Labrèche v. Canada
A-429-95
Desjardins J.A.
15/12/98
11 pp.
Appeal from Tax Court of Canada decision concerning interpretation and application of concept of "reasonable expectation of profit"-Issue whether appellant operating beauty and tanning salon with reasonable expectation of profit during taxation years 1987 and 1988, in order to deduct losses incurred in operating this business from appellant's other income-On March 19, 1981, appellant beginning to operate beauty salon with daughter Linda Labrèche-Appellant setting up business as investment, but also wanting to help children get established-Fixed asset costs remaining high-Business closing in 1988-Whether Tax Court Judge justified in stating [translation] "a wise businessman would not have continued the business for purely business reasons" and in concluding [translation] "the only reasons for continuing the business were family and not business reasons"-Tax Court Judge ignored some important aspects of evidence and incorrectly applied Federal Court of Appeal case law-Factors to consider to objectively determine whether taxpayer has reasonable expectation of profit found principally in Moldowan v. The Queen, [1978] 1 S.C.R. 480; Morrissey v. Canada, [1989] 2 F.C. 418; and Landry, C. v. The Queen (1994), 94 DTC 6624 (F.C.A.)-Trial Judge did not take other factors into account, including unforeseen difficulties caused by relocation of business in 1983 and start-up period required for all businesses of this type-Trial Judge gave family considerations far too much importance without sufficiently considering evidence, especially fact taxpayer also wanted to start profitable business-Trial Judge had to consider unforeseen difficulties taxpayer had to deal with from beginning of business due to the presence of motorcycle gang members near taxpayer's first location-Appeal allowed.