Ross D. Wilde v. Minister of National Revenue, [1991] 2 CTC 2427, 91 DTC 1125

Bonner, T.C.J.:—This is an appeal from an assessment of income for the 1985 taxation year. During that year he sold shares of Wilde Brothers Farms Ltd. (hereafter "the company"). The issue is whether the appellant is a person who disposed of "qualified farm property" in the year and is therefore entitled by virtue of subsection 110.6(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") to deduct the gain of $139,650 realized by him. The respondent disallowed the deduction on the basis that the shares were not“qualified farm property" within the meaning of section 110.6.

The term “qualified farm property" is defined in subsection 110.6(1) as follows:

110.6(1) For the purposes of this section, “qualified farm property" of an individual means a property owned by him or his spouse that was

(b) a share of the capital stock of a family farm corporation (within the meaning

assigned by paragraph 70(10)(b)) of the individual or his spouse, or. . .

Paragraph 70(10)(b) reads in part:

(10) For the purposes of this section and sections 40, 44, 73 and 146,

(b) “Share of the capital stock of a family farm corporation"-"share of the capital stock of a family farm corporation” of a person at a particular time means

(i) a share of the capital stock of a corporation that, at that time, carried on the business of farming in Canada in which it used all or substantially all of its property and in which that person, his spouse or his child was actively engaged,

The appellant is a lawyer who lives and practises his profession in Lethbridge, Alberta. He was born and raised on the family farm near Lethbridge. He graduated from high school in 1952. He then started to work full-time on the farm. In 1954, his father died and in consequence he and other members of is family inherited the farm. From 1954 to 1964, the appellant, his brothers, sisters and mother operated the farm in partnership. The appellant was married in 1958 and his first child was born in 1959.

In 1960, the appellant returned to school. He attended classes initially in Lethbridge, subsequently in Calgary and finally in Edmonton. In 1966, he was called to the bar of Alberta. During the period from 1960 to 1966, the appellant's involvement in day-to-day farming operations decreased due to the demands of his school work. After the appellant was called to the bar he moved to Lethbridge to live and practise law. In 1968, he built the home in Lethbridge in which he still lives.

During the 1960-1966 period while the appellant was attending university he worked on the farm during summer months. As well he worked there occasionally during the school year. A decrease in the appellant's involvement in day-to-day farm operations occurred gradually in the years following 1966. The appellant's call to the bar occurred at about the same time as the commencement on the farm of a cow/calf operation. He attended at the farm for two or three days once a year when the cattle were branded. Up to 1980, the farming operations included the production of sugar beets. The appellant stated that he did very little to assist in irrigation which was automated, or in seeding, cultivation and weeding. He did, however, drive a truck three to four weekends a year during the sugar beet harvest during the period following 1966.

The company was incorporated in 1964. Following the incorporation the appellant and other members of the family transferred their respective interests in the farm and the business of the farm to the company in exchange for shares. The members of the family had an equal say in formulating company policy by virtue of the issuance to each of one voting share. Three of the appellant's brothers were hired by the company to work full-time as managers. They became the persons who were the most active in the day-to-day operation of the business. The appellant stated that initially at least 50 per cent of the profits were divided among the three managers and that the remaining 50 per cent of profits went to retained earnings for the benefit of all shareholders. In that way the contribution of the three to the financial success of the company was recognized.

In the late 1960s and early 1970s the appellant wished to introduce his young family to farming and thus he attended with his children at the farm from time to time on weekends and in the summer to do work of the sort already described. The appellant said, however, that as his children matured, it became apparent that they were not interested in farming. At the same time it became evident that the children of the three brothers who managed the farm were actively involved in farm operations and wished to participate financially. The appellant's involvement in the practice of law increased as time passed. In 1968 or 1969 the appellant and another lawyer bought the practice in which they had formerly been employed.

The appellant provided legal services to the company even before he was called to the bar. He devised the share structure of the company. Subsequently he prepared annual returns and maintained the corporate minutes. When farm equipment was being purchased he searched for liens. The company acquired further land in eight separate transactions and disposed of land once or twice. The appellant did the necessary title searches ana other legal work in connection with the purchases and sales. In all cases the appellant provided his legal services at no charge and billed the company for disbursements only. The appellant attended annual family gatherings which served as informal shareholders' meetings. From time to time during visits to the farm he discussed farm operations with his brothers.

The issue to be determined is whether the appellant satisfies the "actively engaged" test laid down by paragraph 70(10)(b) of the Act. Both counsel agreed that those words should be given their ordinary meaning. Counsel for the appellant referred to dictionary definitions of "engaged", one of which was: "to occupy oneself in an undertaking”. He referred to the decision of the Federal Court of Appeal in King George Hotels Ltd. v. The Queen, [1981] C.T.C. 87; 81 D.T.C. 5082 and submitted that there is no standard test or defined amount of activity required as a minimum necessary to support a conclusion that a taxpayer is actively engaged. The question, he submitted, is one of fact to be decided in each case. Counsel addressed the decline in the extent of the appellant's involvement in the activities of the company bysubmitting that the paragraph 70(10)(b) words “at a particular time" and “at that time" refer to the carrying on of the business of farming in Canada by the corporation and do not modify the words "was actively engaged". Further, on the subject of the relevant period of time he submitted that the reference in subsection 110.6(1) and to a "property . . . that was. . . ” suggests that a share which at any time qualified as a share of the capitai stock of a family farm corporation remains so qualified thereafter.

In my opinion it is clear from the language of subsection 110.6(2) that the deduction applies to dispositions in a year of qualified farm property and not to dispositions in a year of property which at some time in the past was qualified farm property. In the subsection 110.6(1) definition the past tense is used in the words ”. . . a property owned by him . . . that was . . ." because the reference is to the property that has been sold in the year in question. The language of paragraph 70(10)(b) makes it clear that the draftsmen contem plated that the status of a share might change as circumstances change. I cannot find any reason for concluding that the words "at that time" apply to the use of property in the business test and not to the activity of the shareholder in the business test.

It was the position of counsel for the respondent that although the appellant was actively engaged in farming until about 1971, he ceased thereafter to be so engaged. [1] Counsel submitted that the appellant, in rendering legal services to the company, did not engage in farming and that in any event the legal services rendered were few and isolated and could not amount to actively engaging in farming. Counsel emphasized the need for a measure of continuity and referred to Dominion of Canada Guarantee and Accident Insurance Co. v. Mahoney, [1930] S.C.R. 122; [1929] 4 D.L.R. 823. That was a case in which the Supreme Court of Canada considered isolated activity in relation to an insurance policy which excluded liability when the assured was "engaged, either temporarily, casually or permanently, in an occupation classed as more hazardous than that stated herein". At D.L.R. page 828, Anglin, J. stated:

. . .we are of the opinion that the doing of the single isolated act, . . . which ordinarily forms part of the duties of a more hazardous occupation, cannot be said to amount to "engaging in” such more hazardous occupation “either temporarily, casually or permanently.

Counsel referred as well to Buntine v. Hume (1933), V.L.R. 123. There the Court considered the question whether the defendant was "engaged on war service" within the meaning of certain regulations. At pages 127-28 O'Bryan, J. Stated:

I think it is clear from a general reading of these regulations that their purpose was not to give protection to all persons who by reason of enlistment have been called upon to perform any military service, however small, and who are liable to be called up for full-time service, but to those whose ordinary occupation in life has been substantially interrupted by their engagement on a particular kind ofnational service and who are thereby presumably in need of protection. The regulation has chosen the expression "engaged on war service" as limiting the class to which that protection is given, and, in my opinion, the word engaged here means more than a mere employment for short periods intermittently and at irregular intervals, but connotes some continuity of employment for a substantial part of the person's time. The word engaged is itself capable of that meaning. In some contexts you may speak about a person being engaged in an occupation for however short a period he may be occupied therein. In another context, however, the word engaged conveys a different meaning, i.e., it excludes mere casual or intermittent employment and rather connotes such a degree of employment as occupies the whole or at least a substantial part of the person's time.

In my view it was not the intention of the legislature to include within the class of person described in paragraph 70(10)(b) of the Act, that is to say the class of person entitled to the exemption provided by section 110.6, those who at the moment of sale of the property in question engaged fleetingly in the conduct of some farming activity of the company. The words "actively engaged" require, if not continuity of employment in the business, at least frequency of employment therein over a substantial period of time.

Here the evidence indicates that after the appellant started to practise law in Lethbridge the level of his participation in the farm business declined at first slowly and later more rapidly as it became evident that his children were not interested in farming. For this reason much emphasis was placed by the appellant's counsel on the legal services rendered in connection with real estate transactions of the company and on the appellants work on corporate filings, maintenance of the minute book and the issue and redemption of shares. The evidence as to the time spent on this activity was not precise, but I observe that there were only two purchases of land after 1980 and that the maintenance of the corporate minutes of the company cannot have involved any great expenditure of time. On the evidence I cannot conclude that the property sold by the appellant was in 1985 property described in paragraph 70(10)(b) of the Act.

The appeal will therefore be dismissed.

Appeal dismissed.