Cardella v. Minister of National Revenue, (2001) 268 N.R. 168 (FCA)

• Judge: Stone, Evans and Malone, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: February 26, 2001
• Jurisdiction: Canada (Federal)
• Citations: (2001), 268 N.R. 168 (FCA);2001 FCA 39

Cardella v. MNR (2001), 268 N.R. 168 (FCA)

MLB headnote and full text

Temp. Cite: [2001] N.R. TBEd. MR.031

Carl Cardella (appellant) v. Her Majesty The Queen (respondent)

(A-213-99; 2001 FCA 39)

Indexed As: Cardella v. Minister of National Revenue

Federal Court of Appeal

Stone, Evans and Malone, JJ.A.

February 26, 2001.

Summary:

At issue in this appeal was whether the taxpayer was entitled under s. 20 of the Income Tax Act to deduct from income certain interest and other expenses that were claimed over three taxation years as a limited partner of two partnerships estab­lished under the Limited Partnership Act (Ont.).

The Federal Court of Appeal determined that the taxpayer was entitled to deductions respecting one of the partnerships and referred the matter for reassessment.

Income Tax - Topic 1012

Income from a business or property - Income from property - "Adventure or concern in the nature of trade" - The Fed­eral Court of Appeal discussed what con­stituted an adventure or concern in the nature of a trade - See paragraphs 23 to 28.

Income Tax - Topic 1012

Income from a business or property - Income from property - "Adventure or concern in the nature of trade" - A taxpayer had an interest in two partner­ships (Gerrard and Collegeway), which owned condominium projects - The taxpayer purchased his interests with cash and promissory notes - One of the notes was refinanced by a mortgage - Partners made monthly payments in respect of this indebtedness - For each unit purchased in the partnerships, the investors were given an option to purchase a condominium unit - The taxpayer argued that he was involved in an adventure in the nature of a trade and therefore entitled to deduct in­terest and other fees respecting the part­nerships - The Federal Court of Appeal affirmed that this was not an adventure in the nature of a trade - See paragraphs 23 to 28.

Income Tax - Topic 1140.4

Income from a business or property - Deductions - Business loss - Reasonable expectation of profit - The Federal Court of Appeal discussed the reasonable expec­tation of profit test - See paragraphs 34 to 43.

Income Tax - Topic 1140.4

Income from a business or property - Deductions - Business loss - Reasonable expectation of profit - A taxpayer had an interest in two partnerships (Gerrard and Collegeway), which owned condominium projects - The taxpayer purchased his interests with cash and promissory notes - One of the notes was refinanced by a mortgage - Partners made monthly pay­ments in respect of this indebtedness - Over three years the taxpayer deducted interest, arranging fees and guarantee fees respecting the Gerrard partnership and interest respecting the Collegeway partner­ship - The Federal Court of Appeal deter­mined that with respect to the Gerrard partnership there was no reasonable ex­pectation of profit; therefore, no source of business income existed and the interest and other expenses were not deductible - However there was a reasonable expecta­tion respecting the Collegeway partnership and the interest paid respecting that part­nership was deductible - See paragraphs 29 to 50.

Income Tax - Topic 1141

Income from a business or property - Deductions - Interest - [See second Income Tax - Topic 1012 and second Income Tax - Topic 1140.4 ].

Income Tax - Topic 1264

Income from a business or property - Deductions - Business losses - Reason­able expectation of profit - What consti­tutes - [See both Income Tax - Topic 1140.4 ].

Income Tax - Topic 7936

Returns, assessments, payment and appeals - Appeals - Burden of proof - The Fed­eral Court of Appeal discussed the onus of proof on an income tax appeal - See para­graphs 31 to 33.

Cases Noticed:

Minister of National Revenue v. Mastri (1997), 216 N.R. 74; 97 D.T.C. 5420 (F.C.A.), refd to. [para. 18].

Mohammad v. Minister of National Rev­enue (1997), 216 N.R. 303; 97 D.T.C. 5503 (F.C.A.), refd to. [para. 18].

Californian Copper Syndicate Ltd. and Reduced v. Inland Revenue (Harris, Surveyor of Taxes) (1904), 5 T.C. 159 (Scot. Ex. Ct.), refd to. [para. 25].

Racine, Demers and Nolin v. Minister of National Revenue, 65 D.T.C. 5098 (Ex. Ct.), refd to. [para. 25].

Happy Valley Farms Ltd. v. Minister of National Revenue (1986), 7 F.T.R. 3; 86 D.T.C. 6421 (T.D.), refd to. [para. 26].

Friesen v. Minister of National Revenue, [1995] 3 S.C.R. 103; 186 N.R. 243, refd to. [para. 26].

Hickman Motors Ltd. v. Minister of National Revenue, [1997] 2 S.C.R. 336; 213 N.R. 81, refd to. [para. 31].

Moldowan v. Minister of National Rev­enue, [1978] 1 S.C.R. 480; 15 N.R. 476, refd to. [para. 34].

R. v. Sellars, [1980] 1 S.C.R. 527; 32 N.R. 70, refd to. [para. 37].

R. v. Miller (1982), 141 D.L.R.(3d) 330 (Ont. C.A.), refd to. [para. 37].

Black & Co. v. Law Society of Alberta (1986), 68 A.R. 259; 27 D.L.R.(4th) 527 (C.A.), refd to. [para. 37].

Consolidated-Bathurst Ltd. v. Minister of National Revenue, [1987] 2 F.C. 3; 72 N.R. 147 (F.C.A.), refd to. [para. 37].

Scarff v. Wilson et al. (1988), 55 D.L.R.(4th) 247 (B.C.C.A.), revd. (1989), 100 N.R. 189; 61 D.L.R.(4th) 749 (S.C.C.), refd to. [para. 37].

Clark v. Canadian National Railway Co. and New Brunswick (1985), 62 N.B.R.(2d) 276; 161 A.P.R. 276; 17 D.L.R.(4th) 58 (C.A.), refd to. [para. 37].

Walls and Buvyer v. Minister of National Revenue (1999), 250 N.R. 324; 2000 D.T.C. 6025 (F.C.A.), leave to appeal granted (2000), 261 N.R. 399 (S.C.C.), refd to. [para. 38].

Stewart v. Minister of National Revenue (2000), 254 N.R. 326; 2000 D.T.C. 6163 (F.C.A.), leave to appeal granted (2000), 261 N.R. 393 (S.C.C.), refd to. [para. 38].

Tonn et al. v. Minister of National Rev­enue, [1996] 2 F.C. 73; 191 N.R. 182 (F.C.A.), refd to. [para. 40].

Labrèche v. Ministre du Revenu national (1998), 241 N.R. 179; 99 D.T.C. 5083 (F.C.A.), refd to. [para. 40].

Minister of National Revenue v. Milewski (2000), 261 N.R. 108; 2000 D.T.C. 6559 (F.C.A.), refd to. [para. 40].

Kuhlmann v. Minister of National Revenue (1998), 234 N.R. 18; 98 D.T.C. 6652 (F.C.A.), refd to. [para. 40].

Allen and Milewski v. R., 99 D.T.C. 968 (Tax C.C.), refd to. [para. 43, foot­note 3].

Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134, refd to. [para. 49].

Tennant v. Minister of National Revenue, [1996] 1 S.C.R. 305; 192 N.R. 365; 96 D.T.C. 6121, refd to. [para. 49].

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 49].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 20(1)(c) [para. 19].

Authors and Works Noticed:

Beam, R.E., and Laiken, S.N., Adventure or Concern in the Nature of Trade: Badges of Trade as the Key Indicator of Taxpayer Intention (1996), 44 Can. Tax J. 888, generally [para. 26].

Canadian Tax Foundation, Report of the Proceedings of the Forty-Eighth Confer­ence (1997), vol. 1, p. 28:1 [para. 38].

McDonnell, T.E., Rental Losses Denied - Confusion Compounded (2000), 48 Can. Tax J. 444, generally [para. 38].

Nichols, B.S., Chants and Ritual Incanta­tions: Rethinking the Reasonable Expec­tation of Profit Test, generally [para. 38].

Owen, J.R., The Reasonable Expectation of Profit Test: Is There a Better Approach? (1996), 44 Can. Tax J. 979, No. 4, generally [para. 38].

Taylor, R., Applicability of the Moldowan Test to Source of Income Determination Questions Where no Element of Personal Benefit to Taxpayer (2000), 8 Tax Liti­gation No. 2 509, generally [para. 38].

Counsel:

Sheldon Silver, Q.C., and David C. Nathanson, Q.C., for the appellant;

D.D. Graham Reynolds, Q.C., and Franco Calabrese, for the respondent.

Solicitors of Record:

McDonald & Hayden, Toronto, Ontario, for the appellant;

Morris Rosenberg, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on January 18 and 19, 2001, at Toronto, Ontario, before Stone, Evans and Malone, JJ.A., of the Federal Court of Appeal.

Stone, J.A., delivered the following judg­ment for the Court of Appeal on February 26, 2001.