Walls v. Canada
T-3308-90 / T-3309-90
Pinard J.
2/2/96
10 pp.
Appeals with respect to 1984 and 1985 taxation years-Four cases heard on same evidence-Partnership (plaintiffs both limited partners thereof) acquiring mini-warehouse for $ 2,200,000 with interest payable at 24% per annum-Registration on same day as registration of previous sale for $ 1,180,000-Partnership generated losses on mini-warehouse, allocated to partners on pro rata basis and plaintiffs deducted proportionate share of losses for income tax purposes-Minister reassessed plaintiffs for 1984 and 1985 taxation years, reducing partnership's losses by reducing purchase price of mini-warehouse from $2,200,000 to $1,180,000 on basis latter fair market value-Appeals from above reassessments-Appeals dismissed-No reasonable expectation of profit-Moldowan v. The Queen, [1978] 1 S.C.R. 480 applied-Key factor to be considered: capability of venture as capitalized to show profit after charging capital cost allowance-Herein, even before charging of capital cost allowance, storage park assured of large losses in first three years and reasonable to expect losses would continue thereafter, although to reduced extent-Main factor in initial large losses interest payable on agreement for sale set at $2,199,999 on purchase price of $2,200,000-Only means of reducing interest payments on agreement for sale would have been to pay down amount owing, which would have required additional capital-Partnership unable to make profit as effectively under capitalized-No plan existed to raise additional capital to reduce debts of partnership-Inability of venture as capitalized to show profit, even before taking capital cost allowance, clear indication partnership did not have reasonable expectation of profit-As for other criteria: as storage park "going operation" at time purchased by partnership in 1983, no basis for claiming losses incurred related to start-up period-Given all circumstances, partnership did not carry on business with reasonable expectation of profit-Rather, set up as tax shelter, with intention operation of storage park would give rise to large initial losses in order to provide limited partners with tax claims-Reduction of tax herein sole reason for existence of shelter.