Grant
DJ:—This
is
an
appeal
by
the
plaintiff
from
a
decision
of
The
Tax
Review
Board
delivered
on
September
12,1978
whereby
it
allowed
in
part
an
appeal
from
the
reassessment
of
the
defendant’s
income
tax
returns
for
the
year
1974
and
referred
the
same
back
to
the
Minister
of
National
Revenue
for
reassessment
on
the
basis
of
such
Board’s
decision.
The
defendant
is
retired
from
the
Royal
Canadian
Mounted
Police
and
is
now
acting
as
a
justice
of
the
peace
in
the
London
police
courts.
In
that
capacity
he
earns
approximately
$12,477.98.
His
duties
in
that
capacity
usually
demand
his
attendance
at
Court
5
days
a
week
from
9
am
to
5
pm.
He
inherited
from
his
father
who
died
in
1970
a
farm
being
parts
of
lots
5
and
6
in
the
8th
concession
of
Lobo
Township
in
the
County
of
Middlesex.
It
consists
of
43
acres
of
which
20
acres
are
good
tillable
soil
and
the
balance
consists
of
bush
and
swamp
which
supports
hardwood
as
well
as
cedar
trees.
Such
property
lies
about
16
miles
west
of
London.
He
lives
in
his
home
on
other
property
which
lies
about
300
yards
from
the
farm.
His
father
had
lived
on
the
farm
from
1957
until
his
death
but
because
of
ill
health
had
allowed
the
farm
to
become
in
a
run
down
condition
with
fences
destroyed
and
the
barn
in
a
very
poor
state
of
repair.
His
grandfather
had
owned
the
property
until
his
death
in
1957.
As
a
boy
the
taxpayer
had
spend
much
of
his
time
on
the
farm
and
was
even
then
very
interested
in
farming
and
had
been
promised
the
farm
on
his
father’s
death.
It
was
natural
that
he
should
be
so
interested
because
his
grandfather
had
been
a
professor
of
agriculture
at
the
Ontario
Agricultural
College
at
Guelph
and
his
father
had
held
a
responsible
position
with
the
Federal
department
of
Agriculture.
While
still
with
the
police
force
he
studied
pamphlets
on
farming
and
from
that
source
and
his
actual
work
on
the
farm
as
a
boy
he
acquired
a
good
knowledge
of
farming.
He
was
not
represented
by
Counsel
either
before
the
Tax
Review
Board
or
on
this
appeal.
I
therefore
asked
him
a
number
of
questions
as
to
his
practise
of
farming
and
from
his
answers
I
was
convinced
that
he
knew
how
to
rotate
crops
and
farm
economically.
It
took
him
a
number
of
years
to
get
the
farm
back
into
shape
that
it
would
grow
good
crops
and
to
rebuild
fences
and
buildings.
He
was
also
without
machinery
and
farming
tools
and
equipment
and
has
spent
$10,000
to
$12,000
in
securing
such
necessary
equipment
and
in
restoring
fences
and
buildings.
He
decided
against
borrowing
money
and
purchased
his
farm
implements
only
when
he
had
the
money
to
do
so.
If
he
had
been
able
to
acquire
the
necessary
machinery
and
repair
the
barn
sooner
he
would
have
brought
his
farming
operations
to
the
stage
where
profits
were
made
sooner.
This
was
prevented
by
some
unforeseen
events.
He
had
given
a
part
of
the
farm
to
a
daughter
when
she
was
married
on
which
to
build
a
home.
A
mortgage
of
$25,000
was
placed
against
the
same.
The
marriage
broke
up
and
Zavitz
found
it
necessary
to
pay
off
the
mortgage
or
lose
the
home.
The
final
payments
will
be
made
by
him
in
July
of
1981.
To
the
present
time
he
has
had
to
buy
his
cattle
in
the
spring
and
sell
them
in
the
fall.
With
his
barn
repaired
so
that
he
can
keep
them
over
winter
and
feed
them
the
hay
grown
on
the
premises,
this
part
of
his
farming
operation
will
be
much
more
profitable.
He
also
plans
to
grow
wheat
on
12
acres
each
year
by
rotating
this
crop
from
1
field
to
another.
This
crop
should
yield
him
between
70
bushels
per
acre
or
800
and
900
bushels
of
fall
wheat
each
year.
He
now
has
a
seed
cleaner
and
a
mill
to
grind
it
into
flow
and
should
be
able
to
sell
the
finished
product
at
35¢
a
pound.
This
should
bring
him
at
least
$1,400
per
acre
for
his
wheat
operation.
In
1974
he
had
decided
to
change
his
farming
operations
by
growing
more
wheat
and
eventually
disposing
of
it
in
the
manner
above
indicated.
As
fall
wheat
has
to
be
sewn
in
September
after
extensive
preparation
of
the
soil
and
only
harvested
the
following
year
he
had
no
returns
from
his
wheat
in
that
year
and
had
no
cattle
to
sell.
The
result
was
that
in
such
year
his
proceeds
from
the
sale
of
hay
was
minimal
but
it
was
an
exceptional
experience
because
of
his
change
over
in
his
mode
of
farming.
Another
matter
that
should
be
considered
in
deciding
whether
his
farming
will
be
profitable
venture
or
not
is
to
examine
the
benefits
that
he
realizes
from
his
farming
operations
that
do
not
actually
bring
him
cash
but
which
save
him
from
having
to
expend
moneys
for
living
expenses.
The
garden
can
provide
him
with
the
most
of
the
vegetables
and
fruit
for
the
family.
His
farm
statement
filed
in
1973
show
that
his
cattle
consisted
of
heifers.
Fom
these
animals
one
would
expect
him
to
raise
calves
and
also
secure
his
milk,
butter
and
meat.
The
machinery
that
he
has
purchased
has
greatly
increased
in
value
because
of
higher
prices
since
he
purchased
it.
His
wheat
would
be
the
source
of
his
flour.
While
all
marketable
logs
were
cut
from
the
bush
25
years
ago
the
swamp
yields
cedar
posts
for
his
fencing
and
fallen
limbs
and
trees
will
provide
him
with
fuel.
There
is
no
estimate
of
the
value
of
such
benefits
in
the
evidence
but
common
knowledge
would
make
it
clear
that
it
may
be
worth
considerable.
The
list
of
expenses
for
the
year
1974
shown
in
the
judgment
of
the
Board
contains
items
which
may
be
classed
as
personal
or
living
expenses.
Mr
Taylor
in
his
well
considered
reasons
for
judgment
indicates
that
this
is
the
fundamental
question
in
this
appeal
and
I
agree
with
him.
He
suggests
that
the
percentages
in
the
first
four
items
of
expenses
should
be
reversed
so
that
only
30%
thereof
should
be
changed
as
expenses
of
the
business.
This
may
be
fair
as
far
as
the
automobile
expense
of
$1,230.08
is
concerned
because
it
would
be
difficult
to
calculate
the
actual
amount
used
in
each
category.
However
house
repairs
ordinarily
are
a
living
expense
and
none
of
the
same
should
be
charged
to
business.
In
regard
to
power,
fuel
and
insurance
the
taxpayer
will
be
able
to
give
the
exact
amount
of
taxes
and
insurance
that
relate
to
the
home
and
that
of
the
farm.
While
small
tools
are
ordinarily
treated
as
income
expense
the
item
of
$358.14
for
tools
and
$326.72
for
machinery
expense
may
include
items
properly
chargeable
as
capital
expenditures.
It
should
be
noted
that
the
item
of
fertilizer
$315.78
is
one
that
may
be
much
less
in
future
years
when
cattle
are
kept
over
winter
and
the
need
to
purchase
so
much
manufactured
fertilizer
will
not
be
as
great.
Items
of
accounting
and
legal,
repairs
to
barn
and
fences
will
not
be
of
a
recurring
nature.
When
all
these
matters
are
taken
into
consideration
particularly
in
the
years
1973,
1975,
and
1976
the
taxpayers
loss
is
not
as
great
as
these
statements
would
indicate
and
they
do
not
contain
any
convincing
proof
of
the
extent
of
loss
in
the
operation
of
the
farm
that
a
first
glance
at
them
would
indicate.
Another
matter
that
unduly
exaggerates
the
annual
loss
is
carrying
forward
in
the
statement
the
loss
from
previous
years.
I
agree
with
Mr
Taylor
that
I
did
not
think
that
the
taxpayer
was
attempting
to
present
an
excessive
allocation
of
the
expenses
with
an
improper
purpose.
I
was
convinced
he
was
perfectly
honest.
He
did
not
actually
prepare
the
returns
himself
and
enough
care
may
not
have
been
exercised
by
the
one
that
did
to
differentiate
between
capital
and
income
expenses
or
living
expenses.
In
any
event
I
am
convinced
that
the
taxpayer
is
doing
everything
to
make
his
farming
operations
profitable
and
he
has
every
right
to
believe
that
he
will
do
so
and
that
he
will
continue
to
improve
his
financial
position
as
far
as
the
farm
is
concerned.
I
have
no
hesitation
in
accepting
his
testimony.
The
Crown
called
one
Reginald
Swartz,
an
auditor
with
the
Department
of
National
Revenue
at
the
hearing
before
the
Board.
Part
of
his
evidence
is
set
out
in
the
reasons
of
the
Board.
He
had
decided
there
was
no
reasonable
expectation
of
profit
in
the
enterprise.
He
acknowledged
to
the
Chairman
that
he
didn’t
know
the
distinction
between
the
person
who
qualified
for
restricted
farm
loss
and
the
one
who
doesn't
qualify
for
any
farming
loss.
(Namely
a
hobby
farmer).
Neither
he
nor
any
other
witness
was
called
to
give
evidence
before
this
Court.
The
section
of
the
Income
Tax
Act
which
is
crucial
to
this
assessment
Is
subsection
31(1)
which
reads:
Where
a
taxpayer’s
chief
source
of
income
for
a
taxation
year
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income,
for
the
purpose
of
sections
3
and
111
his
loss,
if
any,
for
the
year
from
all
farming
businesses
carried
on
by
him
shall
be
deemed
to
be
the
lesser
of
(a)
the
amount
by
which
the
aggregate
of
his
losses
for
the
year
otherwise
determined
from
all
farming
businesses
carried
on
by
him
exceeds
the
aggregate
of
his
incomes
for
the
year
from
all
such
businesses,
and
(b)
$2,500,
plus
the
lesser
of
(i)
/2
of
the
amount
by
which
the
amount
determined
under
paragraph
(a)
exceeds
$2,500,
and
(ii)
$2,500;
and
for
the
purposes
of
this
Act,
the
amount,
if
any,
by
which
the
amount
determined
under
paragraph
(a)
exceeds
the
amount
determined
under
paragraph
(b)
is
the
taxpayer’s
“restricted
farm
loss”
for
the
year
There
is
no
doubt
that
the
taxpayers
chief
source
of
income
in
the
year
in
question
was
not
that
of
farming
because
his
salary
as
a
justice
of
the
peace
and
his
pension
were
far
in
excess
thereof.
The
cases
have
referred
to
the
ambiguity
prevailing
in
the
section
by
reason
of
the
words
“nor
a
combination
of
farming
and
some
other
source
of
income’’.
The
problem
of
interpretation
thereof
arises
because
it
is
drafted
in
the
negative.
In
the
interpretation
thereof
I
believe
the
word
“combination”
is
most
important.
Such
word
envisages
some
contribution
of
income
from
each
of
the
two
sources
referred
to.
The
words
“other
source”
denote
that
there
must
be
some
income
from
farming
within
the
exclusionary
provision.
The
Shorter
Oxford
English
Dictionary
defines
the
word
combination
as:
(a)
the
action
of
combining
two
or
more
separate
things;
(b)
combined
state
or
condition;
(c)
a
group
of
things
combined
into
a
whole.
It
the
taxpayer
is
a
part-time
farmer
whose
receipts
from
his
farming
operation
do
not
exceed
his
income
expenses
therefrom
then
he
has
no
source
of
income
therefrom
and
there
can
be
“no
combination
of
farming
and
some
other
source”.
It
follows
therefore
that
the
taxpayer
is
entitled
to
the
benefit
of
such
section
for
the
taxation
year
1974.
The
Crown’s
main
contention
herein
was
that
the
taxpayer
was
not
engaged
in
the
business
of
farming
as
no
portion
of
the
expenses
had
been
made
or
incurred
for
the
purpose
of
gaining
income
from
a
business
or
property.
For
reasons
given
above
I
am
convinced
that
Zavitz
was
in
the
business
of
farming.
He
worked
on
the
farm
after
the
hours
that
he
spent
in
his
duties
as
justice
of
the
Peace
and
at
all
times
that
was
available
to
him.
He
had
no
other
interests
and
at
all
times
had
a
well
justified
expectation
that
he
would
shortly
realize
a
good
profit
therefrom.
In
W
Moldowan
v
The
Queen,
[1978]
SCR
480
at
486;
[1977]
CTC
310
at
314;
77
DTC
5213
at
5215,
Dickson,
J
stated:
One
would
not
expect
a
farmer
who
purchased
a
productive
going
operation
to
suffer
the
start
up
losses
as
the
man
who
begins
a
tree
farm
on
raw
land.
In
the
reasons
for
judgment
herein
at
page
12
thereof
it
is
stated:
The
problem
is
that
such
an
examination
of
the
quantum
and
the
nature
of
the
total
expense
claim
did
not
arise
since
all
the
expenses
claimed
were
disallowed.
In
the
argument
before
this
Court,
counsel
for
the
Crown
adopted
the
Same
argument
and
indicated
that
the
only
question
to
be
decided
was
as
to
whether
the
taxpayer
had
any
reasonable
expectation
of
profit
in
the
farming
operations
carried
on
by
him
in
the
year
1974.
To
leave
the
list
of
expenses
unchallenged
strengthened
such
submission
of
the
Crown
as
it
was
then
better
evidence
of
the
alleged
improbability
of
any
profit
being
made
in
such
farming
operations.
I
agree
with
the
decision
of
the
Board
that
the
taxpayer
can
claim
a
restricted
farm
loss
under
subsection
31(1)
of
the
Income
Tax
Act.
The
Board
in
its
judgment
stated
that
the
basis
for
the
calculation
of
claims
for
expenses
which
had
a
dual
applicability
to
the
farm
and
to
personal
living
expenses
should
be
in
the
ratio
of
70%
to
the
taxpayer
personally
and
30%
to
farming.
I
agree
with
such
division
if
it
is
limited
only
to
such
expenses
in
respect
of
which
it
is
impossible
to
determine
the
benefit
thereof
accruing
to
each
of
such
purposes.
Such
an
expense
might
be
that
associated
with
the
operation
of
the
family
motor
vehicle.
However,
in
the
case
of
taxes
it
should
readily
be
determined
the
amount
against
the
home
and
that
of
the
farm.
The
reassessment
by
the
Minister
should
be
directed
towards
ascertaining
which
of
the
expenses
claimed
were
incurred
for
the
purpose
of
gaining
income
from
the
taxpayer’s
farming
operations
and
which
were
personal
or
living
expenses.
For
these
reasons
the
appeal
by
the
plaintiff
should
be
dismissed.
The
defendant
was
not
represented
by
counsel
and
is
therefore
not
entitled
to
a
counsel
fee
but
he
may
have
other
costs
to
wich
he
is
entitled
under
subsection
178(2)
of
the
Act.
I
therefore
direct
that
the
Minister
should
pay
to
the
defendant
all
his
reasonable
and
proper
costs
of
this
appeal,
but
without
counsel
fee.