Luc Jourdenais v. Minister of National Revenue, [1987] 2 CTC 2055, 87 DTC 440

Couture, C.J.T.C. [Translation]:—This is an appeal from the assessments issued by the respondent dated December 12, 1983 in respect of the 1981 and 1982 taxation years.

In his income tax returns, the appellant claimed farm losses amounting to $3,800.23 in respect of 1981 and $2,766.41 in respect of 1982 from a farming business carried on in the agricultural zone of St-Grégoire-le-Grand Parish, Quebec.

In computing the appellant's income for his assessments, the respondent disallowed the deduction of these losses, alleging that the appellant did not carry on a farming business for the purposes of the Income Tax Act (the Act) since that business did not offer him any reasonable expectation of profit.

According to the case of Johnston v. M.N.R., a decision of the Supreme Court of Canada, reported at [1948] C.T.C. 195; 3 D.T.C. 1182, it is for the appellant to show the Court that the facts relied on by the respondent in issuing the assessment do not correspond to the reality and, accordingly, that the assessment should be vacated.

To discharge this burden, the appellant must provide the Court with positive evidence and identify each element that would allow the court in its evaluation of that evidence to accept or reject his claims as to the validity of the assessment.

Where the respondent alleges that a given commercial activity does not amount to carrying on a business within the meaning of the Act, it is not enough for the appellant to content himself with describing the activity that he did carry on and to refer to the aspirations that he ultimately hoped to realize from his efforts in pursuing that activity. It is up to him to show, supported by details, that the business he carried on was structured and had all the ingredients necessary to allow him to make a profit within a reasonable time. He must also show how he planned to achieve that objective as a result of that business or structure.

When it is a case of a brand-new project that has just been launched and is only at the development stage, such evidence is established by showing that the activity in which the taxpayer is involved is being carried on in accordance with a relatively specific overall plan and that the financial results sought are possible and capable of being realized, taking into account all the relevant circumstances.

The evidence required cannot be restricted to just a brief expose of a few pertinent facts and some financial projections based on little more than the taxpayer's wishful thinking. Although the Court is not bound by legal or technical evidentiary rules, the evidence presented by a taxpayer at the hearing of his appeal must still be sufficiently detailed and specific to enable the judge to make an appropriate ruling regarding the validity of the assessment under appeal, in view of the presumption that in the absence of proof to the contrary the assessment is valid.

In this appeal, the appellant acted for himself and his evidence revealed the following:

He is a teacher at the Ecole Polyvalente Marcel Landry and is employed by the Honoré-Mercier school board.

In 1975, he purchased a farm approximately 31 arpents in area. The area was also given in hectares and in acres but for purposes of the appeal it is sufficient to refer to arpents. He also purchased machinery at a cost of $2,000. He testified that when he purchased the farm, he intended to farm it. To a question from the bench regarding his intention at the time of the purchase, he answered:

At that time, it was to farm it. Now the machines, all the farming implements that I had to buy, it was really kind of expensive, so finally I thought about just growing corn and raising cattle, for example, but when it came right down to it I didn't have any real experience in that, so I decided to rent it to a neighbour. . . .

Later he added:

Now, I also decided on the basis that I might have some trees. There were at the time, there were people at St-Grégoire who had heard people say:

Great, you can reforest it.

that's how it got started.

There was also a house on the property, on a plot adjacent to that land, measuring approximately 350’ by 350’.

At the time the land was purchased, there were six arpents that could be farmed but since, as the appellant testified, he lacked the experience required to undertake such work, he decided to rent that part of the land to a neighbour for five years.

After some hesitation, he got involved in reforestation under a program offered by the Department of energy and environment. In response to his request, some officials from this department indicated the irrigation work that he should undertake to condition and prepare the soil for this kind of farm. The appellant claimed that between 1976 and 1982 this work cost him approximately $10,000.

The evidence shows that the person who owned the farm prior to the appellant also seemed to have undertaken a reforestation program, between 1973 and 1976, on part of the land and had received approximately 9,500 saplings from the Department.

The appellant submitted an application to the Department for saplings to launch his project and in 1978,1979 and 1983 he received 3,500 in all.

A department official, Mr. André Côté, testified that in his application the appellant had clearly indicated that his objective was to plant trees for the purpose of producing wood for construction, for sawn timber and for pulp and paper manufacturing.

Counsel for the respondent tried to obtain more particulars from the appellant as to when he expected to realize some profit from the sale of his trees and the replies that she received were rather vague and uncertain as to the possibilities in the near and far future of disposing of his plantation. The reply to the following question illustrates that attitude:

Q. But you, what were your plans, to sell trees like Christmas trees and . . .?

A. In the beginning, I had no plan so to speak to sell, that was the question I faced when the people from the Department of Revenue asked me so clearly: —

Are you going to sell them this year, are you going to sell them the year after next?

Well, I can't tell you how long, I didn't have any time except that this plantation had to get off the ground, it had to succeed.

I think that the real nature of his operation is more accurately described in his testimony when he says:

. . . in 1981, I spent $2,086 for irrigation ditches to improve the soil which at the time it was old earth ditches dug about twenty years ago that had never been altered. At page 12, I indicated again that there was $2,070 work on the job. This means that between seventy-six and eighty-two, excluding the mortgage, almost ten thousand dollars of work was done. I consider that that is an investment in a business of a farming nature. [Emphasis added.]

I think that this version of his testimony accurately reflects the reality and that his reforestation program was far more an investment on his part than the operation of a tree business.

In his testimony the appellant also referred to the possibility of eventually selling his trees as Christmas trees, which could show a commercial intention.

Also, the representative of the Department of energy and resources explained to the Court with regard to the appellant:

Well, in the case of Mr. Jourdenais, what he indicated as the objective for the plantation was lumber and we have Mr. Jourdenais' applications for trees for each of the three years. In two cases I think it was lumber and in one case replanting, that is replacing dead trees in an already existing plantation and it was for the production of lumber and not for Christmas trees.

Later, he testified that:

In the pine tree plantations in southern Quebec to my knowledge there were some that had been planted long enough that there had already been some cuts and normally, between twenty-five and thirty-five years, the first cut is made but not all the trees are taken down at that time, it's a partial cut to remove the trees that are too close to the others . . . The second cut is generally around when the trees are forty years old and the final cut is around fifty or sixty years and then it is time to think about regenerating that plantation by replanting or by natural regeneration if possible. As you see, the cuts are spread out over a period of between thirty to sixty years generally. The producing or productive cut is at forty years, the other is just a clean-up operation to clear it out a little.

In answer to the following question of counsel for the respondent, he replied:

Q. In a case like that, Mr. Côté, according to the forestation plan, someone like Mr. Jourdenais could not sell for twenty-five or thirty years, he couldn't start to make cuts before then; could he sell to nurseries, for example, now or next year or the year after next?

A. He could, but if he sold his trees soon after as ornamental trees, for example, he would have to reimburse the Department the value of what the Department gave him at the time. That value could easily be estimated.

In view of all this evidence, it is clear to me that the appellant had no intention of carrying on a business when he began his reforestation program, but rather intended to improve and enhance his property so as to dispose of it eventually, perhaps, and make some profit on it. His intention was also clear from his application to the Department, since he wanted the trees for lumber and, according to the explanations of the Department representative, this kind of tree could not be sold for at least 25 years. I have no doubt that the appellant put a great deal of effort, in addition to a sizeable financial outlay, into launching and sustaining his project, but unfortunately the evidence he presented did not persuade me that this activity was in the nature of carrying on a business within the meaning of the Act.

For all these reasons, the appeal is dismissed.

Appeal dismissed.