The taxpayer and his wife purchased a bungalow for their daughter, who was a single parent with a low income, with her staying there and being charged rents to cover maintenance, insurance, municipal and school taxes and mortgage interest. As there is no intention to profit from the rent, it will decrease as the mortgage is repaid. The daughter will receive the house ownership as an inheritance.
In finding that the rent was not required to be included in their income, as there was no source of income (and that the associated expenses would not be deductible), CRA stated:
Given your objective in purchasing the property, the low annual income received to date from the property, the low envisaged future rental level envisaged and the high annual expenses incurred, it is difficult for us to argue that your rental activity could be a profitable business. Furthermore, although this is a question of fact, it would appear from the information you have provided that the rental business is not being operated in a sufficiently commercial manner. Indeed, you stated, among other things, that the price charged for the rent is below the market price. We are therefore of the view that the rental income should not be included in your income since it is not a source of income … .