Rip,
T.C.J.
[Translation]:—The
appellant
Jean-Gérard
Monette
is
appealing
from
income
tax
assessments
for
the
1979
and
1980
taxation
years
in
which
the
respondent
Minister
of
National
Revenue
limited
the
losses
for
each
year
from
a
farming
business
to
$5,000
within
the
meaning
of
subsection
31(1)
of
the
Income
Tax
Act
("the
Act”).
The
Minister
said
that
the
appellant's
income
for
1979
and
1980
does
not
come
primarily
from
farming
or
from
a
combination
of
farming
and
some
other
source.
The
two
appeals
were
heard
on
common
evidence.
Mr.
Monette
practices
as
a
physician,
specializing
in
psychiatry.
He
also
operates
a
horticultural
business
under
the
name
Tropinette
Enr
at
Tingwick
in
the
county
of
Arthabaska,
Quebec.
In
1967
Mr.
Monette
received
his
BA
at
the
College
Ste-Marie
and
began
his
studies
at
the
medical
faculty
of
the
University
of
Sherbrooke;
he
was
at
the
same
time
enrolled
in
a
master’s
course
in
biochemistry
at
the
same
university.
He
never
completed
this
course
but
in
1971
he
received
his
medical
degree.
He
interned
at
the
Centre
Hospitalier
of
the
University
of
Sherbrooke
and
continued
his
studies
in
psychiatry
at
McMaster
University
in
Hamilton.
Mr.
Monette
testified
that
he
wanted
to
get
into
a
medical
specialty
that
would
allow
him
time
for
other
activities,
and
psychiatry
was
an
ideal
specialty
as
emergencies
are
infrequent.
In
1974
he
began
working
as
a
psychiatrist
under
the
supervision
of
the
McMaster
University
Hospital.
In
1976
he
became
a
fellow
and
accepted
a
position
with
Homewood
Sanitarium
in
Guelph,
Ontario.
Homewood
Sanitarium
is
a
private
profit-making
hospital.
The
sanitarium
has
about
350
patients
and
17
psychiatrists
and
nurses.
Mr.
Monette
worked
70
hours
for
an
annual
salary
of
$45,000;
he
was
also
entitled
to
do
outpatient
work,
from
which
he
earned
$10,000.
He
was
the
president
of
the
Homewood
Sanitarium
medical
council,
working
with
the
sanitarium
medical
director,
and
was
a
member
of
other
medical
committees.
He
explained
that
his
duties
in
Guelph
took
up
all
his
time.
Mr.
Monette
was
not
raised
on
a
farm,
but
there
were
members
of
his
family
(his
grandmother
and
an
uncle)
who
had
operated
a
farm
and
a
garden
in
a
vicinity
of
Ste-Thérése,
Québec.
He
had
visited
these
places
quite
often
and
expressed
an
interest
in
farming.
While
he
was
at
Homewood
Sanitarium
the
management
of
the
St-Joseph
Hospital
in
Hamilton
offered
him
a
position,
but
he
declined.
Mr.
Monette
testified
that
he
also
had
employment
opportunities
in
Montréal
and
Toronto.
He
found
that
it
was
better
for
a
psychiatrist
to
work
in
a
large
centre
because
of
the
different
types
of
patients
and
colleagues.
He
said
that
the
income
a
psychiatrist
could
earn
in
Toronto
in
1978
was
greater
than
in
Québec
because
at
that
time
Ontario
doctors
could
bill
patients
for
an
amount
in
excess
of
the
government's
medical
insurance
plan.
He
wanted
to
earn
his
living
as
a
psychiatrist
and
as
the
owner
of
a
horticultural
business.
The
cost
of
land
in
the
Niagara
Peninsula
or
in
Guelph
was
too
high
and
he
decided
to
return
to
Québec.
In
January
1978
Mr.
Monette
took
the
first
steps
toward
returning
to
Québec
by
contacting
a
former
psychiatry
professor
at
the
University
of
Sherbrooke,
Dr
Gérard
Perrault,
who
was
attached
to
the
Hôtel-Dieu
d'Ar-
thabaska.
He
obtained
a
position
at
that
hospital
as
a
psychiatrist
and
took
up
his
duties
on
July
2,
1978.
It
was
agreed
he
would
work
only
30
hours
a
week,
in
ten
shifts
of
three
hours
each
weekly.
At
the
time
the
Québec
government
had
set
up
a
program
designed
to
ensure
a
better
distribution
of
psychiatrists
throughout
Québec.
Psychiatrists
were
offered
a
premium
to
encourage
them
to
settle
in
the
Trois-Rivières
region,
where
the
Hôtel-Dieu
d'Arthabaska
was
located,
and
this
premium
was
$18,000.
In
order
to
qualify
for
this
program,
inter
alia,
a
psychiatrist
had
to
sign
on
for
a
period
of
two
consecutive
years
in
a
hospital
centre.
Mr.
Monette
denied,
first,
that
he
had
moved
to
the
Hôtel-Dieu
d'Arthabaska
in
response
to
the
premium,
and
second,
that
he
was
aware
of
the
government's
program.
He
testified
that
he
moved
to
the
area
because
of
his
interest
in
operating
a
horticultural
business.
The
appellant
is
still
a
member
of
the
Association
des
Psychiatres
du
Québec,
the
Fédération
des
Médecins
Spécialistes
du
Québec
and
the
Royal
College
of
Physicians
and
Surgeons
of
Canada.
He
continues
to
practice
his
profession
at
the
Hôtel-Dieu
d'Arthabaska.
The
Hôtel-Dieu
d'Arthabaska
had
two
psychiatrists
in
1978
but
now
has
three.
At
the
Hôtel-
Dieu
d'Arthabaska
Mr.
Monette
was
a
member
of
only
one
committee,
which
met
for
one
hour
a
week.
From
1979
to
1986
he
worked
between
499
and
517
shifts
at
the
hospital.
In
addition,
he
worked
fifteen
hours
a
week
at
an
out-patient
clinic.
He
read
magazines
and
other
medical
publications
at
the
hospital
during
his
shifts.
He
accordingly
estimated
that
he
worked
45
to
50
hours
a
week
as
a
psychiatrist
during
the
years
in
question.
In
exceptional
cases
he
saw
patients
at
home.
He
said
that
apart
from
his
weekly
shifts,
which
were
determined
by
his
contract
with
the
hospital,
he
was
"master
of
his
time
and
his
activities".
Mr.
Monette
was
paid
per
shift
by
the
Régie
de
I'Assurance-Maladie
for
shifts
at
the
hospital;
he
was
also
paid
for
each
time
he
attended
the
hospital's
out-patient
clinic.
Mr.
Monette
said
that
he
spent
more
time
working
at
the
Homewood
Sanitarium
than
at
the
Hôtel-Dieu
d'Arthabaska.
When
he
began
his
discussions
with
Dr
Perrault,
he
mentioned
to
him
that
he
wanted
to
work
on
a
farm,
to
grow
trees
and
develop
a
horticultural
business.
Dr
Perrault
referred
him
to
people
who
could
help
him
find
suitable
land
for
his
project.
On
June
22,
1978
he
bought
a
thirteen-acre
farm
at
Tingwick,
Québec
for
$72,000
and
moved
on
June
30.
He
financed
this
purchase
with
a
mortgage
of
$52,000
and
a
loan
of
$20,000
from
the
Bank
of
Nova
Scotia.
At
the
time
of
the
purchase
this
farm
also
had
a
house,
a
garage,
a
shed
with
a
fully-equipped
office
and
toilets
and
a
small
barn.
The
land
itself
was
not
being
used:
it
had
not
been
developed.
Mr.
Monette
was
interested
in
operating
a
business
selling
shrubs.
His
efforts
to
operate
his
business
began
almost
as
soon
as
the
land
was
bought.
Mr.
Monette
corresponded
with
and
met
representatives
of
the
Quebec
Departments
of
Agriculture,
Fisheries
and
Food
to
obtain
information
and
advice
on
hydroponic
cultivation.
He
also
obtained
documentation
from
the
Montreal
Botanical
Garden
on
growing
trees
for
use
in
his
horticultural
projects.
He
communicated
by
letter
and
telephone
with
the
federal
Department
of
Agriculture,
the
US
Forestry
Service
of
the
US
Department
of
Agriculture
and
the
Rocky
Mountain
Forest
and
Range
Station
of
the
US
Forestry
Service.
In
1978
Mr.
Monette
visited
the
nurseries
at
Rosemere,
Joliette,
Laval
and
Victoriaville
in
Québec
and
another
near
Edmundston
in
New
Brunswick.
Mr.
Monette
obtained
a
lot
of
information
and
advice;
he
studied
all
the
documentation,
weighed
the
pros
and
cons
and
drew
up
a
plan
of
action.
At
the
hearing
he
entered
in
evidence
a
notebook
which
he
used
in
1979
to
make
sketches
of
the
farm,
outlines
of
the
workplan
and
schedules,
to
calculate
his
fertilizer
requirements
and
to
draw
up
a
timetable
for
certain
operations.
This
allowed
him
to
control
his
working
hours
and
those
of
his
employees
who
were
hired
to
carry
on
his
business.
The
notebook
contained
a
plan
for
operating
the
farm.
In
1978
and
1979
Mr.
Monette
had
a
wooden
structure
built
with
skylights
on
the
south
side
and
a
transparent
material
over
the
ends,
for
use
as
a
greenhouse.
Mr.
Monette
spent
about
$59,000
for
the
greenhouse
and
also
spent
$9,200
to
renovate
a
storage
shed
and
further
amounts
of
$9,075
for
equipment
and
$5,404
for
rolling
stock.
To
pay
for
the
construction
Mr.
Monette
borrowed
$33,000
from
the
Bank
of
Nova
Scotia
on
a
demand
note
secured
by
a
mortgage
on
the
greenhouse.
In
his
cross-examination
counsel
for
the
respondent
suggested
that
no
lender
would
have
made
him
a
loan
secured
on
the
greenhouse
and
it
was
only
because
of
the
profession
he
was
engaged
in
that
he
could
obtain
the
money
needed
for
his
operation.
In
Fall
1978
Mr.
Monette
spent
twenty
to
twenty-five
hours
a
week
on
the
farm,
making
plans,
supervising
the
initial
construction
of
the
greenhouse
and
hiring
workers.
The
greenhouse
was
completed
in
March
1979
and
Mr.
Monette
began
using
it
at
once.
After
studying
and
considering
all
the
advice
and
information
he
had
received,
Mr.
Monette
decided
to
grow
Colorado
blue
spruce.
He
began
using
his
greenhouse
by
planting
seed
for
a
crop
of
30,000
spruce
and
at
the
end
of
March
for
another
crop
of
20,000.
Later,
in
1979,
he
planted
another
20,000
spruce
in
a
room
adjacent
to
the
greenhouse
which
he
called
a
growing
room.
He
operated
his
business
under
the
trade
name
of
"Tropinette
Enr".
In
the
replies
to
the
notices
of
appeal,
the
Minister
stated
that
in
reassessing
the
appellant
for
1979
and
1980
he
relied
on
the
following
facts:
5.
In
reassessing
the
appellant
for
his
1979
taxation
year,
the
Minister
of
National
Revenue
relied
inter
alia
on
the
following
facts:
(o)
in
1979
the
appellant
bought
small
tropical
plants
which
he
tried
to
keep
and
grow
for
resale;
(p)
in
November
1979
the
appellant
undertook
a
promotion
at
the
Zellers
store,
making
sales
of
some
$745;
(q)
the
appellant
then
found
that
his
greenhouse,
of
a
new
type,
was
not
particularly
well
suited
for
growing
tropical
plants
and
re-directed
his
activities
towards
the
production
of
Colorado
blue
spruce
.
.
.
Mr.
Monette
denied
that
he
had
re-directed
his
business
activities
towards
spruce.
He
explained
there
were
two
reasons
why
he
had
cultivated
tropical
plants:
he
wanted
to
make
his
business
profitable
sooner
and
to
promote
his
name.
He
ceased
growing
tropical
plants
after
the
Zellers
sale
because
these
plants
took
up
too
much
space
and
were
not
the
type
of
plants
he
wanted
to
grow.
He
testified
that
this
was
a
means
of
making
himself
known.
In
1979
Mr.
Monette
got
his
first
crop
of
50,000
trees,
95%
of
which
were
marketable.
These
trees
were
potted
and
then
placed
in
containers.
They
were
eventually
sold.
The
tropical
plants
were
part
of
his
second
crop
in
1979.
He
built
his
greenhouse
using
a
commercial
greenhouse
assembly
plan
with
modifications
which
he
felt
were
beneficial
for
his
operations.
In
1980
a
problem
arose.
He
had
built
five
levels
in
the
greenhouse
and
sown
plants
on
each
of
these
levels.
Because
of
a
defect
in
the
ventilation
he
lost
approximately
50,000
trees
in
1980.
This
defect
was
the
cause
of
a
disease
known
as
damping-off,
which
originates
in
three
families
of
parasitic
mushrooms
and
contamination.
The
modification
made
to
the
ventilation
created
another
problem
which
caused
[s/c]
10,000
other
trees.
These
problems
were
corrected
with
the
result
that
since
1980
his
business
has
encountered
no
further
problems.
Aside
from
his
work
as
a
psychiatrist,
Mr.
Monette
devoted
all
of
his
time
to
the
farm;
holidays
from
the
hospital
were
spent
on
farm-related
work.
Mr.
Monette
is
a
member
of
l'Union
des
Producteurs
Agricoles,
l'Association
Paysage
Québec,
l'Association
Forestière
des
Cantons
de
l'Est
et
de
l'Association
des
Producteurs
en
Serre
du
Québec.
Mr.
Monette
established
a
daily
routine
for
his
personal
attention
to
the
farm.
He
would
verify
ventilation
and
temperature
in
the
greenhouses,
check
for
pests
and
make
chemical
tests
of
the
plants.
He
also
did
manual
labour
in
1979,
when
he
had
hired
help,
and
1980,
when
he
did
not.
This
work
continued
in
later
years
when
more
labour
had
to
be
employed
to
take
care
of
the
farm.
An
excerpt
from
his
work
diary
(Exhibit
A-8)
reflects
what
he
personally
did
at
the
farm
during
the
period
October
20,
1980,
to
October
30,
1980;
on
October
26,
for
example:
“routine
et
plantation,
toiture,
monter
néons";
on
October
27:
"routine
de
plantation,
aller
chercher
peat
mix
à
Drummondville,
extincteur
chimique
poser,
interruption
haut/bas
pour
hiver,
porte,
toiture
préparer
pour
l'hiver".
An
excerpt
from
the
schedule
of
work
for
August
1982
shows
the
labour
to
be
performed
for
the
day
by
employees
and
for
some
functions,
the
time
the
function
should
take.
Each
of
four
employees
was
assigned
eight
hours
of
work.
Mr.
Monette
testified
that
on
the
preceding
evening
he
would
prepare
a
schedule
of
work
to
be
performed
for
the
next
day.
In
1981
Mr.
Monette
gave
a
training
course
in
industrial
horticulture
to
an
employee
referred
to
him
by
the
Canada
Manpower
Centre;
Mr.
Monette
was
supervised
by
a
local
school
board.
In
1982
he
continued
the
course,
being
subsidized
by
the
Department
of
Employment
and
Immigration,
for
one
employee;
however
he
encouraged
his
other
employees
to
attend
the
courses
as
well.
Mr.
Monette
personally
attended
a
business
course
at
the
École
des
Hautes
Études
Commerciales
in
Montréal.
In
the
meantime
Mr.
Monette's
inventory
of
trees
was
increasing.
His
farm
was
divided
into
nine
parks,
each
park
growing
trees
of
different
maturity.
In
1986,
for
example,
seven
of
the
parks
were
being
used
to
grow
68,540
potted
Colorado
blue
spruce
in
various
stages
of
development,
depending
on
the
park
in
which
they
were
located.
Trees
from
two
other
parks
had
been
sold.
In
addition
22,000
Douglas
pines
and
Santa
Isabella
pines
had
left
the
greenhouse
and
were
in
transition
in
pots.
To
each
of
these
plants
Mr.
Monette
gave
a
minimum
and
maximum
value,
as
published
in
various
catalogues.
Mr.
Monette
determined
the
wholesale
value
of
these
plants
was
$273,605
in
1986;
the
market
value
was
approximately
$755,031.
In
addition
Mr.
Monette
had
15,000
pines
in
the
ground
with
a
wholesale
value
of
$240,000
and
a
small
tree
plantation
of
2,000
plants
at
a
wholesale
value
of
$30,000.
In
all,
the
wholesale
value
of
his
inventory
was
$543,605.
In
1982
Mr.
Monette
started
to
decorate
trees
for
sale
at
Christmas.
He
has
continued
selling
decorated
trees
and
for
this
purpose
he
orders
tree
decorations
from
Taiwan.
Mr.
Monette
in
1982
sold
decorated
Christmas
trees
to
the
Quebec
City
district
branch
of
Coca
Cola
Limited
and
51
Provigo
stores
in
the
Québec
City
region
to
promote
soft
drinks.
The
promotion
proved
a
success
and
will
be
continued
for
the
1987
Christmas
season;
Coca
Cola
anticipates
ordering
between
6,000
and
10,000
trees.
Also
for
1987
sales,
Mr.
Monette
contacted
other
potential
purchasers
of
trees
and
arranged
to
sell
approximately
15,000
trees
to
Access
Marketing,
which
represents
retailers
such
as
Métro-Richelieu,
Provigo,
Steinberg,
Zellers,
Jean
Coutu
and
Supercarnaval.
He
also
sells
trees
to
hotels
and
restaurants.
Mr.
Monette
has
purchased
additional
land
and
entered
into
a
lease
for
land
which
will
permit
him
to
expand
his
operations.
He
has
investigated
the
possibility
of
entering
the
Boston
market.
He
has
visited
Boston,
has
been
in
touch
with
the
Canadian
Consulate
in
Boston
for
advice
and
assistance
and
discussed
with
a
broker,
Carry
Mallary
Corporation,
the
latter
representing
him
in
the
United
States.
Mr.
Monette
has
not
invested
all
of
his
assets
in
the
farm.
At
the
time
of
trial,
his
investments,
other
than
his
home
and
car,
included
shares
in
public
companies,
a
Registered
Retirement
Savings
Plan
and
term
deposits.
In
1979
he
had
no
such
investments;
in
1980
he
invested
$4,475
in
a
Registered
Retirement
Savings
Plan
and
$2,300
in
caisse
d'entraide.
In
1985
the
value
of
his
Registered
Retirement
Savings
Plan
and
other
investments
totalled
$139,511.
During
the
years
1984,
1985
and
1986,
Mr.
Monette
sold
trees
totalling
$4,196,
$13,671
and
$82,262
respectively.
For
1987
he
projects
sales
of
$153,040;
the
projection
does
not
include
possible
additional
sales
of
$100,000
from
promotions
with
Coca
Cola
and
Aligro,
arrangements
for
which
had
not
been
concluded
at
the
time
of
trial.
Mr.
Monette's
income
from
psychiatry
and
agriculture
from
1979
to
1985
is
set
out
in
Schedule
A
of
these
reasons.
The
major
expenses
incurred
by
Mr.
Monette
in
his
farm
business
were
for
salary,
interest
and
depreciation:
|
1979
|
1980
|
1981
|
1982
|
1983
|
1984
|
1985
|
Salaires
|
$14,274
|
|
$9,894
|
$19,948
|
$20,208
|
$4,675
|
$15,861
|
Intérêts
|
5,011
|
$
5,992
|
5,678
|
6,686
|
6,080
|
8,355
|
4,873
|
Amortisse-
|
|
10,507
|
9,712
|
9,373
|
9,050
|
6,859
|
6,068
|
ment
|
|
In
1986
he
earned
a
net
income
of
$12,230
from
farming;
his
gross
farm
income
was
$82,262
and
expenses
were
$57,446.
Sales
cost
was
$12,586.
For
1987
he
projects
net
farm
income
of
$28,105,
after
deducting
sales
cost
of
$42,583
and
expenses
of
$82,105
from
a
gross
income
of
$153,040.
The
question
is
whether
Mr.
Monette's
farming
business,
either
alone
or
in
combination
with
his
medical
practice,
was
his
chief
source
of
income
in
1979
and
1980.
If
farming
by
itself
or
in
combination
with
medicine
was
not
his
chief
source
of
income
the
assessments
will
not
be
disturbed.
If,
however,
I
find
that
farming
alone,
or
in
combination
with
the
practice
of
medicine,
was
Mr.
Monette's
chief
source
of
income
he
will
be
permitted
to
deduct
all
of
the
expenses
incurred
in
the
farming
business
during
1979
and
1980.
In
Taillefer
v.
M.N.R,
[1987]
2
C.T.C.
2137;
87
D.T.C.
418,
I
commented
on
subsection
31(1)
of
the
Act
(pages
2139-40
(D.T.C.
419-20):
Law
Section
31
of
the
Income
Tax
Act
(“Act”)
limits
the
amount
of
losses
from
farming
which
a
farmer
whose
chief
source
of
income
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income
may
apply
to
reduce
his
income
from
other
sources.
Section
31
reads
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
(a)
the
lesser
of
(i)
the
amount
by
which
the
aggregate
of
his
losses
for
the
year,
determined
without
reference
to
this
section
and
before
making
any
deduction
under
section
37
or
37.1
from
all
farming
businesses
carried
on
by
him
exceeds
the
aggregate
of
his
incomes
for
the
year,
so
determined
from
all
such
businesses,
and
(ii)
$2,500
plus
the
lesser
of
(A)
'/2
of
the
amount
by
which
the
amount
determined
under
subparagraph
(i)
exceeds
$2,500,
and
(B)
$2,500,
and
(b)
the
amount,
if
any,
by
which
(i)
the
amount
that
would
be
determined
under
subparagraph
(a)(i)
if
it
were
read
as
though
the
words
'and
before
making
any
deduction
under
section
37
or
37.1’
were
deleted,
exceeds
(ii)
the
amount
determined
under
subparagraph
(a)(i);
and
for
the
purposes
of
this
Act
the
amount,
if
any,
by
which
the
amount
determined
under
subparagraph
(a)(i)
exceeds
the
amount
determined
under
subparagraph
(a)
(ii)
is
the
taxpayer's
‘restricted
farm
loss'
for
the
year.
Classes
of
Farmers
The
Supreme
Court
of
Canada
considered
this
“awkwardly
worded
and
intractable"
provision
(then
subsection
13(1))
together
with
the
whole
of
the
Income
Tax
Act
in
William
Moldowan
v.
The
Queen,
[1977]
C.T.C.
310;
77
D.T.C.
5213.
Mr.
Justice
Dickson,
as
he
then
was,
described,
at
page
315
(D.T.C.
5216),
three
classes
of
farmers
envisaged
by
the
Act:
(1)
a
taxpayer,
for
whom
farming
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
s.
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
carried
on
farming
as
a
sideline
business.
Such
a
taxpayer
is
entitled
to
the
deductions
spelled
out
in
s.
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
carried
on
some
farming
activities
as
a
hobby.
The
losses
sustained
by
such
a
taxpayer
on
his
non-business
farming
are
not
deductible
in
any
amount.
Mr.
Monette
is
a
Class
1
or
2
farmer.
In
Taillefer,
supra,
I
said,
at
pages
2142-43
(D.T.C.
421-22):
.
.
.
The
Court
may
then
be
asked
to
find
whether
the
taxpayer
is
a
class
(1)
or
class
(2)
farmer,
that
is,
whether
or
not
farming,
or
a
combination
of
farming
and
some
other
source
of
income,
is
the
taxpayer's
chief
source
of
income.
If
so,
the
taxpayer
is
a
class
(1)
farmer.
In
describing
the
three
classes
of
farmers
envisaged
by
the
Act
Mr.
Justice
Dixon
stated
that
a
class
(1)
farmer
looks
to
farming
for
his
livelihood.
One
may
apply
quantitative
tests,
among
others,
to
determine
[sic]whether
farming
may
reasonably
be
expected
to
provide
the
bulk
of
income
to
a
taxpayer.
To
determine
whether
farming
may
reasonably
be
the
centre
of
the
taxpayer's
work
routine
requires
subjective
tests
bearing
in
mind
the
work
routine
must
be
directed
to
earning
one's
livelihood.
Keeping
oneself
busy
is
not
the
work
routine
of
a
clams
(1)
farmer
unless
he
may
reasonably
be
expected
to
earn
his
livelihood
from
that
work.
In
his
reasons
for
judgment,
in
Moldowan
v.
The
Queen,
[1975]
C.T.C.
323;
75
D.T.C.
5216
Mr.
Justice
Ryan
of
the
Federal
Court
of
Appeal
considered
the
possibility
that
a
source
may
be
a
source
of
income
in
a
particular
year
although
it
did
not
yield
a
profit
in
that
year
and
therefore
to
determine
the
chief
source
for
a
year
it
appears
pertinent:
.
.
.
to
look
at
each
of
the
taxpayer's
sources
from
the
point
of
view
of
capacity
for
present
or
future
profit
or
for
both
when
one
is
seeking
to
determine
his
chief
source
of
income
in
that
year.
The
relative
importance
of
sources
as
sources
of
income
would
seem
to
me
to
be
in
most
part
a
function
of
their
capacity
to
produce
gain.
In
my
opinion
an
appropriate
path
to
a
resolution
of
this
difficult
problem
is
to
give
significant
attention
to
the
taxpayer’s
ongoing
income-earning
activities
in
a
practical
and
businesslike
way
and
in
this
way
to
determine
which
of
the
taxpayer's
sources
of
income,
in
the
ordinary
run
of
his
affairs,
but
taking
account
of
his
plans
and
his
activities
in
implementation
of
his
plans,*
is
the
chief
source
of
his
income
in
the
sense
of
its
usual
or
its
the
sense
of
its
usual
or
its
foreseeable
profitability
or
of
both.
In
seeking
an
answer,
gross
income,
net
income,
capital
investment,
cash
flow,
personal
involvement,
and
other
factors
may
be
relevant
considerations
(page
5219).
Mr.
Justice
Dickson
stated
in
Moldowan,
op
cit,
at
page
314
(D.T.C.
5215-16),
that:
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
determining
if
a
taxpayer's
chief
source
of
income
is
from
farming
the
Court
must
consider
whether
it
follows
from
the
facts
that
notwithstanding
the
taxpayer's
other
income
sources
farming
can
reasonably
be
expected
to
be
a
major
force
in
the
taxpayer's
income-earning
process
or
to
have
priority
over
other
incomeearning
activities
that
require
his
energies.
The
taxpayer's
commitment
of
capital
or
personal
energy
to
the
farm
must
be
such
that
a
knowledgeable
person
would
reasonably
expect
the
farm
to
provide
a
livelihood.
In
short,
to
find
farming
to
be
the
chief
source
of
a
taxpayer's
income
the
Court
must
determine
the
relevant
importance
of
farming
to
the
taxpayer's
other
sources
of
income:
The
Queen
v.
Graham,
op
cit,
at
page
388
(D.T.C.
5263)
(F.C.A.).
Combination
of
Farming
and
Some
Other
Source
In
many
cases
under
section
31
the
taxpayer
usually
acknowledges
farming
alone
is
not
his
chief
source
of
income
but
claims
his
chief
source
of
income
is
from
a
combination
of
farming
and
some
other
source
of
income.
It
is
usually,
but
not
always,
from
this
other
source
of
income
that
he
is
seeking
to
deduct
his
farming
losses.
There
need
not
be
any
connection
between
farming
and
the
'other
source
of
income’
for
a
taxpayer's
chief
source
of
income
to
be
a
combination
of
the
two
sources,
however,
the
meaning
of
‘combination’
in
section
31
does
not
mean
the
simple
addition
of
any
two
sources
of
income
for
any
taxpayer
(Moldowan,
op
cit,
page
314;
D.T.C.5216).
In
the
Federal
Court
of
Appeal
Mr.
Justice
Ryan
was
of
the
view
that:
Just
as
in
the
case
of
determining
whether
farming
alone
is
the
chief
source,
so
in
the
case
of
determine
[sic]
whether
farming
combined
with
another
source
is
the
chief
source,
a
practical
judgment
must
be
made,
and
in
my
opinion
the
judgment
is
to
be
made
by
way
of
analogy
to
the
process
appropriate
to
determining
whether
farming
alone
is
the
chief
source.
In
making
this
assessment,
the
comparative
importance
of
the
combination
must
be
assessed
as
if
the
decision
were
being
taken
by
a
reasonable
and
informed
observer.
The
question
to
be
decided
is
one
of
fact:
Was
the
combination
the
taxpayer's
chief
source?
The
answer
is
to
be
sought
in
a
context
which,
depending
on
the
facts
of
the
particular
case,
may
embrace
the
past
and
predictions
about
the
future
as
well
as
the
present
(pages
334;
5219-20
D.T.C.).
Mr.
Justice
Dickson
described
what
section
31
contemplates
and
what
one
must
consider
in
determining
whether
a
combination
of
farming
and
some
other
source
of
income
is
a
taxpayer's
chief
source
of
income.
On
page
315
(D.T.C.
5216)
he
wrote
that
section
31:
.
.
.
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.
Counsel
for
the
appellant
submitted
that
a
taxpayer's
full-time
employment
or
occupation
as
a
psychiatrist
does
not
necessarily
preclude
him
from
being
a
full-time,
or
Class
1
farmer:
Graham,
op
cit.
Mr.
Monette,
he
says,
devoted
much
time,
approximately
40
hours
a
week,
to
his
horticultural
activities
in
the
years
on
appeal.
When
Mr.
Monette
moved
back
to
Québec
City,
said
counsel,
he
immediately
undertook
to
start
his
horticulture
business.
He
did
so
methodically
and
meticulously
as
can
be
seen
from
records
in
his
diary.
The
move
was
a
change
of
Mr.
Monette's
occupational
direction.
His
primary
motive
in
moving
to
Québec
City
was
to
begin
a
horticulture
business.
Mr.
Monette
invested
in
his
enterprise,
notwithstanding
the
farm
was
acquired
with
borrowed
funds.
He
used
his
occupation
as
a
physician
to
borrow
funds
to
start
and
carry
on
the
business
of
farming.
The
losses
incurred
by
the
business
prior
to
1986
were
borne
by
the
appellant
who
had
sufficient
capital
to
maintain
the
business
in
its
formative
years.
It
was
not
until
1984,
when
the
farm's
production
goals
were
in
sight,
that
Mr.
Monette
started
to
diversify
his
investments.
The
farm
was
capable
of
making
a
profit.
A
profit
was
earned
in
1986
and
an
even
larger
profit
is
projected
for
1987;
the
projections
for
1987
are
based
on
actual
orders
to
be
filled
for
1987,
and
are
not
mere
hopes.
Sales
are
steadily
increasing
and
most
costs
are
fixed,
unaffected
by
the
number
of
plants
sold.
Counsel
for
the
respondent
questioned
whether
a
career
as
a
medical
practitioner
could
take
a
back
seat
to
that
of
a
farmer.
He
doubted
the
time
devoted
to
farming
by
the
appellant
in
view
of
the
steady
rise
in
income
from
his
psychiatric
practice.
He
disputed
whether,
in
these
circumstances,
psychiatry
could
be
a
sideline
activity.
Respondent's
counsel
argued
that
in
1978,1979
and
1980
Mr.
Monette
was
not
a
productive
farmer
and
did
not
have
the
skills
to
be
productive:
the
loss
of
his
plants
was
due
to
this
inexperience.
Counsel
suggested
that
it
was
only
in
later
years,
perhaps,
that
Mr.
Monette
achieved
a
level
of
expertise
to
farm
profitably.
For
example,
in
1982
he
experimented
in
the
sale
of
decorated
trees
for
sale
during
the
Christmas
season.
Counsel
also
argued
that
Mr.
Monette
did
not
change
occupational
direction
in
1978.
His
background
was
non-agricultural;
all
of
his
studies
were
for
the
purposes
of
carrying
on
the
profession
of
medicine.
In
my
view
Mr.
Monette's
chief
source
of
income
in
the
years
under
appeal
was
from
a
combination
of
farming
and
medicine.
The
farm
business
is
now
yielding
a
profit,
a
profit
the
evidence
indicates
will
increase.
The
income
from
Mr.
Monette's
medical
practice
and
the
perception
people,
including
lenders,
have
of
a
medical
practitioner's
potential
income
gave
him
the
luxury
—
usually
not
available
to
other
taxpayers
—
of
borrowing
funds
to
subsidize
the
farm
business
during
its
early
years;
his
personal
assets
were
put
at
risk
for
the
long-term
benefit
of
the
farm.
The
evidence
also
establishes
the
physical
efforts
put
into
the
farm
by
Mr.
Monette.
Whether
Mr.
Monette
devoted
forty
hours
a
week
to
the
farm
as
he
testified
—
and
I
have
no
reason
to
doubt
his
testimony
—
or
less,
as
suggested
by
counsel
for
the
respondent,
is
not
the
only
basis
for
my
decision.
Mr.
Monette's
evidence
established
that
he
was
carrying
on
a
business
a
person
can
reasonably
look
to
for
a
livelihood,
notwithstanding
he
was
earning
substantially
greater
income
from
another
source.
If
a
business,
whether
a
farm
business
or
a
retail,
service
or
industrial
business,
can
generate
sufficient
income
to
produce
a
livelihood
for
its
owner,
the
number
of
hours
the
owner
devotes
to
that
business
is
not
of
the
utmost
importance.
It
does
not
follow
that
if
an
owner
is
capable
of
carrying
on
a
successful
business,
its
success
may
detract
from
the
potential
success
of
another
business.
The
steady
increase
in
income
over
the
years
from
Mr.
Monette's
medical
practice
ought
not
to
derogate
from
the
potential
of
the
farm
to
become
his
chief
source
of
income.
One
ought
not
to
be
excluded
from
being
a
Class
1
farmer
for
the
sole
reason
his
income
from
a
source
other
than
farming
is
relatively
substantial
if
the
farm
itself
is
capable,
or
potentially
capable,
of
supporting
a
taxpayer.
My
impression
of
Mr.
Monette
both
from
observing
him
during
the
trial
and
his
evidence
is
that
he
is
a
hard
worker
who
must
be
gainfully
occupied,
whether
working
over
70
hours
a
week
at
Homewood
Sanitarium
or
combining
and
devoting
his
hours
to
his
businesses
of
medicine
and
farming.
The
business
of
Tropinette
Enrg.
is
being
carried
on
efficiently
in
a
businesslike
manner.
The
genesis
of
this
commercial
operation
was
in
1978
when
Mr.
Monette
moved
to
Québec
and
was
due
to
the
efforts
of
Mr.
Monette.
Mr.
Monette
has
worked
constantly
and
consistently
since
1978,
striving
to
produce
a
viable
business;
he
is
now
selling
his
produce
commercially
to
a
varied
market
and
appears
to
have
succeeded
in
building
a
good
business.
In
my
view
during
the
years
on
appeal
the
farm
and
the
profession
of
medicine
had
equal
call
on
Mr.
Monette;
one
was
not
secondary
to
the
other.
Undoubtedly
medicine
was
providing
Mr.
Monette
with
a
livelihood
and
he
did
not
require
the
farm
business;
but
once
the
farm
was
started
it
soon
became
obvious
that
it
too
was
capable
of
providing
him
with
a
livelihood.
In
1979
and
1980
the
farm
was
in
the
initial
stages
of
production
and
could
not
by
itself
be
expected
to
be
Mr.
Monette's
chief
source
of
income
in
those
years;
however
farming
in
combination
with
his
medical
practice
was
his
chief
source
of
income
in
those
years.
Mr.
Monette
was
practising
medicine
in
a
particular
region
due
to
the
location
of
the
farm
and
the
income
generated
by
his
medical
practice
permitted
Mr.
Monette
to
borrow
capital
for
the
farm;
the
farm,
as
Mr.
Monette's
chief
source
of
income,
combined
with
medicine
to
provide
him
with
a
livelihood.
The
appeals
will
be
allowed,
with
costs,
and
the
reassessments
will
be
referred
back
to
the
respondent
for
reconsideration
and
reassessment
in
accordance
with
these
reasons.
Appeals
allowed.