Kempo,
T.C.J.:—By
application
and
on
consent,
the
appeals
of
Dr.
William
Fleming
and
his
wife,
Stella
Fleming,
were
heard
on
common
evidence.
At
all
times
material
the
appellants
had
operated
a
farm
business
in
partnership.
The
issue
and
years
under
appeal
were
common
to
both
appellants
with
two
exceptions.
The
assessment
of
tax
for
Stella
Fleming's
1978
taxation
year
resulted
in
a
nil
amount
and
the
assessment
in
respect
of
her
1982
taxation
year,
while
currently
under
formal
objection,
is
not
on
appeal
before
the
Court.
The
common
fiscal
issue
concerns
the
applicability
of
the
restricted
farm
loss
provisions
of
subsection
31(1)
of
the
Income
Tax
Act
(the
“ITA”).
Issues
Prior
to
the
commencement
of
the
hearing
the
parties
through
their
counsel
agreed
that
for
the
first
part
of
the
hearing
the
Court
would
hear
evidence
and
receive
arguments
and
submissions
with
respect
to
the
merits
underlying
the
appeals,
and
thereafter
submissions
would
be
advanced
with
respect
to
allegations
to
be
advanced
by
the
appellants
concerning
constitutional
invalidity
of
subsection
31(1)
of
the
ITA.
Finally,
at
the
invitation
of
the
Court,
written
submissions
were
to
be
received
addressing
matters
pertaining
to
rules
and
principles
of
statutory
interpretation
of
relevance
to
this
fiscal
provision.
The
nature
and
scope
of
the
appellants’
constitutional
argument
calls
for
it
to
be
dealt
with
first.
They
allege
that
subsection
31(1)
of
the
/TA
infringes
or
denies
their
rights
and
freedoms
as
guaranteed
by
section
7
and
by
section
15
of
the
Canadian
Charter
of
Rights
and
Freedoms
and
is
therefore
of
no
force
and
effect.
There
was
no
dispute
that
the
subject
reassessments
were
premised
on
the
legal
effect
of
subsection
31(1)
of
the
ITA.
A.
Constitutional
and
Statutory
Provisions
Part
I
Canadian
Charter
of
Rights
and
Freedoms,
Constitution
Act,
1982,
proclaimed
in
force
April
17,
1982
(the
“Charter”).
The
applicable
provisions
are:
(Preamble)
Whereas
Canada
is
founded
upon
principles
that
recognize
the
supremacy
of
God
and
the
rule
of
law:
Guarantee
of
Rights
and
Freedoms
1.
The
Canadian
Charter
of
Rights
and
Freedoms
guarantees
the
rights
and
freedoms
set
out
in
it
subject
only
to
such
reasonable
limits
prescribed
by
law
as
can
be
demonstrably
justified
in
a
free
and
democratic
society.
Legal
Rights
7.
Everyone
has
the
right
to
life,
liberty
and
security
of
the
person
and
the
right
not
to
be
deprived
thereof
except
in
accordance
with
the
principles
of
fundamental
justice.
Equality
Rights
15.(1)
Every
individual
is
equal
before
and
under
the
law
and
has
the
right
to
the
equal
protection
and
equal
benefit
of
the
law
without
discrimination
and,
in
particular,
without
discrimination
based
on
race,
national
or
ethnic
origin,
colour,
religion,
sex,
age
or
mental
or
physical
disability.
Application
of
Charter
32.(2)
Notwithstanding
subsection
(1),
section
15
shall
not
have
effect
until
three
years
after
this
section
comes
into
force.
General
52.(1)
The
Constitution
of
Canada
is
the
supreme
law
of
Canada,
and
any
law
that
is
inconsistent
with
the
provisions
of
the
Constitution
is,
to
the
extent
of
the
inconsistency,
of
no
force
or
effect.
Income
Tax
Act,
S.C.
1970-71-72,
c.
63
as
amended
(the
“ITA”).
The
impugned
subsection
31(1)
as
it
applied
to
the
years
under
appeal
is
as
follows:
Section
31.
Loss
from
farming
where
chief
source
of
income
not
farming.
(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)
/
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.
Subsection
31(1)
falls
under
the
auspices
of
“special
cases"
in
Division
B
—
Computation
of
Income.
Section
3
and
the
source
rules
in
section
4
are
part
and
parcel
of
the
“basic
rules"
of
Division
B.
They
are
lengthy
and
need
not
be
set
out
here.
They
require
income
to
be
computed
from
various
sources
as
though
each
were
a
taxpayer’s
only
source
of
income.
Subsections
9(1)
and
9(2)
are
similarly
found
under
the
"basic
rules"
of
Division
B
and
read:
Section
9.
Income
from
business
or
property
(1)
Subject
to
this
Part,
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property
is
his
profit
therefrom
for
the
year.
(2)
Loss
from
business
or
property.
Subject
to
section
31,
a
taxpayer's
loss
for
a
taxation
year
from
a
business
or
property
is
the
amount
of
his
loss,
if
any,
for
the
taxation
year
from
that
source
computed
by
applying
the
provisions
of
this
Act
respecting
computation
of
income
from
that
source
mutatis
mutandis.
[Emphasis
added.]
To
complete
the
context
within
which
the
impugned
provision
appears
in
the
ITA,
section
11
is
within
Division
C
—
Computation
of
Taxable
Income
of
the
legislation.
Of
application
is
the
provision
providing
that:
Section
111.
Losses
deductible.
(1)
For
the
purpose
of
computing
the
taxable
income
of
a
taxpayer
for
a
taxation
year,
there
may
be
deducted
from
the
income
for
the
year
such
of
the
following
amounts
as
are
applicable:
(c)
Restricted
farm
losses.—restricted
farm
losses
of
the
taxpayer
for
the
5
taxation
years
immediately
preceding
and
the
taxation
year
immediately
following
the
taxation
year,
but
no
amount
is
deductible
in
respect
of
a
restricted
farm
loss
from
the
income
for
any
year
except
to
the
extent
of
the
lesser
of
(i)
the
taxpayer's
income
for
the
year
minus
all
deductions
permitted
by
the
provisions
of
this
Division
other
than
this
subsection
or
section
109,
and
(ii)
his
incomes
for
the
year
from
all
farming
businesses
carried
on
by
him.
Paragraph
111(1
)(c)
speaks
only
of
restricted
farm
losses.
By
this
and
other
provisions
the
timeframe
for
farm-loss
carryover,
whether
full
or
restricted,
is
the
same.
The
effect
of
subsection
31(1)
of
the
ITA
is
that
it
limits
the
amount
of
the
farming
loss
that
may
be
deducted
from
other
income
in
the
same
year.
As
is
evident,
and
this
is
not
disputed,
it
is
only
when
the
business
of
farming
is
not
a
taxpayer's
“chief
source”
of
income
within
the
purview
of
subsection
31(1)
that
it
attracts
a
restricted
fiscal
treatment.
The
overall
treatment
is
not
one
of
denial
of
the
loss.
Rather
it
amounts
to
a
postponement
or
deferral
of
the
use
of
that
part
of
the
loss,
called
the
“restricted"
farm
loss,
to
be
applied
against
profits
in
the
future.
Prima
facie
then,
the
effect
of
the
impugned
subsection
31(1)
of
the
ITA
is
not
one
of
total
deprivation
of
farm-loss
deductibility.
Position
of
the
Appellants
The
vortex
of
the
appellants’
position
is
that
subsection
31(1)
of
the
ITA
is
unconstitutionally
vague.
To
support
this
view
they
assert
that:
(1)
judicial
deference
to
the
concept
of
parliamentary
supremacy
in
preCharter
days
compelled
a
determination
of
the
meaning
of
this
provision
and
thus
these
authorities
may
now
be
of
limited
assistance;
(2)
the
pre-Charter
meaning
attributed
to
this
provision
by
Dickson,
J.
(now
C.J.)
in
Moldowan
v.
The
Queen,
[1977]
C.T.C.
310;
77
D.T.C.
5213
(S.C.C.)
has
not
in
any
event
resolved
the
inherent
vagueness
found
therein.
Today
this
would
not
be
constitutionally
acceptable
because
a
weighing
has
been
called
for
of
undefined
(and
perhaps
undefinable)
matters
in
not
only
a
quantitative
but
also
in
a
qualitative
sense
thereby
attracting,
in
a
substantive
way,
subjective
and
discretionary
type
of
judgment
making
on
the
part
of
the
trier
of
fact,
be
it
the
Minister
of
National
Revenue
in
the
first
instance
or
by
a
court
on
an
appeal;
(3)
its
inherent
vagueness
precludes
reasonable
predictability
and
therefore
it
effectively
prohibits
any
reasonable
possibility
of
advance
planning
of
one's
farming
business
affairs
with
any
fair
or
reasonable
certainty
of
avoiding
the
consequences
of
this
provision;
(4)
its
effect
upon
the
appellants
amounts
to
a
complete
denial
not
in
accordance
with
the
principles
of
fundamental
justice
of
their
right
to
liberty
and
security
under
section
7
of
the
Charter
and
it
offends
their
equality
rights
under
subsection
15(1)
of
the
Charter;
(5)
it
is
neither
“reasonable”
nor
“prescribed
by
law”
within
the
meaning
of
section
1
of
the
Charter
and
accordingly
can
not
be
sustained
thereunder;
(6)
it
completely
offends
the
notion
and
concept
underlying
the
principle
of
the
“rule
of
law’
found
in
the
preamble
of
the
Charter
which
is
expressed
as
being
its
very
foundation;
and
(7)
retroactive
application
of
the
Charter
is
not
being
sought
because
the
effect
of
the
denial
of
equal
rights
of
section
15,
and
the
breach
of
the
principles
of
fundamental
justice
of
section
7,
and
the
principle
of
the
rule
of
law
of
section
1
and
of
the
preamble
continues
to
the
date
of
trial
in
that
vagueness
renders
it
uncertain
or
impossible
to
know
the
case
that
has
to
be
made
in
order
to
avoid
application
of
the
impugned
fiscal
provision.
Analysis
The
retrospectivity
matter
arises
because
the
Charter
was
proclaimed
and
made
effective
on
April
17,
1982.
Section
15
therein
came
into
effect
April
17,
1985
by
virtue
of
subsection
32(2).
All
of
the
tax
reassessments
in
issue
were
made
after
April
17,
1982
but
before
April
17,
1985.
As
stated
earlier,
the
taxation
years
on
appeal
are
1978-1981
inclusive
as
to
both
appellants
and
1982
as
to
William
Fleming.
The
appellants’
success
under
the
section
7
provisions
of
the
Charter
is
dependent
upon
their
being
able
to
characterize
the
nature
of
the
right
or
freedom
that
is
in
issue
as
being
a
Charter-protected
right
or
freedom
that
has
been
breached
or
infringed
not
in
accordance
with
the
principles
of
fundamental
justice.
Re
Singh
and
Min.
of
Employment
and
Immigration,
[1985]
1
S.C.R.
177
at
203-12;
17
D.L.R.
(4th)
422
at
457-64;
Reference
re
Section
94(2)
of
the
B.C.
Motor
Vehicle
Act,
[1986]
1
W.W.R.
481
at
493.
Therefore,
unless
and
until
this
has
been
done
there
is
no
need
to
deal
with
matters
pertaining
to
certainty
of
the
law
as
a
component
of
the
principles
of
fundamental
justice.
Further,
the
appellants’
submissions
with
respect
to
section
1
of
the
Charter
and
certainty
of
the
law
as
a
component
of
its
words
“prescribed
by
law”
are
relevant
only
after
a
finding
has
been
made
that
a
Charter-
protected
right
or
freedom
has
been
infringed
by
the
impugned
fiscal
provision.
Re
Singh
and
Min.
of
Employment
and
Immigration,
supra,
at
216
(D.L.R.
467)
and
more
recently
in
R.
v.
Oakes,
[1986]
1
S.C.R.
103
at
135.
1
do
not
accept
the
appellants’
suggestion,
and
note
that
it
had
not
been
seriously
advanced
in
any
event,
that
by
virtue
of
the
words
“rule
of
law”
in
the
preamble
certainty
of
the
law
is
of
itself
a
Charter-protected
right.
The
Charter,
being
a
constitutional
document,
is
to
be
approached
and
interpreted
in
a
broad
and
purposive
way.
Dickson,
C.J.C.
speaking
for
the
Supreme
Court
in
R.
v.
Big
M.
Drug
Mart
Ltd.,
[1985]
1
S.C.R.
295
at
344;
13
C.R.R.
64
at
103-104
stated
the
governing
rule
for
Charter
interpretation
thusly:
The
meaning
of
a
right
or
freedom
guaranteed
by
the
Charter
was
to
be
ascertained
by
an
analysis
of
the
purpose
of
such
a
guarantee;
it
was
to
be
understood,
in
other
words,
in
the
light
of
the
interests
it
was
meant
to
protect.
In
my
view
this
analysis
is
to
be
undertaken,
and
the
purposes
of
the
right
or
freedom
in
question
is
to
be
sought
by
reference
to
the
character
and
the
larger
objects
of
the
Charter
itself,
to
the
language
chosen
to
articulate
the
specific
right
or
freedom,
to
the
historical
origins
of
the
concepts
enshrined,
and
where
applicable,
to
the
meaning
and
purpose
of
the
other
specific
rights
and
freedoms
with
which
it
is
associated
within
the
text
of
the
Charter.
The
interpretation
should
be,
as
the
judgment
in
Southam
emphasizes,
a
generous
rather
than
a
legalistic
one,
aimed
at
fulfilling
the
purpose
of
the
guarantee
and
securing
for
individuals
the
full
benefit
of
the
Charter’s
protection.
At
the
same
time
it
is
important
not
to
over-shoot
the
actual
purpose
of
the
right
or
freedom
in
question,
but
to
recall
that
the
Charter
was
not
enacted
in
a
vacuum,
and
must
therefore
.
.
.
be
placed
in
its
proper
linguistic,
philosophic
and
historical
contexts.
As
to
the
situation
at
hand,
the
fact
of
taxation
is
not
under
attack.
What
is
being
complained
of
is
that
the
appellants
effectively
pay
a
higher
annual
rate
of
tax
via
the
impugned
fiscal
provision
which
is
so
vague
that
it
amounts
to
a
deprivation,
rather
than
merely
a
limitation,
of
their
liberty
or
security.
The
difficulty
with
this
assertion
is
that
it
lacks
a
coherent
characterization
or
definition
of
the
rights
that
the
Charter
seeks
to
protect
in
section
7.
I
do
not
discount
the
possibility
that
under
some
circumstances
certainty
of
the
law
may
be
viewed
as
a
component
of
the
principles
of
fundamental
justice
in
a
procedural
or
even
in
a
substantive
sense.
However
in
the
case
before
me
no
helpful
meaning
is
gained
therefrom
as
to
the
determination
of
the
nature
or
characterization
of
the
Charter-
enumerated
rights
qua
the
circumstances
of
these
appellants.
The
components
found
in
the
words
“life,
liberty
and
security
of
the
person”
and
the
components
found
in
the
words
"principles
of
fundamental
justice”
are,
on
an
initial
examination,
analytically
distinct.
The
phrase
“principles
of
fundamental
justice”
has
been
recently
described
as
being
"not
a
right,
but
a
qualifier
of
the
right
not
to
be
deprived
of
life,
liberty
and
security
of
the
person;
its
function
is
to
set
the
parameters
of
that
right”;
per
Lamer,
J.
in
Ref.
re
section
94(2)
of
B.C.
Motor
Vehicle
Act,
supra,
at
512
(W.W.R.
504).
Accordingly
vagueness
per
se
may
be
inter-related
to
the
right
once
that
right
has
been
characterized
as
one
the
Charter
seeks
to
protect.
Counsel
for
the
Minister
has
forcefully
urged
that
the
impugned
fiscal
provision
has
not
deprived
the
appellants
of
anything
within
the
meaning
of
section
7,
and
that
what
they
seek
is
a
property
right
which
appears
in
paragraph
1(a)
of
the
Canadian
Bill
of
Rights
(infra)
but
which
had
been
specifically
excluded
from
section
7
by
the
drafters
of
the
Charter.
It
has
been
averred
that
the
terms
"liberty”
and
"security”
in
section
7
may
have
an
economic
component.
However
in
the
situation
before
me
subsection
31(1)
of
the
ITA
does
not,
either
on
its
face
or
by
its
effect,
deprive
the
appellants
of
their
ability
or
capacity
to
engage
in
farming
activities
if
they
so
choose,
nor
does
it
deny
them
the
pursuit
of
this
manner
of
livelihood.
Mia
v.
Med.
Services
Comm.
of
B.C.
(1985),
17
D.L.R.
(4th)
385
at
412-15;
61
B.C.L.R.
273
at
301-304
(B.C.S.C.).
Re
Gershman
Produce
and
Motor
Transport
Board
(1985),
14
D.L.R.
(4th)
722
at
731
(Man.
Q.B.).
Re
Groupe
Des
Eleveurs
De
Volailles
de
L'Est
De
L'Ontario
et
al
and
Canadian
Chicken
Marketing
Agency,
[1985]
1
F.C.
280
at
324;
14
D.L.R.
(4th)
151
at
182
(F.C.T.D.).
Gerol
v.
A-G
Canada,
[1986]
1
C.T.C.
75
at
78;
85
D.T.C.
5561
at
5563
(Ont.
H.C.).
Black
et.
al.
v.
Law
Society
of
Alberta,
[1986]
3
W.W.R.
590
at
612;
44
Alta.
L.R.
(2d)
1
at
23
(Alta.
C.A.).
The
impugned
fiscal
provision
has
the
very
distinct
characteristic
of
being
merely
a
commercial
aspect
of
the
appellants’
farming
activities
rather
than
an
attack
on
its
very
formation.
It
is
the
latter
that
has
been
viewed
in
the
aforementioned
jurispru-
dence
as
a
distinguishing
and
recognizable
component
of
the
terms
“‘liberty
and
security”
of
the
person.
Accordingly,
and
for
all
of
the
aforementioned
reasons,
it
is
my
view
that
subsection
31(1)
of
the
ITA
does
not
deprive
or
infringe
the
appellants
of
their
right
to
life,
liberty
and
security
of
the
person
within
the
meaning
of
section
7
of
the
Charter.
As
to
the
appellants’
contention
that
their
equality
rights
under
subsection
15(1)
of
the
Charter
have
been
infringed,
it
is
premised
on
the
assumptions
that
the
discrimination
that
is
alleged
is
one
that
is
precluded
or
prohibited
by
the
Charter
and
further
that
subsection
15(1)
was
in
effect
and
operative
at
the
material
time.
In
the
situation
before
me
it
is
not
necessary
to
decide
the
first
part
because
subsection
15(1)
of
the
Charter
was
not
in
effect
at
the
time
when
the
events
which
brought
about
the
liability
for
tax
had
occurred.
There
is
a
long
line
of
authority
holding
that
liability
for
tax
is
not
dependent
upon
any
notice
of
assessment.
Rather
it
arises
from
the
general
scheme
of
the
Income
Tax
Act
wherein
it
originates
and
comes
into
existence
the
moment
the
income
is
earned.
The
Queen
v.
Simard-Beaudry
Inc.
71
D.T.C.
5511
(F.C.T.D.)
at
5155;
Oneil
Lambert
v.
The
Queen,
[1976]
C.T.C.
611;
76
D.T.C.
6373
(F.C.A.);
Bechthold
Resources
Limited
(No.
1)
v.
M.N.R.,
[1986]
1
C.T.C.
195;
86
D.T.C.
6065
(F.C.T.D.).
Furthermore,
liability
for
tax
is
not
affected
by
any
incomplete
or
incorrect
or
no
assessment
having
been
made
and
is
dependent
upon
the
law
as
it
applied
in
each
taxation
year.
Dominion
of
Canada
General
Insurance
v.
The
Queen,
[1984]
C.T.C.
190;
84
D.T.C.
6197
(F.C.T.D.).
Therefore
it
is
my
view
that
to
give
the
appellants
the
relief
they
seek
with
respect
to
the
1978-1982
taxation
years
as
to
subsection
15(1)
of
the
Charter,
and
with
respect
to
the
1978-1981
taxation
years
as
to
section
7
of
the
Charter,
even
if
either
section
was
applicable,
would
amount
to
its
application
retroactively
which
is
not
sustainable.
Re
A-G
Canada
and
Stuart,
[1983]
1
F.C.
651
at
661;
137
D.L.R.
(3d)
740
at
748
(F.C.A.);
Re
Regina
and
Potma
(1982),
37
O.R.
(2d)
189
at
199;
136
D.L.R.
(3d)
69
at
75
(O.H.C.);
R.
v.
Longtin
(1982),
8
C.R.R.
136
at
140;
147
D.L.R.
(3d)
604
at
607
(O.C.A.);
Latif
v.
Canadian
Human
Rights
Commission,
[1980]
1
F.C.
687
(F.C.A.)
at
701.
Part
Il
Canadian
Bill
of
Rights,
1960
(Can.)
c.
44
(R.S.C.
1970,
Appendix
III),
as
amended
by
1970-71-72,
c.
38,
S.
29
(the
“Bill
of
Rights”).
The
relevant
provision
is
as
follows:
1.
It
is
hereby
recognized
and
declared
that
in
Canada
there
have
existed
and
shall
continue
to
exist
without
discrimination
by
reason
of
race,
national
origin,
colour,
religion
or
sex,
the
following
human
rights
and
fundamental
freedoms,
namely,
(a)
the
right
of
the
individual
to
life,
liberty,
security
of
the
person
and
enjoyment
of
property,
and
the
right
not
to
be
deprived
thereof
except
by
due
process
of
law;
(b)
the
right
of
the
individual
to
equality
before
the
law
and
the
protection
of
the
law;
Analysis
The
appellants
have
urged,
in
the
alternative,
that
subsection
31(1)
of
the
ITA
impinges
on
paragraphs
1(a)
and
1(b)
of
the
Bill
of
Rights.
Paragraph
1(a)
seeks
to
protect
deprivation
of
the
enjoyment
of
“property”
excepting
by
due
process
of
law.
In
this
respect
paragraph
2(e)
is
relevant
and
provides:
2.
Every
law
of
Canada
shall,
unless
it
is
expressly
declared
by
an
Act
of
the
Parliament
of
Canada
that
it
shall
operate
notwithstanding
the
Canadian
Bill
of
Rights,
be
so
construed
and
applied
as
not
to
abrogate,
abridge
or
infringe
or
to
authorize
the
abrogation,
abridgment
or
infringement
of
any
of
the
rights
or
freedoms
herein
recognized
and
declared,
and
in
particular,
no
law
of
Canada
shall
be
construed
or
applied
so
as
to
(e)
deprive
a
person
of
the
right
to
a
fair
hearing
in
accordance
with
the
principles
of
fundamental
justice
for
the
determination
of
his
rights
and
obligations.
In
the
case
of
Duke
v.
R.,
[1972]
S.C.R.
917;
28
D.L.R.
(3d)
129,
the
words
“principles
of
fundamental
justice”
as
they
appear
in
subsection
2(e)
were
interpreted,
at
923
(D.L.R.
134),
thusly:
Without
attempting
to
formulate
any
final
definition
of
those
words,
I
would
take
them
to
mean,
generally,
that
the
tribunal
which
adjudicates
upon
his
rights
must
act
fairly,
in
good
faith,
without
bias,
and
in
a
judicial
temper,
and
must
give
to
him
the
opportunity
adequately
to
state
his
case.
There
is
no
suggestion
that
the
appellants
have
been
denied
any
due
process
or
fundamental
justice
in
this
context.
As
to
subsection
31(1)
of
the
ITA,
the
comments
of
Dickson,
J.
(now
C.J.)
in
Moldowan
v.
The
Queen,
supra,
at
311
(D.T.C.
5214)
are
still
with
us
and
are
binding
for
the
purposes
of
this
appeal:
In
an
alternative
argument,
[the
Appellant]
submits
that
subsection
13(1)
[now
31]
is
meaningless
and
incomprehensible;
therefore,
it
should
not
be
applied
to
his
detriment.
In
effect,
he
would
have
us
write
the
section
out
of
the
Act.
I
do
not
think
we
can
accede
to
that
submission.
We
must
endeavour
to
construe
the
language
of
Parliament.
It
is
not
an
impossible
task.
These
remarks
have
very
recently
been
noted
and
effectually
adopted
by
Cattanach,
J.
in
Graham
v.
The
Queen,
[1983]
C.T.C.
370
at
371-72;
83
D.T.C.
5399
at
5400-01
(F.C.T.D.),
by
Joyal,
J.
in
Hadley
v.
The
Queen,
[1985]
1
C.T.C.
62
at
63-4;
85
D.T.C.
5058
at
5059-60
(F.C.T.D.)
and
by
Jerome,
A.C.].
in
Clarkson
Company
Limited,
Trustee
of
the
Estate
of
Benoit
Poirier,
a
Bankrupt
v.
The
Queen,
[1986]
1
C.T.C.
308
at
309;
86
D.T.C.
6124
at
6124
(F.C.T.D.).
The
case
on
appeal
is
as
equally
problematical
and
difficult
as
those
cases.
Nonetheless
it
must
be
dealt
with
in
the
same
manner
and
under
the
same
constraints.
No
reasons
or
authority
have
been
advanced
to
the
contrary.
Accordingly,
and
for
the
reasons
given,
it
is
my
view
that
the
appellants'
constitutional
challenge
under
the
Bill
of
Rights
is
not
sustainable.
B.
Statutory
Interpretation
and
Subsection
31(1)
of
the
ITA
The
thrust
of
the
appellants’
position
is
that
the
Minister
of
National
Revenue
is
relying
on
section
31
of
the
ITA
to
impose
an
income
tax
on
the
appellants
by
restricting
the
losses
they
have
incurred
in
their
farming
business,
that
the
burden
is
on
the
Crown
to
bring
the
appellants
within
the
purview
of
this
provision
which
amounts
to
a
taxing
or
charging
provision
and
that
the
modern
rules
of
statutory
interpretation,
while
modifying
the
strict
approach
to
be
taken
to
fiscal
legislation,
have
not
changed
the
well
established
principle
enunciated
by
the
House
of
Lords
and
adopted
in
Canada
by
Angers,
J.
in
MacLaren
v.
M.N.R.,
[1934]
Ex.
C.R.
13
at
23;
[1928-
34]
C.T.C.
135
at
144-45,
that:
Taxing
Acts
are
not
to
be
construed
differently
from
any
other
Act
.
.
.
There
is,
of
course
the
well
established
principle
that
in
a
Taxing
Act,
the
tax
must
be
expressed
in
unambiguous
terms
and
that,
in
case
of
reasonable
doubt,
the
act
must
be
interpreted
in
favour
of
the
taxpayer.
Counsel
for
the
Minister
submits
that:
Courts
today
apply
to
tax
statutes
the
same
rule
of
interpretation
as
to
all
other
kinds
of
statutes,
described
by
Professor
E.A.
Dreidger
in
“Construction
of
Statutes”
[2nd
ed.,
(1983)]
and
cited
by
Mr.
Justice
Estey
of
the
Supreme
Court
of
Canada
in
Stubart
Investments
Limited
v.
The
Queen,
[1984]
C.T.C.
294
at
316;
84
D.T.C.
6305
at
6323:
Today
there
is
only
one
principle
or
approach,
namely,
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act
and
the
intention
of
Parliament.
This
substantial
modification
of
the
strict
interpretation
rule
has
been
restated
in
three
Federal
Court
of
Appeal
decisions:
Lor-Wes
Contracting
Ltd.
v.
The
Queen,
[1985]
2
C.T.C.
79;
85
D.T.C.
5310,
Bristol-Myers
Canada
Inc.
v.
D.M.N.R.,
[1985]
1
C.T.C.
23;
85
D.T.C.
5024
and
Harris
Steel
Group
Inc.
v.
M.N.R.,
[1985]
1
C.T.C.
181;
85
D.T.C.
5140.
In
the
Lor-Wes
Contracting
case,
Mr.
Justice
McGuigan,
after
quoting
the
passage
from
Stubart
reproduced
hereinabove,
stated:
It
seems
clear
from
these
cases
that
older
authorities
are
no
longer
to
be
absolutely
relied
upon.
The
only
principle
of
interpretation
now
recognized
is
a
words-in-total-context
approach
with
a
view
to
determining
the
object
and
spirit
of
the
taxing
provisions.
Counsel
further
submits
that
“the
rule
of
strict
interpretation
has
been
eliminated
altogether
in
matters
of
exemption
provisions
and
has
been
reduced
to
a
‘presumption
of
last
resort'
in
charging
provisions”.
Reference
is
made
to
Dreidger,
Construction
of
Statutes,
supra,
at
page
206-207:
It
is
sometimes
stated
as
a
rule
that
although
taxing
legislation
must
be
strictly
construed
in
favour
of
the
subject,
a
person
claiming
the
benefit
of
an
exemption
must
bring
himself
clearly
within
the
exemption.
We
have
seen
that
the
strict
construction
rule
means
only
that
the
taxpayer
may
be
given
the
benefit
of
a
doubt,
on
the
ground
that
the
legislature
may
in
the
circumstances
be
presumed
not
to
have
intended
to
interfere
with
private
rights;
only
in
this
sense
are
taxing
statutes
to
be
construed
strictly.
There
is,
however,
no
presumption
that
the
legislature
intends
to
be
benevolent,
although
it
is
not
illogical
to
say
that
where
a
subject
alleges
he
is
exempt
from
taxation
the
onus
is
on
him
to
show
that
he
comes
within
the
exemption,
and,
unless
he
can
show
beyond
a
reasonable
doubt
that
he
does,
he
has
failed
to
discharge
his
onus.
But
there
are
no
special
rules
or
canons
of
construction
for
tax
exemptions,
and
whether
a
subject
is
taxable
or
exempt
depends
in
all
cases
on
the
intention
of
the
legislature
to
be
ascertained
in
the
normal
way.
The
only
difference
is
that
in
the
case
of
a
taxing
statute
a
presumption
may
as
a
last
resort
be
invoked,
but
no
presumption
is
available
in
the
case
of
an
exemption.
[Emphasis
added.]
And
finally,
counsel
urges
that:
Section
31
is
not
a
charging
provision
of
the
Income
Tax
Act
but
rather
a
computational
provision
establishing
the
amount
of
loss
in
the
year
from
a
farming
source,
in
certain
circumstances,
which
may
be
deducted,
by
virtue
of
paragraph
3(d),
from
the
aggregate
of
a
taxpayer’s
income,
all
of
which
otherwise
would
be
chargeable
with
tax;
and
that
section
31
is
to
be
interpreted
having
regard
to
the
rule
of
construction
that:
...
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
and
the
intention
of
Parliament.
Counsel
for
the
appellants’
answer
to
this
is
that
“section
31
is
ambiguous
even
after
being
construed
in
light
of
the
modern
rule
and
that
the
presumption
of
last
resort
applies
to
resolve
the
ambiguity
in
favour
of
the
taxpayer".
After
considerable
reflection
it
is
my
view
that
the
situation
at
bar
would
not
attract
the
applicability
of
any
such
residual
principle.
Dickson,
J.
in
Moldowan,
supra,
had
articulated
the
meaning
applicable
to
section
31
of
the
ITA,
found
that
it
and
the
Income
Tax
Act
contemplated
three
classifications
and
provided
certain
tests,
guidelines
and
indicia
to
assist
a
trier
of
fact
in
arriving
at
a
determination.
As
was
succinctly
put
by
Joyal,
J.
in
Hadley,
supra,
at
64
(D.T.C.
5060):
The
Moldowan
decision
has
purified
the
air.
It
has
provided
us
with
legal
principles
and
guidelines
which
narrow
considerably
the
field
of
inquiry
in
determining
under
which
of
the
three
heads
enunciated
by
Mr.
Justice
Dickson
farming
losses
might
be
treated.
The
decision,
of
course,
is
also
of
a
nature
where
both
devil
and
saint
may
quote
it
with
equal
impunity
and
immunity.
He
also
cautioned
at
69
(D.T.C.
5064):
One
must
also
guard
against
adapting
a
statutory
interpretation
to
the
guidelines
articulated
by
Dickson,
J.
in
the
Moldowan
case.
The
words
used
by
His
Lordship
in
simplifying
the
wording
of
section
31
of
the
Act
do
not,
a
priori,
fit
every
taxpayer
into
a
procrustean
bed
of
someone
else's
choosing.
Indeed,
His
Lordship,
in
suggesting
tests
which
might
be
applied
from
case
to
case,
is
careful
to
point
out
that
such
tests
are
“not
exhaustive”,
that
some
of
them
are
both
relative
and
objective,
or
that
some
of
them
are
not
to
be
measured
purely
in
quantum
terms.
In
a
few
words,
His
Lordship
was
not
attempting
to
draft
legislation.
It
is
my
view
therefore
that
the
conslusion
I
have
reached
is
on
the
basis
of
a
factual
situation
which
has
unique
and
distinguishing
features.
Numerous
precedents
cited
to
me
by
Counsel
on
both
sides
might
be
relevant
or
persuasive
but
I
would
doubt
that
any
one
of
them
would
be
conclusive.
I
prefer
to
be
guided
by
the
principles
enunciated
in
the
Moldowan
decision.
I
think
that
my
conclusion
is
in
conformity
with
these
principles
and
in
keeping
with
the
legislative
intent
of
section
31.
The
decision
of
the
majority
in
Graham
v.
The
Queen,
[1985]
1
C.T.C.
380;
85
D.T.C.
5256
(F.C.A.)
is
binding
authority,
particularly
as
leave
to
appeal
to
the
Supreme
Court
of
Canada
was
dismissed.
[62
N.R.
103]
The
Court
of
Appeal
noted,
at
385
(D.T.C.
5260),
the
three
classes
of
farmers
according
to
what
they
described
as
the
“definitive
judgment"
on
the
subject
of
farming
losses
as
arising
from
the
Moldowan
case
and,
at
388
(D.T.C.
5263),
that
the
trial
judge
had
“clearly
applied
principles
enunciated
by
Dickson,
J.
and,
in
so
applying
them
to
the
evidence
in
[that]
case,
he
neither
proceeded
on
a
wrong
principle
nor
erred
in
his
appreciation
of
the
facts
nor
his
findings
with
respect
thereto".
All
of
the
above
noted
authorities
are
applicable
irrespective
of
whether
subsection
31(1)
of
the
ITA
amounts
to
a
charging
provision
or
merely
that
of
a
computational
rule.
The
judicial
meaning
ascribed
to
the
provision
is
operative
in
either
circumstance.
And
even
though
Moldowan
has
not
fully
resolved
the
analytical
dilemma
arising
out
of
the
legislation
(viz.,
the
dissenting
judgment
of
Marceau,
J.
in
Graham
and
as
noted
by
Jerome,
A.C.J.
in
Clarkson
Company
Limited,
Trustee
of
the
Estate
of
Benoit
Poirier,
a
Bankrupt,
supra,
at
310-12;
D.T.C.
6124-27
it
nonetheless
does
not
fall
within
the
parameters
alleged
by
counsel
for
the
appellants
as
being
“so
vague,
ambiguous
and
unclear
that
it
is
not
possible
to
construe
the
object
of
spirit
intended
to
be
covered
by
section
31".
I
do
not
wish
to
leave
this
aspect
of
the
appeal
without
having
adopted
the
words
of
Jerome,
A.C.J.
in
Poirier,
supra,
found
at
312
(D.T.C.
6126):
The
wisdom
or
the
necessity
of
the
special
tax
treatment
for
income
derived
from
farming
in
combination
with
other
income
is
not
my
concern.
I
take
it
as
axiomatic,
however,
that
tax
laws
should
be
written
so
that
the
taxpayer
can
not
only
understand
them,
but
can
plan
his
affairs
with
at
least
some
certainty
about
his
liability
for
tax.
If
section
31
leaves
the
Courts
in
such
a
quandary
to
grapple
with
such
nebulous
concepts,
what
hope
was
there
for
any
of
these
taxpayers
to
predict
their
burden
of
tax
during
the
start-up
period
of
unbroken
losses
from
these
diverse
farming
operations?
C.
The
Green
Glade
Farm
Partnership
and
the
Applicability
of
Subsection
31(1)
of
the
ITA
Evidence
and
submissions
in
this
respect
occupied
five
full
days
of
hearing.
A
ten-year
period
(1972-1982)
of
the
life
and
business
activities
of
Dr.
and
Mrs.
Fleming
were
extensively
probed,
dissected,
weighed
and
analyzed
for
the
purposes
of
deciding
the
issues
on
these
appeals;
and
more
so
as
to
Dr.
Fleming
because
he
was,
in
the
main,
the
driving
force
and
financial
source
of
the
high
professional
earnings
that
had
been
invested
into
the
farm.
Counsel
for
both
parties
are
to
be
commended
in
arriving
at
an
agreed
statement
of
facts,
both
at
the
commencement
of
the
hearing
and
then
supplementary
thereto
at
the
conclusion
of
the
viva
voce
evidence.
These
are
extensive
and
are
as
follows:
Exhibit
A-16:
Agreed
Statement
of
Facts
THE
PARTIES
hereby
agree
to
the
following
facts,
subject
to
the
approval
of
the
Honourable
Court:
1.
1972
By
written
agreement
dated
October
13,
1972,
William
Fleming
(‘William’)
and
Stella
Fleming
(‘Stella’)
entered
into
an
equal
partnership
for
the
purpose
of
carrying
on
the
business
of
farming
under
the
firm
name
and
style
of
'Green
Glade
Farm’
(‘Partnership’).
At
the
same
time,
the
Partnership
purchased
200
acres
of
farmland
in
the
Township
of
Luther,
in
the
County
of
Dufferin
('Lougheed
Farm’)
for
a
total
purchase
price
of
$80,000.00.
The
purchase
included
the
acquisition
of
farm
machinery,
two
barns
containing
hay
and
straw,
a
silo
containing
corsilage
and
a
mechanized
feeding
system.
Shortly
after
the
purchase
of
the
farmland,
the
Partnership
bought
150
feeder
calves
from
Alberta.
The
original
plan
of
the
Partnership
was
to
establish
a
self-
sufficient
cow-calf
operation
in
which
all
cattle
feed
required
for
the
operation
was
grown
on
and
supplied
by
Green
Glade
Farm.
2.
1973
Capital
improvements
were
made
to
the
Lougheed
Farm:
two
additional
silos
with
unloading
systems
were
erected
and
the
existing
mechanized
feeding
system
was
upgraded.
In
the
fall,
the
150
feeder
calves
purchased
in
1972
were
sold
as
heavy
steers.
During
the
same
season,
William
and
Stella
went
to
Manitoba
where
they
inspected
and
bought
a
herd
of
300
bred
heifers
to
be
used
as
the
basis
for
a
Charo-
lais
cross
breeding
programme
to
the
end
of
producing
purebred
Charolais
heifers
and
bulls.
The
300
bred
heifers
came
to
Green
Glade
Farms
in
late
fall.
Five
purebred
Charolais
bulls
were
acquired
in
Ontario
after
the
bred
heifers
arrived.
To
meet
the
need
for
a
greater
supply
of
feed
due
to
the
increasing
size
of
the
cattle
herd,
the
Partnership
rented
an
additional
200
acres
of
farmland
for
hay
and
grain.
The
land
was
situated
about
one
mile
from
the
Lougheed
Farm
in
the
Township
of
Luther
('Lowenberger
Farm’).
In
late
August
of
1973,
Dr.
Gabriel
Milin,
the
father
of
Stella
and
a
veterinarian
licensed
in
Ontario
and
the
Western
Provinces
purchased
the
Lowenberger
Farm.
At
about
the
same
time,
Dr.
Milin
purchased
an
additional
200
acres
in
the
adjacent
Township
of
Melancthon,
in
the
County
of
Dufferin
(‘Shelbourne
Farm').
This
was
located
about
ten
miles
from
the
Lougheed
Farm.
The
Shelbourne
Farm
was
used
by
the
Partnership
for
production
of
grain
and
the
Lowenberger
Farm
for
production
of
grain
and
hay.
The
Partnership
eventually
purchased
the
Shelbourne
and
Lowenberger
Farms
from
Dr.
Milin
in
1975.
In
December,
the
Partnership
rented
a
further
300
acres
of
farmland
for
feed
which
was
about
one
mile
from
the
Lougheed
Farm
in
East
Luther.
In
total,
the
Partnership
was
farming
900
acres
by
the
end
of
1973.
During
this
year,
both
Stella
and
William
enrolled
in
and
attended
a
course
in
'Beef
Management'
and
'Crop
Planning’
conducted
by
Guelph
University.
Classes
were
held
at
the
University
of
Toronto
and
were
taught
by
teaching
staff
from
Guelph
University
in
the
Department
of
Agriculture.
3.
1974
In
July,
William
began
a
dental
practice
near
East
Luther
in
Grand
Valley,
Ontario,
to
be
closer
to
Green
Glade
Farm.
The
Partnership
acquired
ownership
of
an
additional
200
acres
of
farmland
ad-
joing
the
Lougheed
Farm
for
a
purchase
price
of
$75,000.00
and
rented
a
further
100
acres
less
than
one
mile
away
from
the
Lougheed
Farm.
In
total,
the
Partnership
was
farming
1,200
acres
by
the
end
of
1974.
During
this
year,
the
herd
of
bred
heifers
was
condemned
by
the
Federal
Department
of
Agriculture
when
it
was
discovered
that
the
herd
was
infected
with
brucellosis.
The
entire
herd
was
destroyed
and
the
barns
that
contained
the
herd
were
quarantined
such
they
could
not
be
used
to
house
breeding
stock
for
one
year.
In
the
fall,
the
Partnership
purchased
roughly
170
feeder
calves
from
Alberta.
Later
that
fall,
the
Partnership
also
ordered
100
cross
bred
feeder
heifer
calves
from
Alberta.
4.
1975
The
herd
bought
in
the
fall
of
1974
was
sold
‘unfinished’
in
the
spring
of
1975
due
to
financing
difficulties.
Chickens
were
purchased
to
fill
the
egg
quota
set
by
the
Egg
Marketing
Board
('Board')
for
the
Lowenberger
Farm.
In
March
of
1975,
the
Board
reduced
the
egg
quota
for
the
farm.
In
May
of
the
same
year,
the
Board
converted
the
quota
system
from
eggs
to
hens
and,
in
the
process,
reduced
the
hen
quota
for
the
farm
from
5,082
hens
to
3,911
hens.
During
the
years
1975-1976,
William
became
a
shareholder
and
director
in
Viapax
Corporation
Limited
(‘Viapax’),
in
the
business
of
supplying
embryo
transfer
technology.
5.
1976
In
1976,
250
feeder
steers
were
acquired
from
Alberta
on
a
weight
gain
basis.
By
this
arrangement,
the
Partnership
agreed
to
raise
on
its
farm
cattle
owned
by
a
third
party.
Payment
to
the
Partnership
was
based
on
the
increase
in
weight
gained
by
the
cattle
while
kept
at
Green
Glade
Farm.
Because
of
the
quota
reductions
and
conversions
which
occurred
in
1975,
the
Partnership
sold
its
flock
of
hens
for
slaughter
and
assigned
its
hen
quota
to
the
Egg
Marketing
Board.
The
Shelbourne
Farm
was
sold
in
October,
leaving
900
acres
for
farming
throughout
late
1976
and
1977.
By
1976,
William
and
Stella
had
personally
committed
over
$200,000.00
of
capital
to
Green
Glade
Farm.
At
the
same
time,
Green
Glade
Farm
was
also
being
financed
through
bank
loans
and
mortgages
totalling
approximately
$320,000.00
in
1976.
6.
1977
The
Partnership
purchased
approximately
400
feeder
calves
from
Alberta
in
March.
Continuing
financial
difficulties
compelled
the
Partnership
to
sell
the
herd
‘unfinished’
in
the
same
year.
Throughout
the
years
1973-1977,
roughly
600
acres
of
land
were
under
cultivation
each
year
for
production
of
feed.
7.
1978
A
transition
was
made
from
beef
farming
to
pig
farming
during
this
year.
The
Partnership
began
a
farrow
to
finish
operation
starting
with
approximately
30
sows
or
breeding
stock
acquired
in
the
spring.
By
this
year,
the
Partnership
was
farming
600
acres,
placing
400
acres
under
cultivation
for
feed.
8.
1979
By
the
spring,
there
was
a
stock
of
133
sows,
92
of
which
were
pregnant.
The
remaining
41
had
already
produced
334
offspring
and
were
in
the
process
of
being
rebred.
These
sows
were
serviced
by
5
boars.
In
May,
a
fire
burned
down
the
barn
containing
the
farrow
operation
and
destroyed
the
92
pregnant
sows,
the
334
offspring
and
3
boars.
The
lost
pregnant
sows
were
expected
to
produce
an
average
of
8
piglets
per
litter
or
736
piglets.
Weaners
and
feeders
kept
in
another
barn
untouched
by
the
fire
were
sold
because
of
increased
financial
pressures
following
the
fire.
Four
hundred
acres
of
buckwheat,
corn
and
grain
were
grown
during
this
year.
By
1980,
the
personal
commitment
of
capital
made
by
William
and
Stella
grew
to
an
amount
in
excess
of
$500,000.00.
At
the
same
time
bank
loans
and
mortgages
for
Green
Glade
Farm
approximated
$540,000.00.
Exhibit
A-17
Supplementary
Agreed
Statement
of
Facts
In
addition
to
the
facts
set
forth
in
the
original
Agreed
Statement
of
Facts,
the
parties
hereby
agree
to
the
following
additional
facts,
subject
to
the
approval
of
this
Honourable
Court:
1.
1978
In
response
to
financing
difficulties
resulting
from
the
earlier
brucellosis
attack
and
the
recommendations
of
a
farm
consultant,
the
Partnership
decided
in
late
1977
to
make
a
transition
from
cattle
farming
and
forage
cropping
to
pig
farming
and
cash
cropping.
The
change
to
pig
farming
was
thought
advisable
due
to
the
fact
that
it
was
less
capital
intensive,
requiring
less
capital
to
establish
a
farrow
to
finish
operation
than
to
re-establish
a
cow-calf
operation.
The
change
to
cash
cropping
was
made
necessary
by
the
fact
that
swine
cannot
feed
on
forage
or
roughage
such
that
there
was
no
further
need
at
that
time
to
maintain
a
supply
of
forage
for
feed.
It
was
decided
to
grow
grains
for
cash
cropping.
This
is
more
marketable
than
forage
which
is
not
generally
taken
to
market
but
utilized
internally
as
feed
for
a
feedlot
or
cow-calf
operation.
The
transition
to
pig
farming
and
cash
cropping
necessitated
a
conversion
of
facilities
and
equipment.
This
conversion
consumed
time
and
money
on
the
part
of
the
Partnership
during
the
period
between
late
1977
and
late
1980.
As
part
of
the
conversion
process,
facilities
originally
used
for
the
cow-calf
operation
and
the
chicken
farming
operation
were
dismantled,
reconstructed
and
adapted
for
use
in
pig
farming.
Much
of
this
work
was
done
throughout
1978.
Since
the
equipment
used
for
forage
cropping
is
not
entirely
suitable
for
cash
cropping,
it
was
necessary
to
research
the
market
for
new
equipment
and
negotiate
the
terms
for
its
purchase
or
lease.
Time
was
spent
by
the
Partnership
during
the
1977
to
1980
period
selecting
new
equipment,
considering
various
lease
and
purchase
options
for
its
acquisition
and
negotiating
final
terms
with
equipment
suppliers.
The
operation
of
the
farrow
to
finish
operation
and
the
care
and
maintenance
of
the
swine
was
labour
intensive
inasmuch
as
sows
have
several
large
litters
per
year.
Sows
being
bred,
pregnant
or
farrowing
sows
and
piglets
all
require
careful
and
ongoing
attention
involving
a
great
deal
of
manual
work.
There
was
also
considerable
work
involved
in
manure
handling
and
clean-up
of
facilities
used
by
the
swine,
particularly
farrowing
crates
in
which
pregnant
sows
are
kept.
The
labour
involved
resulted
not
only
from
the
demands
arising
from
the
nature
of
the
stock
being
raised
but
also
from
the
size
of
that
stock.
Official
statistics
indicate
that
the
size
of
the
Flemings’
herd
of
swine
was
larger
than
90%
of
swine
herds
raised
by
other
farmers
in
Ontario.
Cash
cropping
was
carried
on
through
1978
to
1982
on
a
large
scale.
Each
year
over
400
acres
of
farmland
was
placed
under
cultivation.
The
work
involved
in
crop
planting
and
maintenance
is
detailed
under
other
headings.
In
utilizing
over
400
acres
of
farmland
for
this
purpose,
the
Partnership’s
cultivated
acreage
alone,
not
including
the
additional
200
acres
owned
by
the
Partnership,
was
larger
than
90%
of
the
farms
in
Ontario.
2.
1979
The
1979
fire
destroyed
the
Partnership’s
breeding
program
as
virtually
all
of
the
farrowing
or
pregnant
sows
were
killed.
The
barn
housing
these
sows
burnt
down.
Though
the
breeding
stock
died,
some
feeder
pigs
survived
the
fire.
Feeder
pigs
are
reared
to
be
sent
to
market
and
not
for
breeding
purposes.
Insurance
proceeds
did
not
cover
the
costs
incurred
by
the
Partnership
with
respect
to
the
farrow
to
finish
operation.
This
includes
the
cost
of
purchasing
the
original
stock
of
sows,
the
cost
of
purchasing
feed
consumed
by
the
pregnant
sows,
interest
charges
and
operating
expenses.
The
short
and
long
term
revenues
anticipated
from
the
developing
breeding
program
were
also
lost.
The
Partnership
received
no
compensation
for
these
lost
profits.
The
fire,
combined
with
the
brucellosis
strike,
impaired
the
borrowing
capacity
of
the
Partnership
and
its
ability
to
raise
outside
financing
which,
in
turn,
created
a
shortage
of
capital
for
the
business.
Immediately
after
the
fire,
the
Partnership
began
to
make
plans
for
reconstruction
of
the
lost
barn
and
re-establishment
of
the
farrow
to
finish
operation.
First
time
was
spent
in
the
clean
up
and
removal
of
debris
and
remains
resulting
from
the
fire.
After
the
site
of
the
destroyed
barn
was
cleared,
the
Partnership
surveyed
other
swine
operations
and
consulted
with
other
operators
to
ascertain
the
best
design
for
construction
of
its
new
facilities.
After
this
research,
a
contractor
was
retained
to
begin
construction
which
was
completed
in
the
fall
of
1979.
Construction
was
periodically
delayed
and
interrupted
because
the
contractor
was
being
paid
out
of
insurance
proceeds
which
took
some
time
to
arrive.
Time
was
spent
negotiating
with
the
insurance
company
for
final
payment
and
with
the
contractor
who
was
constantly
demanding
payment
and
threatening
work
stoppages
pending
payment.
After
the
fire,
the
surviving
feeder
pigs
were
cared
for
and
maintained
eventually
to
be
sent
to
market
during
the
fall
of
the
year.
The
Partnership
negotiated
with
the
supplier
of
the
initial
stock
of
sows
but
was
unable
to
make
a
further
purchase
of
new
stock
because
the
supplier
was
unprepared
to
extend
the
same
type
of
vendor
financing
it
provided
to
the
Partnership
in
1978.
The
process
of
converting
facilities
and
equipment
for
use
in
cash
cropping
rather
than
forage
cropping
continued
through
1979
and
1980.
Negotiations
with
equipment
suppliers
continued.
Faced
with
financial
losses
due
to
the
fire,
the
destruction
of
the
breeding
program
and
the
inability
to
obtain
vendor
financing
from
any
supplier
for
the
purchase
of
a
new
stock,
the
Partnership
decided
by
the
end
of
1979
to
abandon
further
attempts
to
re-establish
the
farrow
to
finish
operation.
3.
1980
During
the
first
half
of
1980,
time
was
spent
winding
down
the
pig
farming
operation.
This
included
clean
up
of
all
of
the
barns
and
facilities
used
in
the
operation
and
the
removal
of
all
waste
and
other
materials.
After
the
operation
was
wound
down,
time
was
spent
in
the
construction
of
a
storage
bin
and
the
conversion
of
existing
silos
to
make
available
facilities
sufficient
to
store
the
projected
yield
from
cash
cropping.
These
undertakings
were
necessary
because
the
silos
were
meant
for
the
storage
of
forage
crops
rather
than
cash
crops.
With
regard
to
the
conversion
of
the
silos,
it
was
necessary
for
the
Partnership
to
conduct
an
investigation
into
and
make
inquiries
with
the
silo
manufacturer
and
other
farmers
as
to
the
means
by
which
to
make
the
silo
suitable
for
cash
crops.
The
forage
must
be
stored
in
a
wet,
high
moisture
environment
and
grains
in
a
much
drier
environment.
These
silos
were
originally
built
for
high
moisture
storage.
After
inquiring
into
the
matter,
the
Partnership
made
the
conversion
by
installing
aerators
and
making
other
structural
changes.
In
the
course
of
doing
this,
all
of
the
silos
had
to
be
entirely
cleaned
out
and
made
free
of
any
remaining
forage
or
haylage.
The
Appellants
also
worked
on
the
construction
of
a
new
storage
bin
which
was
designed
and
suitable
for
the
storing
of
grains.
This
additional
storage
capacity
was
necessary
because
the
Partnership
learned
through
its
investigation
that
it
was
not
advisable
to
fill
the
silos
to
the
top
when
using
them
to
store
grain
rather
than
forage.
These
efforts
to
prepare
for
storage
were
made
to
insulate
the
Partnership
from
fluctuating
market
conditions
so
that
it
would
not
be
forced
to
sell
its
yield
immediately
off
the
land
if
prices
were
too
low
at
the
time
of
harvest.
In
1980,
the
Appellant
planted
416
acres
of
grain
and
100
acres
of
hay.
Throughout
the
spring,
summer
and
fall,
the
Appellants
and
their
family
performed
the
necessary
tasks
of
field
preparation
and
maintenance,
equipment
preparation
and
maintenance,
soil
preparation
and
maintenance,
cultivating,
seeding,
fertilizing,
spraying,
swathing
and
storing
after
harvest.
The
Partnership
contracted
with
a
custom
combine
operator
and
worked
with
the
operator
by
taking
the
crop
off
the
land
once
the
combine
had
removed
over
a
field,
loading
it
on
to
wagons,
transporting
it
to
the
storage
facilities
and
loading
it
into
the
silos
and
steel
bin.
The
Partnership
expected
a
yield
of
1.5
tons
per
acre
in
1980.
The
Partnership
harvested
about
one
half
of
the
crop
or
300
tons.
Continuing
and
excessive
rainfall
at
the
time
of
harvest
caused
half
of
the
crop
to
spoil.
The
heavy
rainfall
also
caused
the
combine
operator
to
be
delayed
in
harvesting
the
Partnership’s
crop.
His
delay
made
it
impossible
to
take
some
of
the
crop
off
the
land
on
a
timely
basis
which,
in
turn,
cause
crop
spoilage.
Rainfall
was
112%
of
normal
in
September
and
138%
of
normal
in
October.
September
and
October
are
the
most
important
months
for
harvesting.
4.
1981
The
Partnership
put
416
acres
of
oats
and
barley
under
cultivation
and
grew
100
acres
of
hay.
At
the
time
of
harvest,
there
was
excessive
and
continual
rainfall
even
more
severe
than
in
1980.
Most
of
the
crop
was
lost,
destroyed
by
the
severe
rainfall
and
by
delay
in
the
arrival
of
the
custom
combine
operator
who
was
thrown
off
his
timetable
by
the
heavy
rains.
Rainfall
was
203%
of
normal
in
August,
138%
of
normal
in
September
and
130%
of
normal
in
October.
All
the
necessary
tasks
related
to
cash
cropping
and
described
above
were
performed
by
the
Appellants
and
their
family
throughout
the
year.
5.
1982
Unable
to
secure
further
vendor
credit
for
the
purchase
of
seed,
the
Partnership
negotiated
and
entered
into
a
contract
with
a
feed
house
supplier
whereby
it
provided
grain
seed
and
fertilizer
to
the
Partnership
for
planting
buckwheat
and
flax
on
its
farmlands
and
the
Partnership
was
required
to
sell
back
the
entire
yield
at
a
fixed
price
of
$8.00
per
bushel.
Financing
difficulties
caused
the
Partnership
to
enter
into
a
share-cropping
arrangement
with
the
custom
combine
operator
because
of
the
unavailability
of
funds
to
pay
for
the
combining
service.
Fifty
acres
of
the
crop
were
spoiled
by
excessive
rains
at
harvest
time
which
occurred
for
the
third
consecutive
year.
Rainfall
was
138%
of
normal
in
September.
Except
for
the
50
acres
destroyed
by
rain,
the
bulk
of
the
crop
was
harvested
and
sold
to
the
feed
mill.
The
revenues
expected
from
the
feed
house
were
stolen
by
the
custom
combine
operator
at
the
time
that
the
harvest
was
shipped
to
the
feed
company.
Attempts
to
collect
the
indebtedness
from
the
operator
proved
futile
when
the
operator
went
into
bankruptcy.
6.
Long
Term
Goal
Throughout
the
period
1978
to
1982,
the
Partnership's
stated
long
term
goal
was
to
return
to
cattle
breeding
and
utilize
embryo
transfer
technology.
The
Partnership
had
the
lands
and
facilities
for
a
large
scale
cow-calf
operation
and
Dr.
Fleming
possessed
the
know-how,
contacts
and
access
to
expertise
relative
to
embryo
transfer
technology.
The
Partnership
intended
to
improve
its
financial
position
by
engaging
in
pig
farming
in
the
short
run
which
was
less
capital
intensive
and
more
labour
intensive
than
a
cow-calf
operation.
It
was
hoped
that
once
the
financial
position
of
the
Partnership
had
improved,
the
Partnership
could
obtain
new
financing
and
embark
upon
the
re-establishment
of
a
cow-calf
operation
making
use
of
the
latest
developments
in
breeding
techniques.
The
Partnership
suffered
a
series
of
setbacks
beyond
the
control
of
the
Partnership
including
the
fire
of
1979
and
the
severe
rainfall
of
1980
and
1981.
These
setbacks,
caused
the
financial
situation
of
the
Partnership
to
deteriorate
rather
than
improve
during
the
1978
to
1982
period.
Following
abandonment
of
the
pig
farming
operation
because
of
the
fire
and
the
lack
of
capital
to
begin
again,
the
Partnership
engaged
only
in
cash
crop
farming
in
1980
through
1982
in
order
to
keep
the
land
viable
and
to
provide
a
cash
flow
for
the
operation.
In
1978
and
1980
the
Partnership
entered
into
discussions
and
devised
proposals
relating
to
the
breeding
of
cattle
and
application
of
embryo
transfer
technology
at
Green
Glade
Farm.
In
1978,
plans
were
discussed
with
representatives
of
Viapax
to
maintain
a
recipient
herd
at
Green
Glade
Farm.
This
proposal
was
ultimately
rejected
due
to
the
fear
on
the
part
of
certain
of
the
directors
of
Viapax
that
it
was
not
safe
to
rear
the
herd
at
Green
Glade
Farm
due
to
the
strike
of
brucellosis
in
1974.
In
1980,
negotiations
were
carried
on
with
a
highly
qualified
technician
and
authority
on
embryo
transfer
technology,
Dr.
Roger
Bilton,
with
a
view
to
entering
into
a
joint
venture
whereby
the
Partnership
would
contribute
its
lands,
facilities
and
efforts
and
Dr.
Bilton
would
contribute
his
expertise
in
raising
a
high
quality
donor
herd
on
Green
Glade
Farm.
The
parties
were
unable
to
implement
this
proposal
because
they
could
not
obtain
the
necessary
financing
to
launch
the
operation.
7.
1983
to
1984
The
Partnership
did
not
farm
the
land
in
1983
but
let
it
lie
fallow.
In
1984,
the
Partnership
rented
the
land
out.
Since
1983,
the
farm
has
been
listed
for
sale.
In
1984,
the
Partnership
sold
all
of
its
farm
equipment
by
auction.
The
farm
operation
showed
losses
for
1983
and
1984
and
Dr.
Fleming
began
devoting
more
time
again
to
his
dental
practice.
8.
Farming
Revenues
Based
on
average
prices
for
the
years
1979
to
1982
as
published
by
the
Ontario
Pork
Producers
Marketing
Board
and
assumed
expenses
of
an
average
operation
carrying
a
moderate
debt
load,
over
the
four
year
start-up
period
from
1979
to
1982,
the
financial
results
of
the
pig
farming
operation
of
the
size
of
the
Flemings
would
have
been
approximately
$988,000.00
in
gross
revenues,
breaking
down
to
roughly
$225,000.00
per
year.
As
to
net
profits,
the
overall
result
would
have
been
a
net
profit
in
1979,
a
slight
loss
in
1980
and
1981
and
a
substantial
net
profit
in
1982.
The
overall
result
for
the
four
year
period
would
have
been
a
break-even
position
by
the
end
of
1982.
The
estimated
potential
revenues
that
could
have
been
derived
by
the
partnership
from
the
cash
crop
operation
in
1980
and
1981,
were
it
not
for
the
heavy
and
untimely
rainfalls
in
those
years,
was
about
$60,000.00
per
year.
9.
Viapax
and
Embryo
Transfer
Technology
Dr.
Fleming
first
became
exposed
to
this
technology
in
about
1975
when
it
was
still
in
its
early
stages
of
development.
In
1976,
he
became
a
13%
shareholder
in
a
private
corporation
called
Viapax
Corporation
Limited,
along
with
about
seven
other
shareholders
including
Rowntree
Farms,
an
elite
farming
operation
engaged
in
the
breeding
of
Holstein
cattle.
Dr.
Fleming
contributed
about
$58,000.00
to
the
corporation
for
shares
and
debt
of
the
company.
In
the
early
stages
of
his
involvement,
Dr.
Fleming
was
convinced
that
the
technology
was
revolutionary
and
that
it
would
eventually
have
wide
spread
application
in
farming.
Dr.
Fleming
believed
it
was
potentially
highly
profitable
and
that
it
could
be
applied
to
building
one's
own
high
quality
herd
without
having
to
go
through
a
longer
process
of
breeding
up.
As
previously
noted,
the
Partnership’s
long
range
goal
was
to
re-establish
a
cow-calf
operation
utilizing
the
new
technique
of
embryo
transfer
technology.
The
advantages
of
the
Partnership
of
using
this
technology
included
the
ability
to
substantially
shorten
the
length
of
a
breeding
program
and
the
ability
to
significantly
increase
production
of
a
high
quality
cattle.
This
is
accomplished
by
superovulating
a
high
quality
cow
known
as
a
‘super
cow'
donor
and
transplanting
the
embryos
from
the
donor
into
the
surrogate
cows
of
inferior
quality
known
as
recipients
which
bear
the
offspring
of
the
super
cow
donor.
In
addition
to
this,
the
process
can
be
completed
at
less
cost
to
the
Partnership
in
view
of
the
fact
that
the
recipient
herd
may
be
purchased
at
relatively
low
prices
because
it
need
not
consist
of
high
quality
stock.
Dr.
Fleming
participated
in
Viapax
not
only
with
an
expectation
of
profiting
through
it
but
also
to
acquire
an
‘inside
track’
as
to
the
latest
developments
in
this
technology
and,
in
so
participating,
he
gained
contacts
with
sophisticated
breeders
working
in
this
area.
In
order
to
become
knowledgeable
about
the
technique
of
embryo
transplant,
Dr.
Fleming
spent
many
hours
studying
the
subject
after
completing
his
schedule
of
dental
work.
He
also
attended
numerous
meetings
of
the
Viapax
shareholders
and
directors
which
were
held
in
the
evenings
during
the
1975
to
1980
period.
In
1978,
Dr.
Fleming
personally
made
trips
to
Italy,
Argentina
and
Brazil
as
a
representative
of
Viapax.
His
role
was
to
market
Viapax
technology
at
large
agricultural
fairs
in
Argentina
and
Brazil
and
to
provide
technical
assistance
to
an
Italian
licensee
of
the
company’s
technology.
In
his
trip
to
Italy,
Dr.
Fleming
actually
carried
embryos
with
him
which
were
used
in
transplant
operations
performed
in
Italy.
During
the
Argentinian
trip,
Dr.
Fleming
was
also
asked
to
give
a
seminar
to
representatives
of
the
Argentinian
Department
of
Agriculture
so
as
to
inform
them
as
to
the
nature
of
and
developments
in
this
new
technology.
In
1980,
Dr.
Fleming
made
a
trip
to
Hungary
with
Dr.
Bilton
to
assist
him
in
transplant
implementations
conducted
at
a
large
farming
operation
situated
in
that
country.
By
the
end
of
1980,
Dr.
Fleming
and
all
of
the
other
shareholders
of
Viapax
sold
their
interest
in
the
company
to
Rowntree
Farms.
The
business
became
and
has
continued
to
be
a
division
of
Rowntree
Farms.
The
primary
business
of
Viapax
during
the
1975
to
1980
period
was
the
provision
of
embryo
transfer
services
on
a
custom-basis
to
farmers.
This
entailed
the
servicing
of
herds
owned
by
other
farmers
rather
than
the
servicing
of
a
Viapax
owned
herd.
Dr.
Fleming
believed
that
greater
profit
potential
lay
in
the
development
of
a
donor
herd.
10.
Dental
Practice
Dr.
Fleming
moved
from
B.C.
to
Ontario
in
1957
with
the
hope
of
being
accepted
at
the
Veterinarian
College
at
Guelph
University.
His
interest
in
veterinary
medicine
resulted
from
his
undergraduate
studies
in
the
biological
sciences
at
the
University
of
British
Columbia,
the
farming
background
of
his
family
and
the
strong
influences
of
Dr.
Milin,
father
of
Stella
Fleming
and
a
veterinarian
licensed
in
Ontario
and
the
western
provinces.
Dr.
Fleming’s
application
to
the
Veterinarian
College
was
ultimately
rejected.
Eventually,
Dr.
Fleming
took
pre-dentistry
and
was
admitted
to
the
Faculty
of
Dentistry.
While
attending
at
Dentistry
School,
Dr.
Fleming
and
Stella
Fleming
spent
four
consecutive
summer
vacations
during
the
months
of
May
to
September
assisting
Dr.
Milin
in
his
veterinarian
work
in
Saskatchewan.
Dr.
Fleming’s
job
was
to
attend
at
various
large
and
small
farms
and
test
cattle
for
brucellosis.
During
his
summer
employment,
Dr.
Fleming
had
the
opportunity
of
observing
farm
operations
of
different
scales
and
degrees
of
sophistication.
In
1963,
Dr.
Fleming
graduated
from
dentistry
and
set
up
a
practice
as
a
sole
practitioner
in
Toronto
which
he
has
continued
to
this
date.
Between
1963
and
1972,
Dr.
Fleming
built
up
a
successful
practice
at
which
he
worked
long
hours,
about
six
days
per
week,
plus
some
evenings
in
emergency
treatment
which
entailed
remaining
on
call
and
in
his
office
throughout
the
night.
During
this
period
he
also
lectured
at
the
Dental
School
of
the
University
of
Toronto
and
pursued
continuing
education,
familiarizing
himself
with
the
latest
techniques
in
dentistry
and
acquiring
knowledge
of
such
specialized
fields
as
periodontrics,
endodontrics
and
asethetic
dentistry.
Dr.
Fleming
began
to
perform
such
specialized
dental
work
and
to
apply
new
technological
advances
in
the
conduct
of
his
practice.
Since
acquiring
the
farm
in
1972
and
through
to
1982,
Dr.
Fleming
has
worked
at
his
dental
practice
from
9:00
a.m.
to
6:00
p.m.,
four
days
per
week
and
three
days
per
week
in
the
late
spring
and
summer.
Dr.
Fleming
also
gave
up
lecturing
at
the
Dental
School,
a
substantial
portion
of
his
involvement
in
continuing
education
and
his
membership
in
two
tennis
clubs
he
belonged
to
prior
to
1972.
During
the
same
ten
year
period
between
1972
and
1982,
Dr.
Fleming
worked
at
farming,
on
average,
three
days
per
week
and,
in
periods
of
heavy
farm
activity,
he
worked
four
days
per
week
and
occasionally
more.
While
he
typically
worked
a
nine
hour
day
at
dentistry,
he
normally
worked
a
12
hour
day
at
farming.
The
days
available
to
Dr.
Fleming
for
farm
work
are
set
out
in
Exhibit
A-9.
Dr.
Fleming's
estimate
is
that
he
spent
90%
of
such
available
time
in
fact
involved
in
the
farm
operation
up
to
1979
and
80%
of
such
time
in
1980,
1981
and
1982.
For
the
years
1978
through
1982,
this
works
out
to
165
days
for
dentistry
and
165
days
for
farming
in
1978,
159
days
for
dentistry
and
165
days
for
farming
in
1979,
164
days
for
dentistry
and
148
days
for
farming
in
1980,
158
days
for
dentistry
and
150
days
for
farming
in
1981,
and
153
days
for
dentistry
and
148
days
for
farming
in
1982.
The
charts
do
not
take
into
account
those
evenings
in
which
Dr.
Fleming
worked
at
the
farm
after
putting
in
a
normal
day
at
his
dentistry
office.
Also
not
included
is
time
spent
on
farm
related
matters
during
a
normal
day
at
his
dentistry
office.
Scheduled
vacations
were
always
taken
in
December
or
January
when
there
was
less
farming
activity.
After
1982,
Dr.
Fleming
had
increased
the
number
of
hours
devoted
to
dentistry.
Notwithstanding
his
commitment
to
farming,
Dr.
Fleming
was
able
to
increase
gross
revenues
from
his
dental
practice
in
1978
and
maintain
them
at
the
increased
level
during
the
1978
to
1982
period
because
he
gradually
performed
a
greater
amount
of
specialized
dental
work
which
enabled
him
to
charge
higher
fees
for
the
same
amount
of
time
spent
at
his
practice.
In
addition,
some
of
the
growth
was
not
real
growth
but
inflationary
growth.
The
onset
of
dental
insurance
also
made
specialized
dental
care
performed
by
Dr.
Fleming
more
accessible
to
more
people.
An
important
factor
in
the
decision
to
move
into
farming
was
the
increasing
market
demand
for
exotic
cattle.
This
refers
to
European
breeds
of
cattle
rather
than
traditional
breeds
that
were
typically
reared
in
Canada
prior
to
the
1970’s.
Exotic
breeds
were
commanding
high
prices
at
market.
The
combination
of
potential
high
profits
and
the
lifestyle,
including
pride
of
ownership
of
exotic
cattle,
attracted
Dr.
Fleming
to
farming.
11.
Financing
and
Funds
Committed
Initially,
the
Partnership
used
mainly
outside
financing
(93%)
to
finance
the
farm
operation.
After
1977,
the
percentage
of
outside
financing
decreased
from
65%
in
1978
to
39%
in
1982
as
the
Flemings
personally
contributed
more
and
more
funds.
By
1977,
Dr.
Fleming
and
Stella
Fleming
had
committed
$187,697.00
dollars
in
personal
funds
and
had
outside
financing
of
$470,000.00
dollars.
By
1982,
Dr.
Fleming
and
Mrs.
Fleming
had
committed
$752,035.00
dollars
in
personal
funds
and
had
$472,940.00
dollars
in
outside
financing.
In
terms
of
their
net
disposable
income,
the
Flemings
contributed
63.6%
of
their
net
disposable
income
to
farming
in
1978,
67.4%
in
1980,
120.7%
in
1981,
and
69.6%
in
1982.
Most
of
the
outside
financing
was
converted
into
long
term
debt
in
1977
which
debt
was
secured
by
a
mortgage
on
all
the
farm
property
and
assets.
The
consolidated
long
term
debt
as
of
the
end
of
1977
stood
at
$470,000.00
and
$472,940.00
at
1982.
During
the
period
1978
to
1982,
the
Partnership
spent
time
on
an
ongoing
basis
attempting
to
raise
operating
funds
from
banks
and
other
financial
institutions
such
as
the
T.D.
Bank
and
the
Royal
Bank.
In
addition
to
this,
the
Partnership
spent
time
attempting
to
preserve
its
existing
debt
position
with
its
lenders
in
the
face
of
increasing
financial
pressures.
In
addition
to
ongoing
discussions
and
negotiations
with
outside
lenders,
the
Flemings
also
had
to
negotiate
and
secure
various
forms
of
vendor
financing
with
supplier
including
suppliers
of
swine,
suppliers
of
feed,
suppliers
of
seed
and
suppliers
of
combine
servicing.
12.
Assets
Most
of
the
business
assets
owned
by
the
Flemings
were
farm
assets
consisting
of
farmland,
farm
machinery
and
farm
facilities.
In
each
year
during
the
period
between
1978
and
1982,
83%
of
all
business
assets
owned
by
the
Flemings
were
farm
assets.
The
remaining
17%
were
assets
used
in
the
practice
of
dentistry.
The
following
information
was
supplied
by
letter
agreement
addressed
to
the
Court
dated
February
28,
1986:
In
order
to
assist
you
in
reviewing
the
above
matter
prior
to
your
rendering
a
decision,
we
wish
to
submit
the
following
audit
dates
which
dates
have
been
reviewed
by
our
office
and
Roger
Taylor
of
the
Department
of
Justice:
1.
The
Flemings
were
audited
in
1975
by
Mr.
Jatichewski
with
respect
to
the
1974
taxation
year.
2.
On
or
about
October
21,
1976,
Mr.
W.J.
Barnard
conducted
an
audit
with
respect
to
the
1974
and
1975
taxation
years.
3.
On
or
about
October
27,
1978,
Mr.
D.J.
MacGregor
conducted
an
audit
with
respect
to
the
1976
and
1977
taxation
years.
4.
On
or
about
September
26,
1980,
Mr.
Lomas
conducted
an
audit
with
respect
to
the
1978
through
1980
taxation
years.
A
follow-up
audit
was
conducted
by
Mr.
Lomas
in
January
of
1983
with
respect
to
the
1981
taxation
year
and
again
in
May
of
1984
in
respect
to
the
1982
taxation
year.
The
audits
that
were
conducted
in
respect
to
the
1974,
1975,
1976
and
1977
taxation
years
did
not
result
in
an
application
of
Section
31
to
the
Appellants’
farming
activities.
The
subsequent
audits
did
result
in
such
application
for
the
1978
through
1982
taxation
years.
While
counsel
for
the
respective
parties
have
agreed
on
the
aforementioned
facts,
they
disagree
as
to
the
weight,
inferences
and
conclusions
to
be
drawn
therefrom.
Analysis
Many
exhibits
were
filed
including,
inter
alia,
the
partnership
agreement,
financial
statements
of
Dr.
Fleming
and
Green
Glade
Farm
for
the
relevant
times
and
a
list
of
the
acquired
machinery
and
equipment.
A
detailed
analysis
of
the
time
commitment
of
Dr.
and
Mrs.
Fleming
to
their
farm
and
the
sole-proprietorship
dental
practice
(Exhibit
A-9)
is
corroborative
of
an
annual
equivalency
and
constancy
over
the
entire
ten-year
period.
The
hours
and
weekdays
of
dental
practice
were
not
only
decidedly
flexible
but
were
always
made
subservient
to
the
seasonal
demands
of
the
farm.
Additionally,
significant
amounts
of
time
and
effort
were
given
during
the
dentistry
days
for
purposes
of
farm
planning,
management
and
financing.
On
the
facts
of
this
case
there
can
be
little
doubt
but
that
the
dental
practice
was
practically
running
itself
when
compared
to
the
needs
and
demands
of
the
farm.
The
dental
practice
did
not
suffer
any
set-backs
or
disasters
like
that
of
the
farm
but
rather
had
become
well
established
and
well
managed
by
both
appellants.
Additional
financial
information
with
respect
to
Dr.
Fleming
and
the
farm
provided
during
the
hearing
indicated
that
the
farm's
gross
revenues
exceeded
Dr.
Fleming’s
net
dental
income
for
the
first
five
years
but
this
was
substantially
reversed
for
the
last
five
years
following
each
of
the
disasters.
Had
the
fire
not
occurred
there
was
the
distinct
probability
that
the
revenue
comparisons
would
have
been
close
to
the
same.
Mortgage,
interest,
bank
charges
and
interest
expenses
for
the
last
five
years
ranged
from
$64,000
to
$76,842
with
drastically
declining
revenues
of
$64,799
in
1978,
$44,032
in
1979,
$24,395
in
1980,
$4,849
in
1981
and
$2,081
in
1982.
For
the
same
period
farm
losses
were
$153,709,
$170,273,
$94,772
(including
Viapax,
infra),
$108,076
and
$125,071
respectively.
In
his
reply
to
notice
of
appeal,
by
paragraph
4
therein,
the
Minister
denied
that
farming
had
been
the
major
preoccupation
of
the
appellants
since
1972
and
further
that,
by
paragraph
7,
he
assumed,
inter
alia,
that
no
more
than
one-third
of
the
appellant’s
time
was
spent
in
the
business
of
farming,
that
the
farm
activities
of
the
partnership
could
not
and
did
not
in
the
material
years
provide
the
bulk
of
their
income
or
the
centre
of
their
work
routine,
that
they
did
not
at
any
time
look
to
farming
for
their
livelihood
and
that
Dr.
Fleming’s
chief
source
of
income
was
the
practice
of
dentistry.
In
my
view
the
appellants
have
shown
that
each
of
the
aforementioned
factual
assumptions
are
wrong.
Counsel
for
the
Minister
argued
that,
objectively,
the
farm
operation
could
not
reasonably
be
expected
to
provide
the
appellants
with
a
chief
source
of
income
in
the
last
five-year
period,
1978
to
1982,
inclusive.
Apparently
this
argument
found
favour
in
the
strong
and
persuasive
dissent
of
Marceau,
J.
in
Graham
v.
The
Queen,
supra.
It
was
not
accepted
by
the
majority
decision,
however,
which
held
that
once
it
is
established
that
the
second
step
of
the
two-step
process
was
to
weigh
the
facts
of
the
case,
objectively
and
relatively,
as
to
whether
the
appellants’
ordinary
mode
and
habit
of
work
was
such
that
farming
could
reasonably
be
considered
as
their
chief
source
of
income
during
the
taxation
years
in
question.
In
this
case
it
has
been
vividly
demonstrated
that
the
subject
farming
endeavour
had
not
been
casual
or
part-time
and
that
it
would
be
illogical
to
describe
it
as
auxiliary
or
sideline.
Following
each
series
of
disasters
the
appellants
had
attempted
to
substitute
and
put
into
place
a
reasonable
plan
from
which
a
high
level
of
profit
could
be
generated.
Continuing,
unforeseen
and
uncontrollable
disasters
were
the
direct
causative
factors
of
the
continuing
financial
frustrations.
From
the
outset,
and
thereafter,
the
size
and
extent
of
the
operation
had
the
capacity
to
produce
substantial
gross
income
and
profit.
This
is
one
important
distinguishing
feature
to
that
of
Graham,
supra:
it
is
more
akin
to
the
factual
circumstances
of
Hadley
v.
The
Queen,
supra.
The
observation
that
the
appellants
should
probably
have
given
up
sooner,
or
after
the
fire,
is
an
“arm-chair”
business
judgment
with
all
of
the
benefits
and
clarity
attributable
to
hindsight.
Perhaps
a
less
committed
or
more
prescient
taxpayer
would
have
recognized
the
end
sooner,
but
I
can
not
find
serious
fault
with
the
appellants
for
continuing
into
1982.
Beyond
that
it
might
be
a
different
matter.
In
my
view
this
alone
would
not
be
sufficient
to
place
the
farm
into
the
category
of
a
sideline
business
in
the
1981
and
1982
years
but
would
be
just
one
factor
to
be
considered
in
the
global
approach.
The
preponderance
of
facts
and
circumstances
point
away
from
the
farm
being
that
of
a
sideline
or
subsidiary
source
of
income
rather
than
towards
it.
They
are
corroborative
of
the
appellants’
intensive,
extensive
approach
to
a
full
scale,
high-level
farm
operation
from
which
they
would
earn
gross
income
at
least
equal
to
the
net
income
of
the
dentistry
practice.
And
they
had,
colloquially,
“put
their
money
where
their
mouth
was”;
viz.
Hadley
v.
The
Queen,
supra,
at
66
(D.T.C.
5062).
The
comment
of
Joyal,
J.
in
that
case,
at
69
(D.T.C.
5064),
is
of
application
to
the
case
at
bar:
In
the
circumstances,
one
must
guard
against
the
normal
conclusion
that
the
substantial
investment
made
by
the
plaintiff
could
not
possibly
have
been
with
a
serious
intention
of
achieving
profitability.
.
.
.
the
plaintiff
is
not
the
type
of
person
who
would
gladly
risk
a
million
dollars
in
an
operation
on
the
simple
expectation
that
in
the
event
of
losses,
half
of
them
would
be
absorbed
by
deductions
from
his
other
income.
As
to
the
matter
of
Viapax
(see
paragraph
9
of
the
Supplementary
Agreed
Statement
of
Facts),
I
accept
the
Minister’s
position
set
out
in
paragraph
7(g)
of
his
reply
to
notice
of
appeal
with
respect
to
the
appeals
of
William
Fleming,
namely
that:
7(g)
of
the
$94,552.00
sought
to
be
deducted
by
the
Appellant
for
the
1980
taxation
year
in
respect
of
losses
from
the
operation
of
the
farm,
$47,166.00
represented
the
loss
sustained
by
the
Appellant
from
the
sale
of
shares
in
a
corporation
carrying
on
business
under
the
name
of
Via
Pax
Corporation
Limited.
The
Viapax
shares
were
not
shown
to
have
been
partnership
property
by
way
of
trust
or
otherwise.
Accordingly,
the
1980
farm
loss
of
the
partnership
is
in
the
reduced
amount
of
$47,386.
The
loss
on
the
sale
of
the
Viapax
shares
amounting
to
$47,166
has
been
assessed
correctly
by
the
Minister
as
solely
that
of
Dr.
Fleming
and
as
on
account
of
capital
and
not
on
account
of
income.
D.
Conclusions
As
earlier
determined,
the
appellants
have
not
sustained
their
constitutional
challenges
under
either
the
Charter
of
Rights
and
Freedoms
or
the
Canadian
Bill
of
Rights.
However,
the
aforementioned
extensive
and
almost
exhaustive
examination
of
all
the
relevant
facts
leads
me
to
the
conclusion
that,
in
the
application
of
the
law
thereto,
the
appellants
have
successfully
rebutted
the
Minister's
application
of
subsection
31(1)
of
the
ITA
under
the
tests
and
principles
of
Moldowan
v.
The
Queen,
supra.
The
appeals
are
therefore
allowed
in
part
and
the
matters
are
to
be
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
limitative
provisions
of
subsection
31(1)
of
the
ITA
are
not
applicable
with
respect
to
the
1978
to
1982
taxation
years,
inclusive,
of
William
Fleming
and
are
not
applicable
with
respect
to
the
1979
to
1981
taxation
years,
inclusive,
of
Stella
Fleming.
The
appeal
of
Stella
Fleming
as
to
her
1978
taxation
year
is
dismissed
for
the
reason
that
the
assessment
for
tax
therefor
was
in
a
nil
amount
from
which
no
relief
may
be
granted.
These
appeals
being
heard
on
common
evidence,
there
will
be
one
set
of
costs
to
the
appellants.
Appeals
allowed
in
part.
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