Anne Runstedler v. Minister of National Revenue, [1992] 2 CTC 2774, 92 DTC 2395

Sobier, T.C.C.J.:— The appellant appeals from the assessment by the respondent, with respect to her 1987 taxation year, whereby the respondent disallowed the appellants election to average farming income. According to the respondent, the appellant was in two partnerships with her husband. One in farming and the other in seed cleaning and fertilizer sales (the "seed business”). She also earned employment income as a Registered Nurse.

The respondent conceded that the appellant was engaged in farming and the evidence bore this out. However in order to become entitled to the averaging provisions of section 119 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") [1] farming must be her chief source of income.

The respondent maintains that since the appellant had three sources of income, i.e., farming, the seed business and employment income, farming was not her chief source of income. However, the respondent's counsel has conceded that if farming and the seed business together constitute farming, the appellant will succeed.

Evidence was led that the appellant spent the bulk of her time and efforts in what may be called by a layman, the traditional aspects of farming. She was engaged in the spring in preparation for planting. This included stone removal, discing and cultivating. This was followed later by spraying and weeding. In summer, she took off two or three crops of hay. During the harvest, she took off the crops, which included oats, barley, wheat, timothy and clover and as well she baled hay and straw. In the autumn, she would plough and disc the field in readiness for winter.

At this juncture, the appellant’s husband became involved and ensured that the crop was cleaned, long and short grains were eliminated and otherwise the crop was dealt with in order for it to be of seed quality. This is important, since the price of seed grain was considerably higher than that for feed grain, — about $270 per ton more than feed grain.

In addition to the foregoing, the appellant's husband entered into agreements with other farmers, whereby he would provide them with registered seed, fertilizer and credit and he would assist them in putting in and taking off the crop. He also provided wagons and storage facilities and set out standards which the farmers were required to maintain in order to qualify the crop as seed grain. He inspected the crop during the growing season.

Since Mr. Runstedler had the required licences, he was able, after inspection and tagging by Agriculture Canada, to sell, as seed quality grain, both the crop grown by the appellant and the farmers' crops.

The issue is, what business or businesses were the appellant and her husband carrying on?

As far as their own crop is concerned, i.e., that which was grown on land owned by them, they were engaged in the business of farming seed grains. The cleaning, etc., of the grain after harvest, was merely one further step in the farming business. They used techniques on their farm in order that the crop they produced was seed grain with a higher value.

With respect to the seed business, it could be argued that Mr. and Mrs. Runtstedler were grain dealers and that they were not farming. If all that Mr. Runstedler did was to provide seeds and fertilizer and contract to purchase the farmers' crops, I would agree with that argument. However, Mr. Runstedler did a great deal more than that. His uncontroverted evidence was that he helped put in the crops. As well, he oversaw the growing and also helped in harvesting the crops, all of this before any cleaning and grading was done. In my opinion, this also constitutes farming.

Although the bulk of the income came from the seed business, it must be remembered that the income from operating their own farm did not show sales or a transfer price of the crop to the seed business. The seed business used that seed as part of its inventory, which it had acquired at no cost.

As between the appellant and her husband, there is a division of labour in carrying out this combined farming business. The appellant performed her functions on their land, and her husband performed his duties with respect to the seed business portion of their farming business. There was one business with what could be described as two divisions. Each division was farming in its own right.

For these reasons, the appeal is allowed, with costs, and the matter referred back to the respondent for reconsideration and reassessment on the basis that the appellant was entitled to an election to average farming income in accordance with the provisions of section 119 of the Act.

Appeal allowed.