When “Helping Mom” Becomes a Tax Problem – Blecha v. The King, 2025 TCC 91

Why this case matters

On 25 June 2025 the Tax Court of Canada released Blecha v. The King (2025 TCC 91), a decision that reminds rental-property owners that losses are deductible only when the activity is a true source of income. The Court agreed with the Canada Revenue Agency (“CRA”) that Mr. Blecha’s arrangement—renting his Wiarton, Ontario house to his mother at heavily discounted rent—lacked the commercial substance needed to qualify as a rental business or property source. All losses in 2015-2017 (over ten-thousand dollars per year) were denied. 

Key facts

• Mr. Blecha owned a small house at 642 Gould Street.

• His mother occupied the home and paid modest amounts labelled “rent.”

• He claimed significant expenses (repairs, utilities, interest, CCA), producing net losses for three consecutive years.

• No marketing was done; no third-party tenants were sought; rent stayed below market even after extensive renovations.

• Mr. Blecha continued to treat the house as a future personal residence.

The legal test – Stewart v. Canada

The Court applied the two-step “source-of-income” analysis from Stewart v. R., 2002 SCC 46:

1. Was the activity undertaken in pursuit of profit (as opposed to a personal endeavour)?

   
   

2. If so, is the source a business or property?

   
   

Only a venture showing a genuine profit motive—and conducted in a business-like manner—crosses the threshold. 

Why Mr. Blecha lost

The judge found the first Stewart question fatal. Several objective factors weighed against a profit motive: familial relationship, absence of arm’s-length lease terms, rent far below fair market value, no advertising, and no evidence Mr. Blecha ever intended to let the property to outsiders. Renovations appeared geared toward his own future use, not earning income. Consequently, there was no source of income, so sections 3 and 18 of the Income Tax Act (“ITA”) never came into play. 

Contrast: when rental losses can survive

Courts have allowed losses where the taxpayer proves commercial intent. In Crockett v. HMQ, 2019 TCC 209, the taxpayer advertised online, charged market rent, and demonstrated a plan to profit once renovations were complete—the losses were allowed.

Practical lessons for landlords

1. Charge arm’s-length rent – if relatives pay below-market rates, expect heightened scrutiny.

2. Document a lease – written terms, security deposits, renewal clauses, and rent-increase mechanisms show commerciality.

3. Market the property – advertising and third-party viewings prove you are not running a private accommodation.

4. Keep contemporaneous records – budgets, projections, and correspondence evidencing a profit objective help satisfy Stewart.

5. Beware of mixed-use motives – renovating a property for your own future residence while claiming rental losses is a red flag.

   
   

Tax-planning take-aways for practitioners

• Section 18(1)(a) & (h) and Regulation 1100(11) limits only matter once a source exists. Confirm the client clears the Stewart threshold before optimizing expense categories.

• For clients assisting family members with housing, consider structuring the support as a cost-sharing or gift rather than a “rental” if profit is not genuinely intended.

• When losses are inevitable (e.g., major repairs), contemporaneous evidence of future profitability—market studies, rental listings, financing models—may salvage deductibility.

  
  

Final thoughts

Blecha is a cautionary tale: generous family arrangements can collide with tax rules when they masquerade as rental ventures. Accountants and advisors should probe intent, ensure documentation aligns with commercial reality, and coach clients on the evidence needed to demonstrate a bona fide income-earning purpose. Otherwise, today’s “paper” rental loss may become tomorrow’s reassessment—plus interest and penalties.