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Citation: 2005TCC251
Date: 20050506
Docket: 2002-1799(IT)I
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BETWEEN:
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TERRY C. BROWN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
(delivered orally from the Bench at
Regina, Saskatchewan, on February
14, 2003)
[1] This appeal
pursuant to the Informal Procedure was heard at Regina, Saskatchewan on February 12, 2003.
The Appellant was the only witness. He resides at Birch Hills, Saskatchewan, about
320 kilometres north of Regina. The particulars in dispute are set forth in paragraphs 15
to 20, inclusive, of the Reply to the Notice of Appeal, which reads:
15) In
reassessing the Appellant, the Minister, among other things:
a) restricted
the Appellant’s farming losses in accordance with subsection 31(1) of the Act;
b) allowed
($4,515) net farming loss in 1997; and
c) allowed
($8,750) net farming loss in 1998.
16) The
restricted farm loss calculated by the Minister is as follows:
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1997:
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Farm loss
originally claimed
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-$12,604.00
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adjustments
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6,075.00
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revised farm loss
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6,529.00
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Restriction:
$2,500 plus the lesser of ½ of ($6,529 - $2,500) or 6,250
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-2,014.50
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Maximum loss
deductible
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4,514.50
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Recalculated
loss
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6,259.00
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Amount
restricted ($6,529 - $4,514.50)
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$2,014.50
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1998:
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Farm loss
originally claimed
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-$24,023.00
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adjustments
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5,099.00
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revised farm
loss
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18,924.00
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Restriction:
$2,500 plus the lesser of ½ of ($18,924 - $2,500) or 6,250
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6,250.00
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Maximum loss
deductible
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8,750.00
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Recalculated
loss
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18,924.00
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Amount
restricted ($18,924 - $8,750)
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$10,174.00
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17) In
so assessing the Appellant for the 1997 and 1998 Taxation Years, the Minister
made the following assumptions of fact:
a) at
all material times the Appellant claimed net farm losses as a proprietor and
reported employment income as follows:
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Year
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“Other Income”
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Gross Farm
Income
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Net Farm Profit
(Loss)
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Employment Income
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1990
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2,464
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1,193
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(5,632)
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50,120
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1991
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2,238
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15,816
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(9,621)
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*
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46,588
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1992
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837
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46,339
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(6,929)
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*
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44,479
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1993
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774
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52,697
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(18,165)
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*
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43,441
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1994
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7,645
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107,956
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361
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50,719
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1995
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985
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112,300
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(26,328)
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48,276
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1996
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659
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118,896
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(26,573)
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46,485
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1997
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6,879
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94,575
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(12,604)
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**
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46,629
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1998
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1,619
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72,309
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(24,023)
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**
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49,495
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1999
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20,757
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81,488
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(39,241)
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67,866
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(i) “Other
income” in the chart includes all other sources of income (such as RRSP
withdrawals, capital gains, interest income etc.);
(ii) for
1991, 1992 and 1993: allowed $6,093, $4,746 and $8,750 (Section 31 applied by
Appellant on filing);
(iii) **
for 1997 and 1998: restricted as noted in paragraph 16 above;
b) the
Appellant started farming in 1990;
c) the
Appellant claimed net farm losses from 1991 to 1993 on a restricted basis and
the restriction was confirmed by the Minister by a previous Notification of
Confirmation dated 16th day of May 1996 for the 1991, 1992 and 1993
Taxation Years;
d) the
Appellant owns 320 acres of land (“the Land”);
f) the
legal description of the Land is W ½ 19-47-23 W2;
g) the
Appellant rents an additional 87 acres from his mother;
h) the
legal description of the rented land is E ½ NE 24-47-24 W2 (“the Rented Land”);
i) the
Appellant’s personal residence is on the Rented Land;
j) in
or around 1996 the Appellant reduced the size of his farming operation by
selling 520 acres of farm land, leaving 320 acres to farm;
k) the
Appellant is a grain farmer;
l) the
Appellant grew barley (both feed and malt), wheat and canola on the Land;
m) in
the 1997 and 1998 Taxation years the Appellant purchased the following assets
for the following prices:
i) Flexicoil
Auger $3,000
ii) TR
85 combine $30,000
iii) Twister
Bins $1,985
iv) Grain
Moisture Tester $500
v) Case
830 Tractor $1,000
vi) Versataille
856 Tractor $83,196
n) in
the 1997 and 1998 Taxation years, the Appellant sold the following assets for
the following prices:
i) 10
x 50 Farm King Auger $2,200
ii) PT Combine $15,000
iii) Versataille 500 Tractor $10,000
iv) International
Hoe $1,000
v) TR
85 Combine $36,934
o) the
Appellant is a correctional supervisor at the Prince Albert Penitentiary (the
Penitentiary);
p) the
Appellant has worked at the Penitentiary for approximately 20 years;
q) the
Appellant is entitled to receive a pension from Corrections Canada in
approximately 2010;
r) the
Appellant works 37.5 hours per week at the Penitentiary;
s) in
1997 and 998 the Appellant was entitled to take 4 weeks vacation each year;
t) the
Appellant has received money from AIDA (Agriculture Income Disaster Assistance
Program) and is a NISA (Net Income Stabilization Account) participant;
u) the
only year that the Appellant reported a profit from farming since commencement
in 1990 was in 1994 when a profit of $361.00 was reported;
v) the
Appellant relies on his employment income to support himself and his family;
w) the
Appellant spends at least one hour daily to travel to and from his employment
at the Penitentiary;
x) the
Appellant spends the majority of his time on his employment;
y) the
Appellant earns his livelihood principally from his employment with the
Penitentiary;
z) the
Appellant’s chief source of income during the 1997 and 1998 Taxation Years was
neither farming nor a combination of farming and some other source of income.
Other Material Facts:
18) a) For
the 2000 Taxation Year, the Appellant
reported
the following:
T4
employment income $59,880
Dividends 9
Taxable
capital gains 3,237
Net
farm income 18,057
Total
income reported $81,183
b) For
the 2001 taxation year, the Appellant reported the following T4 employment
income:
T 4
employment income $73,143
Dividends 9
Interest 19
Net
farm loss (38,688)
Total
income reported $34,483
B. ISSUES
TO BE DECIDED
19) The
issue is whether the Appellant’s chief source of income was farming or a
combination of farming and some other source of income during the 1997 and 1998
Taxation Years.
C. STATUTORY
PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
20) He
relies on sections 3 and 9, subsections 31(1) and 248(1) and paragraphs
18(1)(a) and 18(1)(h) of the Act as amended for the 1997 and 1998
Taxation Years.
[2] The Appellant
admitted paragraphs 16, 17 a), c), d), f), g), h), i), j), k), l), o), p), q),
r), s), t), and 18. Assumptions 17 m), n) u), v) and w) were not refuted. The
remaining paragraphs are in dispute.
[3] On the basis of the
Section 31 assessment, the Appellant had a reasonable expectation of profit. On
the totality of evidence, his time spent was about equal between his employment
and farming, but if anything, some more time would have been spent farming. As
a result, the question becomes if the Appellant could have made a significant
profit in 1997 and 1998, why didn’t he?
[4] The farm owned by
the Appellant was originally homesteaded by his grandfather in World War I,
farmed by his father and bought by him, one-quarter from his father’s
foreclosure proceedings and one-quarter from his father’s estate. His mother’s
land, which he leases, was homesteaded by his great-grandfather and kept in the
family. The Appellant’s home is on his mother’s land. The Appellant was raised
in farming throughout his boyhood and has been involved in farming ever since
then. The Appellant owned and lost the additional land through another
foreclosure purchase which was subject to an option to purchase by the original
foreclosed farmer. That farmer recovered financially and exercised his option
to buy from the Appellant in 1996. As a result, the Appellant’s total land
farmed was reduced substantially to less than three quarters of a section in
1997 and 1998. This occurrence affected profitability in 1997 and 1998. At
about that time, land prices in his area increased by about 20 percent plus to
$100,000 per quarter and cash rents had become about $50 per acre. The
Appellant feels that he cannot make a profit at those rates if he has to
purchase or rent. The Court finds that this is a valid business decision.
[5] The fall of 1996
was unusually wet in the Birch Hills area where the Appellant farmed. As a
result, his crop was left in the fields over the winter and harvested in the
spring of 1997 respecting the barley crop only. The Appellant chose to leave
the barley, his lowest-priced crop, in the fields. That spring, his tractor
caught fire and, as a result, was in repair for about six months. He was forced
to lease a new John Deere tractor. This unexpected occurrence also affected the
Appellant’s costs in 1997 and 1998. As a result of this, the Appellant had two
combines and two tractors. In the fall of 1997, he traded one combine and one
tractor to acquire a combine. In the fall of 1998, he traded one combine and
one tractor for a new tractor, which reduced his financial and his interest
payments and spread them over four years. In other words, he tried to
rationalize his operation with better equipment at a lower cash output.
[6] At the end of 1998,
the Appellant applied for and received Federal Agriculture Income Disaster
Assistance grant, which is paid if your 1998 farm income falls below 70 percent
of your previous average farm income. He received $383.91 after allowing for
his NISA and other AIDA payments, Exhibit A-8. This occurrence indicates to the
Court that one arm of the Federal Government considered the Appellant to be a
farmer in 1998. It also indicates the Appellant’s historic level of farm income
in 1998.
[7] The Appellant’s
income figures that are important respecting this case are as follows:
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Employment Income
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Gross Farm Income
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Net Farm Income
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CCA Taken
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1997
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$46,629
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$94,575
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($12,604)
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$19,492.99
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1998
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$49,495
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$72,309
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$24,023
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$26,617.94
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[8] Thus in each year,
the Appellant would have a profit from farming had CCA not been taken.
Moreover, the Appellant’s expenses in CCA in 1997 would have been less had he
not been harvesting in the spring of 1997 and had he not had the tractor fire
then. Similarly, his CCA in 1998 would have been less had he not, in a
businesslike fashion, done his 1997 and 1998 trades, which were initiated by
the tractor fire. Finally, in the Court’s view, taking CCA is optional.
[9] The Court notes two
further relevant factors in this case:
(1) the
Appellant does not live on the farmland that he owns or rents. He lives on his
mother’s land. Thus, his farming is a business operation without a personal
asset.
(2) the Appellant made a
profit of $18,057 from farming in 2000.
[10] In all of these
circumstances, the Court finds that the Appellant’s farming operation was
capable of making a significant profit in 1997 and 1998 and would have had
there not occurred:
(1) the exercise of
the option to purchase in 1996;
(2) the wet fall in 1996 and the spring
harvest of 1997; and
(3) the 1997 tractor
fire, all of which had carryover effects as to costs in the subsequent years
and as to income in the subsequent years, but particularly in 1997 and 1998.
[11] The appeal is
allowed. The Appellant is awarded the sum of $300 to reimburse him for
out-of-pocket disbursements incurred on account of the prosecution of this
appeal and the hearing in Regina.
Signed at Saskatoon, Saskatchewan,
this 6th day of May 2005.
Beaubier,
J.
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