Date: 20000614
Docket: 1999-3155(IT)I
BETWEEN:
RICHARD A. TURRIFF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals pursuant to the
Informal Procedure were heard at Regina, Saskatchewan on June 1,
2000. The Appellant was the only witness. He has appealed
reassessments which restricted farm losses which he claimed for
1995 and 1996 pursuant to subsection 31(1) of the Income Tax
Act. At the opening of the hearing the parties agreed to
amendments to the Reply and the Appellant withdrew a ground of
appeal alleging Charter rights.
[2] Paragraph 5 of the Reply
reads:
5. In so
reassessing the Appellant for the 1995 and 1996 Taxation Years,
the Minister made the following assumptions of fact:
(a) the facts
admitted supra;
(b) at all material
times the Appellant carried on the practice of optometry in the
town of Assiniboia, in the Province of Saskatchewan;
(c) the Appellant
earned the following amounts from his optometry practice during
the 1989 to 1996 taxation years respectively:
|
TAXATION YEAR
|
GROSS INCOME
|
NET INCOME
|
|
1998
|
$360,452.00
|
$ 99,267.00
|
|
1997
|
381,969.00
|
127,783.60
|
|
1996
|
354,399.00
|
117,343.00
|
|
1995
|
347,972.00
|
112,068.26
|
|
1994
|
349,439.00
|
105,229.00
|
|
1993
|
313,046.00
|
90,242.40
|
|
1992
|
332,891.00
|
96,341.00
|
|
1991
|
343,073.00
|
93,228.00
|
|
1990
|
348,292.00
|
105,646.00
|
|
1989 pre-bankruptcy
|
215,462.00
|
76,785.00
|
|
1989 post bankruptcy
|
95,051.00
|
11,823.00
|
(d) the Appellant
reported farming income (losses) during the 1989 to 1996 taxation
years as follows:
|
TAXATION YEAR
|
GROSS INCOME
|
NET INCOME (LOSS)
|
|
1998
|
$23,593.01
|
$(29,774.22)
|
|
1997
|
32,551.49
|
(24,317.67)
|
|
1996
|
7,648.09
|
(30,515.24)
|
|
1995
|
8,388.05
|
(10,935.52)
|
|
1994
|
22,161.00
|
5,023.00
|
|
1993
|
8,060.30
|
(19,536.56)
|
|
1992
|
7,792.85
|
(33,116.67)
|
|
1991
|
7,271.00
|
(40,128.00)
|
|
1990
|
5,658.00
|
(38,754.00)
|
|
1989 pre-bankruptcy
|
2,137.00
|
(5,873.00)
|
(The underlined portions of subparagraphs (c) and (d) were
amended at the opening of hearing to constitute agreed facts,
rather than assumptions.)
(e) the Minister
previously audited the Appellant for the 1992 and 1993 Taxation
Years and reassessed the Appellant to restrict the farm losses
reported as set out in paragraph (d) above;
(f) the
Appellant filed an appeal with the Tax Court of Canada in respect
of the reassessment to restrict his farm losses in the 1992 and
1993 Taxation Years;
(g) the Appellant
subsequently signed a Consent to Judgment agreeing to the farm
losses being restricted in the 1992 and 1993 Taxation Years;
(h) the Appellant
began his farming operation in the 1971 Taxation Year;
(i) the
Appellant purchased three ¼'s of land in the 1971
Taxation Year which he still owned in the 1995 and 1996 Taxation
Years;
(j) during the
1995 and 1996 Taxation Years the Appellant rented an additional
200 acres of pasture;
(k) the Appellant
operates a mixed farming operation consisting of cattle, growing
grain, and some horses;
(l) the
Appellant resides on the farm;
(m) the Appellant reports
income from the farming operation on the cash basis;
(n) the potential
profitability of the Appellant's farming operation during the
1995 and 1996 Taxation Years was not significant when compared to
the Appellant's income from the practice of optometry;
(o) the Appellant
committed more time to the practice of optometry than to the
farming operation during the 1995 and 1996 Taxation Years;
(p) the Appellant
did not change his career direction during the 1995 and 1996
Taxation Years;
(q) the
Appellant's chief source of income during the 1995 and 1996
Taxation Years was neither farming nor a combination of farming
and some other source of income.
[3] Assumptions (a), (b), (c), (d),
(e), (f), (g), (h), (i), (j), (k), (l), (m) and (p) are correct
or were not refuted.
[4] The Appellant went bankrupt in
1989 following his divorce. He then bought the farm three
¼'s back from the bank which had seized them. To do
this he incurred substantial indebtedness. For this reason, the
Appellant started mixed farming in grain and cattle again in
1989. However, from 1990 to 1996 inclusive, he spent
approximately $6,500 purchasing cattle and $20,000 purchasing
horses. He has personal interests in horses and hunting and in
living in his house on the farm which have clearly affected the
farming operation and its financial aspects.
[5] The Appellant continued to lose
money farming in 1997 and 1998. His 1994 profit was due to an
inventory adjustment and a crop insurance claim. He testified
that in 1989 he acquired about 10 cattle and that he has let the
herd grow without sales in the expectation that profits will come
in due course in the cattle market. He sold about 20 cattle in
early 2000.
[6] The Appellant testified that after
major expenditures to grow durum in 1997 and 1998 he has changed
direction to make money on cattle and to reduce expenditures on
durum production.
[7] In 1989 the Appellant was an
experienced farmer who, he says, had made some profits from
farming during some of the 1980's. He had no plan to change
his previous farming practices. He borrowed all the money to buy
the farm back (including his home on the farm) from CIBC which
had seized it as security. However, given his previous 18 years
farming experience, the fact that he grew up on a farm, and the
operation from 1990 through 1994, by 1995 any start-up period had
concluded. In 1995 and 1996 the operation can be viewed as a
going entity - profitable or not.
[8] Aside from the personal interest
problem in this appeal, the Appellant must deal with the criteria
established by the Federal Court of Appeal in The Queen v.
Andrew Donnelly, 97 DTC 5499. On the evidence, the time spent
farming was, on an annual basis, the same amount as he spent on
optometry. The capital investment appears to have been about
equal in each pursuit. However, the Appellant did not lead any
evidence as to the quantum of profit he could expect from farming
relative to optometry, exactly when it might occur, how much it
would be, or if it would be substantial.
[9] Nor did the Appellant prove any
sudden set-backs which prevented profits in 1995 and 1996. The
general farm economy appears to have been about the same as it
was when he went bankrupt. The evidence established substantial
capital expenditures on pick-up trucks and an ATV, relative to
normal farm equipment. It established substantial purchases of
horses relative to cattle. It established fairly large sales of
grain which the Appellant testified was not profitable. It also
proved that he was interested in hunting. He also testified that,
as a one-man farmer on a small western farm, he used a jeep,
horses and an ATV to feed cattle which grew from a herd of 10 in
1989 to 80 at the beginning of 2000.
[10] In Donnelly, supra, at
page 5501, Robertson, J. said:
Any doubt as to whether the taxpayer's chief source of
income is farming is resolved once consideration is given to the
element of profitability. There is a difference between the type
of evidence the taxpayer must adduce concerning profitability
under section 31 of the Act, as opposed to that relevant to
the reasonable expectation of profit test. In the latter case the
taxpayer need only show that there is or was an expectation of
profit, be it $1 or $1 million. It is well recognized in tax law
that a "reasonable expectation of profit" is not
synonymous with an "expectation of reasonable profits".
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.
The Appellant failed to provide evidence of a reasonable
expectation of a substantial profit from farming. On criteria
also established by the Federal Court of Appeal, the Appellant
had a personal interest in financing his home, owning the horses
and operating some of the vehicles for hunting. Moreover, any
start-up period had ceased by 1995.
[11] For these reasons, the appeals are
dismissed.
Signed at Vancouver, British Columbia this 14th day
of June 2000.
J.T.C.C.
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