The shareholders of a company which was incorporated in 1961 to own and operate an apartment building, in 1962 leased the building from the company for a three-year renewable term and suffered substantial losses. It was held that when they renewed the lease in 1965, they did not expect to make a profit and that the sole reason for renewal was to create a deductible loss. No profits were realized in respect of the apartment building until 1971, and even highly optimistic profit projections hardly succeeded in showing they could break even. Deduction of the entire loss for 1966 was denied by virtue of s. 15 of the Provincial Income Tax Act (R.S.Q. 1964).
Pigeon, J., stated that "in order for an expense to be admissible as a deduction from a taxpayer's income, it must have been incurred in order to make a profit. It is not enough that the expense was incurred in order to obtain gross income."