William J Doyle v. Minister of National Revenue, [1984] CTC 2205, 84 DTC 1174

Roland St-Onge, [ORALLY]:—The appeal of Mr William J Doyle came before me on April 14, 1983, at the City of Saskatoon, Saskatchewan, and the issue is whether the appellant is entitled to claim more than $5,000 as farming losses with respect to his 1977, 1978 and 1979 taxation years.

The parties’ contentions are as follows:

NOTICE OF APPEAL

5. In 1957, the Appellant imported, from Texas, one of the first female purebred Charlois into Saskatchewan. He later disposed of his interest in Charlois cattle and went into Horned Hereford cattle with the intention of developing the best breeding stock possible. In 1976 he was one-half owner of the Grand Champion Horned Hereford bull in the Regina Agrihibition, which is one of the top cattle shows in Canada. In 1979 he again won the Grand Champion Horned Hereford Bull Award.

6. When he began to develop his Hereford breeding stock, the Appellant fully expected that it would take a period of at least ten (10) years for him to build a herd of sufficient size and quality and to gain sufficient name in the breed to enable him to market his progeny at such prices as would show a reasonable return on his investment.

7. The Appellant’s time is divided between farming and his medical practice. Both businesses occupy his time and personal attention daily. He spends an average of forty hours per week actively attending to farming matters, especially with regard to the cattle herd, and for many years he has also spent his spare time and holiday time, except for approximately one week per year, actively involved in his farming operation. The Appellant’s farming operation now consists of approximately 3,600 acres of land, together with a cattle inventory that has risen from less than 100 registered and grade animals in 1970, to 258 registered and 11 grade animals in 1979. These animals are valued at approximately $360,000.00.

8. Poor cattle prices in some years forced the Appellant as it did most farmers, to retain many animals rather than sell them, resulting in a build up of inventory. This large inventory meant more and more time had to be spent by the Appellant and his wife in looking after the herd, particularly at calving time.

9. The Appellant’s grain and feed operations alone, are quite extensive. In 1980 he had on hand over 800 tons of round straw bales for feed and bedding. The farming Operation was considered to be so extensive, that in 1974 a tax department auditor advised the Appellant to claim full losses for the farm.

10. The Appellant has successfully increased his Gross Farm Income from $17,552.00 in the year 1970 to $342,466.00 in 1979. In the same period of time the Appellant’s net professional medical practice income has been maintained at a relatively stable level. In 1970 this income was $58,006.00 and in 1979 $53,694.00. In 1979 the total cost of farm assets amounted to some $502,226.00.

11. The extensive investments of money and time in the farming operation will, in the Appellant’s opinion, create a profitable operation in the near future. The Appellant has spent increasing amounts of time and energy in his farming operation over the last five years. The addition of another associate to the medical practice of the Appellant, has in the past three years enabled the Appellant to spend increasing amounts of time directed toward his farming operation.

12. The Appellant has achieved the above only by exacting attention to farm management and productivity and his total work effort is a combination of his professional practice and farming. The Appellant says that the foregoing is consistent only with the Appellant being engaged as a farmer in the business of farming whereby the Appellant’s chief source of income for the years 1977, 1978 and 1979 constitutes farming or a combination of farming and some other source of income within the meaning and use of these words in Section 31(1) of the Income Tax Act.

REPLY TO NOTICE OF APPEAL

7. In so assessing the Appellant, the Repondent relied, inter alia, upon the following assumptions of fact:

(a) That the Appellant is a medical doctor by profession and at all times material was engaged full time as a partner in a medical practice operating under the partnership name of Unity Medical Associates;

(b) That the Appellant’s chief source of income for the years under appeal was his medical practice which resulted in net income to the Appellant of $67,020.52 in 1977, $68,084.89 in 1978 and $53,693.96 in 1979;

(c) That during the years under appeal, the Appellant carried on a farming operation as a sideline business to his medical practice;

(d) That during the years under appeal, the Appellant had no source of income from the said farming operation, suffering a net farm loss of $77,470.37 in 1977, $143,384.91 in 1978 and $50,518.81 in 1979:

(e) That the Appellant’s chief source of income for the years under appeal was

neither farming nor a combination of farming and some other source of income.

The evidence has shown that at the time of his study the appellant took one year in agriculture; that in 1974, he left medicine to become a full-time farmer for six months. When he sold his farm in Black Diamond, Alberta, he moved to the town of Unity, Saskatchewan, and purchased at different times various parcels of land which increased considerably in value (Exhibit A-l). Then, he consolidated land for farming purposes.

Prior to 1977, the appellant realized taxable farming income and in years of losses he claimed only the restricted farming loss of $5,000.

In other words, at the hearing, the appellant has substantiated all of the allegations of his notice of appeal. He has shown that for years a substantial amount of his time was devoted to farming activities, and at the age of 60, he had organized his medical practice in order to spend more time on farming.

The evidence has also revealed that the appellant did not try to reduce a substantial source of income with farming losses. On the contrary, his course of conduct shows that his intention was to operate a farm and to earn farming income.

His farming business in the years at issue is so substantial that it has to generate profit in the near future.

As a matter of fact, today the land and buildings are worth over $1 million; cattle $400,000; grain $35,000 and equipment $300,000.

It is interesting also to notice that from 1970 his personal income from his medical practice did not increase, whereas the farming gross income went from $17,552 up to $342,456.

Furthermore, the appellant has shown a substantial knowledge in his type of farming operation, and evidence was given to the effect that he spent a little more than half his time farming, and the balance in medicine; and with his wife he made all of the important decisions with respect to the farming operations.

On cross-examination, the appellant had a good explanation for every question put by counsel for the respondent.

The chartered accountant for the appellant, who has been preparing income tax returns for full-time farmers for 30 years, testified that the appellant’s farming operations are comparable, if not better than any other farmer who operates as a full-time farmer.

The Board is convinced that the appellant’s farming activities in the years at stake constitute his principal source of income and not only a way to reduce a substantial main source of income.

For these reasons, the appeal is allowed.

Appeal allowed.