Watson,
D.T.C.C.J.:—
This
appeal
concerning
the
1988,
1989
and
1990
taxation
years
was
heard
at
Sherbrooke,
Quebec,
on
January
15,1993.
In
computing
his
income
for
the
1988,
1989
and
1990
taxation
years,
the
appellant
reported
capital
gains
of
$4,302.66
in
1988,
$2,151.34
in
1989
and
$3,227
in
1990.
He
claimed
no
capital
gains
deductions
for
the
three
years
in
issue.
In
assessing
the
appellant
for
these
three
years,
the
Minister
of
National
Revenue
did
not
alter
the
appellant's
computation
of
income
for
the
1988
taxation
year,
but
he
added
$2,151
and
$6,454
to
the
capital
gains
reported
by
the
appellant
for
the
1989
and
1990
taxation
years,
respectively.
After
being
served
with
a
notice
of
objection
for
the
1988
and
1989
taxation
years,
the
Minister
of
National
Revenue
made
a
reassessment
on
October
31,
1991
for
those
two
years.
He
decided
that
the
capital
gain
reported
according
to
the
registered
reserves
would
be
taxed
at
a
constant
rate
of
50
per
cent
for
the
rest
of
the
proceeds,
in
accordance
with
clause
14(5)(a)(iv)(A)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
and
the
case
law
established
in
Timagami
Investment
Corp.
The
appellant
did
not
serve
a
notice
of
objection
or
notice
of
appeal
in
respect
of
this
reassessment.
On
November
6,
1991,
the
appellant
served
a
notice
of
objection
to
the
original
assessment
of
October
18,1991
for
the
1990
taxation
year.
In
addition
to
the
grounds
set
out
in
the
above-mentioned
notice
of
objection,
he
claimed
a
capital
gains
deduction
for
the
1988,
1989
and
1990
taxation
years
for
all
of
his
capital
gains
from
the
sale
of
a
land
and
a
milk
quota.
On
November
6,
1991,
the
appellant
also
sent
the
Minister
of
National
Revenue
amended
returns
for
the
1988,
1989
and
1990
taxation
years.
In
the
amended
returns,
he
revised
the
reserves
to
be
reported
without
taking
into
account
what
had
been
done
or
discussed
earlier
with
an
appeals
officer.
He
also
claimed
a
capital
gains
deduction
for
all
of
his
capital
gains,
in
respect
of
both
the
land
and
the
milk
quota.
These
returns
were
not
the
subject
of
a
reassessment
since
they
were
filed
after
the
reassessments
for
the
1988
and
1989
taxation
years
were
made,
those
reassessments
having
been
in
response
to
the
notices
of
objection
served
earlier.
The
Minister
of
National
Revenue
reassessed
the
appellant
for
the
1990
taxation
year.
The
Minister
of
National
Revenue
relied
on
the
following
facts
in
reassessing
the
appellant:
(a)
the
appellant
sold
his
farm
in
1984
for
$171,000.
This
amount
included
a
land
having
a
value
of
$40,000
and
a
milk
quota
valued
at
$50,000;
(b)
the
appellant
apportioned
the
capital
gain
realized
over
a
period
of
10
years,
as
permitted
by
subsection
44(1.1)
of
the
Act;
(c)
on
or
about
July
13,
1987,
a
valuation
of
the
fair
market
value
on
December
31,
1971
of
the
land
sold
by
the
appellant
reduced
the
adjusted
cost
base
of
the
land
to
$19,000.
This
valuation
resulted
in
an
additional
capital
gain
of
$9,800
allocated
to
the
land,
which
was
added
to
the
capital
gains
reserve
of
December
31,
1987.
The
value
of
the
milk
quota
remained
the
same;
(d)
the
capital
gain
on
the
land,
spread
over
10
years
at
the
time
of
the
sale,
amounted
to
$1,120
per
year.
With
the
appellant's
consent,
the
additional
capital
gain
of
$9,800
was
spread
over
the
last
seven
years
and
thus
increased
the
annual
capital
gain
to
$2,520
for
1988
to
1994;
(e)
the
taxable
capital
gain
on
the
land
was
apportioned
as
follows
for
the
last
seven
years:
|
Year
|
Reserve
|
Taxable
capital
gain
|
|
(on
Dec.
31)
|
|
|
1987
|
$17,640
|
—
|
|
|
1988
|
$15,120
|
$2,520
x
2/3
=
$1,680
|
|
1989
|
$12,600
|
$2,520
X
2/3
=
$1,680
|
|
1990
|
$10,080
|
$2,520
x
/4
|
$1,890
|
|
1991
|
$
7,560
|
$2,520
x
/4
=
$1,890
|
|
1992
|
$
5,040
|
$2,520
x
/4
=
$1,890
|
|
1993
|
$
2,520
|
$2,520
x
’/.
=
$1,890
|
|
1994
|
$
|
0
|
$2,520
x
/4
|
$1,890
|
(f)
the
capital
gain
in
respect
of
the
milk
quota
was
divided
as
follows
for
the
last
seven
years:
|
Year
|
Reserve
|
Taxable
capital
gain
|
|
(on
Dec.
31)
|
|
|
1987
|
$27,540
|
—
|
|
|
1988
|
$23,606
|
$3,934
x
/4
|
$2,950
|
|
1989
|
$19,672
|
$3,934
x
/4
=
$2,950
|
|
1990
|
$15,738
|
$3,934
x
/4
=
$2,950
|
|
1991
|
$11,804
|
$3,934
x
/4
=
$2,950
|
|
1992
|
$
7,870
|
$3,934
x
/4
=
$2,950
|
|
1993
|
$
3,936
|
$3,934
x
/4
|
$2,950
|
|
1994
|
$
|
0
|
$3,936
X
/4
=
$2,952
|
|
[Translation.]
|
At
the
hearing,
the
appellant
admitted
all
of
these
paragraphs.
The
issues
in
this
case
are:
1.
whether
the
appellant
served
his
notice
of
objection
on
the
Minister
in
accordance
with
sections
165
and
169
of
the
Act
with
respect
to
the
1988
and
1989
taxation
years;
2.
whether
the
appellant
is
entitled
to
a
capital
gains
deduction
in
respect
of
the
land
under
subsection
110.6(2)
of
the
Act;
and
3.
whether
the
Minister
was
entitled
to
tax
the
capital
gain
on
the
land
at
A
of
the
capital
gain
for
the
1988
and
1989
taxation
years
and
at
A
for
the
years
after
1989,
under
section
38
of
the
Act.
At
the
hearing
of
the
appeal,
the
appellant
testified
openly
and
honestly.
He
admitted
that
he
had
received
the
notices
of
reassessment
for
the
1988
taxation
year
and
for
the
1989
taxation
year,
which
were
mailed
on
October
31,1991.
The
notice
of
appeal
for
the
1988,
1989
and
1990
taxation
years
was
attached
to
the
notice
of
objection
dated
July
7,1992.
The
facts
were
not
in
dispute
in
this
appeal.
The
appellant
was
seeking
the
same
exemption
for
the
land
as
that
he
was
given
for
the
milk
quota,
and
he
argued
that
he
was
entitled
to
a
deduction
for
all
of
the
items
sold
to
his
son
in
August
1984.
First
issue
It
is
clear
that
the
notice
of
appeal
mailed
on
July
7,1992
was
mailed
well
after
the
expiration
of
90
days
following
the
date
the
notices
of
reassessment
for
the
1988
and
1989
taxation
years
were
mailed,
on
October
31,
1991.
Subsection
169(1)
of
the
Act
reads
as
follows:
169(1)
Appeal.—
Where
a
taxpayer
has
served
notice
of
objection
to
an
assessment
under
section
165,
he
may
appeal
to
the
Tax
Court
of
Canada
to
have
the
assessment
vacated
or
varied
after
either
(a)
the
Minister
has
confirmed
the
assessment
or
reassessed,
or
(b)
90
days
have
elapsed
after
service
of
the
notice
of
objection
and
the
Minister
has
not
notified
the
taxpayer
that
he
has
vacated
or
confirmed
the
assessment
or
reassessed;
but
no
appeal
under
this
section
may
be
instituted
after
the
expiration
of
90
days
from
the
day
notice
has
been
mailed
to
the
taxpayer
under
section
165
that
the
Minister
has
confirmed
the
assessment
or
reassessed.
However,
even
if
the
notice
of
appeal
was
filed
within
the
time
prescribed
by
the
Act,
my
decision
would
be
essentially
the
same
for
the
1988
and
1989
taxation
years
as
for
the
1990
taxation
year.
Second
issue
Is
the
appellant
entitled
to
a
capital
gains
deduction
in
respect
of
the
land
under
subsection
110.6(2)
of
the
Act?
110.6(2)
Capital
gains
deduction—Qualified
farm
property.—In
computing
the
taxable
income
for
a
taxation
year
of
an
individual
(other
than
a
trust)
who
was
resident
in
Canada
throughout
the
year
and
who
disposed
of
qualified
farm
property
in
the
year
or
a
preceding
taxation
year
ending
after
1984,
there
may
be
deducted
such
amount
as
he
may
claim
not
exceeding
the
least
of
(a)
the
amount,
if
any,
by
which
$375,000
exceeds
the
total
of
(i)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
deducted
by
the
individual
under
this
section
in
computing
his
taxable
income
for
a
preceding
taxation
year,
(ii)
where
the
taxation
year
ended
after
1987,
/3.
of
the
aggregate
of
all
amounts
each
of
which
is
an
amount
deducted
under
this
section
in
computing
his
taxable
income
for
a
taxation
year
ending
before
1988,
and
(iii)
where
the
taxation
year
ended
after
1989,
/s
of
the
total
of
(A)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
deducted
under
this
section
in
computing
his
taxable
income
for
a
taxation
year
ending
before
1990,
and
(B)
the
amount
determined
under
subparagraph
(ii)
in
respect
of
the
individual
for
the
year;
(b)
his
cumulative
gains
limit
at
the
end
of
the
year;
(c)
his
annual
gains
limit
for
the
year;
and
(d)
the
amount
that
would
be
determined
in
respect
of
the
individual
for
the
year
under
paragraph
3(b)
in
respect
of
capital
gains
and
capital
losses
if
the
only
properties
referred
to
in
that
paragraph
were
qualified
farm
properties
disposed
of
by
him
after
1984.
The
sale
of
the
immoveable
property
(land)
in
August
1984
resulted
in
a
capital
gain.
Subsection
110.6(2)
applies
only
to
capital
gains
from
farm
property
which
was
disposed
of
in
a
taxation
year
ending
after
1984.
Paragraph
8230
of
the
Canadian
Master
Tax
Guide
reads:
8230.
Qualified
farm
property.
Until
May
23,
1985
taxable
capital
gains
on
the
sale
of
"qualified
farm
property"
by
a
“full-time
farmer”
after
1983
qualified
for
a
deductible
contribution
to
a
registered
retirement
savings
plan
of
up
to
$120,000
(see
paragraph
10,432a).
Sales
of
a
qualified
farm
after
1984
are
not
eligible
for
RRSP
contributions
after
May
23,
1985.
Instead,
the
full
capital
gains
exemption
was
made
available
for
sales
of"
qualified
farm
property"
in
1985
and
subsequent
years,
subject
to
the
taxpayer's
annual
and
cumulative
gains
limits.
The
exemption
applicable
to
such
property
remains
at
the
$500,000
level.
As
a
consequence
of
the
increase
in
the
capital
gains
inclusion
rate,
the
exemption
therefore
applies
to
$333,333
of
taxable
gains
in
1988
and
1989
(inclusion
rate
of
/s
of
total
gains)
and
$375,000
of
taxable
gains
in
1990
and
subsequent
years
(inclusion
rate
of
A
of
total
gains).
The
amount
which
may
be
claimed
is
reduced
by
any
capital
gains
exemption
claimed
in
a
prior
year.
Where
an
exemption
has
been
claimed
before
1988,
the
Act
requires
that
it
be
increased
by
/3
for
the
purposes
of
this
calculation
in
order
to
reflect
the
increase
in
the
inclusion
rate
from
/2
to
/a.
A
corresponding
adjustment
will
be
required
when
the
inclusion
rate
increases
to
A
in
1990.
The
milk
quota
is
not
treated
in
the
same
way
as
the
land.
Thus,
for
the
milk
quota,
the
appellant
was
allowed
the
deductions
set
out
in
section
14
of
the
Act.
Unfortunately,
section
14
cannot
be
applied
to
the
land.
Only
after
1985
did
all
of
the
capital
gains
exemption
become
available
for
sales
of
qualified
farm
property,
subject
to
the
taxpayer's
annual
and
cumulative
gains
limits.
Third
issue
Was
the
Minister
entitled
to
tax
the
capital
gain
on
the
land
at
/a
of
the
capital
gain
for
the
1988
and
1989
taxation
years
and
at
/4
for
the
years
subsequent
to
1989,
under
section
38
of
the
Act?
Section
38
reads
as
follows:
38.
Taxable
capital
gain
and
allowable
capital
loss.—For
the
purposes
of
this
Act,
(a)
a
taxpayer's
taxable
capital
gain
for
a
taxation
year
from
the
disposition
of
any
property
is
A
of
his
capital
gain
for
the
year
from
the
disposition
of
that
property;
Section
38
was
amended
by
1988,
chapter
55,
subsection
19(1),
applicable
to
taxation
years
and
fiscal
periods
ending
after
1987,
and
reads
as
follows:
(a)
where
the
taxpayer
is
an
individual
or
a
partnership,
for
taxation
years
and
fiscal
periods
ending
after
1987
and
before
1990,
the
references
to
A"
in
section
38
.
.
.
shall
be
read
as
references
to"
/3";
The
Minister
was
therefore
entitled
to
tax
the
capital
gain
on
the
land
at
h
of
the
capital
gain
for
1988
and
1989
and
at
/4
for
the
years
subsequent
to
1989,
under
section
38
of
the
Act.
For
these
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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