Arnold Dell v. Minister of National Revenue, [1984] CTC 2425, 84 DTC 1403

Kempo, TCJ:—

Issue

This is an appeal from income tax reassessments for 1977, 1978 and 1979 taxation years of the appellant. The sole issue relates to the disallowance by the respondent of the appellant’s claim for restrictive farm losses under the provisions of subsection 31(1) of the Income Tax Act (the “Act”) in the respective amounts of $1,878.12, $1,355.79 and $4,181.45 on the basis that the expenses giving rise to the said losses did not arise in connection with a business carried on for profit or with a reasonable expectation of profit but rather were personal or living expenses within the meaning of paragraph 18(l)(h) of the Act.

Decision

The appeal is dimissed for the following reasons.

Reasons

In 1976, the appellant purchased 142 acres of bushland located approximately 20 to 22 miles away from Selkirk, Manitoba. At the same time he moved a house onto this property which was occupied by himself and his family as their residence. During the taxation years in issue the appellant and his wife were employed full-time at the Selkirk General Hospital, the appellant in the maintenance department and his wife in housekeeping.

The appellant’s expressed intention was to clear the land and to start farming, his background experience being that of working on a farm in France and, since coming to Canada in 1968, helping out other farmers in his area. Because of his limited economic circumstances he decided to clear this bushland “slowly, acre by acre” with an expectation of clearing five acres per year. Fifteen acres had been hand cleared by 1980 with the use of a tractor acquired by the appellant for pulling out stumps. No land clearing at all occurred in 1978 due to an accident in which the appellant lost two fingers, nor in 1980 (no explanation being tendered for the 1980 year).

In 1981 a further 20 acres had been cleared, a bulldozer having been purchased in that year for faster land clearing and to show his “good faith” to Revenue officials that he was indeed in the business of farming to the best of his abilities.

The appellant was of the stated opinion that he would have had to have cleared 95 acres of bushland to break even as to expenses and income and that his plan was to have eventually cleared a full 120 acres before his planned farming activities could have been profitable.

The appellant lost his job with the Selkirk Hospital in 1982 and, having been since unemployed, sold some of this farming machinery in order to live.

The appellant had built a granary on the property in 1977 and had purchased the following used farm machinery: in 1975 a tractor for $400 and a bailer for $1,400; in 1978 a tractor for $5,000 and in 1979 a plow for $300.

The appellant’s income and expenses from farming in the years under appeal were as follows:

The appellant’s employment income for 1977, 1978 and 1979 was respectively $10,633.55, $9,787.65 and $11,466.60.

In 1978 the appellant’s income from farming was a result of selling oats and hay and in 1979 was attributable to the sale of an animal and to the helping out of neighbouring farmers. The appellant stated that as he did not do anything on the property in 1980 he did not file any farming claims thereto for that year.

Mr Robert Schutz, a neighbour and full-time sheep farmer on 280 acres of land, gave evidence that he has been aware of this appellant’s circumstances throughout, that in his opinion the appellant did everything he could to establish a small farm on very limited capital and that he considered the appellant to be a full-time subsistence farmer.

As the restricted deduction allowed under subsection 31(1) of the Act is being claimed the question to be answered is whether, during the 1977, 1978 and 1979 taxation years, the appellant’s farming activities could be properly described as a sideline business.* [1] If not then the appeal must fail.

Counsel for the Minister referred the Court to six cases at lawf [2] to support his argument that the appellant must establish, by a preponderance of evidence, that his farming activities during the relevant years establish the reality and viability of profit or reasonable expectation of profit. { [3]

It is the expectation that is to be reasonable, which is to be determined by objective testing rather than by the presence of the appellant’s subjective plans or desires, no matter how genuine.

Viewing the evidence as a whole, and objectively, I am not satisfied that Mr. Dell was carrying on any business relative to his farm or that his farming activities during the three years in question were commercial in nature or that his expenses could be properly viewed as start-up costs.

While it may be true that the appellant felt that his efforts would some day cause his expectation of profit to be realized, he failed to demonstrate the existence of any systematic or organized program during his 1977, 1978 and 1979 taxation years such that his expectations could in any way be reasonably satisfied within a reasonable time.

As I am unable to find that in the years in question the appellant was farming with a reasonable expectation of profit this appeal will be dismissed.

Appeal dismissed.