Date: 200010824
Dockets: 2001-590-IT-I
2001-591-GST-I
BETWEEN:
ROBERT PARTRIDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Rip, J.T.C.
[1]
These are appeals in which a taxpayer who has devoted his full
time and attention to farming is denied the right to deduct
expenses in computing income in 1997 and 1998 for purposes of the
Income Tax Act ("ITA") and claim input
tax credits under Part IX of the Excise Tax Act
("ETA") for the period from January 1, 1997
to December 31, 1999, on the basis that he is not in the business
of farming for purposes of the ITA and that his farm
activity is not a commercial activity for purposes of the
ETA. The appellant acted on his own behalf.
[2]
On retiring from the Armed Forces in 1979 or so, Mr. Robert
Partridge purchased a 100-acre farm in the Eastern Township
of Quebec and then spent all his time farming. Subsequently the
farm was sold. The appellant purchased a dairy farm in 1984 in
Delta, Ontario, consisting of 365 acres. Previously he had a
30-year career in the Canadian Armed Forces. He testified
that since 1979 he has not taken any holidays, always attending
to the needs of his farms. In 1995, due to age, and to some
extent to illness, he put the Delta farm up for sale and
purchased a smaller farm of 67 acres in Portland, Ontario.
The Delta farm was sold in 1997.
[3]
The new farm, the Portland farm, had not been farmed for 10 years
and required "considerable" work to be used for
farming. Land had to be cleared for pasture, buildings had to be
repaired and a fence had to be installed. Also, a right of way
permitting people access divided the farm, thus reducing its use
as a farm.
[4]
The Portland farm is mixed: cows, sheep, goats and beef cattle.
Since 1995, Mr. Partridge has claimed farm losses from the
Portland farm as follows:
|
Taxation
Year
|
Gross
Farm
Income
|
Adjusted
Farm
Income*
|
Total
Farm
Expenses
|
Farm Losses
Claimed
|
|
1995
|
$ 22,758
|
$ 9,553
|
$ 52,191
|
$ (29,433)
|
|
1996
|
20,093
|
9,605
|
44,930
|
(24,837)
|
|
1997
|
15,906
|
8,003
|
39,815
|
(23,909)
|
|
1998
|
12,446
|
5,388
|
46,156
|
(33,710)
|
|
1999
|
12,633
|
6,634
|
38,776
|
(26,142)
|
|
2000
|
11,599
|
5,599
|
35,1261
|
(23,527)
|
* Net of optional inventory adjustments, rebates and tax
refunds.
1 This does not include legal expenses to
defend against right of way.
[5]
Mr. Partridge's sources of income at all relevant times were
from pensions and investments. In 1997 his pension income, not
including Old Age Security and Canada Pension Plan, was $35,519
and his investment income was $14,226; in 1998 the amounts were
$36,183 and $16,396 respectively. Prior to 1995 it also appears
Mr. Partridge's farm losses from farming exceeded his other
income. The Minister of National Revenue ("Minister")
assumed he also had farm losses during the period from 1987 to
1994 inclusive. Mr. Partridge acknowledged the losses for all
years up to 2000. He stated that had he not claimed capital cost
allowance he would have had a profit from farming in the years
1984, 1987, 1988, 1989 and 1993. He also said that today he could
prepare a financial plan to show a profit within three or four
years since the undepreciated capital cost of farm property was
steadily being eroded.
[6]
Mr. Partridge testified that he made efforts to farm profitably:
he purchased used machinery and equipment to reduce costs, he did
not hire professional help, preferring to prepare his own books
and tax returns, diligently reporting expenses; he never applied
for government grants or assistance. He stated that no small
mixed farm in Canada is profitable; without a subsidy or quota, a
small farmer cannot make a profit.
[7]
Although the vendor of the Delta farm had a dairy quota, Mr.
Partridge did not. Neither did he have an egg quota. At time of
purchase of the Delta farm, he did not realize the quota was not
transferable together with the farm.
[8]
Once he moved from Delta, to Portland, approximately 20
kilometres distance, Mr. Partridge continued farming but, due to
age and health, did so on a more modest basis. For example,
during the period under appeal he had 12 to 15 head of
cattle, 15 sheep, four goats, two deer and 20 chickens. At
time of trial, one deer was still alive and the other was in
Mr. Partridge's freezer. The chickens (and eggs) were
for personal consumption since he had no quota. In 1997 he sold
three goats for $200. (He had sold seven goats that year and
intended to increase this number in future years.)
[9]
Mr. Partridge lives on the Portland farm with his wife. Many of
the expenses disallowed by the Canada Custom and Revenue Agency
related to repairs or capital cost to the house which Mr.
Partridge claimed as farm expenses. It is Mr. Partridge's
view that a farmhouse is an integral asset of a farm business and
all expenses of the house are farm expenses. He also failed to
account for the half-year rule on acquiring capital property in
1995. These errors are relevant only if I find he was engaged in
the business of farming during the years in appeal.
[10] As far as
the ETA assessment is concerned, Mr. Partridge will be
entitled to input tax credits if I allow his appeal from the
income tax assessments. In assessing Mr. Partridge under the
ETA, the Minister assessed a penalty pursuant to section
275 of that statute. The Minister did not refer to the penalty
provision in his Reply to the Notice of Appeal. The Minister has
the onus of establishing the facts supporting the penalty. Hence,
the appeal with respect to the penalty will be allowed.
[11] Mr.
Partridge declared that he operated the farm not to make a profit
but to contribute to the community. The farms, he said, were to
provide him with a "livelihood", a "living not a
profit", permitting him to consume the products he grew.
And, during the years in appeal, he and his wife did consume
vegetables and meat produced on the farm.
[12] Unlike
taxpayers in cases cited by respondent's counsel[1], Mr. Partridge noted
that he does no other work except work on the farm. He has no
other income from business or employment. Thus, he concluded
these cases are irrelevant.
[13] Mr.
Partridge took great comfort in Dickson J.'s (as he then was)
description of a class (1) farmer in Moldowan,[2]:
(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.
[14] It is Mr.
Partridge's main submission, if I understand him correctly,
that farming was "the centre of his work routine" and,
therefore, he is a class (1) farmer, notwithstanding farming
provides him with no net income.
[15] The words
"the centre of work routine" and "ordinary mode
and habit of work" used by Dickson J. in Moldowan
must mean the centre of a person's economic work routine or
habit of work, where a person is working for his livelihood. The
word "livelihood" is defined in The Canadian Oxford
Dictionary as "a way of earning a living; an
occupation". It does not mean efforts to provide one's
self with subsistence only, as the appellant contemplates, or an
activity that creates some revenue, but not a profit, but at
which the taxpayer devotes all of his mental and physical
energies.
[16] Indeed,
in Tonn[3]
and Mastri[4] the Federal Court of Appeal considered the
personal element of expenses in considering whether the expenses
were incurred to produce income from a business or property. In
the appeal at bar, as the appellant stated on several occasions,
the purpose of his farming activity was not necessarily to earn a
profit but to provide food for his table. Profit was, I gather, a
secondary intent.
[17]
Nevertheless, if a person carries on the business of farming,
expenses are deductible in computing income. A business requires
an element of commerce or commercial activity. The activity,
farming in the appeal at bar, must have some commercial flavour,
at least, to a business.
[18] To be
successful, Mr. Partridge must convince me that farming, or
farming and some other source of income, is his chief source of
income, not his income from pensions or investments. As Dickson
J. stated in Moldowan[5]:
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.
[19] In R.
v. Donnelly,[6] Robertson J.A. explained that:
8
A determination as to whether farming is a taxpayer's chief
source of income requires a favourable comparison of that
occupational endeavour with the taxpayer's other income
source in terms of capital committed, time spent and
profitability, actual or potential. The test is both a relative
and objective one. It is not a pure quantum measurement. All
three factors must be weighed with no one factor being decisive.
Yet there can be no doubt that the profitability factor poses the
greatest obstacle to taxpayers seeking to persuade the courts
that farming is their chief source of income. This is so because
the evidential burden is on taxpayers to establish that the net
income that could reasonably be expected to be earned from
farming is substantial in relation to their other income source:
invariably, employment or professional income. Were the law
otherwise there would be no basis on which the Tax Court could
make a comparison between the relative amounts expected to be
earned from farming and the other income source, as required by
section 31 of the Act. . . .
[20]
Unfortunately, I cannot agree with Mr. Partridge that he carried
on the business of farming. He was preoccupied with farming.
Farming was his life. However, at no time during the time he
farmed in Portland did he carry on the business of farming. He
did not expect the farm to provide the bulk of income although it
was the centre of his daily work routine.
[21] The
appeals are dismissed except for the deletion of penalties.
Signed at Ottawa, Canada, this 24th day of August 2001.
J.T.C.C.
COURT FILE
NO.:
2001-590(IT)I & 2001-591(GST)I
STYLE OF
CAUSE:
Robert D. Partridge v. The Queen
PLACE OF
HEARING:
Kingston, Ontario
DATE OF
HEARING:
August 8, 2001
REASONS FOR JUDGMENT BY: The
Honourable Judge Gerald J. Rip
DATE OF
JUDGMENT:
August 24, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Rosemary Fincham
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-591(GST)I
BETWEEN:
ROBERT D. PARTRIDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 8, 2001, at Kingston,
Ontario, by
the Honourable Judge Gerald J. Rip
Appearances
For the
Appellant:
The Appellant himself
Counsel for the Respondent: Rosemary
Fincham
JUDGMENT
The
appeal from the assessment made under Part IX of the Excise
Tax Act for the period from January 1, 1997 to December 31,
1999, is allowed, without costs, and the assessment is referred
back to the Minister of National Revenue for reconsideration and
reassessment in order to delete the penalty assessed pursuant to
section 275 of that statute.
The
appellant is entitled to no further relief.
Signed at Ottawa, Canada, this 24th day of August 2001.
J.T.C.C.
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