Kuhlmann v. Canada
A-981-96 / A-982-96
Décary J.A.
30/10/98
10 pp.
Appeals from T.C.C. decision dismissing appellants' losses for 1986, 1987, 1988 and 1989 taxation years-MNR having burden of proving partnership formed by appellants (Southern Cross Stables) did not have reasonable expectation of profit in four taxation years in question-Tax Court Judge making first mistake on question of burden of proof-Two appellants husband and wife, both medical doctors-Developed keen interest in horses, particularly in English riding-In order to reach decision Minister had satisfied burden of proof, Tax Court Judge essentially considered fact appellants' love of horses, determination to be known on "A" Circuit caused them to make disadvantageous decisions-In relying on these factors, Tax Court Judge erred in interpretation, application of concept of "reasonable expectation of profit" as developed by case law-"Personal element" factor given breadth wider than that contemplated by case law-Personal element may coexist with profit motive-Tax Judge erred in focussing almost exclusively on amount of expenses involved as if engaging in exercise relating to examination of reasonability of expenses-Should have looked more carefully at essential elements, attributes of activity at issue, such as amount of capitalization, appellants' experience, intended course of action, professionalism of work accomplished and slow but constant movement towards making of profits-Judge also erred in second-guessing business decisions made by appellants-Failed to take into consideration unavoidable risks associated with horse industry-Erred in failing to recognize particular nature of activities in which appellants involved-Burden on Minister to establish on balance of probability expectation of profit irrational, absurd, ridiculous-Minister did not succeed-Tax Court Judge could not have found otherwise had he applied proper legal principles-Appeals allowed.