Rental losses - Tax Court denies rental loss for individual who intended to recover costs of rental property, rather than make a profit.


In an October 24, 2018 Tax Court of Canada case (Hustak vs. H.M.Q., 2017-1119(IT)I), at issue was whether the taxpayer carried on his rental of two properties in a sufficiently commercial manner to constitute a source of income.

Taxpayer loses
While the taxpayer argued that he charged below market rent due to high vacancy rates, to attract tenants, to retain insurance coverage as the insurance company noted that they would not cover the properties if they were vacant, and because the tenants had expressed an interest in purchasing the property, the Court did not accept that he carried on the operation in a sufficiently commercial manner for profit.

Specifically, the taxpayer did not obtain leases with tenants, made no attempt to determine comparable market rent, and did not increase rents over the years despite significant expenses incurred. Also, the taxpayer’s intention was not to make a profit but to simply recover the costs of certain expenses. He did not realize a profit in any of the years in question. Further, he had rented out one of his properties for a portion of the years in question to his niece for less than he had charged to arm’s length tenants.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 445.