Burpee Finniss v. Minister of National Revenue, [1984] CTC 2826, 84 DTC 1712

Kempo, TCJ:—

Part I — Issue

This is an appeal and claim by the appellant for deduction of farm losses in respect of his 1978, 1979 and 1980 taxation years on the basis that he is a taxpayer who was in the business of farming during each of the said years. More particularly, in respect of 1978 and 1980 he claims that he is entitled to deduct his full farm loss in that his circumstances during those years were such that he is free of the limiting provisions of section 31 of the Income Tax Act (the “Act”). In respect of 1979 he claims that he is entitled to deduction of the restricted farm loss pursuant to section 31 of the Act.

The respondent’s position is succinctly stated in the reply to notice of appeal:

3. The Minister of National Revenue has disallowed the deduction of the ssaid farming losses, upon the bases that:

(a) the expenses giving rise to the said losses were personal or living expenses, and,

(b) the losses did not arise in connection with a business carried on for profit or with a reasonable expectation of profit.

5. He submits that the Appellant’s claim for the deduction of farming losses were properly disallowed upon the basis that the expenses giving rise to the said losses were personal or living expenses, and the losses did not arise in connection with a business carried on for profit or with a reasonable expectation of profit.

6. He further submits, in the alternative, that in the event the Appellant’s farming activities constituted carrying on business for profit or with a reasonable expectation of profit, the deduction of the said losses should nevertheless be limited, in accordance with subsection 31(1) of the Income Tax Act, on the basis that the Appellant’s chief source of income was neither farming nor a combination of farming and some other source of income for the relevant years.

Part II — Decision

The appeal is allowed in full in respect of the appellant’s 1979 taxation year and is allowed in part in respect of the 1978 and 1980 taxation years. The matter is to be referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the loss restrictions set out in section 31 of the Act are applicable to the appellant’s 1978, 1979 and 1980 taxation years respectively.

Part III — Reasons

The assertions contained in paragraphs 3 to 6 inclusive of the notice of appeal were in the main substantiated through the testimony of the appellant and were as follows:

3. The Appellant is a retired school teacher who purchased a farm in 1967. At that time the farm consisted of 200 acres, with 10 acres being cleared. Since that time an aggressive program of land clearing has been carried out so that today there are 90 cleared acres. In addition to clearing land the Appellant purchased cattle which averaged in herd size for the relevant taxation years as follows: 1978 — 25; 1979 — 30; 1980

— 33.

4. In June, 1980 the Appellant retired from teaching, devoting the majority of his time to his farm, although he continued to receive income from non-farming sources such as investments, and from instructing at a cadet camp. During the time the Appellant taught school he continued to devote a considerable amount of his time, during the crop season, to his farming operation.

5. Although the farm operation did not achieve a profit in any of the relevant taxation years it has been operated with a view toward achieving a profit in the future. The Appellant has invested money in purchasing animals and machinery, as well as building a silo and improving the buildings located on the farm.

6. The Appellant has received Provincial Government assistance for his farm and is registered with the New Brunswick Department of Agriculture Farm Development Plan.

The evidence confirms the appellant’s avowed attitude and intention over the last 17 years to be a full-time farmer but until that was possible he set out to acquire, manage and gradually increase his farming operation without borrowing by the use of his off-farm and his own time, labour and skills.

While the farming operation has been in a net loss position since inception and more particularly for the years 1978 to 1983 inclusive, the 1978 taxation year was a break even year on a cost basis and could not have been a profitable year had the loss of 11 pregnant cows not occurred in previous years. That event together with his domestic problems caused him to postpone his objective to be a farmer on a full-time basis. The financial uncertainties occasioned by his marriage breakdown were resolved in May of 1979. He left teaching on completion of the 1979/80 school year to become a full-time farmer. He collected unemployment insurance for 10 weeks during the fall and winter of that year and for a further 33 weeks during 1981.

While appreciating that none of the above is alone determination of the issues, viewed collectively it can be fairly said that this appellant was not a hobby farmer but rather, during the 1978, 1979 and 1980 taxation years, he has established that the losses arose in connection with farming carried on by him as a sideline business for profit or with a reasonable expectation of profit. Accordingly the appellant’s chief source of income for each of the respective years was neither farming nor a combination of farming and some other source of income and the deductibility of the losses from his farming business would be subject to the limitative provisions of section 31 of the Act.

Part IV — Jurisprudence Cited

— Moldowan v The Queen, [1977] CTC 310; 77 DTC 5213 (SCC)

— Blake v MNR, [1984] CTC 2152; 84 DTC 1162 (TCC)

— Kerr and Forbes v MNR, [1984] CTC 2071; 84 DTC 1094 (TCC)

— CBA Engineering Ltd v MNR, [1971] CTC 504; 71 DTC 5282 (FCTD)

— Morisset v MNR, [1984] CTC 2202; 84 DTC 1176 (TCC)

— Lorenz v MNR, [1984] CTC 2110; 84 DTC 1118 (TCC)

— Buchanan Forest Products Limited v MNR, [1984] CTC 2281; 84 DTC 1253

(TCC)

—• Wilson v MNR, [1984] CTC 2158; 84 DTC 1164(TCC)

— Plante v The Queen, [1983] CTC 341; 83 DTC 5378 (FCTD)

— Graham v The Queen, [1983] CTC 370; 83 DTC 5399 (FCTD)

— Plante and Plante v MNR, [1981] CTC 2052; 81 DTC 74 (TRB)

— Drescher et al v MNR, [1983] CTC 2647; 83 DTC 579 (TCC)

— McLachlen v MNR, [1974] CTC 2003; 74 DTC 1035 (TCC)

— Tomeck v MNR, [1971] Tax ABC 845; 71 DTC 590 (TAB)

— Napran v MNR, [1971] Tax ABC 976; 71 DTC 621 (TAB)

— Blomberg v MNR, [1970] Tax ABC 608; 70 DTC 1394 (TAB).

Appeal allowed in part.