Craig - Supreme Court of Canada overrules Moldowan for not adhering sufficiently to the precise wording of the farming loss rule

The Supreme Court in a unanimous decision has indicated that its previous decision in Moldowan should not be followed.  Accordingly, a lawyer could deduct all the losses from his "farming" (horse racing) operation notwithstanding that his law practice was his chief source of income.  All that was required in the wording of the farming loss restriction rule in s. 31 was that a combination of his law practice and horse operation be his chief source of income, and this test would be satisfied if (as was found on the facts) he devoted significant time and resources to his horses.

Although Rothstein J stated that the Court must have "compelling reasons that the precedent was wrongly decided" before overruling that precedent, this in fact is the third time that the Supreme Court has effectively departed from tax interpretations of Dickson CJ (i.e., Singleton and to some extent Ludco effectively not following Bronfman Trust; and Stewart and Walls not following the reasonable expectation of profit doctrine first enunciated in Moldowan).

For those without farming losses, the biggest significance of this case may be that it indicates that, notwithstanding turnover in its membership, the Supreme Court still considers that tax interpretation should be strongly grounded in the precise wording of the statutory provisions at issue.

Neal Armstrong.  Summaries of Craig v. The Queen, 2012 SCC 43 under s. 31(1) and General Concepts - Stare Decisis.