that the activity has been carried out in accordance with objective standards of businesslike behaviour. (Stewart, at par. 54) [21] In the case at bar, the Tax Court judge concluded that what the applicant was seeking first and foremost was the advantage of owning a condominium in Florida for his personal purposes. I am of the opinion that the evidence supported this conclusion. In saying this, I have in mind, among other things, the many times the applicant stayed at his address in Florida. [22] The trial judge therefore had to apply the tests set out in Moldowan judgment and consider whether the applicant could be said to have a reasonable expectation of profit. That is effectively what he did and his analysis in this regard is hard to criticize. In particular, the negligible rental income, when considered in light of the high cost of the financing and the absence of a serious business plan, allowed the Tax Court judge to find that the applicant did not have a reasonable expectation of profit. [23] When all is said and done, the analysis of the Tax Court judge is consistent with the approach recommended by the Supreme Court in Stewart, and the result he reached was justified by the evidence. [24] I would dismiss the application for judicial review with costs. "Marc Noël" J.A. "I concur with this opinion. Alice Desjardins J.A." "I concur. Gilles Létourneau J.A." Certified true translation Suzanne Gauthier, C. Tr., LL.L. FEDERAL COURT OF APPEAL SOLICITORS OF RECORD DOCKET: A-649-00 STYLE: JEAN-ROCH MASSÉ v. THE MINISTER OF NATIONAL REVENUE PLACE OF HEARING: QUÉBEC, QUEBEC DATE OF HEARING: SEPTEMBER 16, 2003 REASONS FOR JUDGMENT: NOËL J.A. CONCURRING: DESJARDINS J.A. LÉTOURNEAU J.A. DATE OF REASONS: SEPTEMBER 26, 2003 APPEARANCES: Richard Binet FOR THE APPLICANT Valérie Tardif FOR THE RESPONDENT SOLICITORS OF RECORD: Binet, Leclerc, Lajoie FOR THE APPLICANT Beauport, Quebec Morris Rosenberg FOR THE RESPONDENT Deputy Attorney General of Canada Ottawa, Ontario