Date: 20011019
Docket: 2000-1537-IT-G
BETWEEN:
GORDON CHABAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Miller, J.T.C.C.
[1]
Farming, with all of its vagaries, hidden and apparent hazards is
a way of life in Saskatchewan, a way of life that appealed to the
Appellant, Gordon Chaban. For many years he laboured to
achieve self-sufficiency as a farmer only to have his dream
dissipate after a bankruptcy in 1994. In 1995 and 1996 the
Minister disallowed Mr. Chaban's full farming losses
restricting them in accordance with Section 31 of the
Income Tax Act ("Act").
Mr. Chaban appeals those assessments. While there were
several other issues raised in the pleadings, certain matters
were resolved prior to trial, leaving only two issues: the first,
the question of the applicability of Section 31 of the Act
to restrict Mr. Chaban's losses from his farming
business, and second, the deductibility of certain vehicle
related expenses in calculating Mr. Chaban's losses. Mr.
Chaban conceded that his calculation of losses in 1995 and 1996
was overstated by $24,617.00 and $36,434.29 respectively, while
the Minister maintained such losses were overstated by $26,258.80
and $43,331.60 respectively, the difference being the vehicle
repair expenses in question.
[2]
Mr. Chaban provided a detailed history of his working life from
childhood to the present day. It is unnecessary to relate all of
that background, though there are a number of relevant
highlights. Mr. Chaban left school in North Battleford,
Saskatchewan after grade 8 and until he turned 16 he worked
intermittently at his uncle's farm. After the age of 16, he
worked a number of jobs including with a fencing company and with
a paving company. He made two attempts at running his own
business, one in men's retail clothing and the other in the
gravel business with his father. Both ventures went out of
business. In 1983 he commenced selling equipment for Vulcan
Equipment and after a year transferred to Kramer Ltd.
("Kramer") in caterpillar sales. He has been with
Kramer ever since as a commissioned salesperson of heavy
equipment in western Saskatchewan.
[3]
Mr. Chaban met his wife in 1969 and they were married in 1972.
Mrs. Chaban's parents operated a mixed farming business.
The Chaban's had four children. In 1989, Mr. Chaban suffered
a heart attack, which he attributed to the stress of his sales
job. Around the same time the Chabans were advised that two of
their children were dyslexic and in Mr. Chaban's words
"wouldn't amount to much". The Chabans determined
that it would be in the best interests of the health of all of
the family to become farmers.
[4]
In 1989, Mr. Chaban purchased five quarter sections in the
Meadow Lake, Saskatchewan area, adjacent to property owned
by his father. He made a downpayment and borrowed the balance
from Farm Credit Corporation. He described the property as
bushland, rocky with marginal soil. The area just north was
logging territory. Mr. Chaban bought a cat and started the
laborious process of breaking the land. This involved taking the
trees down, burning them, ploughing to break up the roots,
cross-breaking followed by using a finer disc on the ground and
finally picking up the roots and rocks. This was a three year
project, ultimately resulting in the clearing of 800 acres.
[5]
Mr. Chaban indicated that his intention at the outset was to be a
cattle farmer, and that he anticipated a ten year time frame to
achieve his goal. He indicated a typical viable cattle operation
would be around 400-500 head. I will briefly describe the history
of his farming operation.
[6]
Before acquiring cattle, Mr. Chaban explained it was necessary to
seed the land with cereal as a cover crop for a couple of years,
followed by legumes, primarily alfalfa. In 1991 he bought just
four head of cattle, adding another twenty in 1992. Mr. Chaban
described 1993 as his last crop year with approximately 450 acres
in canola and 300 in wheat and alfalfa. It was essential that he
grow alfalfa as he was switching from crops to cattle: as
Mr. Chaban put it, "the land was made by God for
cattle". He acquired another 100 head of cattle in 1993 and
just over another 100 in 1994. Throughout this time he was also
selling his cattle. In 1994 he only grew alfalfa to support his
cattle operation. He put up fences in 1993 and 1994. There are
some discrepancies between Mr. Chaban's testimony and
supporting documents as to the level of equipment involved in the
farming operation up to this point, but I find that by the summer
of 1994 he had three tractors, several trucks, grain bins, rock
pickers, a baler and miscellaneous trailers and smaller farm
implements.
[7]
Mr. Chaban financed his operation through a $40,000 Canadian
Imperial Bank of Commerce line of credit and a $70,000 mortgage
on his Saskatoon home. He also indicated that seventy percent of
all his income went back into the farm. Mr. Chaban testified he
went to several courses on cattle farming between 1992 and 1994
at a veterinary school, but no evidence was adduced as to the
name of the school nor the duration of the courses.
[8]
By 1994 Mr. Chaban had just over 200 head of cattle, but a string
of events occurred which saw the unravelling of the dream of a
viable cattle farm. Mr. Chaban's cattle developed a type of
scour, which he was ultimately able to control after appropriate
identification of the disease by specialists from the University
of Saskatchewan, Agriculture Department. Not, however, before he
lost fifty head of cattle. Coincidentally, Saskatchewan was
suffering a drought; economic conditions generally were difficult
for farmers. Mr. Chaban explained that he believed he lost
$87,000 in 1993 and 1994 due to the cancellation of a government
insurance program which he referred to as GRIP, the Gross Revenue
Profit Insurance. There was no evidence led in support of this
contention.
[9]
Mr. Chaban declared bankruptcy in November of 1994. There was
again some confusion as to the inventory of cattle at this point,
as the Statement of Affairs in Bankruptcy listed only 45 head of
cattle, while Mr. Chaban suggested there may have been more. I am
satisfied that by 1996 he only had 45 head and that prior to the
end of 1996 this was eliminated altogether. His machinery,
equipment and plant listed in the Statement of Affairs filed in
Bankruptcy, were shown as worth $21,000. This consisted primarily
of two tractors and a baler. The trustee sold some of Mr.
Chaban's property, leaving him with only three quarter
sections. On the Statement of Affairs in Bankruptcy, signed by
Mr. Chaban at this time, he indicated he anticipated no farm
income. When questioned as to his expectation of profit in 1995
and 1996 Mr. Chaban responded that he simply could not remember
what the projected profit might be.
[10] Mr.
Chaban stated that he still held a round-up in both 1995 and
1996, though it is clear this involved the few cattle he had
remaining plus some of his father's and a neighbour's. In
1995 he continued with an alfalfa crop though there is no
evidence of how many acres. He also acquired twenty-five
replacement cattle. He gave no indication of any plan for the
future of the farm subsequent to his bankruptcy. Mr. Chaban
commenced a hay operation in either 1997 or 1998.
[11] The
following is a schedule of Mr. Chaban's gross farm income and
losses for the years 1989 to 1996.
|
Year
|
Gross Income
|
Net Income
|
|
|
|
|
|
1989
|
$900.
|
($68,779.)
|
|
1990
|
$45,051.
|
($82,161.)
|
|
1991
|
$44,635.
|
($121,527.)
|
|
1992
|
$88,928.
|
($51,175.)
|
|
1993
|
$93,212.
|
($36,424.)
|
|
1994 - pre-bankruptcy
|
$183,453.
|
($4,990.)
|
|
1994 - post-bankruptcy
|
$8.
|
($14,050.)
|
|
1995
|
$1,179.
|
($41,483.)
|
|
1996
|
$36,730.
|
($82,292.)
|
[12] Before
examining the employment side of Mr. Chaban's life during the
pertinent years, there are a few more salient facts regarding his
farming side. In 1991 Mr. Chaban acquired a mobile home which he
located on the farm property. Evidence included photos and a
video of this mobile home. Mr. Chaban constructed an
addition, which added two more bedrooms to the two bedroom mobile
home. I am satisfied this was a liveable residence with all the
usual amenities of a home in rural Saskatchewan.
[13] Mr.
Chaban provided a number of documents to prove that he was a
farmer; three of them specifically represented programs only
available to farmers. These were NISA, a retirement fund
available to farmers; Agri-Finance, a lending institution only
available to fund farmers; and Case Credit, another financing
institution which Mr. Chaban relied upon to finance some farm
equipment.
[14] Mr.
Chaban also produced telephone records from SaskTel for 1995 to
June 1996 indicating that calls were made from the farm home on a
regular basis. While Mr. Chaban suggested he was the sole user of
the telephone, I am not satisfied on that point, though I accept
he would have made the majority of the calls. The records do
support a finding that he spent considerable time at the
property. Mr. Chaban testified he spent two-thirds of his time
devoted to the farm and one-third to his employment. While this
may have been an accurate split in the early years of the
operation, I do not find the evidence supports such a breakdown
in 1995 and 1996. In those years he may have spent half of his
time on the farm property, though that does not necessarily mean
that time was spent farming. Mr. Chaban was a travelling
equipment salesman whose territory was mid-west Saskatchewan. His
farm property was situated conveniently in a central location for
the carrying out of his employment duties. I turn now to a
description of those employment activities.
[15] Mr.
Chaban has worked for Kramer since 1984. While he described
himself as a not particularly great salesman, his earnings were
steady from 1989 to 1995 and increased significantly in 1996
onward. The following is a summary of his employment income:
|
Year
|
Employment Income
|
|
|
|
|
1989
|
$55,109.
|
|
1990
|
$59,027.
|
|
1991
|
$54,221.
|
|
1992
|
$55,590.
|
|
1993
|
$54,581.
|
|
1994 - pre-bankruptcy
|
$61,087.
|
|
1994 - post-bankruptcy
|
$8,808.
|
|
1995
|
$55,212.
|
|
1996
|
$93,293.
|
|
1997
|
$92,092.
|
|
1998
|
$107,181.
|
[16] The
Kramer office to which Mr. Chaban reported was in Saskatoon. His
territory ran west of Saskatoon to the Alberta border and north
in line with Prince Albert. His farm property was located
approximately 300 kilometres from Saskatoon. His family lived in
Saskatoon. His wife worked in Saskatoon and the children attended
school there. Mr. Chaban testified that the family would go to
the farm on weekends. It is clear Mr. Chaban spent a lot of his
time on the road. He introduced his travel records from Kramer as
an exhibit, but was quick to denounce them as unreliable. The
records show a rough daily itinerary, including where he
purportedly started and ended the day. They also indicate the
kilometres covered on each day as well as the amounts spent for
breakfast, lunch and dinner. The majority of the daily entries
would suggest Mr. Chaban started and ended his day in Saskatoon.
Some of the entries indicated the day started and ended at
"Dad's" which was his label for the farm property.
Many entries would indicate an overnight stay at a hotel. Mr.
Chaban's evidence was that most of the entries indicating
Saskatoon as a start and end point were incorrect, as he was
actually at the farm. Further he explained that the reason he put
Saskatoon as a start and end point was simply because this was
his head office. A more plausible explanation might have been
that he did not want his employer to know how much time he spent
at the farm, given his relatively steady commission sales
figures, though I am not sure why Kramer would care. I agree the
records in this regard are unreliable but I am unable to draw any
accurate conclusion as to how often I should read
"Saskatoon" as really meaning the farm property.
[17] The
employment records do suggest that Mr. Chaban spent a good deal
of each day in his car. The entries regularly referred to 400
kilometres or more, which equate to several hours driving.
Presuming he was contacting customers, which would necessarily
take some time, it is easy to find that Mr. Chaban spent many
hours every day on his equipment sales. Most days he also
recorded the cost of breakfast, lunch and dinner, which supports
a full day in the service of his employer. I accept Mr.
Chaban's testimony that many days he would end up at the
farm. How many exactly is uncertain. If his work for Kramer took
him to the Meadow Lake area, where the family property is
located, it is understandable that he would stay at the farm. The
records also support a finding of a late arrival and early
departure on many of the days which he overnighted at the farm.
While Mr. Chaban may not always have been starting off from
Saskatoon, as the Crown contends, the fact that he stayed
overnight at the more central location of the farm does not
satisfy me he was farming on those evenings. He gave no specific
evidence to that effect for 1995 and 1996.
[18] Mr.
Chaban received a base salary from Kramer, a car allowance and a
commission. He used a Ford Explorer in the years in question for
his sales work. He claimed that a great deal of his work was
conducted over the telephone, though his travel records, as
already indicated, suggest otherwise. He used his Saskatoon
telephone number and a cellular telephone number as the contact
numbers for his work. He sold a lot of construction equipment to
one customer who, he maintained, did not require much time. In
late 1995 he was transferred from what he referred to as the bush
sector to the oil sector. This resulted in a move from Saskatoon
to Lloydminister, at the request of his employer. According to
Mr. Chaban, Kramer requested this move as Mr. Chaban was
incurring too much expense on hotels. His family moved to
Lloydminister in 1997.
[19] Mr.
Chaban spent one week a year in training with Kramer.
[20] Turning
now to the facts surrounding the vehicle expenses, the vehicles
in question are a 1986 GMC truck registered to Chad Chaban, Mr.
Chaban's son, a 1983 Ford registered to Chad, a 1981 Toyota
truck registered to Chad and a 1988 Chevrolet registered to
Mr. Chaban's son Quinton. The repairs on these vehicles in
1995 amounted to $3,283.52, of which the Minister allowed half,
and repairs in 1996 amounted to $6,897.31, of which the Minister
allowed none. Mr. Chaban maintained these were farm vehicles
owned by him and only registered in his sons' names as they
were inclined to speed and not drive as carefully as Mr. Chaban
would have liked, and he did not want to attract any personal
liability for these careless actions. He further indicated that
these vehicles were never used for personal purposes but were for
the farm. The only time they went to Saskatoon would be to pick
up parts. The Crown's witness, a Canada Customs and
Revenue Agency auditor, Ms. Sperling, in her report found no
mention of these vehicles as farm vehicles. Neither did they
appear on Mr. Chaban's capital cost allowance
("CCA") schedule.
[21] My
overall impression from my review of the facts is of a
hard-working individual who dreamed to be a cattle farmer, a
rancher. He supported this desire with income from his ongoing
employment, and up until 1993 or 1994 appeared to be on track to
increase income and reduce losses. Then for several reasons his
farming world fell apart and the bankruptcy ensued. He was never
able to overcome those setbacks; a regrettable, but perhaps all
too common situation in rural Saskatchewan. He provided no plan
as to how he was going to rekindle his dream, and indeed he
appeared to increase his reliance on his employment with
Kramer.
[22] This is
not a case of someone earning income in the city to lose it in
the country as has been stated in other cases. This is a case of
an equipment salesman in rural Saskatchewan having a run at
farming, recognizing he was not going to make it and attempting,
after his bankruptcy, to pursue the business on a reduced basis.
It is only from that point that his status as a full-time farmer
is at issue.
[23] The
starting point for the determination of Mr. Chaban's status
is the legislation itself, specifically section 31 of the
Act.
31. (1) 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 purposes of sections 3 and
111 the taxpayer's loss, if any, for the year from all
farming businesses carried on by the taxpayer shall be deemed to
be the total of
(a) the
lesser of
(i)
the
amount by which the total of the taxpayer's losses for the
year, determined without reference to this section and before
making any deduction under section 37 or 37.1, from all farming
businesses carried on by the taxpayer exceeds the total of the
taxpayer's incomes for the year, so determined from all such
businesses, and
(ii)
$2,500 plus the lesser of
(A) 1/2
of the amount by which the amount determined under subparagraph
31(1)(a)(i) exceeds $2,500, and
(B)
$6,250, and
(b) the
amount, if any, by which
(i)
the
amount that would be determined under subparagraph 31(1)(a)(i) if
it were read as though the words "and before making any
deduction under section 37 or 37.1" were deleted,
exceeds
(ii)
the amount determined under subparagraph 31(1)(a)(i).
[24]
Considerable case law has developed around this section as to the
meaning of "a combination of farming and some other source
of income". Justice Dickson in Moldowan v. The Queen,
77 DTC 5213, identified three classes of farmers:
full-time, part-time and hobby farmers. He indicated as
follows:
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.
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 subsection 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 subsection 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.
[25] Associate
Chief Judge Bowman in Miller v. The Queen, 1999 T.C.J.
No. 761 indicated that in relying upon
Moldowan,
... 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.
...
[26] To
qualify in either class 1 or class 2 as identified by Justice
Dickson, a farming operation must give rise to a reasonable
expectation of profit. Only then can a distinction be made
between class 1 and 2 on the basis of whether the taxpayer's
major preoccupation was farming. As reasonable expectation of
profit was not argued, (an acceptance that Mr. Chaban was
carrying on a farming business) I need only concentrate on the
issue of whether farming was Mr. Chaban's chief source
of income. In doing so I will address the following factors:
profitability, time spent, capital committed and mode of
living.
[27]
Profitability
What was Mr. Chaban's actual profit in the years in
question and what was his expectation of profit? It is necessary
to ask this double barrelled question because, as Justice
Robertson put it in The Queen v. Donnelly, 97 DTC
5499:
With respect to the section 31 profitability factor, however,
quantum is relevant because it provides a basis on which to
compare potential farm income with that actually received by the
taxpayer from the competing occupation. In other words, we are
looking for evidence to support a finding of reasonable
expectation of "substantial" profits from farming.
[28] Justice
Strayer had previously explained this requirement in the case of
Mohl v. The Queen, 89 DTC 5236:
It now appears clear from the Supreme Court decision in
Moldowan v. Her Majesty The Queen [1978] 1 S.C.R. 480 at
487 as recently interpreted by the Federal Court of Appeal in
Her Majesty the Queen v. Morrissey, (1988) 89 DTC 5080
that, for a person to claim that farming is a chief source of
income, he must show not only a substantial commitment to it in
terms of the time he spends and the capital invested, but also
must demonstrate that there is a reasonable expectation of it
being significantly profitable. I use the term
"significantly profitable" because it appears from the
Morrissey decision that the quantum of expected
profit cannot be ignored and I take this to mean that one must
have regard to the relative amounts expected to be earned from
farming and from other sources. Unless the amount reasonably
expected to be earned from farming is substantial in relation to
other sources of income then farming will at best be regarded as
a "sideline business" to which the restriction on
losses will apply in accordance with subsection 31(1).
[29] Actual
losses in 1995 and 1996 by Mr. Chaban were $41,483 and $82,292
respectively, based on the Appellant's figures and $15,225
and $38,960 respectively, based on the Minister's
calculations. The Appellant gave no evidence of what profits
might have been earned in those years, but indicated in his
Statement of Accounts in Bankruptcy that there was
no expectation of profits from farming. His
employment income in 1995 and 1996 respectively was $55,212 and
$93,293. There was no major occupational shift from employment to
farming in 1995 and 1996 but rather a shift in the other
direction. Mr. Chaban's employment earnings increased
significantly in 1995 to 1998 and gross income from farming
dropped to nothing by 1999. Any comparison between actual or
potential profit from farming and employment income leads to a
negative conclusion for the Appellant: that is, there was no
potential for profitability in 1995 and 1996 and there was
significant employment income. I cannot find on these facts that
farming was a chief source of income.
[30]
Time spent
Although I have no doubt Mr. Chaban overnighted at the farm on
more occasions than set out in his expense reports, he did not
provide evidence that on these occasions he took the opportunity
to conduct farming activities in 1995 and 1996. Neither was there
any accurate estimate of the actual time spent. His expense
report suggests a considerable amount of time travelling,
presumably calling on customers and potential customers. The vast
majority of meals on workdays were at company expense. Taking
into account travel time of several hours a day, time visiting
with customers and time on the telephone, Mr. Chaban's
daily work routine was centered on his sales job. He took at
least one week a year for training purposes with the Company. He
did indicate he conducted a round-up in 1995 and 1996 but there
were few head of cattle left at that time. When the Canada
Customs and Revenue Agency auditor visited the farm property in
1997 it was her clear impression that not much farming had been
carried on for some time; there was no sign of livestock, the
equipment appeared in poor shape and the grass was tall.
[31] While Mr.
Chaban was able to provide some considerable detail of extensive
farming work in the early years, he was not as specific for the
years in question. He was the only witness to testify and he
provided no corroboration for his claim that two-thirds of his
time was spent farming. Mr. Chaban relied heavily on his
telephone records as proof of his steady attendance at the farm.
Many calls were early morning, evening and on weekends. Other
family members had access to the telephone. I am not convinced a
listing of calls from the farm property verify Mr. Chaban's
claim that a majority of his time was spent farming. I find the
majority of his work time was spent in connection with his
employment activity. This is further borne out by his move for
employment purposes from Saskatoon to Lloyminister when his sales
region was modified.
[32]
Capital Committed
From a review of the CCA schedules provided as an exhibit, it is
clear that Mr. Chaban acquired and disposed of several trucks,
tractors and other farm equipment in the early 1990s. By the time
of his 1994 bankruptcy however, the equipment was minimal
(approximately $21,000 worth), inventory was low and his real
property was cut back. Mr. Chaban maintained he had all the
capital needed to carry on farming though this struck me more
bravado than realism. If 1995 and 1996 are viewed as starting
afresh after the bankruptcy, the capital was considerably less
than what had been committed in Mr. Chaban's first run at the
farming business in the early 1990s. It is necessary to
distinguish between his pre and post-bankruptcy activities
as I do not accept that the after bankruptcy activity was a
continuation of the pre-bankruptcy activity. Prior to the
bankruptcy, Mr. Chaban was committing time, effort and
capital to a potentially viable cattle operation. After the
bankruptcy, Mr. Chaban's plans were at best confused and at
worst, non-existent. He had insufficient capital to pursue
the cattle farm. He was down to a minimum number of cattle. He
tried haying but there was no suggestion by Mr. Chaban that
this would ever become a profitable farm activity. Mr. Chaban,
though claiming the bankruptcy would not impair his chances of
obtaining sufficient credit to carry on, provided no evidence of
a successful application for such sufficient credit to jump-start
a new farm operation.
[33] The
auditor's evidence was that in 1997 the equipment she saw at
the farm appeared to be in disrepair. There is no sign at that
time of any cattle inventory.
[34] In 1995
and 1996, Mr. Chaban was not in a position to and did not commit
sufficient capital for the development of a full-time farm.
[35]
Lifestyle
While this has not historically been cited as one of the factors
in analysing restricted farm loss cases, I raise it as it assists
me in determining the taxpayer's major preoccupation. Was Mr.
Chaban's employment activity a source of income contemplated
by the words "combination of farming and some other source
of income"? If that other source of income is subsumed
within the lifestyle of a farmer, rather than the
individual's farm life having to be adapted to accommodate
another "source", then there is greater likelihood the
major preoccupation is farming. I have already found that Mr.
Chaban spent less than half of his work time working on the farm
in the years in question. His routine appears to have been having
most of his meals not at the farm, but on the road. His wife and
children remained in Saskatoon, his wife working and the children
attending school. Neither his wife nor adult children gave
evidence. He was a travelling salesman in rural Saskatchewan,
trying to get to his farm property as often as he could. I am not
convinced he was a full-time farmer fitting in his sales work
around his farming activities. His lifestyle was governed more by
his employment duties than his farming duties. I find the
employment income is not "some other source of income"
as contemplated by section 31 of the Act.
[36] From a
review of these factors I conclude that Mr. Chaban was not a
full-time farmer in 1995 and 1996: farming was not his
major preoccupation in those years. What was he? Had he given
evidence that after the bankruptcy in 1994 his only farming
efforts were in winding up the farm operation, I would have had
some difficulty in applying the four pronged test of time,
capital, lifestyle and profitability. How could any such farmer
ever have an expectation of significant profits? How could such a
farmer spend the majority of his time in winding up an operation?
Applying the guidelines to such a farmer would result in a
legitimate class 1 farmer being relegated to a class 2 farmer. I
do not believe this was the intention of such tests, nor an
appropriate application of section 31. The tests are
guidelines to distinguish between different classes of farmers,
not to distinguish between different phases of a full-time
farming operation, from a start-up phase to an ongoing viable
operation and finally to a winding-up phase. Mr. Chaban's
counsel however did not argue that Mr. Chaban was winding-up the
business in 1995 and 1996 but quite the opposite. She argued
Mr. Chaban was still in a start-up phase in 1995 and
1996 with every intention to pursue a full-time farming
operation. However, I compare his efforts in 1995 and 1996 to his
efforts in 1989 to 1992 and they pale by comparison. In the early
1990s Mr. Chaban was truly in a start-up phase of a
full-time farming operation. In 1995 and 1996 the writing was
clearly on the wall. The land that God had made for cattle was
not sustaining a cattle operation. Mr. Chaban clung to some hope
of a farm and tried his hand at a hay crop. This was not the
realization of Mr. Chaban's dream; it could not be
described as even the start-up phase of a full-time farmer.
At best in 1995 and 1996 he was in the sideline business of
farming. There were no plans of growth, no plans of a herd of 400
or 500 cattle, there was less time and effort on farming than on
selling equipment and there was no expectation of significant
profit. What had started as an objective of a full-time
farm, had by 1995 and 1996 realistically become a sideline
business. In the years that followed it became clear that even a
sideline business was not sustainable.
[37] Turning
now to the vehicle expenses, I find that Mr. Chaban has been
unable to demolish the Crown's assumption that fifty percent
of the vehicle repair expenses in 1995 ($1,641.71) and all of the
vehicle repair expenses in 1996 ($6,897.31) were not incurred for
the purpose of earning income from farming. The vehicles were
registered in Mr. Chaban's sons' names; they did not
appear on Mr. Chaban's CCA schedule. Mr. Chaban claimed they
were in the boys' names so that he would not be liable for
their shaky driving habits. At the same time he suggested the
four vehicles were used exclusively for farm work, for example,
hauling and obtaining parts. I find this explanation somewhat
contradictory, as if the vehicles were only used for farming
purposes, how much risk was there of the boys' bad driving
habits impacting on Mr. Chaban. There were photographs of the
vehicles on the farm, though none that I could make out to be the
1986 GMC truck which was the vehicle on which the bulk of the
expenses were incurred in 1996. The owner of that particular
vehicle, Mr. Chaban's son Chad, did not testify as to
his use of the vehicle. In 1996 Mr. Chaban's farming
activities consisted primarily of selling off the few remaining
head of cattle. I find on balance that Chad's truck was not
involved in his limited farm activity.
[38] For these
reasons I find Mr. Chaban's losses for 1995 and 1996 are as
determined by the Minister and are restricted in accordance with
Section 31 of the Act. The appeal is dismissed.
Signed at Ottawa, Canada, this 19th day of October,
2001.
"Campbell J. Miller"
J.T.C.C.
COURT FILE
NO.:
2000-1537(IT)G
STYLE OF
CAUSE:
Gordon Chaban v. The Queen
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
October 9, 2001
REASONS FOR JUDGMENT BY: The
Honourable Judge Campbell J. Miller
DATE OF
REASONS:
October 19, 2001
APPEARANCES:
Counsel for the Appellant: Allison M. Downey
Counsel for the
Respondent:
John O'Callaghan
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1537(IT)G
BETWEEN:
GORDON CHABAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 9, 2001 at Edmonton,
Alberta by
the Honourable Judge Campbell J. Miller
Appearances
Counsel for the
Appellant:
Allison M. Downey
Counsel for the
Respondent:
John O'Callaghan
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1995 and 1996 taxation years are dismissed in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 19th day of October,
2001.
J.T.C.C.
Email this Content