DR Jacques April v. Minister of National Revenue, [1982] CTC 2083

D E Taylor [Translation]:—This appeal was heard in the city of Montreal, Quebec on November 17, 1980. It was filed in respect of tax assessments for 1976 and 1977, in which the Minister of National Revenue refused to allow the appellant to claim restricted farming losses. At the outset of the hearing, the motion made by counsel for the respondent to dismiss the appeal with regard to the 1976 taxation year was granted, and the Board consequently heard the appeal with regard to the 1977 taxation year only. During that year (1977), the appellant practised medicine at the Clinique Pédiatrique, La- chine, Quebec. He was the owner of a 120-acre property near Ormstown, Quebec. In his assessment of the appellant, the respondent relied, on, inter alia, section 3, paragraph 18(1 )(h), sections 31, 67, 111, subsections 245(1) and 248(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Arguments

For the appellant:

I am in fact a “gentleman farmer”. My property is very large — 120 acres — and the income, when it materializes, will be based principally upon the two following sources:

(1) the sale of wood — I am Currently seeding;

(2) enclosure for the raising and hunting of deer — seeding here as well.

For the respondent:

— Since the acquisition of this land, no large-scale activity designed to exploit the said land and to establish thereon a commercial or farming business has been undertaken;

— the appellant’s sole motivation since the acquisition of this land, and in particular with respect to the 1977 taxation year, is of a purely personal nature;

— the said land has never generated any income since it was acquired, in particular during the 1977 taxation year;

— in any event, the nature of the expenses incurred does not constitute a valid criterion for establishing the existence of a commercial or farming business on the appellant’s land;

— the expenses incurred by the appellant in respect of the said land were not incurred for the purpose or with the reasonable expectation of deriving a profit from the operation of a business.

Evidence

The appellant described the methods he used to exploit the land, which he called “the farm”. He attempted to keep and feed some wild animals with a view to selling them at a later date. To this end, he constructed an enclosure around one section of the land and fed the animals during the winter. However, he was unsuccessful in this project and he abandoned it for a period of time. He also began to restock the forest with plants he had obtained from the Quebec Department of Lands and Forests. These seedlings included red pine, white spruce and Norway spruce. The appellant’s income tax return contained the following financial statement:

Jacques April

1977

Restricted farming losses — gentleman farmer

No income

Expenses incurred:

Repairs, tools	$ 806
Feed and straw	259
Wages and salaries	580
Gasoline, heating oil, oil	832
Contract labour	2,926
Repairs — vehicles	284
Meal surplus ($125)	216
Insurance (truck)	275
Taxes and permits	197
Interest	540
Poultry purchases	212
Livestock purchases	125
Electricity	26
CCA — Vehicles ($11,243)	—
— Wire fence ($919)	—
Total	$7,278
Allowable for tax purposes:
1st installment — $2,500	$2,500
2nd installment — $4,778 x 50%	2,389
	$4,889

Pleading

Counsel for the appellant referred to the following decisions: Al Oeming Investments Ltd v MNR, [1972] CTC 2008; 72 DTC 1057; Douglas C Matthews v MNR, [1972] CTC 2643; 72 DTC 1526; Her Majesty The Queen v Douglas C Matthews, [1974] CTC 230; 74 DTC 6193.

He argued that the operations cited by the appellant constituted a farming business.

Counsel for the respondent argued that the expenses incurred by the appellant, which constitute the farming loss claimed by the latter, were not incurred for the purpose or with the reasonable expectation of deriving a profit from the operation of a business, and that the loss consisted of disbursements made by the appellant for his personal gain. He cited in evidence the following list of authorities: William Moldowan v the Queen, [1977] CTC 310; 77 DTC 5213; Donald J Gillis v The Queen, [1978] CTC 44: 78 DTC 6103; Jeno Horvath v MNR, [1980] CTC 2636; 80 DTC 1540; Donald A Holley v MNR, [1973] CTC 539; 73 DTC 5417; Donald Carom v MNR, [1977] CTC 2085; 77 DTC 67; MNR v Barbara A Robertson, [1954] CTC 110; 54 DTC 1062; Dr C H Smith v MNR, [1968] Tax ABC 523; 68 DTC 422: Dr John R Harms v MNR, [1968] Tax ABC 1238; 69 DTC 50; John E McLachlen v MNR, [1974] CTC 2003; 74 DTC 1035.

Conclusions

The notion of planting, cultivating and cutting wood may be conveyed by the term “farming”, or “farming activity”. The care and upkeep of wild animals may also under certain conditions be referred to as “farming” or a “farming activity”. The specific activity of this appellant is somewhat out of the ordinary, but that has no bearing on the losses in question. As I understand the situation, this appellant engaged in “farming” or “farming activity” according to the provisions of the Income Tax Act.

As I see it, before claiming losses that he has incurred, a taxpayer engaged in “farming” or in “farming activities” must prove that he is engaged in the said activities in accordance with the criteria established for all other economic or commercial activity. Losses of this sort are deductible not because the taxpayer is considered a “farmer”, but rather because he is considered a “businessman” engaged in “farming activities” (see Matthews, above). Consequently, the Minister is entitled to ask that he be shown something in the way of forecasts, production plans or sales and marketing studies, as well as solid and feasible financial arrangements and so on, for these may be used as evidence in support of the contention that the taxpayer’s primary objective was to “earn a profit”. This appellant states that he could not expect to “earn a profit” before the trees reached maturity (twenty-five years from now); or until he developed more effective methods for penning his wild animals on the farm. The accounting with regard to the profits (or losses in the case at bar) was done on a “cash basis”. In my view, a taxpayer who avers the existence of such a long-term program must put forward very convincing evidence that the running expenses claimed are part of an organized and systematic program, planned according to the aforementioned criteria for “earning a profit”. No such evidence has been advanced.

In my view, in Neonex International Ltd v The Queen, [1978] CTC 485; 78 DTC 6339, the Federal Court made a thorough examination of this question of claiming a deduction for a certain period during which there was no income relating to that period. The explicit circumstances noted in Neonex (supra), which could allow such a deduction, are lacking in the instant case.

Summary

Dr April has produced no convincing evidence that he could at any time expect a source of income that would justify the expenses currently Claimed. The appeal in respect of the 1977 taxation year is therefore dismissed.

Appeal dismissed.