Paul Durst and Maureen Durst v. Minister of National Revenue, [1989] 2 CTC 2006, 89 DTC 337

Taylor, T.C.J.:—These are appeals heard on common evidence in Toronto on April 4, 1989 against income tax assessments for the years 1983, 1984 and 1985 in which the Minister of National Revenue disallowed a loss sustained from a trout raising operation, as deductions from other income. The amounts at issue were:

At the start of the hearing the parties agreed that the operation should be considered as "farming" for purposes of the Income Tax Act, and accordingly, the Court need make no finding on that point. The main assertion of counsel was that the appellants were entitled to the deductions made because the operations constituted their “chief source of income”. The first hurdle was to establish that during the years in question there had been a “reasonable expectation of profit", a “source of income”, and then to deal with the question of “chief source". While not originally asserted, this left open the prospect that the "restricted farm loss” as a deduction might be available to the appellants, even if their appeals with regard to the “chief source question were not sustained. I will first deal quickly with the "chief source" question —I am quite convinced that the appellants would not be entitled to the full farm deduction claimed, even if the Minister had agreed there was a reasonable expectation of profit—which claim was of course denied by the Minister.

A complete comparative schedule was presented by counsel for the Minister detailing the annual losses of the operation back to its inception in the taxation year 1979, up to and including the years under review, and beyond that to the year 1987 when the appellants ceased operating the “fish farm”. The reasons for their annual losses were described to the Court by the appellants and were highlighted by their counsel. It can certainly be understood that the operation carried with it, its share of risk, and in addition, there were several occurrences which further impeded the anticipated progress and hoped for profit. These need not be detailed here, but suffice it to say that recent jurisprudence on this subject of farm loss makes it quite clear that the risks and setbacks in a farming operation do not serve, in themselves alone, to support a claim for farming losses, and they would not serve that purpose here. But I am impressed with a couple of other points that arose. First, this fish farming operation clearly required several years for the cycle to come around so that an annual production of marketable fish could be reasonably anticipated, That is a common theme advanced by almost all farm operations, but I am prepared to think that it is particularly sensitive and acute in this undertaking. Second, the appellants had made considerable progress towards establishing a stable market for the fish they hoped to raise. Third, after one particular calamity, the Province of Ontario virtually restocked the farm with new fish. Fourth, for the years 1979 through 1982, the Minister of National Revenue had allowed deduction by the appellants of the full farming losses claimed. While that is only indicative and not determinative, I can only assume that the prospects for profit had at least appeared to be possible.

In my view it can logically be said that during the years in question these appellants had more than a mere hope for profit each year—there were indeed periods in which the prospect looked very bright—only to be overtaken by another unexpected event. However, I would add that it is difficult to see that even their faintest hopes were very much alive by the end of 1985.

The appeals are allowed in order that the appellants may claim the “restricted farm loss” up to the limits imposed under section 31 of the Act. The entire matter is referred back to the Minister of National Revenue for reconsideration and reassessment according to these reasons for judgment. In all other respects the appeals are dismissed. There will be no award as to costs.

Appeals allowed in part.