Frank R. Mott-Trille v. Her Majesty the Queen, [1994] 1 CTC 2159, 94 DTC 1013

O’Connor, J.T.C.C.:—These appeals were heard in Ottawa, Ontario on October 19, 20 and 21, 1993 pursuant to the general procedure of this Court and relate to the appellant's 1986, 1987, 1988 and 1989 taxation years. In assessing, the Minister of National Revenue limited the appellant’s farm losses to the restricted amounts provided for in section 31 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"); consequently, the sole issue in these appeals is whether the appellant's farm losses from his dairy and beef cattle operation carried on in Dufferin County, Ontario near the town of Shelburne for the years in question are subject to the section 31 restrictions. For the 1986, 1987 and 1988 taxation years section 31 read as follows:

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 his loss, if any, for the year from all farming businesses carried on by him shall be deemed to be the aggregate of. . . .

There follows a formula which in essence limits farm losses to $5,000 annually. This figure was raised to $8,750 for the 1989 taxation year by S.C. 1988, c. 55, subsections 16(1) and (2).

Witnesses

The respondent presented no witnesses. For the appellant testimony was given by himself; Geraldine Danich, a dairy farmer with a university degree in Dairy Technology and a farm employee of the appellant from 1989 to 1992; Gary Hutchison, an associate professor in the Department of Agricultural Economics at Guelph University; Debra Morin, a tenant in part of a residence on one of the farms from 1974 to the present time; Branka Dresar, who worked on the farms from 1973 to 1989; Hazel Morris, a part-time farmer, familiar with the appellant's farm operations; Barbara May Mott-Trille Dresser, a daughter of the appellant, a graduate of Guelph University and a practising veterinarian; and Sarah Elizabeth Mott-Trille, another daughter of the appellant and a lawyer.

Preliminary ruling

At the outset of the trial the Court exercised its discretion under Tax Court Rule 9 and agreed, in the interests of justice, with a certain degree of reluctance to relax the Rules, so as to allow the expert report of Gary Hutchison, notwithstanding that a copy of the report had not been served on the respondent at least 21 days prior to the trial as required by Rule 145. The main reasons for this were that the report was not of a technical nature and in the Court's view its late service did not cause prejudice to the respondent's case. It is to be observed that this report, which is filed as Exhibit A-8, contains both expert and non-expert comments. By agreement of both counsel the non-expert comments are those contained within brackets as illustrated in the exhibit. Also some minor wording changes in the report agreed to by both counsel and the witness are indicated in said exhibit.

Facts

The appellant testified that:

1. During the relevant years he carried on a law practice in the City of Toronto and a farming operation near Shelburne, Ontario. The law practice consisted principally of litigation, including many family law cases and real estate transactions. The farming was essentially a dairy and beef cattle operation. The most important financial statistics relevant to these two pursuits are shown in the appendix attached to and forming part of this decision [not reproduced].

2. He was born to farming parents on their farm in Jamaica on November 9, 1928 and was involved in farming operations in Jamaica on farms of his parents and others until he left in 1948 to attend Oxford University in England.

3. While in England he met his wife who obtained a degree in agricultural economics. She also was from a farming background in England. After staying in England from 1948 to 1954 and obtaining his law degree he came to Ontario and articled at Osler, Hoskin in Toronto. He was subsequently hired by that law firm until 1958 at which time he commenced his sole practice in the specialties mentioned above.

4. His interest in dairy farming involved, inter alia, attendance at seminars and sales both in his early years in Jamaica and subsequently in North America. He is an avid reader of dairy farming literature of all sorts, a member of dairy associations and has attended and continues to attend numerous cattle shows and auctions.

5. Between 1969 and 1983 four farms were purchased in the Township of Dufferin. The first, "Lyndmoor", comprised approximately 208 acres. A considerable portion of this acreage was swamp and bush and the appellant, with some assistance, bulldozed and gradually improved the land so that its drainage was satisfactory. The second farm, “ Rockhurst” comprised 166 acres and was acquired in the name of a company called Rockhurst Farms Ltd., the shares of which were owned by the appellant's wife and his children. The third, referred to as the “Clarke property”, comprised 100 acres and was acquired by the appellant's daughter, Barbara Mott-Trille. The fourth, unnamed, comprised 150 acres and was acquired in the name of another family corporation named Mott-Trille Farms Ltd. The farms, owned by the corporations and the appellant's daughter were held by the appellant under lease arrangements. From time to time the appellant also rented approximately 300 acres. Thus total acres involved, excluding leased areas, was 724 acres.

6. Extensive improvements and additions were carried out, principally on the Lyndmoor and Rockhurst farms. Rockhurst, when acquired in the mid-70s, had not been worked for the previous 15 years and consequently required considerable time and effort to repair, rebuild and improve the crops. Also, the fourth farm which had been acquired after a repossession had been severely and maliciously damaged by the former owner and required substantial repair. The four farms are close to each other and are complementary, some areas being principally for growing feed, some for grazing, others having buildings and barns for sheltering, milking and calving (birth) and separating the dairy from the beef cows and the heifers from the larger cows. Good management requires separating dairy and beef cattle and also separating heifers (young females) from older and larger cattle.

7. Originally there were only six "grade" (as opposed to registered) hol- steins and the appellant over the years acquired additional cattle and bred with the constant aim of improving the quality of the herd. The expression "grade" denotes holsteins that are lower in value than those which are registered and they do not produce as much or as good quality milk as registered holsteins. In the early 1980s the appellant owned approximately 90 dairy cows of which, because of the lactation period and need to rotate, 58 would be milking essentially at all milking times. Also Exhibit R-2 indicates that in 1985 the total numbers of cattle were as follows:

By 1993 there were 130 dairy cows, 121 beef cattle and 80 calves. Efforts were continuously directed to making the farm self-sufficient from a feed standpoint. Consequently fields were improved and cleared and in some cases fenced. Alfalfa and mixed grain were planted and improved.

8. Although the farms (hereinafter referred to collectively as "the farm") had not produced a profit since 1969, by late 1984 the crops were of good calibre and almost sufficient in quantity to make the feeding operation self- sufficient. Moreover the improvements and acquisitions both with respect to buildings and equipment were in place and it was expected that the farm would become profitable. Various tests by the Department of Agriculture as to the milking quality of the herd, the soil condition and the genealogical development of the herd were all positive. In other words, from the appellant's point of view the farm was on the threshold of profitability commencing in 1985. On February 3, 1984 the appellant received a certificate of merit from the Dufferin County Milk Commission "in recognition of maintaining above average farm premises and producing excellent quality milk” (Exhibit R-2). It was also pointed out that the extremely high interest rates in the early 1980s put many farmers out of business and contributed to the appellant's non-profitability. Upon demand by Revenue Canada, the appellant submitted a projected budgeted statement of income and expense for 1985 and 1986 (Exhibit A-3) which projected total revenues in 1985 of $200,000, expenses of $182,450, with a projected profit of $17,550; and for 1986 total revenues of $210,000, expenses of $184,950, with a projected profit of $20,250.

9. On May 31, 1985 a vicious tornado struck Rockhurst, completely destroying a recently erected barn and part of the house. The house later had to be demolished and a new one built. It also destroyed equipment, crops and topsoil. Because the appellant lacked the necessary funds to simply pay someone a large amount of money to do all the necessary repairs and rebuilding, he decided to undertake same himself with the assistance of employees. This resulted however in the farm essentially being impossible to operate on a profitable basis for at least three years. The tornado had consequential effects, as well, in that the debris scattered around and buried in the soil subsequently ruined some farm equipment when ploughing and performing other farm operations. The loss of feed for the dairy cattle caused by the tornado was considerable, necessitating the purchase of feed at high prices. The appellant received some insurance, but the Tornado Relief Fund did not pay because Rockhurst was owned by a corporation. The appellant estimated his losses caused by the tornado at $136,000 excluding the cost of clearing fields. Some of his crops were lost for two to three years, necessitating the continued purchase of feed at very high prices.

10. Repairs, rebuilding and restoring fields continued at least from 1985 to 1988.

11. There was a severe drought in 1988 and very wet conditions in 1989 that resulted in high expenses in those and subsequent years.

12. As to time spent in the farm operations, the appellant spent practically every Thursday evening at the farm, usually with his family, plus every weekend (including an extra day if the weekend was a long one). Also he spent most of July and August at the farm. The estimated time per week at the farm amounted to 32 hours and considerably more in July and August. This number increased to at least 40 hours when taking into account farm related activities carried on off the farm such as telephone calls from the legal office to the farm, filling out forms, reading dairy literature and attending cattle sales, auctions and seminars. His personal contribution in the farm operations when he was there involved getting up and assisting in the milking of the cows at 5:30 in the morning and performing numerous other chores such as ploughing, bringing in the crops, registering the new born heifers, assisting in calving and keeping track of breeding records. His time in the legal practice was considerably conserved because he had five administrator/secretaries who could do a lot of the work independent of supervision, especially in the real estate area. Nevertheless his time in the legal practice was estimated at 40 to 45 hours a week during months other than July and August. On cross-examination the appellant clarified that, during July and August, 20 to 25 per cent of the appellant's time was devoted to the law practice.

13. As to moneys invested in the farm, the amount contributed mainly by the appellant and some also by his wife and his children exceeded $1,000,000 and the appellant stated that without the income from his law practice he would never have been able to make such contributions. The farm is one of the largest dairy operations in Dufferin County. The number of employees in the years in question was approximately four, varying slightly from time to time.

14. The farm residence is located at Rockhurst. The original house there was partially blown away and later demolished as a result of the 1985 tornado. It was rebuilt over time. On cross-examination it was revealed that the new residence contained features which were improvements over the former residence but these were not significant.

15. Driving time from Toronto to the farm is approximately one hour and 20 minutes on a normal day.

16. Again at Revenue Canada's request the appellant submitted a written projection of farm profitability dated June 29,1990 (Exhibit R-3). The estimate of dairy feed costs was much lower than the actual costs achieved but once again this was because of bad weather, especially in the area of the farm which is one of the coldest parts of Southern Ontario. The estimate of total milk sales at $186,000 exceeded the actual sales of $157,000.

The testimony of the appellant was given in a clear and frank manner and was accepted by the Court. Furthermore, his testimony on several issues, including in particular the time spent on the farm and dealing with farm matters, the devastation wrought by the tornado and the existence of the bad weather in 1988 and 1989 was corroborated by the testimony given by certain, and in some cases, by all the other witnesses. Counsel for the respondent did not produce any witnesses who might have contradicted this testimony. Amongst other things, she did point out that the estimates and projections that were made for 1985 and 1986 proved to be incorrect. She pointed out that these projections had actually been submitted to Revenue Canada after the terrible tornado and that the appellant should have taken into consideration the devastation wrought by the tornado in making these projections. The appellant, on cross-examination, frankly admitted that the projections had been submitted after the tornado but that they had been prepared earlier on the basis of the 1984 position. He was very candid in this regard and admitted that he erred in not taking into consideration the devastation caused by the tornado with the resultant increase in expenses.

Analysis

The leading case on the questions raised in these appeals is the Supreme Court decision in Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213. It is useful to quote Dickson, J. at pages 485-86 (C.T.C. 313- 15, D.T.C. 5215) in commenting on subsection 13(1) [now subsection 31(1)]:

The next thin to observe with respect to subsection 13(1) is that it comes into play only when the taxpayer has had a farming loss for the year. That being so, it may seem strange that the section should speak of farming as the taxpayer's chief source of income for the taxation year; if in a taxation year the taxpayer suffers a loss on his farming operations it is manifest that farming would not make any contribution to the taxpayer's income in that year. On a literal reading of the section, no taxpayer could ever claim more than the maximum $5,000 deduction which the section contemplates; the only way in which the section can have meaning is to place emphasis on the words "source of income".

Although originally disputed, it is now accepted that in order to have a"source of income” the taxpayer must have a profit or a reasonable expectation of profit. Source of income, thus, is an equivalent term to business: Dorfman v. M.N.R., [1972] C.T.C. 151, 72 D.T.C. 6131 (F.C.T.D.). . . .

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer's training, the taxpayer's intended course of action, the capability of the venture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive. The factors will

differ with the nature and extent of the undertaking: R v. Matthews, [1974] C.T.C. 230, 74 D.T.C. 6193 (F.C.T.D.). . . .

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.

In my opinion, the Income Tax Act as a whole envisages three classes of farmers:

1. a taxpayer, for whom farmin 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 carries 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 carries on some farming activities as a hobby. The losses sustained by such a taxpayer on his nonbusiness farming are not deductible in any amount.

The reference in subsection 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.

[Emphasis in original.]

The principal criteria set out by the Supreme Court in Moldowan, supra, in relation to a chief source of income are therefore:

(i) time spent;

(ii) capital committed;

(iii) the profitability both actual and potential.

These, as noted, are not the only criteria, because the Supreme Court clearly indicated that they are inter alia".

Time spent

The Court has little difficulty in concluding that the appellant satisfied this criterion. Admittedly he spent almost equal time between both his pursuits when one considers the increased amount of time devoted to farming in July and August each year and the fact, admitted by the appellant, that a little part of his farm time was spent on legal matters. But he is a self-described workaholic and there is no doubt that his “ major preoccupation”, the term used in Moldowan, was farming.

Capital committed

The appellant testified that in excess of one million dollars was invested in the farm and even if a narrow interpretation is to be given to the word capital” it is obvious on the basis of all the evidence that a very large portion of that amount related strictly to capital items, such as land, buildings and equipment. Consequently, the Court is satisfied that the appellant met this criterion and this is the main element that distinguishes the present case from the decision of the Federal Court of Appeal in Poirier Estate v. The Queen, [1992] 2 C.T.C. 9, 92 D.T.C. 6335.

The Court adopts, with approval, the analysis of Joyal J. in a case similar to the present, namely Hadley v. The Queen, [1985] 1 C.T.C. 62, 85 D.T.C. 5058 (F.C.T.D.), at pages 68-69 (D.T.C. 5063-64):

I also find in the considerations and factors outlined in the Moldowan, supra, case that they do not need all to be of equal value. Their individual importance depends on all the circumstances of an individual case. One such factor which might predominate over the others is the amount of capital the plaintiff committed to his farming venture. If the plaintiff argues new direction, new orientation, or new commitments to bring himself within the first category defined in the Moldowan case, the quantum element alone of his capital investment provides the plaintiff with pretty good credibility. It gives force to the several arguments advanced by the plaintiff's counsel and overcomes the incredulity which an ex post facto analysis of actual performance attracts to the case.

The findings I have made with respect to the plaintiff’s farming operations must be viewed within the framework of intentions and expectations. While it is true that the operations, as financially unsuccessful as they were, might indicate prima facie that the plaintiff should come within the second category of “sideline” operators as articulated by Dickson, J. in the Moldowan case, the plaintiff's intentions and expectations are, in my view, material to the conclusions I have drawn. To a great extent, in reviewing past history, a trier of facts must adopt something akin to an armchair approach as that expression is used in the interpretation of testamentary instruments. The intentions and expectations must be analyzed in the light of the taxpayer's activities and of the economic situation relating to beef farming which existed at that time.

Furthermore, as I have found earlier in these reasons, the plaintiff is not the type of person who would gladly risk a million dollars in an operation on the simple expectation that in the event of losses, half of them would be absorbed by deductions from his other income.

One must also guard against adapting a statutory interpretation to the guidelines articulated by Dickson, J. in the Moldowan case. The words used by His Lordship in simplifying the wording of section 31 of the Act do not, a priori, fit every taxpayer into a procrustean bed of someone else's choosing. Indeed, His Lordship, in suggesting tests which might be applied from case to case, is careful to point out that such tests are “not exhaustive”, that some of them are both relative and objective, or that some of them are not to be measured purely in quantum terms. In a few words, His Lordship was not attempting to draft legislation.

It is my view therefore that the conclusion I have reached is on the basis of a factual situation which has unique and distinguishing features. Numerous precedents cited to me by counsel on both sides might be relevant or persuasive but I would doubt that any one of them would be conclusive. I prefer to be guided by the principles enunciated in the Moldowan decision. I think that my conclusion is in conformity with these principles and in keeping with the legislative intent of section 31.

Inter alia criteria

The farm is one of the largest of its kind in the area and although this is not a criterion on its own, it cannot be ignored in a consideration of the appellant's commitment to farming.

Profitability—actual or potential

The farm has never shown a profit. The question becomes "Was there a reasonable expectation of profit?” There is ample authority to the effect that in assessing pursuant to section 31 the respondent is tacitly admitting that the appellant was operating a business and not indulging in a mere hobby but the question remains as to whether there was a reasonable expectation of profit. The evidence shows that by late 1984 the crops were of good calibre and almost sufficient in quantity to make the feeding operation self-sufficient, the improvements and acquisitions both with respect to buildings and equipment were in place and it was expected that the farm would become profitable. Various tests by the Department of Agriculture as to the milking quality of the herd, the soil condition and the genealogical development of the herd were all positive. In other words, from the appellant's point of view the farm was on the threshold of profitability commencing in 1985. The evidence further shows, and forcefully so, the set-back caused by the tornado of 1985 which affected the profit picture for the immediately following years and the effects on later profits resulting from the drought in 1988 and the wet season of 1989.

Based on all the evidence the Court is satisfied that a reasonable expectation of profit existed at all relevant times. In Gordon v. The Queen, [1986] 2 C.T.C. 280, 86 D.T.C. 6426 (F.C.T.D.) (upheld on the point in issue by the Federal Court of Appeal, [1989] 2 C.T.C. 277; 89 D.T.C. 5481), Reed, J. applied section 31 and restricted the farm losses. At pages 286-87 (D.T.C. 6430-31) she cites extracts from several cases where full farm losses were allowed. In the Court's opinion these latter cases are similar to the facts in this appeal. Thus:

I have considered the recent jurisprudence on the issue of farm losses cited to me by counsel: Graham v. The Queen, [1983] C.T.C. 370, 83 D.T.C. 5399 (F.C.T.D.); aff'd [1985] 1 C.T.C. 380, 85 D.T.C. 5257 (F.C.A.); Hadley v. The Queen, supra; Poirier Estate v. The Queen, [1986] 1 C.T.C. 308, 86 D.T.C. 6124 (F.C.T.D.); McCambridge v. M.N.R., [1981] C.T.C. 2314, 81 D.T.C. 251 (T.R.B.), Auffrey v. M.N.R., [1984] C.T.C. 3002, 84 D.T.C. 1808 (T.C.C.); Knaak v. M.N.R., [1984] C.T.C. 2460, 84 D.T.C. 1397 (T.C.C.); Rivers v. M.N.R., [1984] C.T.C. 2933, 84 D.T.C. 1802 (T.C.C.); Hunter v. M.N.R., [1985] 1 C.T.C. 2440, 85 D.T.C. 404 (T.C.C.); Laufer v. M.N.R., [1984] C.T.C. 3052, 85 D.T.C. 16 (T.C.C.); and Bender v. M.N.R., [1986] 7 C.T.C. 2437, 86 D.T.C. 1291 (T.C.C.). I quote from some of them.

In the Graham case the taxpayer worked full time for Ontario Hydro but he also worked full time on his farm. Mr. Justice Urie, writing the majority decision, stated, at page 383 (D.T.C. 5259) (F.C.A.):

It seems to me, therefore, that one of the issues with which the Court must deal in this appeal is whether or not it is possible, in the rather unusual circumstances of this case, for a person to have employment in two full-time occupations at the same time. . . .

[Emphasis added.]

Implicit in the Court's decision is an affirmative answer. In the Hadley decision, at page 69 (D.T.C. 5064), Mr. Justice Joyal noted that in the circumstances of that case:

. . .the substantial investment made by the plaintiff could not possibly have been made with [out] a serious intention of achieving profitability.

[Emphasis added.]

In the Poirier case, the Associate Chief Justice said at page 312 (D.T.C. 6127):

The facts satisfy me that Poirier’s investment of time and money was of such a magnitude that his operation was stamped from the start as a business. Further- more, a business not only with a reasonable expectation of profit in the near future, but a profit that would compare with his other sources of income. . . .

[Emphasis added.]

In Auffrey at page 3004 (D.T.C. 1810):

. . it can fairly be said that the appellant has established that his cattle farming was not a sideline business or a subsidiary interest for 1979. . . .

[Emphasis added.]

In the Rivers case it was said, at page 2935 (D.T.C. 1804):

The appellants' planning, statistical and evident businesslike approach to his sheep farming business (Exhibits A-3, A-7 and A-8) are indicative of his keen analytical abilities and knowledge in relation thereto and were reflective of his position that farming was not just a sideline or subsidiary business.

[Emphasis added.]

Counsel for the appellant on the aspect of reasonable expectation of profit pointed out that the losses for the years 1987 and 1988 before CCA were only $1,435 and $17,239. The loss in 1989 ($176,389) was large but this was attributable to the “devastating weather conditions”. The conclusion was that the total losses for those three years before CCA was but $195,063 and that these losses largely related to the tornado damage and effects of weather. The Court does not accept this argument because CCA cannot be ignored. Rather the Court has relied, in determining the potential for profitability (revealed by the figures) on the gross farm income for the years under consideration which rose from $215,135 in 1986 to $307,668 in 1988, reducing in 1989 to $226,184; this reduction apparently related to the bad weather in 1988 and 1989. Counsel filed as Exhibit A-4 a joint book of documents, which includes tax returns for 1990 and 1991. These returns show gross farm income and taxable losses as follows:

1990: Gross Farm Income $280,205; Taxable loss $16,287

1991: Gross Farm Income $234,370; Taxable loss $5,155

The conclusion the Court has reached is that relatively high levels of gross income are shown for 1986 to 1991 and that if expenses could have been controlled, profitability was attainable. The expert testimony of Gary Hutchison, which the Court has concluded was not crucial to the appellant's case, did state that the principal reason for lack of profitability was "profit was not forthcoming in the years under review because the appellant was too lenient with his labour".

Counsel for the respondent argued that in attempting to gauge the amount of time the appellant devoted to his law practice one should examine the gross revenues therefrom and apparently conclude that the appellant had more billable time than his testimony indicated. The Court is not prepared to do this, and relies on the appellant's credibility in stating that his five-person staff often were able to do most of the legal and paralegal work and that large portions of gross revenues were attributable to considerable real estate work during times of peak real estate investment which work did not require a great input of time.

Counsel for the respondent also pointed out that in some cases farm income was inflated by reason of the appellant (i) taking advantage of section 28 of the Act which permits farmers to value some inventory at year end at fair market value and take that figure into income and (ii) in certain cases selling equipment. The Court does not give these submissions much significance. The appellant is entitled to calculate his farm income in accordancewith the Act and moreover sales of equipment are expected to occur from time to time.

In conclusion, since, in the Court's opinion, the criteria to establish a chief source of income, have on the basis of all the evidence, been satisfied, the appellants chief source of income for the years under appeal was farming. Consequently section 31 was not applicable to the appellant and the total farming losses he claimed for those years are to be allowed.

The appeals are allowed, with costs to the appellant, and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment accordingly.

Appeals allowed.