The Queen v. Poirier, 92 DTC 6335, [1992] 2 CTC 9 (FCA)

MacGuigan, J.A.:—Having correctly decided that the farming enterprise in the case at bar could reasonably be expected to be a source of income, the trial judge in our opinion incorrectly transformed that conclusion into one that the respondent's farming income was a chief source of income in his 1977 and 1978 taxation years under subsection 31(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

The law in this area has evolved since the trial judge reached his decision in this case in 1986, as follows (Appeal Book at 513-4):

To repeat, the evidence satisfies me that during the years in question, Mr. Poirier embarked upon a business enterprise in the raising of Charolais cattle. The enterprise was conceived in the hope of producing a source of income and the commitment of time and money was of such a magnitude that it, in my opinion, would reasonably be expected to be a source of income combined with his other sources of income to form his chief source of income in those taxation years.

[Emphasis added.]

The learned judge here seems to suggest that farming income can be combined with, in the sense of supplemented by, another source of income in order to constitute a chief source of income. It is clear from Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213 (S.C.C.) at page 314 (D.T.C. 5216) (S.C.C.) that the word “ combination” in subsection 31(1) is not to be read in that sense. It is also now clear that what is required for a determination that farming is a chief source of income is a favourable comparison of farming with the other source of income as to such matters as the time spent, the capital committed, and the profitability, both actual and potential: The Queen v. Connell, [1988] 1 C.T.C. 247, 88 D.T.C. 6166 (F.C.T.D.) (Strayer J.), approved on that point by this Court in A-341-88 (decided January 16, 1992).

Applying the present view of the law to the facts in the case at bar, it is patent to us that farming was in a subordinate position to the respondent's employment occupation. Farming comes closest to a rough equality on the time factor, but it lags far behind on the capital and income tests.

The respondent argued that for these tests what should be taken into account is his respective contributions to each in cash rather than in capital, his prospective gross income rather than net income, and his projected net farming income in relation to his actual employment income. There is no warrant in the case law for any of these considerations.

The only other evidence was with respect to change of life-direction. No doubt, the respondent committed himself by 1976 to a substantial commitment to Charolais breeding, but not to the point of a chief occupation.

It must be remembered that it is the cumulative impact of the various factors for determination that governs, not any one factor taken disjunctively: Morrissey (R.) v. Canada, [1989] 1 C.T.C. 235, 89 D.T.C. 5080 (F.C.A.) and Connell, supra (F.C.A.).

The appeal will therefore be allowed with costs, the judgment of the Trial Division rendered February 14, 1986, be set aside and the following judgment substituted therefor:

The action is dismissed with costs and the reassessments dated June 6, 1980, in respect of the respondent's 1977 and 1978 taxation years, are confirmed.

Appeal allowed.