Estate of Mary Jane Gale v. Minister of National Revenue, [1984] CTC 3043, 85 DTC 28

Kempo, TCJ:

Part I — Issue

The issue in this appeal is whether or not the real property owned by Mary Jane Gale (the “deceased”) comprising of lot 1 and lot A in the Front Range of the Township of Somerville (the “farm land”) was, immediately before her death, used by the deceased or any of her children in the business of farming. If this is the case then the capital gain incurred by the deceased on the deemed disposition of her farm land would be determined in accordance with the more favourable provisions of subsection 70(9) of the Income Tax Act (the Act). The testamentary recipient of the farm land was the deceased’s grandson, William Gale.

Part II — Decision

The facts and circumstances as tendered in this appeal are not such that it could be said that the farm land in question was, immediately before her death, used by the deceased or any of her children in the business of farming for the purposes of and within the meaning of subsection 70(9) of the Act. Accordingly the appeal is dismissed.

Part III — Reasons for Decision

The deceased was an elderly widow and had been living in a nursing home since 1973, that is, for three years prior to her death on January 15, 1976. Before then she lived on the farm land and which had been in the family as a family farm for over one hundred years and had been passed down from generation to generation.

At the time of death the deceased’s daughter-in-law, Freda Boyce (formerly Freda Gale by her marriage to the deceased’s son Cecil Gale who subsequently died), lived on the farm land with her second husband, Ronald Boyce and William J Gale who was her son by her marriage to Cecil Gale. William Gale was born in or about 1952 and has lived on the subject farm land and all his life along with his grandmother (until 1973), his mother and stepfather, Ronald Boyce. Freda Gale married Ronald Boyce in 1957 following which Ronald Boyce stepped into the shoes of Cecil Gale and became “head of the household”.

Thus it would appear that for a long period of time prior to 1973 Ronald Boyce or Ronald Boyce together with the deceased had used the farm land in the business of farming with the assistance of the other members of the family. The evidence was that Mr Boyce also ran a trucking business in addition to his farming activities and that the deceased’s grandson, William Gale, had also worked off the farm as an auto worker at a General Motors plant.

Ronald Boyce had filed income tax returns since 1973 which included income and expenses in respect of the farm operation on the farm land and he also included his wife Freda Boyce as his dependant. The tax returns of the deceased and her grandson for the period 1973 to 1976 did not include any farm income or expenses or make any reference to the farm operation. The deceased’s grandson, William Gale, began reporting income and expenses from the farm business in 1980.

William Gale and his mother rendered assistance as required by the farming operation and contributed some capital from time to time as was needed for repairs and other miscellaneous operational matters. The evidence was that the business was a cattle farm with growth of support crops and that it ran itself, that is, in basically the same overall manner as it had been run for 100 years before. William Gale received no allowance or pay for his work on the farm and the evidence was that he did not pay a salary, etc to Ronald Boyce.

In my opinion the evidence of William Gale was too scanty and generalized to support a finding or determination that he was in the business of farming on the farm land immediately before his grandmother’s death. His mother, Freda Boyce, did not give evidence with respect to her activities in the farming operation nor did her husband, Ronald Boyce.

Whereas Freda Boyce could be considered a child of the deceased for taxation purposes — vide, Re Crowthers, [1978] 1 WWR 262 (BCSC) — There was insufficient evidence from which any inference could be drawn that her participation in the farming operations was beyond that of providing assistance to her husband and the family in general. Nor was there any evidence to support a finding that she had been in the business of farming in partnership or otherwise with any other member of the family at the material time. Partnership is a contractual relationship and an agreement, whether expressed or implied, is the source of

that relationship: vide, Cornforth v The Queen, [1982] CTC 45; 82 DTC 6058 (FCTD) at 51 [6066]; MNR v Jacobus Braat, [1969] CTC 294; 69 DTC 5219 (Ex Ct) 302 at [5226].

In so far as Ronald Boyce is concerned, there is a strong inference arising from the evidence that it was he alone who was carrying on the business of farming immediately before the deceased’s death. While it may be true that the fruits of the family farm operation benefitted all members of the family, nonetheless . . profits from a business are income of the person who carries on the business and are not, as such, income of a third person into whose hands they may come”, vide, Lagacé v MNR, [1968] CTC 98; 68 DTC 5143 (Ex Ct) at 108 [5148].

It was not disputed, however, that some fifteen years prior to her death the deceased had made it known to all the family that her grandson, William Gale, was to inherit the farm land in accordance with the tradition of the family. Accordingly it can be inferred that, at the relevant time, there was a holding of the farm land for the said grandson who was then 24 years of age.

Having reviewed the written submissions tendered by both parties in this respect, I am of the opinion that the words “used by” as they appear in subsection 70(9) are not interchangeable with or equivalent to words implying a beneficial holding, such as “used for”: cf, Kenting Drilling Ltd v The General Accident Assurance Company of Canada, [1979] 5 WWR 68 (Alta SC).

Further, with reference to the meaning of the word “used” when read in its ordinary and grammatical sense within the context of subsection 70(9) of the Act, I would accept the submission of counsel for the respondent in this respect that “used” means the physical employment of the farm land and that such use must be “by” at least one of the qualifying individuals “in the business of” farming. Put another way, the physical employment (use) of the farm land is to be in farming and that the farming must also be such that it is a business.

Reference has been made to the case of the Estate of Lobsinger v MNR, [1982] CTC 2804; 82 DTC 1810 (TRB). Based on the evidence given in the hearing, MJ Bonner (as he then was) was of the view that the farm land in question had not been used by the deceased in the business of farming within the meaning of subsection 70(9) of the Act. He stated, at 2806 [1811]:

. . . the arrangement made was not clearly described in evidence. The oral arrangement was, without doubt, founded on mutual trust and confidence built up over 30 years. . . . There is not proof of an agreement to share profits or losses. The sharing of gross revenue is not a sharing of profits. . . .

I do not find the case of Township of Pickering v Godfrey (1958), 14 DLR (2d) 520 (Ont CA) too helpful in the case at bar. The headnote of that decision reads:

A municipality enacted a “greenbelt” bylaw covering the specified land which listed permitted uses but the entry opposite the captions “commercial” and “industrial” was “nil”. A purchaser of land in the greenbelt area began to use it as a gravel pit and sold loads of gravel to third parties. Held the working of the land as a quarry or pit was not a “use of land” within section 390 of the municipal act . . . under which the bylaw was enacted, and hence the gravel operations could not be restrained. . . . A bylaw passed under section 390 could not prohibit an owner from selling his land or any part of it. . . .

However, of interest is the reference, at page 525, by Morden, JA to the remarks of Rowlatt, J in Brake v Inland Revenue Commissioners, [1915] 1 KB 731 at 733:

It seems to me to be too clear for argument that the use of land for any business, trade or industry means the employment of the land as land. That means, of course, its physical employment, not because one reads in the word “physically” before “used” in the statute, but because the use of the land means the use of the land as land, and that brings in the idea of physical use.

In conclusion it is my decision that the submissions by counsel for the respondent are correct and have not been refuted, that is:

(a) the farm land was not used by the deceased, nor the deceased’s daughter-in-law, Freda Boyce, nor the deceased’s grandson, William Gale, immediately prior to the deceased’s death in the business of farming for the reason that none of them were in the business of farming at that time;

(b) that on the basis of the evidence adduced at the hearing Ronald Boyce alone was in the business of farming and that he alone used the farm land in that business; and

(c) that Ronald Boyce was not a child of the deceased for the purposes of subsection 70(9) of the Act.

Therefore the capital gain incurred by the deceased on the deemed disposition of her farm land must be determined other than in accordance with the provisions of subsection 70(9) of the Act. Accordingly the appeal is dismissed as aforesaid.

Appeal dismissed.