Victor Croutch v. Minister of National Revenue, [1984] CTC 2113, 84 DTC 1112

Rip, TCJ:—The appellant appeals his income tax assessments for 1977, 1978, 1979 and 1980, on the basis he carried on the business of farming for profit and is therefore entitled to deduct expenses incurred in his farming operations.

In 1961 the appellant commenced working a 250-acre farm near Janetville, Ontario; he had no previous farm experience. He worked on this farm ‘‘full- time” for three years until “I found out you needed large amounts of capital” and one of the ways of obtaining capital was to work. The appellant worked on the farm evenings, holidays and weekends; all of his time was devoted to the farm and “the first holiday I had was in 1974; I haven’t spent a single day or night away since”. The appellant leases his farm from a daughter and two people in the construction business in Toronto. He pays taxes and upkeep as rent for his daughter’s land and pays $1,200 annual rent for the other land.

During the years in appeal, the appellant was employed as a construction superintendent. In 1977, he farmed from May to August; in 1978, from February to July. He worked throughout the year in 1979 and 1980 in construction. When he worked he would be away from the farm between 7 am and 5:30 pm; when he arrived home he would work about three to four hours in the evenings and during the weekends he would work 12 to 13 hours on the farm. The appellant had a horse breeding operation and he also grew hay, barley and oats. Any of the hay, barley and oats surplus to the needs of the horses was sold. In any one year he may have had as many as 17 horses on the farm, the average annual number would be 13 or 14.

The appellant testified it takes roughly one acre of grain, one acre of hay and two acres of pasture to look after a single horse. Acreage was tilled and cultivated and used for the horses’ feed and pasture. In 1978, the appellant increased the acreage available for grain for sale purposes “to shore up” the farm; in 1979 he again increased the cultivated area and planted wheat for the 1980 crop.

In the early 1960s, the appellant was farming beef; he was not selling the volume required “to make a go” in the red meat industry and concluded breeding horse stock would pay as much as beef in the end, or more, “with a little less input as I got older”.

The appellant had a keen interest in horse breeding and decided to breed horses of good bloodlines. Accordingly in 1978 he purchased a horse to breed with First Secretary, the first born son of Secretariat. He bred five mares to First Secretary but he came up empty twice; eventually his mares did bear three daughters from First Secretary.

In 1980, the appellant put greater emphasis into crop farming, still retaining an interest in horses “but not as strong”.

The appellant testified he may have earned some profit from the farm “in 1965 or 1966” but except for these years he incurred only losses from 1961 up to, and including, the years in appeal. He believes he may have earned some profit in 1981 and 1982; however, he has not yet filed his income tax returns for these years and could not confirm his earnings.

The appellant’s gross income from farming was $3,335, $6,607, $9,278 and $12,499 respectively in 1977, 1978, 1979 and 1980; claimed expenses for these years were respectively $15,622, $14,644, $18,146 and $23,938. In 1977 his income resulted from the sale of crops and horses as well as breeding fees; in the latter years he added to his income by boarding and pasturing horses.

The appellant knew, or ought to have known, the risk involved in raising horses for breeding purposes. In his evidence the appellant tendered documentation showing stud fees being charged for stallions of First Secretary, claiming had his mare born stallions and not mares, his farm operations would have been profitable. But as previously stated by the predecessor of this Court, the breeding and raising of thoroughbred horses is not without high risk (Vide NG Hall v MNR, [1983] CTC 2003; 83 DTC 8; Shiewitz v MNR, [1979] CTC 2291; 79 DTC 340). It appears that up to 1980 the farm’s operations were devoted to horse breeding and any other activities, such as crops, boarding and putting horses to pasture, were incidental to breeding horses, which was showing continuous losses.

This is another case where a taxpayer has put a lot of drive, effort and energy into farming activity but does not look to farming for his livelihood. In fact, in this case, the appellant’s profit and loss experience, for over 15 years was dismal; the appellant was drawn by his enthusiasm for farming to continue his farming activities almost without regard to cost.

The appeal will therefore be dismissed.

Appeal dismissed.