Roderick Bishop v. Minister of National Revenue, [1984] CTC 2879, 84 DTC 1785

Taylor, TCJ:—This is an appeal heard in Saskatoon, Saskatchewan on July 30, 1984 against income tax reassessments struck in 1982 for the taxation years 1977, 1978, 1979 and 1980. The matter at issue is the disallowance by the Minister of certain farm losses claimed by the taxpayer. It was not perfectly clear from the notice of appeal, or from the comments of the agent for the appellant, but it would appear that it was the intention of the appellant to claim only the “restricted farm loss” maximum of $5,000 for each of the years involved, there being no effort at the hearing by the appellant to support a “full farm loss” claim. At the commencement of the hearing counsel for the respondent informed the Court that the Minister was agreeing to the reassessments for the years 1977 and 1978, being vacated — and a “restricted farm loss” of $5,000 for each year permitted as a deduction to the appellant. In explanation, counsel pointed out

that this concession reflected a recent policy of Revenue Canada to only reassess two years as opposed to four years, and it was not to be interpreted as agreement by the Minister that there had been a “reasonable expectation of profit” for the years 1977 and 1978. It was also noted for the Court that as far as the records available to counsel would indicate, assessment of tax for the years 1981, 1982 and 1983 had not yet been struck by the Minister — for some reason. Following a lengthy discussion with the parties, the Court agreed to decide only, if the appellant was entitled to the “restricted farm loss” for the years 1979 and 1980, the Minister’s position being that for these years no such deduction was permissible from other income. The dichotomy in the Minister’s position for the years 1977 and 1978, when related to the position for 1979 and 1980 is evident.

The notice of appeal had been prepared by M B & Associates, Regency Business Centre, 333-25th Street E, Saskatoon, Saskatchewan, S7K 0L4, but the attitude demonstrated and the contribution provided to the appellant at the hearing by Mr K G Bawolin of that firm was of only minimal assistance. It was not evident to me that Mr Bawolin appreciated the complexity or the responsibility related to the income tax propositions involved in a matter of this kind. Certain comments from the notice of appeal illustrate that point:

The primary exclusion of farm loss has been set forth, as follows:

“Expenses claimed, as deductions from income in each year as farming losses were personal or living expenses within the meaning of subsection 248(1) and are not deductible from income in accordance with the provision of paragraph 18(l)(h) of the Act.”

In response to the above I cite the following expenses which we maintain would not have been made without a farm operation in place. Certainly not a personal living expense.

It is clear that no one invests $133,000.00 in items such as has been described and could possibly be deemed as expense(s) of a nature deemed personal or living. It is clearly an erroneous judgement and we request that the operation (farm) be recognized as a typical small Saskatchewan farm. We further request that Mr Bishop be allowed an exemption against other income the losses incurred in this operation.

You may ask the obvious question where has the produce gone in 1977-1981 which was produced? It may not be clear to you, but in a community such as Green Lake with 85 per cent unemployment and Welfare being the grisly statistic the PRODUCE WAS GIVEN AWAY TO OTHERS IN NEED!!! The value of produce given away is the net differance (sic) between produce generated and Income stated.

Certainly it doesn’t compute if you take a general attitude that $X invested must yield $Y and incur $Z Tax base assessment. This doesn’t work in the Northern communities and expecially (sic) primarily native communities. These communities have a sharing attitude and the individuals who are able to generate income end up supporting the many who Cannot. Welfare payments do not constitute even an acceptable level of Income to meet needs: certainly it is not so difficult to see the situation in its proper perspective if one approaches it without a Jaundiced eye.

In contrast, the stark reality of the situation as viewed by the Minister is reflected in the reply to notice of appeal:

— In reporting his income for the taxation years here in issue, the Appellant declared, inter alia, as follows:

Taxation Year		1977	1978	1979	1980
T4 Income	$16,500.00		$21,715.03	$19,499.94	$26,000.00
Farm Income (gross)	$	700.00	$ 3,000.00	$ 2,500.00	$ 1,303.12
Farm Net Income (loss) ($16,663.22)			($16,005.89)	($20,128.02)($13,249.54)
Farm Losses Claimed	($ 5,000.00)		($ 5,000.00)	($11,314.01)($ 5,000.00)

In reassessing the Appellant as he did, the Respondent relied, inter alia, upon the following assumptions of fact:

— that the Appellant carried on farming on a 70-acre parcel at or near Green Lake, Saskatchewan for the said taxation years;

— that the Appellant was employed on a full-time basis as President of the Association of Métis and Non-Status Indians of Saskatchewan for the said taxation years;

— that the Appellant used 10 acres of his land, more or less, in production of potatoes for sale as produce;

— that the farm lands of the Appellant were of a poor quality for agriculture;

— that the Appellant maintained horses on the said lands for personal use and enjoyment by him in chuckwagon racing, with winnings derived therefrom being some $20.00 in the said taxation years;

— that the Appellant cultivated hay and oats upon the said farm lands for use as feed for the said horses;

— that amounts claimed as expenses on account of building repairs in the Appellant’s 1980 taxation year were primarily for improvements to the personal residence of the Appellant;

— that the farming activities of the Appellant in the said taxation years were not carried on with a reasonable expectation of profit and therefore did not constitute the carrying on of a business by the Appellant in the said taxation years;

— that amounts deducted on account of expenses from the gross farm income of the Appellant in the said taxation years were personal or living expenses of the Appellant.

Using the year 1979 as an illustration of the problem, it can be seen that the operation as reported, consisted of:

Income:

Vegetables	$2,500.00
Expenses:
Wages	$ 621.29
Taxes	65.80
Gas & Oil	2,445.88
Repairs/Lic/Ins	5,100.76
Auto Exp/Gas	1,114.20
Repairs	31.60
Livestock Purch/Cattle	1,250.00
Horses/Sheep Etc	2,090.00
Bldg/Fence Repairs	2,913.54
Sm Tools/Misc Suppl	1,386.06
Power	1,086.47
Heating	918.57
Custom/Contract Work	2,827.86
Misc Exp	775.99
	$22,628.02
	Loss ($20,128.02)

The Court was informed by the appellant that the farm operation for the year 1981 had resulted in a loss of some $17,000, that of 1982 a loss of some $2,000, and for 1983 a profit of some $700, during which year the farming business was wound up, the accumulated crops, produce, livestock and machinery largely disposed of, and the proceeds taken into income.

The appellant’s testimony, and the supportive comments given by his wife largely related to his contention that he was assisting the native peoples by using the produce from his farm, and supplying at least a location (the farm) where they could be comfortable and learn some new skills. During the years at issue, that corollary function became intertwined and almost indistinguishable from his other primary occupation as a paid representative of the native peoples, and his efforts at developing a profitable farm. He could give little evidence which would support a conclusion that even if he had paid more attention to the economic results of the farming operation, (as opposed to its alleged role in benefiting the native peoples), he could have made a taxable profit. He did diversify the farming activities — grain, hay, potatoes, cattle, horses etc, at least (in his view) in an attempt to determine in which direction the climate, the soil, and his resources could best be utilized and coordinated in the venture. Further he noted for the Court the use of and assistance by local young-people in operating the farm, including the establishment on part of the property of a type of training school. He recognized that these efforts did not lend themselves in the early years under review to the rapid development of an economically viable farming operation. One need only look at some of the details in the income statement for the year 1979, (supra), to question how amounts such as Gas and Oil $2,445, Repairs/Licences/Insurances $5,100, Auto Expenses $1,114, Power $1,086, Cus- tom/Contract Work $2,827, etc, let alone the balance of the items, possibly could have been expended to produce an income of only $2,500. Even attributing to the appellant’s community dedication and generosity, the utmost possible in “gifts and contributions’’ (allegedly reducing income) it is difficult to imagine that the value of the production on the farm could come close to that level of expenditures. In essence, the appellant’s argument was that he took the income from his employment, and using the farm as a conduit vehicle distributed the available resources to the native community. In doing so over the years he probably also improved the value of the farm property which was the base of his operations.

I am not convinced that the fact a taxpayer has invested outside income in a farm operation, in itself, warrants the deduction of the farm losses, since these usually include substantial amounts of debt service charges and improvements to the property. (See Robert Otto Glass v MNR, [1984] CTC 2905; 84 DTC 1748. However, I do see limited merit in this appeal on two narrow grounds and to that degree it presents some of the unique characteristics which are occasionally recognized by the Courts (see Norman G Hall and Sterling C Lane v MNR, [1983] CTC 2003; 83 DTC 8).

First, I am inclined to believe that, while this appellant did recognize some value to himself and his family in the farm, his larger vision and his primary efforts were directed toward its potential to train and possibly gainfully employ some of the local people. It is not impossible in my mind that had his efforts been more successful in utilizing this enormous and readily available human resource that such efforts could have very rapidly turned the operation into a profitable one. If I am to believe the appellant’s story at all, essentially, he felt that when shown what could be done, and was was possible, the operation itself would attract, organize and properly utilize labour and skills simply going to waste in the area and that the operation would be profitable and a credit to the community. The appellant apparently saw the operation as not unlike those conducted (sometimes with great success) in third-world countries. That he may have been naive and emotionally, rather than practically, oriented can hardly be disputed. His sad story appears to be that in addition to the provision of the operating finances required, the time-consuming and laborious tasks were also left to the appellant and his family (five children). The fact that the three years subsequent to those under appeal, according to the testimony of the appellant, showed no improvement and that eventually the operation — in all its aspects, economic as well as social — was discontinued may be relevant to those years, but I do not find it relevant to this matter. On this point, I would refer to Zavitz v MNR, [1978] CTC 3021; 78 DTC 1730, and The Queen v Zavitz, [1981] CTC 17; 81 DTC 5007.

The second positive factor in my decision on this matter, must be the tax treatment accorded the years 1977 and 1978 by the Minister. I respect and recognize the Minister’s right to assess or not to do so at his discretion, as long as the provisions of the Act are followed. However, in my view, once having agreed that the years 1977 and 1978 deserve even “restricted loss” treatment, the Minister must also accept that axiomatically there was a reasonable expectation of profit in those years. I believe the Minister could reach that conclusion (a reasonable expectation of profit) based upon the specific reasoning outlined in point one above, (the unusual community-orientation of the farm operation). I see no reason to change that reasoning for the two years remaining under appeal. No material difference in operational methods or social orientation took place between 1978 and 1979, that has been brought to the attention of the Court.

To whatever degree this appellant may find some comfort or satisfaction in this decision, I would repeat for the record that it was his own efforts and explanations, and those of his wife, which were helpful and illuminating to the Court and were the basis upon which the Court has provided to him any benefit of the doubt.

In the end result, the reassessments at issue for the years 1977 and 1978 are vacated and the $5,000 “restricted farm loss” claimed will be restored. The appeal for the years 1979 and 1980 is allowed in part, in order that the appellant be accorded the maximum $5,000 per year “restricted farm loss” as a deduction from other income. The entire matter is referred back to the respondent for reconsideration and reassessment.

Appeal allowed in part.