Mr. Gelinas had rental properties. He had losses in the 2009 and 2008 tax years. Alternative Minimum Tax (AMT) is designed to make sure that high income taxpayers pay some tax on their income, even though their tax deductions from investment losses or exempt gains might otherwise mean they needn't pay tax. The AMT is a refundable tax; it works like a deposit for future years' taxes when income might be higher.
In this case, Mr. Gelinas had a loss in 2008. He thought he could use that loss to reduce his income for AMT purposes. The $338,000 loss arose from a one-time charge of $900,000, which he paid to keep a valuable tenant. But Mr. Gelinas also paid interest of about $1,000,000 on his bank debt. The combined effect of the $1MM of interest and the $900,000 one-time expense was the $338,000 rental loss.
The issue in this case was whether Mr. Gelinas could use the $338,000 loss to reduce his AMT. Mr. Gelinas said that the loss was due to the $900,000, not the interest expense, as the interest expense was the same each year and in many years, there were rental profits.
Justice Jorre looked at the words in the AMT calculation rule in s. 127.52(1). He saw that the rules limit interest expense to the amount of rental income. If you have a rental loss, you must reduce your AMT interest expense by the same amount. That is, interest can't be part of a rental loss for AMT purposes. As Justice Jorre said, "the provision does not require that the [CCA] depreciation or interest be the cause of the loss." (See paras. 16 and 18-19. My translation from the French.)
See Gélinas c. La Reine (2013 TCC, Jorre)