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Citation: 2004TCC350
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Date: 20040518
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Docket: 2003-4627(IT)I
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BETWEEN:
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MARK McRAE,
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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
Bowman, A.C.J.
[1] These appeals are from assessments
for the appellant's 1997, 1998, 1999 and 2000 taxation years. By
those assessments the Minister of National Revenue restricted the
appellant's farming losses to $8,750 under section 31 of the
Income Tax Act. The issue is whether the premise upon
which the Minister acted under section 31, that the
appellant's chief source of income in those years was neither
farming nor a combination of farming and some other source of
income, was correct.
[2] The background to the assessments
may be summarized as follows: the appellant originally did not
file income tax returns for those years. The Minister therefore
assessed him based on the information available to him. This
appears to have galvanized the appellant to file returns and the
Minister then reassessed to take into account the information in
the returns.
[3] The appellant is a chartered
accountant and his only source of positive income was his income
from employment as an accountant with Monsanto Canada Inc. as
well as withdrawals from his RRSPs, as set out in the Reply to
the Notice of Appeal. This income ranged from between about
$70,000 to over $100,000 per year.
[4] The Reply also sets out the
farming losses reported as follows:
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Taxation Year
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Gross Farming Income
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Net Farming Income (Loss)
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1988
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$
13,991.00
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($
1,384.00)
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1989
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$
11,766.00
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($
1,812.00)
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1990
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$
1,478.00
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($
2,983.00)
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1991
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$
?
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($
1,483.00)
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1992
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$
47,407.00
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$
3,326.00
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1993
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$
45,266.00
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($
1,308.00)
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1994
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$
18,614.00
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($
2,329.00)
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1995
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$
64,953.00
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($
4,354.00)
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1996
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$ 106,482.00
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$
1,618.00
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1997
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$
47,027.02
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($
23,329.12)
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1998
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$
32,766.40
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($
28,090.54)
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1999
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$
12,938.07
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($
40,526.68)
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2000
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$
24,655.83
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($
38,854.68)
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[5] These figures are taken from the
financial statements of Jones & McRae Racing Partnership in
which the appellant stated he and Mr. Jones were 50:50
partners. The amounts shown are from the partnership and so the
appellant should be entitled to only one half of the losses. The
amounts shown as gross income are also set out in his returns of
income but the losses claimed differ. For 1997 to 2000 inclusive,
the losses claimed by the appellant were $18,870, $28,004,
$27,475 and $33,458. The appellant says this is because he
adjusted from an accrual to a cash basis. This may be a partial
explanation but it is not a complete one. It is also, I think,
attributable to the appellant's rather peculiar and, if I may say
so, arbitrary method of allocating income and loss between
himself and his 50 percent partner as well as expensing as salary
paid to his partner drawings paid to him. I need not resolve this
question because of the conclusion I have reached, but if I were
prepared to allow the appellant his full farming losses I would
have had great difficulty in determining just what those losses
were.
[6] Is farming or a combination of
farming and some other source of income the appellant's chief
source of income? More ink and more paper have been used up over
the past half century on this question than almost any other tax
issue in Canada. The leading case of course is Moldowan v.
Canada, [1977] C.T.C. 310, [1978] 1 S.C.R. 480. In that
case Dickson J., speaking for the Supreme Court of Canada,
endeavored to make some sense of subsection 13(1) (now
subsection 31(1)) of the Income Tax Act. Among the
more frequently quoted passages are the following:
[13] Whether a source of income is a taxpayer's
"chief source" of income is both a relative and
objective test. It is decidedly not a pure quantum measurement. A
man who has farmed all of his life does not cease to have his
chief source of income from farming because he unexpectedly wins
a lottery. The distinguishing features of "chief
source" are the taxpayer's reasonable expectation of
income from his various revenue sources and his ordinary mode and
habit of work. These may be tested by considering, inter
alia in relation to a source of income, the time spent, the
capital committed, the profitability both actual and potential. A
change in the taxpayer's mode and habit of work or reasonable
expectations may signify a change in the chief source, but that
is a question of fact in the circumstances.
[14] There has been difference of opinion on whether the
word "combination" in subsection 13(1) requires some
"connection" by way of physical relationship or
integration or inter-connection between farming and the
subordinate activity which provides another source of income.
Paragraph 3(f) of the Income War Tax Act of 1917, as
amended, made reference to "connection" in defining the
permissible deductions from income derived from the chief
business, trade, profession or occupation of the taxpayer in
determining his taxable income. Paragraph 3(f) read:
f) deficits or losses sustained in transactions entered into
for profit but not connected with the chief business, trade,
profession or occupation of the taxpayer shall not be deducted
from income derived from the chief business, trade, profession or
occupation of the taxpayer in determining his taxable income.
The word "connected" is not found in section 13
of the present Act. As Thorson, P said, obiter, in
Simpson v. Minister of National Revenue, [1961] C.T.C.
174, 61 D.T.C. 1117, there is no reason why there must be such a
limitation. I share this view.
See also Dorfman v. MNR (supra) at p. 154 [6134]
and Bert James v. Minister of National Revenue,
[1973] C.T.C. 457 at 464, 73 D.T.C. 5333 at 5337.
[15] It is clear that "combination" in section
13 cannot mean simple addition of two sources of income for any
taxpayer. That would lead to the result that a taxpayer could
combine his farming loss with his most important other source of
income, thereby constituting his chief source. I do not think
subsection 13(1) can be properly so construed. Such a
construction would mean that the limitation of the section would
never apply and, in every case, the taxpayer could deduct the
full amount of farming losses.
The other relevant passages from Moldowan are quoted
below in the Paquette decision.
[7] Here we have a person whose
commitment to raising and racing horses is undoubted. Racehorses
do provide an important focus to his life. Nonetheless, it does
not provide him with a livelihood nor, if the history of the
operation since 1988 is any indication, is it ever likely to. He
must look to his accounting job with Monsanto to do that. From
1988 to 2000 he (or the partnership which began in 1991) realized
a small profit in only two years. He worked full time at
Monsanto. His commitment of capital to the farm was relatively
modest. In 1999 he contributed capital of $15,296; in 1998,
$17,956; in 1999, $8,550 and in 2000, $443. Strangely, his 50
percent partner, Harry Jones, contributed different amounts
and his draws were different as well.
[8] In Paquette v. The Queen,
[2000] 3 C.T.C. 2714, I dealt with a husband and wife who were
engaged in full time farming but who had to supplement their
income and to some degree finance their farming operation by
working away from the farm.
[9] In view of the extensive argument
advanced by the appellant here, I shall set out the reasoning in
that case because it illustrates the type of situation to which,
in my view, subsection 31(1) does not apply.
[9] Two cases that are in all significant
respects indistinguishable from the Paquettes' case are
Martin v. R. (1995), 96 D.T.C. 1915 (T.C.C.),
and Miller v. R. (1999), 2000 D.T.C. 1502
(T.C.C. [General Procedure]). In the latter case the following
appears:
[2] For the reasons that follow I have concluded that
Mr. Miller is entitled to deduct his full farming losses in
the years in question. He does not fall within the restrictive
provisions of subsection 31(1).
[3] The case bears a striking resemblance to one that I
decided three years ago, Martin v. The Queen, 96 D.T.C.
1915.
[4] Mr. Martin had farmed all his life but had to teach
school as an adjunct to his farming to enable him to carry on the
farming operation. Mr. Miller is a full time farmer who has
to work in the Safeway store in Regina to enable him to hold and
to operate the family farm on which he grew up. He has worked on
it all his life and acquired it from his father in 1980.
[5] In Martin, I set out the basic principles
upon which I proceeded in that case and upon which I propose to
proceed here. At pages 1916 and 1917, the following appears:
Each of the cases involving subsection 31(1) of the Act turns
on its own facts. Before I review the facts it is useful to
outline briefly the basic principles upon which cases of this
type must be decided. The first is that, according to the leading
case of Moldowan v. The Queen, 77 D.T.C. 5213, farmers in
Canada fall, for the purposes of income tax, in three categories:
full time farmers, part time farmers and hobby farmers. Dickson
J. put it this way at p. 5216:
In my opinion, the Income Tax Act as a whole envisages
three classes of farmers:
(1) a taxpayer, for whom farming may reasonably be expected to
provide the bulk of income or the centre of work routine.
Such a taxpayer, who looks to farming for his livelihood, is free
of the limitation of s. 13(1) in those years in which he
sustains a farming loss.
(2) the taxpayer who does not look to farming, or to farming
and some subordinate source of income, for his livelihood but
carried on farming as a sideline business. Such a taxpayer is
entitled to the deductions spelled out in s. 13(1) in
respect of farming losses.
(3) the taxpayer who does not look to farming, or to farming
and some subordinate source of income, for his livelihood and who
carried on some farming activities as a hobby. The losses
sustained by such a taxpayer on his non-business farming are not
deductible in any amount.
The reference in s. 13(1) to a taxpayer whose source of
income is a combination of farming and some other source of
income is a reference to class (1). It contemplates a man whose
major preoccupation is farming, but it recognizes that such a man
may have other pecuniary interests as well, such as income from
investments, or income from a sideline employment or business.
The section provides that these subsidiary interests will not
place the taxpayer in class (2) and thereby limit the
deductibility of any loss which may be suffered to $5,000. While
a quantum measurement of farming income is relevant, it is not
alone decisive. The test is again both relative and objective,
and one may employ the criteria indicative of "chief
source" to distinguish whether or not the interest is
auxiliary. A man who has farmed all of his life does not become
disentitled to class (1) classification simply because he comes
into an inheritance. On the other hand, a man who changes
occupational direction and commits his energies and capital to
farming as a main expectation of income is not disentitled to
deduct the full impact of start-up costs.
At pp. 5215-5216 Dickson J. also observed:
Whether a source of income is a taxpayer's "chief
source" of income is both relative and objective test. It is
decidedly not a pure quantum measurement. A man who has farmed
all of his life does not cease to have his chief source of income
from farming because he unexpectedly wins a lottery. The
distinguishing features of "chief source" are the
taxpayer's reasonable expectation of income from his various
revenue sources and his ordinary mode and habit of work. These
may be tested by considering, inter alia in relation to a
source of income, the time spent, the capital committed, the
profitability both actual and potential. A change in the
taxpayer's mode and habit of work or reasonable expectations
may signify a change in the chief source, but that is a question
of fact in the circumstances.
The second rule that must be observed is that the factors
mentioned by Dickson J. must be considered cumulatively, and not
disjunctively. In The Queen v. Morrissey, 89 D.T.C.
5080, Mahoney J., speaking for the majority of the Court
said at p. 5084:
With respect, I do not agree that Moldowan suggests
disjunctive consideration of pertinent factors in quite the way
the learned trial judge has dealt with them. The discussion in
Moldowan begins as follows:
Whether a source of income is a taxpayer's "chief
source" of income is both a relative and objective test. It
is decidedly not a pure quantum measurement.
Moldowan also says, dealing with the difference between
classes 1 and 2, "while a quantum measurement of farming
income is relevant, it is not alone decisive". While the
determination that farming is a chief source of income is not a
pure quantum measurement, it is equally not a determination in
which quantum can be ignored.
The same view was expressed by the Federal Court of Appeal in
Connell v. The Queen, 92 D.T.C. 6134 and The Queen v.
Poirier, 92 D.T.C. 6335. In the latter case the Court stated
at p. 6336:
It must be remembered that it is the cumulative impact of the
various factors for determination that governs, not any one
factor taken disjunctively.
From this it is clear that in determining whether a
person's chief source of income is or is not farming, no
single factor - time, mode of living, profitability, capital
committed - may be taken as determinative. No single factor -
either its presence or its absence - can be taken as governing in
isolation.
. . . . .
Farming has had for Mr. Martin - as, I daresay, for farmers
all over Canada - its ups and downs. Drought, fire, excessive
rain, fluctuating prices and escalating costs, have taken their
toll. Yet still he hangs in, like so many other members of this
integral part of the Canadian economic fabric.
What is the composite picture that emerges? A typical Canadian
farmer. Not a wealthy professional or executive who dabbles in
exotic cattle or horses with a view to enhancing his social
standing but as a hard working Canadian farmer who cleans
stables, harvests grain, fixes broken machinery, cares for sick
cows and pigs and lives through the major and minor tragedies and
heartbreaks that have beset farmers for millennia.
Mr. Lockwood described him as a farmer who teaches and not a
teacher who farms and I think this is an accurate
characterization. The scale of his farming operation was
comparable to that of persons who do nothing but farm and who do
not have another job. Why is he denied his losses? Because he had
another job that made it possible for him to engage in a full
time farming operation. Whatever may be the type of person at
whom subsection 31(1) is aimed, it is not Mr. Martin. Whatever
may be the object and spirit of subsection 31(1), it is not
to destroy the backbone of our farming community.
Mr. Martin's mode of life, commitment of time,
commitment of capital, and dedication to farming all point
inexorably to the conclusion that Mr. Martin is a full time
farmer within Class 1 of the Moldowan categories. Yet the
Crown would deny him that on the basis of one factor, the lack of
profitability. There are two reasons why this factor cannot
determine the result in this case. In the first place although
pleaded as a separate allegation, the so-called "no
reasonable expectation or profit" point was not pressed by
the Crown and no evidence was advanced to substantiate it. I must
therefore assume, as Mr. Martin undoubtedly did, that there
was a reasonable expectation of profit.
Even more importantly, to permit this factor to prevail
against all of the other factors would be to ignore the
principles laid down by the Federal Court of Appeal in such cases
as Morrissey, Poirier, and Connell, which
require that no single factor can be determinative.
[6] I turn now to the facts relating to Mr. Miller. He
is 52 years of age. He was born and raised on the farm which
he now operates. From early youth he worked on the farm doing the
sort of jobs appropriate to his age - stone picking, driving
implements, seeding, harrowing, combining, baling and hauling,
tending cattle - all of the type of things that one would expect
of a boy growing up on a farm and forming part of the family unit
that operates a farm - a typical Canadian phenomenon that has
been around for generations.
[10] Following the above outline
I set out certain financial details of Mr. Miller's
operation. They bear a considerable similarity to the situation
of Mr. and Mrs. Paquette.
[7] In 1980, the appellant took over the family farm
which consisted of three quarter sections.
[8] I set out paragraphs 6 to 20 of the notice of
appeal. They are either admitted or have been established in
evidence. They demonstrate the commitment of capital that Mr.
Miller made to the farming operation:
6. The Appellant had significant capital in
his farming operation by January 1, 1993:
Description
Opening UCC
class
6..............................
$16,797.57
class
8..............................
$29,763.65
class
10............................
$24,636.01
7. The Appellant purchased the following
capital assets in 1993:
Description
($)
Combine...........................
$40,915.00
Grain
Box.........................
$ 6,303.60
Grain
Truck......................
$15,200.00
Case
Tractor....................
$74,665.00
8. The Appellant's liabilities at
December 31, 1993 were:
Description
($)
Bank of
Montreal..............
$44,593.61
Line of
Credit...................
$56,525.36
9. The Appellant purchased the following capital assets in
1994:
Description
($)
Steel Quonset...................
$13,950.00
Swath Roller.....................
$ 650.00
Swather............................
$17,013.00
Weed Trimmer.................
$ 399.98
28ft Drill...........................
$ 575.00
Cellular Phone..................
$ 545.00
10. The Appellant's liabilities at
December 31, 1994 were:
Description
($)
Case.................................
$35,629.48
Line of Credit...................
$64,062.45
11. The Appellant purchased the following capital assets
in 1995:
Description
($)
Bin Sweep........................
$1,474.98
Pick up Reels....................
$3,550.00
Hay Rake.........................
$5,049.00
12. The Appellant's liabilities at
December 31, 1995 were:
Description
($)
Case.................................
$26,543.63
Line of Credit...................
$55,518.47
13. The Appellant purchased the following capital assets
in 1996:
Description
($)
Bins..................................
$11,651.00
Auger...............................
$ 3,650.96
Gyromower......................
$ 425.00
Garden Tractor.................
$ 2,600.00
14. The Appellant's liabilities at
December 31, 1996 were:
Description
($)
Case.................................
$15,000.00
Line of Credit...................
$46,200.00
15. The Appellant had significant capital in his farming
operation as at December 31, 1996:
Description
Closing UCC
class 6..............................
$32,823.88
class 8..............................
$45,592.62
class 10............................
$27,460.47
16. The Appellant has no Registered Retirement Savings
Plans because he has invested all his retirement capital into the
farm operation.
17. The Appellant's employment income from Safeway
was necessary to finance the capital requirements of the farm.
The Appellant's employment income decreased in 1996 because
he is not meeting Safeway's requirements to achieve a bonus.
This is due to time spent on the farm and not at
Safeway's.
18. The Appellant's employment income is:
Taxation
Year
($)
1993................................
$74,426.76
1994................................
$86,432.59
1995................................
$79,786.16
1996................................
$60,310.00
19. The Appellant's gross farm income is:
Taxation
Year
($)
1993................................
$33,365.21
1994................................
$33,689.83
1995................................
$22,057.23
1996................................
$40,509.63
20. The Appellant's farm loss is:
Taxation
Year
($)
1993................................
($40,802.00)
1994................................
($37,226.81)
1995................................
($50,798.36)
1996................................
($23,367.18)
[9] It is significant that a substantial part of the losses
for each year results from capital cost allowance claimed by the
appellant on farm machinery and equipment purchased by him.
Ironically, the more capital he devotes to the farming operation
the greater his losses. The refunds of tax which the appellant
receives are all put back into the farm. Counsel for the
respondent invites me to draw an adverse inference from this
fact. I think precisely the opposite inference is justified.
[10] The farm is about a 1¼ hour
drive from Regina. Mr. Miller as well as his wife and son
spend virtually all their time at the farm when they are not
working at Safeway. It is a typical farm family: all members -
the appellant, his wife Ardis and his son Scott - work as a team.
Mr. Miller's intention since he took over the original three
quarter sections has been to expand and this he has done. In
1997, he bought two more quarter sections. In 1999 he bought two
more quarter sections and in May of 1999, he bought five more
quarter sections. Part of the price was raised by borrowing but a
substantial part was raised by the exercise of stock options that
he had with Safeway.
[11] It has been his plan since 1980 when he
took over the family farm to expand in the manner in which he has
been doing. He could not carry on the farming operations, put the
capital into it to expand it without the money earned in another
job.
[12] I was favourably impressed with his
profound knowledge of all aspects of farming in Western Canada,
including fertilisers, farm equipment, economics and crop
rotation. His son, to whom he intends to give the farm when he
retires, expects to take over the farming operation in due course
and is studying agriculture as well as working on the farm.
[13] The evidence discloses a traditional
farming family in Saskatchewan, a deep devotion and commitment to
the land and a determination to maintain that tradition in spite
of the difficulties with which agriculture has been beset in
recent years in Canada, particularly in the west - such as
droughts, floods and low prices.
[14] It is rare that one sees a case to
which section 31 is more inapplicable. Mr. Martin was one such
case. Mr. Miller is unquestionably another. Mr. Miller is a full
time farmer who has to work to provide the cash to maintain and
expand the farming operation. He falls within class 1 of the
analysis of Dickson J. in Moldowan v. The Queen, 77 D.T.C.
5213.
. . . . .
[19] A recent case of the Federal Court of
Appeal is R. v. Donnelly, [1998] 1 F.C. 513. It puts
section 31 in its proper perspective. It involved a wealthy
doctor who took up raising racehorses, and lost large amounts of
money. One needs only to state those facts to realize why he
lost. He was, one of those persons who, as Robertson, J.A. said,
"earned their income in the city and lost it in the
country". This cannot be said of Mr. Miller, whose
situation is not even comparable. Dr. Donnelly was a doctor
who dabbled in raising racehorses. Mr. Miller is a full time
farmer who works at Safeway. It is instructive to re-read what
Robertson, J.A. said in paragraphs 19 to 21 of the
Donnelly judgment at pages 526 to 527:
[19] In the end, Graham stands or falls on its unique
facts. But there is at least one lesson that can be derived from
the case. It seems to me that Graham comes closer to a
case in which an otherwise full time farmer is forced to seek
additional income in the city to offset losses incurred in the
country. The second generation farmer who is unable to adequately
support a family may well turn to other employment to offset
persistent annual losses. These are the types of cases which
never make it to the courts. Presumably, the Minister of National
Revenue has made a policy decision to concede the reasonable
expectation of profit requirement in situations where a
taxpayer's family has always looked to farming as a means of
providing for their livelihood, albeit with limited financial
success. The same policy considerations allow for greater weight
to be placed on the capital and time factors under section 31 of
the Act, while less weight is given to profitability. I have yet
to see a case where the Minister denies such a taxpayer the right
to deduct full farming losses because of a competing income
source. Perhaps this is because it is unlikely a hog farmer such
as Mr. Graham would pursue the activity as a hobby.
[20] As is well known, section 31 of the Act is aimed at
preventing "gentlemen" farmers who enjoy substantial
income from claiming full farming losses: see Morrissey v.
Canada, supra, at pages 420-423. More often than not it is
invoked in circumstances where farmers are prepared to carry on
with a blatant indifference toward the losses being incurred. The
practical and legal reality is that these farmers are hobby
farmers but the Minister allows them the limited deduction under
section 31 of the Act. Such cases almost always involve
horse farmers who are engaged in purchasing or breeding horses
for racing. In truth, there is rarely even a reasonable
expectation of profit in such endeavours much less the makings of
a chief source of income.
[21] It may well be that in tax law a distinction is to be
drawn between the country person who goes to the city and the
city person who goes to the country. In future, those insisting
on obtaining tax relief in circumstances approaching those under
consideration should do so through legislative channels and not
through the Tax Court of Canada. The judicial system can no
longer afford to encourage taxpayers or their counsel to pursue
such litigation in the expectation that hope will triumph over
experience.
[20] This passage clearly describes the type
of person at whom section 31 is aimed and the type of person at
whom it is not.
[21] Agriculture in Canada and particularly
in the western provinces is going through a difficult time. It
will survive through the courage, sacrifices, initiative,
optimism and dedication of people like Mr. Miller and his
family. Section 31 was never intended to destroy such people
but if it is applied indiscriminately to genuine farmers such as
the Millers, it will.
[11] Turning now to the facts of this case, it is clear
beyond any doubt that both appellants regard farming as the
central focus of their lives and the day jobs they have as
auxiliary to their principal occupation as farmers. They spend
far more time at their farming activities than they do at their
jobs in the city. The problem is that they could not carry on the
farming operation without the income from their city jobs.
Mrs. Paquette is a high school teacher. Mr. Paquette
works at the National Research Council. Mrs. Paquette has
refused promotions within the teaching profession because it
would interfere with her work on the farm. Similarly,
Mr. Paquette has not sought promotions in the National
Research Council. In fact, one of the reasons he has spent so
much time and money expanding the farming operation is that from
the early 1990s on, he was in danger of being laid off, as indeed
he was in 1998. Both appellants in effect tailored their day jobs
to permit them to leave and go back to the farm when necessary,
such as in calving time. When the section of the National
Research Council in which Mr. Paquette worked was spun off into a
separate corporation he declined to go with it, because it would
have necessitated his devoting more time to the job and less to
farming.
[12] It is not only the appellants who have dedicated
the majority of their working hours to the farm. Their teenage
children are also active and fully integrated into the farming
operation.
[13] The evidence discloses that the time spent by the
appellants on the farming operation compared with the day job is
at least in a ratio of 60:40.
[14] The appellants have devoted substantial capital to
the farming operation. Unlike the Miller and Martin
cases, referred to above, where precise figures were put in
evidence with the assistance of senior counsel, the appellants
were not represented by counsel and I had to ask
Mr. Paquette to reconstruct the amounts of their capital
investment since it did not appear that the appellants or their
representative appreciated the importance of adducing precise
evidence of the capital invested. Nonetheless, I would not wish
to draw an adverse inference from the fact that these taxpayers
could not afford a lawyer. The best evidence before me of their
capital investment is Mr. Paquette's testimony, as
follows:
Land
$165,000
Tractor
$40,000
Tractor
$6,000
Tractor
$3,000
Square
baler
$5,000
Round
baler
$12,000
Hay rake
(side
delivery)
$2,500
Levelling
blade
$3,000
Wagons
(2)
$3,000
Dump
wagon
$3,000
Sleights
$1,000
Hay
binder
$6,000
Harness
$8,000
Disc
$2,000
Plough
$1,800
Seeder
$1,500
Truck
$22,000
Livestock
trailer
$5,000
Flatbed
$3,000
Circular
saw
$1,200
Land
roller
$200
Harrow
$1,500
Cattle
chute
$1,500
Baler and
wrapping
machinery
$14,000
Livestock
(about 30 herd,
which,
$50,000
after
calving, could reach 50)
TOTAL
$361,200
[15] These figures could have been more exact, but I am
satisfied that by and large they are substantially accurate, and
indicate a significant commitment of capital to the farming
operation. Some of the money was borrowed and some came from the
appellants' own resources or salaries. As the capital
expenditures increased so too did the claim for capital cost
allowances and, correspondingly, so did the losses.
[16] I was very favourably impressed with
Mr. Paquette's detailed knowledge of the science of
raising pure-bred livestock.
[17] All of the above factors - dedication, lifestyle,
commitment of time, investment of capital - clearly point to a
class 1 farmer. The Paquettes are a very typical Canadian
farming family. Given the state in which agriculture has found
itself over the past decade in Canada operating a conventional
farm requires, if this important part of Canada's social and
economic life is to be maintained, that farmers take work in the
city. This is not a case of wealthy urban professionals deciding
to take up the raising of race horses and expecting the taxpayers
of Canada to assist in subsidizing their expensive hobbies[1]. This is, rather,
a case of genuine farmers who have to take another job to
maintain the farming operation.
[10] The situation that I describe in the
Miller, Martin and Paquette cases is not the
situation here. Farming was a full time occupation for those
people. Their outside jobs were an incidental but necessary
adjunct to the farming operation, essential to keeping the
farming operation afloat. However sincere and devoted the
appellant may be to his horses, he remains a city person who
lives in the city but has gone to the country to take up raising
and racing racehorses. Without suggesting that this is a mere
hobby it is certainly incidental to his chief source of
income.
[11] Mr. McRae referred to a decision
of the Federal Court of Appeal in Kroeker v. The Queen,
[2002] DTC 7436. In that case the Federal Court of Appeal
emphasized that the appellant was not "indulging in maintaining
horses for racing". The court was reiterating a point made by
Robertson J.A. in paragraph 20 of the Donnelly
decision, quoted above, about section 31 being applied to
people who raise racehorses. I doubt that as a matter of law
there is a legal distinction between racehorses and cows or pigs
for the purposes of section 31 but there is certainly a
practical one. A rather cursory computer search indicates that of
the multitude of farming loss cases under section 31
involving the raising of horses, only two or three appeals have
been allowed. In other words, if you are hoping to get into the
Moldowan category 1 you would be well advised to stay away
from racehorses. Pigs, cows and chickens are probably a better
bet, at least if the breeds are not too exotic.
[12] Be that as it may, reading the
Kroeker decision as a whole I think Mrs. Kroeker's
situation was much closer to that described in Miller,
Paquette and Martin. However great his devotion to his
horses and to horseracing may be, Mr. McRae does not fall
into the category of a class 1 farmer as did the Millers,
Paquettes and Martins. He falls squarely within class 2. He is an
accountant who raises horses, not a farmer who does
accounting.
[13] The appeals are dismissed.
Signed at Montréal, Quebec, this 18th day of
May 2004.
Bowman, A.C.J.
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