Kempo,
TCJ:—
Part
I
—
Issue
This
is
an
appeal
and
claim
for
deduction
of
total
farm
losses
concerning
the
1979
and
1980
taxation
years
of
the
appellant
on
the
basis
that
he
is
a
taxpayer
who
is
in
the
business
of
farming
and
that,
contrary
to
the
respondent’s
assertion,
he
is
a
person
who
does
look
to
farming
or
to
farming
and
some
subordinate
source
of
income
for
his
livelihood,
and
thereby
does
escape
the
limitations
of
section
31
of
the
Income
Tax
Act.
Stated
succinctly,
the
issue
to
be
resolved
is
whether
or
not
this
appellant
falls
within
class
(1)
or
class
(2)
of
the
three
categories
of
farmers
envisioned
within
this
provision.*
Part
II
—
Decision
The
appeal
is
allowed
in
respect
of
the
appellant’s
1979
taxation
year
and
the
matter
is
to
be
referred
back
to
the
MNR
for
reconsideration
and
reassessment
on
the
basis
that
the
loss
restrictions
of
section
31
of
the
Act
do
not
apply.
The
appeal
is
dismissed
in
respect
of
the
appellant’s
1980
taxation
year
in
that
no
appeal
lies
from
a
“nil”
assessment.
Part
III
—
Reasons
A.
Appeal
as
to
the
1979
taxation
year
This
issue
has
been
resolved
in
the
appellant’s
favour
essentially
in
accordance
with
the
principles
and
tests
as
set
out
in
the
reasons
for
decision
of
Dickson,
J
(as
he
then
was)
in
the
leading
case
of
Moldowan
v
The
Queen,
(supra).
To
paraphrase
therefrom,
the
class
(1)
farmer
is
a
taxpayer
for
whom
farming
may
reasonably
be
expected
to
provide
the
bulk
of
income
or
the
centre
of
work
routine.
Whether
or
not
a
source
of
income
is
a
taxpayer’s
“chief
source”
of
income
is
both
a
relative
and
objective
test.
While
relevant,
it
is
not
a
pure
quantum
measurement.
The
distinguishing
features
are
the
taxpayer’s
reasonable
expectation
of
income
from
his
various
revenue
sources
and
his
ordinary
mode
and
habit
of
work.These
may
be
tested
by
considering,
inter
alia,
in
relation
to
a
source
of
income:
(a)
The
time
spent;
(b)
The
capital
committed;
(c)
Profitability,
both
actual
and
potential;
(d)
A
change
in
the
mode
or
habit
of
work
or
reasonable
expectations
which
may
signify
a
change
in
the
chief
source;
(e)
A
change
of
occupational
direction
and
commitment
of
energies
and
capital
to
farming
as
a
main
expectation
of
income
would
not
disentitle
the
deduction
of
the
full
impact
of
start-up
costs.
Turning
to
the
case
at
bar
there
was
no
question
but
that
the
appellant
was
engaged
in
a
full-time
practice
of
family
medicine
and
that
his
farming
operation
in
the
1979
year
was
not
a
hobby
but
rather
constituted
a
source
of
income
to
him,
that
is,
that
he
was
in
the
business
of
farming
for
that
year
notwithstanding
its
unprofitability
and
that
he
would
have
had
a
reasonable
expectation
of
profit
therefrom.
As
to
this
appellant’s
chief
source
of
income
for
the
1979
taxation
year
the
following
is
a
compendium
of
the
principal
distinguishing
features
that
were,
in
my
opinion,
determinative
of
the
issue.
Except
for
the
years
needed
to
obtain
his
medical
degree,
to
gain
his
postmedical
training
in
family
medicine
and
his
settling
into
a
practice,
the
appellant
had
had
a
lifetime
involvement
of
farming.
Since
1978
his
only
other
all-
consuming
interest
and
activity
had
been
dedicated
to
the
setting
up,
raising
and
running
of
a
purebred
Aberdeen-Angus
beef
cattle
business
in
the
province
of
New
Brunswick.
Starting
in
the
spring
of
1979
the
appellant
had
continuously
committed
his
after-practice
time,
labour,
skills,
energy
and
study
to
the
cattle
farm
which,
according
to
the
evidence
and
when
needed,
was
at
least
equal
to
if
not
greater
than
that
expended
by
or
was
required
of
him
for
his
practice.
His
practice
hours
and
times
had
been
arranged
to
accommodate
the
flexibility
required
for
his
frequent
personal
attendance
at
his
cattle
farm.
In
the
four-year
period
1979
to
1982
inclusive
in
excess
of
60
per
cent
of
his
net
professional
income
had
been
invested
in
the
farm.
In
early
1979
he
had
worked
out
a
five-year
plan
with
the
advice
and
assistance
of
an
agronomist
and
an
engineer
with
the
provincial
Department
of
Agriculture.
His
decision
was
that
of
beginning
and
increasing
his
cattle
farm
and
its
income
by
the
use
of
his
off-farm
professional
income
without
the
need
of
resorting
to
any
heavy
borrowing.
At
the
conclusion
of
a
five-year
period
ending
1983
the
appellant’s
net
worth
amounted
to
$172,500
attributable
to
his
farming,
$60,000
attributable
to
his
personal
residence
and
$2,000
to
his
medical
office
equipment
(Exhibit
A-2).
Using
rounded
numbers,
the
appellant’s
net
annual
income
from
his
medical
practice
increased
from
$50,600
in
1979
to
$95,300
in
1982
and
his
annual
farm
income
was
nil
in
1979
and
$6,882
in
1982.
The
appellant
stated
the
growth
of
professional
income
was
needed
to
finance
his
five-year
farm
plan
and
was
accomplished
without
additional
time
commitments
thereto
on
his
part.
The
net
farm
loss,
including
depreciation
claimed
and
cattle
purchases
made,
increased
from
$28,000
in
1979
to
$45,270
in
1982.
A
review
and
analysis
of
the
farming
statements
is
indicative
of
a
fairly
intensive
and
costly
build-up
program
which
the
appellant
asserts
began
with
next
to
nothing,
was
preplanned
to
occur
over
five
years
and
that,
with
the
basic
herd
size
currently
on
hand,
he
claims
to
be
on
track
as
planned
if
not
advanced
by
one
year.
The
appellant’s
position
was
that
the
losses
represented
start-up
costs,
that
the
intensive
growth
period
had
finished
in
1984
and
that,
given
the
then
attained
size
of
his
basic
herd
and
nucleus
of
brood
cows,
the
gross
farm
receipts
in
1985
from
the
sale
of
calves
should
amount
to
$30,000
which
would
exceed
the
projected
operating
expenses.
He
freely
admitted
that
the
gross
farm
income
would
probably
never
equal
that
of
his
medical
practice,
that
he
was
not
planning
to
give
up
medicine
completely
but
rather
plans
to
enjoy
the
fruits
of
his
efforts
in
both
ventures
by
way
of
an
increased
standard
of
living
which
includes
relocating
his
place
of
residence
from
the
town
of
Shediac
to
a
place
closer
to
the
farm
than
the
15
miles
as
was
the
current
situation.
It
was
the
opinion
of
Mr
Auriel
Gaudet,
an
agrologist
and
a
regional
director
for
the
New
Brunswick
Department
of
Agriculture,
that
having
reviewed
the
appellant’s
cattle
farm
operations
he
found
it
to
be
a
well-managed
operation,
it
would
rate
in
the
top
10
per
cent
of
beef
producers
in
the
province
and
that
it
would
be
#1
as
to
the
quality
of
Aberdeen-Angus
cattle
being
produced
in
the
province.
While
appreciating
that
none
of
the
above
is
alone
determinative
of
the
issue,
viewed
collectively
it
can
be
fairly
said
that
the
appellant
has
established
that
his
cattle
farming
was
not
a
sideline
business
or
a
subsidiary
interest
for
1979
and
that
his
chief
source
of
income
for
that
year
was
from
farming
or
a
combination
of
farming
and
some
other
source
of
income.*
Accordingly
the
limitations
of
section
31
of
the
Act
do
not
apply.
B.
Appeal
as
to
the
1980
taxation
year
Counsel
for
the
respondent,
on
application,
was
permitted
to
amend
the
reply
to
notice
of
appeal
in
that
the
1980
assessment
dated
January
21,
1983
was
a
nil
assessment
of
federal
tax
and
he
asserted
that
therefore
there
was
no
valid
appeal
before
this
Court
for
that
year.
In
filing
his
return
of
income
for
the
year
the
appellant
reported
a
nil
federal
tax
payable
as
he
claimed
an
offsetting
deduction
from
federal
tax
otherwise
payable
in
respect
of
an
investment
tax
credit
purportedly
in
accordance
with
subsection
127(5)
of
the
Act.
On
disallowing
all
but
$5,000
of
the
farm
loss
claimed
the
Minister
recalculated
the
taxable
income
for
the
year
and
by
notice
dated
January
21,
1983
he
notified
the
appellant
that
there
was
no
federal
tax
payable
as
a
claim
in
a
stated
amount
in
respect
of
the
appellant’s
investment
tax
credit
had
been
allowed.
The
appellant
asserted
that
he
had
a
valid
appeal
for
the
1980
year
in
that
the
federal
tax
that
was
otherwise
payable
had
been
increased
by
the
Minister’s
disallowance
of
the
full
farm
loss.
However,
he
failed
to
identify
the
relief
that
he
was
seeking
to
obtain
that
would
be
within
this
Court’s
jurisdiction
to
grant
in
that,
in
the
result,
there
was
no
tax
payable.
No
argument
was
advanced
by
the
appellant
to
justify
adopting
a
position
contrary
to
that
of
the
leading
authorities.*
Accordingly
the
appeal
in
respect
of
the
taxation
year
1980
fails.
Appeal
allowed
in
part.
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