John Bell Wilson v. Minister of National Revenue, [1986] 1 CTC 2488, 86 DTC 1336

Christie, A.C. J.T.C.:—The appellant appeals to this Court regarding his 1978 to 1981 taxation years inclusive. In respect of each of these years he is regarded by the taxing authorities as being within the scope of subsection 31(1) of the Income Tax Act ("the Act”) with reference to his farming operations and in computing his income for these years he was confined by reassessment to deducting the $5,000 maximum provided under the subsection in relation to those operations against other sources of income. The appellant asserts entitlement to deduct his full farming losses against other income.

The appellant’s farm is 250 acres located near Kars, Ontario. It has been in his family for three generations, having been acquired by his grandfather in the 18805. The appellant was raised on the farm and worked there while at school and, when time permitted, while attending university. He is the only son of four children. After completing grade 12 he enrolled in the Kempt- ville College of Agriculture, but did not pursue this. Upon graduating from grade 13 he enrolled at Queens. He was not happy with what he was doing there and went to Carleton University. In the spring of 1961 he accepted a position as a teacher commencing in the fall of that year. He received his degree from Carleton in 1962 and, in 1963, he secured a position at the South Carleton High School where he remained for 18 years. He then transferred to the A. Y. Jackson High School in Kanata. He was promoted to head of the Mathematics Department at A. Y. Jackson and continues to teach there to this day.

He married in 1964. The couple acquired an apartment in Ottawa where they resided for four years. In 1965 his father auctioned his cattle and machinery. He passed away in the spring of the following year. The appellant inherited the farm subject to a condition, which is irrelevant to this appeal, that was fulfilled.

In February 1968 construction of a new home on the farm began and it was occupied by the appellant and his wife the following August. He started accumulating his herd of cattle in 1969. The early acquisitions were a mix of breeds, but later he decided to focus on purebred Aberdeen Angus stock. By about 1975 his herd was composed exclusively of this breed. The appellant gave 65 as the average size of the herd.

Mrs. Wilson testified that she assisted her husband in farming although she declared that: “I am not a true farmer myself.” She added that she was not involved in the financial aspect of the enterprise. Paragraph A-3 of the notice of appeal reads:

3. The Appellant and his family spend and during the period in question spent, substantial time each week personally working on his farm taking care of the 63 head of cattle.

Mrs. Wilson said that the children sometimes helped with the farming. The children were not further identified, but if they are the two in respect of whom the appellant sought deductions in computing his taxable income for the years under review, their contribution, at least during that time, must have been very modest having regard to the fact that the daughter was born on June 29, 1969, and the son on June 20, 1974. In each of the years 1978 to 1981 the appellant reported farming expenses of about $950 for wages and salaries. This he said was paid to local teenagers for doing assigned chores. He also said that the necessary ploughing was done for him under contract.

The appellant held the office of councillor from 1974 until he resigned in 1982. During the first two years there were two or three meetings a week. After that there was an average of one and a half meetings per week. Each meeting lasted about three hours. In 1978, 1979 and 1980 he attended one convention regarding his office as councillor. In 1981 he attended two conventions.

I accept that the appellant is and was a knowledgeable farmer. I also accept, as was stressed by both him and his wife, that he has been dedicated to farming for years and has aspired to become what both described as “a full-time farmer”. On April 27, 1978, he wrote Revenue Canada in part as follows:

In the brief description I have given you I would hope you would realize I do not consider myself a hobby farmer but rather I have a full farm operation. I am farming the same farm my father farmed & I have more machinery (& better) & more cattle to look after than my father, who did not have any off the farm job. I feel that with a little luck (i.e. better & more stable beef prices) I could easily in a few years have only 1 job, that of farming. I can assure you I could get all my enjoyment of being a hobby farmer with a much smaller operation. My intention from the beginning has been to make a profit each year.

At the hearing the long hours devoted to farming by the appellant was underscored. It is that he was at it in the morning before he went to his teaching job, when he returned in the afternoon, on weekends and on holidays. The testimony leaves the impression that apart from time spent as a teacher and in relation to the office of councillor, plus ten days to two weeks’ annual vacation, the appellant was almost consumed by farming. He did not impress me as a person who would be swept along that far. Nor did his wife strike me as an individual who would permit it. He said that he devoted more time to farming than to teaching although the ratio in this regard was not specified. Emphasis was also placed on the expenditures made over the years to upgrade the quality and productivity of the farm. The matter of installing a new drainage system was described in detail. It was Said that this investment upgraded the quality of some 70 acres to a very considerable extent.

The losses reported in his returns of income forwarded to the Court in compliance with subsection 170(2) of the Act are: 1978 — $18,887.11; 1979 — $20,463.85; 1980 — $14,985.74 and 1981 — $21,804.78. Gross farming income was: 1978 — $19,487.77; 1979 — $16,607.14; 1980 — $29,649.90 and 1981 — $19,992.88. Income from other sources during the same period is: 1978 — $31,728.28 being salary received as a teacher from the Carleton Board of Education, $2,908.32 in remuneration as councillor received from the Township of Rideau. He had additional income of $1,302.58. The sum of these figures is $35,939.18. In 1979 he received $34,160.22 for teaching and $3,000 as a councillor. Other income was $1,416.18 for a total of $38,576.40. His 1980 teaching salary was $35,049.82 and he received $3,050 as a councillor. He had additional income of $853. In total this is $38,952.82. In 1981 he received $39,772.57 as a teacher and $3,600 as a councillor. Other income was $1,093.56 for a total of $44,466.13. From this it is deduced that in 1978 farming losses were the equivalent of 97 per cent of gross farming income. The same percentages for the other years under appeal are: 1979 — 123; 1980 — 50 and 1981 — 109. If the same relationship is drawn between gross farming income and the appellant’s salary as a teacher, it is seen that in 1978 gross farming income was 61 per cent of the teaching salary. The same percentages for the other years under appeal are: 1979 — 49; 1980 — 85 and 1981 — 50.

Evidence introduced at the hearing established that in 1977 farming losses were the equivalent of 107 per cent of gross farming income. The same percentages for 1982, 1983, 1984 and 1985 are: 51, 24, 32* [1] and 31 respectively.

If the same relationship is drawn between gross farming income and the appellant's salary for teaching! the result is that in 1977 gross farming income was 41 per cent of the appellant’s salary as a teacher. The same percentages for 1982, 1983, 1984 and 1985 are: 52, 60, 65 and 89 respectively.

In 1976 the appellant confined his claim to farming losses to those allowed under subsection 31(1) of the Act.

The appellant placed in evidence projections regarding his farming operations for the years 1986, 1987 and 1988. They show profit in those years of $6,220, $13,276 and $16,314 respectively. The only years for which figures were adduced regarding gross farm income, farm expenses and claimed farm losses are 1976 to 1985 inclusive. They show that there was an increase in farm expenses in each year except 1983. This increase ranged from $21,207.92 to $58,727.18. The decrease in 1983 was $888. The expenses shown in the projections for 1986, 1987 and 1988 are: $50,275, $45,149 and $46,485 respectively.

When asked by his counsel what his plans for the future are, the appellant replied: “If 1 could leave teaching and have a reasonable income I would jump at it." When pressed by his counsel regarding his intentions rather than his preference, the appellant said he intended to be entirely occupationally engaged in farming in five years. When questioned in this regard he acknowledged he would then have 30 years’ pensionable service in the teaching profession and would be in a position to retire on pension.

In order for the appellant to succeed he must establish that, during his 1978 to 1981 taxation years, he was within the first of the three classes of farmers which Mr. Justice Dickson (as he then was) said in delivering the judgment of the Supreme Court of Canada in Moldowan v. The Queen, [1977] C.T.C. 310; 77 D.T.C. 5213, are envisaged by the Act. His Lordship described that class in these words at 315 (D.T.C. 5216):

(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 subsection 13(1) in those years in which he sustains a farming loss.

Mr. Justice Dickson added this at the same page:

The reference in subsection 13(1) to a taxpayer whose source of income is a combination of farming and some other source of income is a reference to class (1). It 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.

In commenting on these remarks, Bonner T.C.J. said in Timpson v. M.N.R., [1985] 2 C.T.C. 2114 at 2118; 85 D.T.C. 446 at 449:

I do not believe the Court there referred to subjective preoccupation. Such preoccupation, even in a case where it amounts to an obsession, will not convert sideline farming into a chief source. “Major preoccupation” refers to major preoccupation from an income-earning standpoint.

In Kerr and Forbes v. M.N.R., [1984] C.T.C. 2071; 84 D.T.C. 1094, this is said at 2078 (D.T.C. 1100):

While it is not impossible for a person to fall within the first class even if he has other employment which is usually regarded as “full-time” it would, in my view, require a truly unusual set of facts of the kind described in Graham v. The Queen, (supra), to arrive at that result.

This was said before judgment was rendered by the Federal Court of Appeal on the appeal taken to it in Graham. Its judgment is reported in [1985] 1 C.T.C. 380; 85 D.T.C. 5256. I find nothing in the reasons of Mr. Justice Urie, who wrote for the majority, that detracts from the passage cited from Kerr and Forbes. I note that in the last sentence of his reasons Urie, J. makes reference to “the very unusual circumstances of this case.”

While the percentages previously cited are not necessarily of themselves conclusive, they are certainly something to be regarded in the determination of this appeal. They reveal that during the years 1977 to 1985 farming losses as a percentage of gross farming income ranged from 123 per cent to a low of 24 per cent. The high point was reached in 1979, one of the years to which this appeal pertains. Also gross farming income as a percentage of the appellant's teaching salary ranged from a low of 41 per cent to a high of 89 per cent. In 1979 it was 49 per cent. The uninterrupted string of net farming losses during the ten-year period 1976 to 1985 is significant and is detrimental to the appellant's contentions on this appeal. These matters, coupled with the rest of the evidence, lead me to conclude that the appellant has failed to discharge the onus which rests on him of showing that on a balance of probabilities he was, during the years under review, within the first class of farmers described in Moldowan. I cannot regard him as having been in this class at any time during those four years. While it may well have been his profound aspiration since the commencement of his farming enterprise in 1969 that farming would reach a point when it could reasonably be expected to provide the bulk of his income or the centre of his work routine that ambition had not been attained during the years 1978 to 1981 inclusive. In the overall context of his existence during this period he cannot, in my opinion, properly be regarded as looking to farming as his means of living. His farming enterprise during that time was a sideline business. It was also a business which was required to be subsidized by income of the appellant from other than farming income in order to keep it financially afloat until hopefully it would realize a profit. While testifying he remarked that he was “robbing a fair amount of my teaching salary subsidizing my farm.”

In the notice of appeal one of the grounds of appeal was based on subsection 15(1) of the Canadian Charter of Rights and Freedoms. This was abandoned at the hearing.

The appeal is dismissed.

Appeal dismissed.