Harold Stanton Hadley v. Minister of National Revenue, [1981] CTC 2060, 81 DTC 66

Roland St-Onge:—The appeals of Mr Harold Stanton Hadley came before me on October 14 and 15,1980, at the City of Toronto, Ontario and the issue is whether the appellant is allowed to claim more than the $5000 limit under section 31 of the Income Tax Act as a farming loss in his 1976 and 1977 taxation years.

The facts of this appeal are well set forth in the notice of appeal at paragraphs 1 to 9 inclusive which read as follows:

1. The appellant is a businessman and lives in the town of Newmarket, Ontario. 2. In the year 1972, the appellant purchased for $150,000 in total a 190 acre farm and an adjoining 100 acre farm in the Township of Verulum in the County of Victoria, Ontario, for the purpose of carrying on a farming business consisting of the breeding, raising, showing and marketing of cattle. The particular 190 acre farm consisted of a house, two barns, a silo, a drive shed and out-buildings. The 100 acre farm had no improvements and was purchased to be used as crop growing and grazing land.

3. In April, 1973, the appellant purchased for $60,000 an additional 200 acre farm and for $65,000 an additional 100 acre farm adjoining the 200 acre farm, together with a house, a barn and out-buildings to accommodate the planned growth of his herd.

4. The appellant made considerable improvements to such farm properties including the construction of new barns and out-buildings and the installation of new machinery and equipment in order that his herd could be properly maintained and fed particularly during this winter months.

5. From 1972 to present the appellant had actively carried on the business of farming in two particular ways—firstly, in the purchasing, breeding, raising and marketing of cattle in what is commonly known after 1975 as a ‘cow-calf operation’ and, secondly, in the breeding, raising, showing and marketing of a particular breed of cattle known as ‘Charolais’, a breed known especially for its faster weight gaining propensities.

6. The appellant carried on such farming businesses solely for the purpose of earning profit but due to the extraordinary national and international economic conditions which prevailed during the years under appeal, the appellant suffered losses.

7. In computing his income for his 1976 and 1977 taxation years, the appellant deducted as losses suffered in connection with such farming businesses the sum of $449,909 and $138,136 respectively. In computing such income, the appellant adopted the provisions of section 28 of the Income Tax Act being a special provision available to the taxpayers in the farming business.

8. By notices of reassessment each dated December 8, 1978, the Minister reassessed the appellant in respect of his 1976 and 1977 taxation years applying the provisions of section 31 of the Income Tax Act and thereby disallowing as deductions in computing income such aforementioned losses to the extent that such losses exceeded $5,000 in each such taxation year.

9. The appellant objects to such notices of reassessment and in accordance with the provisions of section 165(3) of the Income Tax Act hereby waives reconsideration of such reassessments and respectfully requests that the respondent consent to such waiver and file a copy of the within notice of objection with the registrar of the Tax Review Board and so notify the appellant of his action, all as in the said sub-section provided.

As well, the contentions of the respondent are spelled out in his reply to notice of appeal at paragraphs 2, 3, 4 and 5 which read as follows:

2. With respect to paragraph 5 of the notice of appeal attached to the notice of objection, the respondent admits said paragraph except that the “cow-calf operation” was reduced in size in 1975 and the appellant from that time onwards concentrated on the breeding operation.

3. With respect to paragraph 6 of the notice of appeal attached to the notice of objection, the respondent states that the appellant carried on his farming operation as a business, but otherwise does not admit said paragraph.

4. The respondent, in computing the appellant’s income for his 1976 and 1977 taxation years, did not allow the appellant the deduction claimed in said years in the amounts of $449,909 and $138,136 respectively, on account of losses resulting from his farming business, however, applied the provisions of section 31 of the Income tax Act and accordingly allowed as a deduction for each of said taxation years in the amount of $5,000 on account of losses incurred with respect to the farming business on the basis that for said years, the appellant did not look to farming or to farming and some subordinate source of income for his livelihood but carried on farming as a side-line business.

5. The respondent in computing the appellant’s income for his 1976 and 1977 taxation years, relied upon the following findings or assumptions of fact:

(a) the facts hereinbefore admitted;

(b) the appellant is a chartered accountant by profession, although he did not at the relevant time practice that profession;

(i) HOJ Industries Limited which owns and operates Northtown Ford Sales in Willowdale, Ontario; Middlesex Motors, London, Ontario; Gateway Mercury Sales, Thornhill, Ontario; and HOJ National Leasing, Leaside, Ontario.

(ii) Linblasco Investments Limited, a holding company which leases buildings and equipment; and

ii) Northtown Auto Rentals Ltd.

(d) during 1972 through 1976, the appellant’s sources of income were as follow:

			Invest Family		Family Other
			ment	Farming	Allow	Allow
			Income Loss		ance	ance
Year Office		Income	$	$	$	$
1972	Northtown
	Ford Sales	84,541.47	60	( 11,954)
1973	Northtown
	Ford Sales	186,030.00	84	(114,400)
1974	Linblasco
	Investments
	Limited	267,882.46	316	(199,000)	720.00
1975	HOJ
	Industries
	Limited	553,700.23 60		2,215 794.88 836.01
1976	HOJ
	Industries
	Limited	688,540.00	124	(449,909)	795.00

(e) the appellant, during the years 1972 through 1976, at no time had invested as great an amount in his farming business compared to the amount invested in HOJ Industries Limited, as revealed by the following schedule:

HOJ INDUSTRIES LTD:	1973 1973	1974 1974	1975 1975
Net assets	63,200	869,373	815,996
Net Income before Admin bonus and
extraordinary item	273,992	971,475	751,784
Percent	43%	111 %	92%
Net income after Admin bonus before
income tax	159,621	435,224	42,927
% to net assets	25%	50%	.05%
FARM OPERATIONS:	1973 1973	1974 1974	1975 1975
Net Assets	421,079	538,712	844,360
% net assets farm operations to net
assets HOJ Industries Limited	66.8%	61.96%	103.47%

(f) the appellant had no farming experience at the time he commenced farming operations in 1972;

(g) from 1972 to 1977 inclusive, the appellant invested over $1,039,880 in the operation of his farming business; this amount represented the purchase of two farms, equipment, livestock, and building contruction costs. Of this amount, $132,600 was invested in a week-end residence, pools, snowmobiles, trail-bikes and other personal items;

(h) during 1973 to 1977 inclusive, the appellant made purchases and sales of cattle;

(i) in 1975, the appellant curtailed the “cow-calf operation’’ and concentrated on the Charolais cattle breeding operation;

(j) in 1976, the appellant decided to curtail the entire farming business and one of the farms was put up for sale; in May, 1978, this farm was sold;

(k) subsequently, the appellant disposed of all his cattle and the remaining farm:

(l) during 1972 to 1977, inclusive, the appellant’s permanent residence was in Willowdale, Ontario, however, on weekends he and his family would often stay at the farm;

(m) the farm work was mostly performed by hired labour, however, the appellant would often maintain the books and records as well as to some extent becoming involved in the cattle purchases and sales;

(n) from 1972 to 1976, inclusive, the appellant suffered increasing losses with his farming business, except for 1975 in which a profit of $2,215 was reported as a result of an inventory valuation adjustment under paragraph 28(1)(b) of the Income Tax Act; during these years capital cost allowance was not claimed and a summary of such farming losses is as follows:

	1973		1974	1975	1976	1977
Gross Revenue Cow Calf		38,432	13,790	66,935	3,332	43,914
		465	925	22,213	125,522	52,400
	38,897		14,715	99,148	128,854	96,314
Expenses
Cost of Sales	78,197		82,580	(47,309)	431,177	115,706
Net Expenses	75,100		131,135	144,242	147,586	118,055
Total Expenses	153,297		213,715	96,933	578,763	233761
Farming Profit/(Loss)	($114,400)		(199,000)	2,215	(499,909)	(137,447)
Add Expenditures
deducted Sec. 37		nil	nil	nil	nil	nil
	(114,400)		(199,000)	2,215*	(499,909)	(137,447)

The respondent in his reply to notice of appeal admitted at paragraph 3 that the appellant carried out his farming operations as a business and, furthermore, at least three farmers testified to this effect. They are:

1. Mr Donald Maxwell Burgomatser, farmer and director of the Charolais Association for 7 years;

2. Mr Brian Dyer, farmer and the appellant’s employee from March 1974 up to 1978;

3. Mr Glen Sisson, farmer and neighbour of the appellant’s Ancona Pharms.

Mr Burgomaster testified that the role of a breeder is to increase the quality of the breeding by various means such as upgrade program, cattle showing, game tests; that from 1972 to 1975, the market for meat went down and was even worse in 1976-1977 and 1978.

He went on to say that he met the appellant in February 1973 at a sale where the latter purchased a bull for $8,000; at that time, the appellant told him that he was in the car business but would like to be in the farming business.

Upon cross-examination, Mr Burgomaster stated that he had 40 head of cattle valued from $800 to $2,000 a head; that his farming expenses were about $5,000 a year; that the breeding of Charolais was a challenge and gave more opportunities.

Mr Dyer came from England in 1970 where he was breeding Heifers. He had no experience in Charolais. In March 1974, he was hired by the appellant to manage the cattle. They decided to breed Charolais because it was a fast-growing animal, produced more meat and had bigger calves. During the first summer, they built three big barns, the best in the area:

(1) one measuring 92’ x 92’;

(2) another, 50’ x 60’; and

(3) one, 58’ x 62’.

They had four divisions of operation:

(1) recordable Charolais;

(2) purebred Charolais;

(3) full-French (from France);

(4) pooled (animals that came from Mexico).

Mr Dyer’s responsibility was also to prepare the cattle to be sold and to accompany the appellant to the sales.

They owned two full-French bulls:

(1) Royal Perfecto and

(2) Royal Abraham.

They went to France to acquire another full-French bull but came back with a Heifer.

In 1974-1975 the animals took sick (broucelluce—they do not have any progénitures). The Ontario Government paid $400 a head and prevented the farmers from moving the cattle to the market place.

Upon cross-examination, Mr Dyer stated that the appellant had two boys and one girl and owns a stone residence on one farm with a swimming pool and three riding horses; that it was very difficult to establish a name as a purebred breeder, especially in Charolais because of the resistance from the other breeds, namely the Shorthorn and the Heifer and that it usually takes from 10 to 15 years to establish a name for oneself in the top six names.

The appellant’s duties were:

(1) to prepare the financial statement;

(2) to keep the register book;

(3) to do the promotional work;

(4) to attend the auction sales.

The organization incurred losses for many reasons:

(1) because of the broucelluce;

(2) Mont Forest (a bull which had cost $51,000 and which went for slaughter);

(3) Bull Can Can purchased at $8,000 and sold for $1,500;

(4) the market became sour in 1975 up to 1977.

In 1978 they sold:

(1) 50 cows;

(2) the Fox Farm;

(3) the Ancona Pharms.

Mr Sisson who lives near the Ancona Pharms stated that the appellant had a very efficient farm for the following reasons:

(1) he was raising Charolais cattle;

(2) he built new fences;

(3) he receded the land;

(4) he improved the buildings;

(5) he acquired top quality animals.

Mr Ron Brown, an insurance businessman who insures livestock, testified that the appellant had very expensive animals and that he was one of the top breeders in Canada.

Mrs Marion Haddley, the appellant’s wife, testified that the first farm (Ancona Pharms) was purchased in 1972 for the purpose of weekend and holiday activities. The first year they purchased eight cows; later, in 1973, they changed their activities and brought Charolais.

The appellant and his wife went to Calgary and bought four Charolais and to Toronto where they bought the bull Can Can for $8,000. In the Spring of 1972, they acquired the other farm and increased the heard up to 350 head.

Mrs Hadley went with her husband to Calgary, Edmonton, Regina, the USA and France to purchase animals. They had to entertain the buyers and organize the sales.

Upon cross-examination, Mrs Hadley stated that her husband always wanted a farm near Sturgeon Lake (80 miles from Toronto) as a retreat.

The house on the Ancona Pharms had four bedrooms. They painted the house, replaced the heating systems, the windows, the wallpaper and purchased a 20’ x 40’ swimming pool. They owned five snowmobiles and three riding horses.

Both farms were sold in 1978 and they still own the Thompson Farm in partnership with Mr Sisson.

Mr Hadley corroborated the evidence given by the previous witnesses and explained his way of doing business as follows:

In 1960, he started as an employee in the car business and seven years later, he became the owner of his own car business. In 1970, he acquired the Ford franchise and promoted Mr McGee, his new and old car Manager, President of the auto motor dealership. The appellant acquired many businesses and had a general manager for each one. His office was in a high-rise building in Toronto and every day he was contacting the general manager of every division of operation.

When he acquired the farms, his intention was to build up another business and to operate it as a retirement activity. He then filed various documents to show that his farming activities were substantial, that he spent a great deal of time and money in farming as he did for his other businesses and that his way of doing business was to delegate responsibility to his general managers.

He also testified that in 1973-1974:

(1) he spent long weekends on his farm;

(2) he did not take any vacation;

(3) he was trying to make a profit;

(4) he effectuated physical work on the farm with Mr Dyer;

(5) he did not have farming experience but his father and the employee did;

(6) his business experience was utilized in his farming activities in the same fashion as in his other businesses, namely by delegation of responsibilities.

He terminated his testimony by saving that because the cattle and meat market went down, in 1975 he decided to cut back the operation.

Counsel for the appellant argued that the issue before the Board is the proper interpretation of section 31 of the Income Tax Act and that where a taxpayer’s chief source of income is neither farming nor a combination of farming and another source of income, the loss is limited to $5,000.

In the years under appeal, the appellant’s main source of income was farming because of the following:

(1) the degree of his personal involvement;

(2) the time and attention which he personally gave to it;

(3) his substantial financial commitment.

It is not because the appellant has many sources of income such as salary from his car business, rental income, apartment buildings, variety stores and bank interest that he cannot be in the farming business with a reasonable expectation of profit. The appellant’s chief source of income is farming and alternatively if not, it is a combination with another source of income which is a salary received from HOJ Industries Limited. The said company is a wholly-owned subsidiary of Glenglasco Investments Limited, which company is solely owned by the appellant. Glenglasco Investments Limited received rental income from the land utilized by the car dealership businesses. This type of income did not prevent the appellant from devoting adequate time to look after his farming business.

The appellant also argued that:

(1) it takes a while to develop a reputation as a breeder;

(2) the appellant made his name in the Charolais community;

(3) this type of operation was not a sideline business;

(4) on a literal reading of section 31, no taxpayer could ever claim more than the maximum $5,000 deduction; the only way in which this section can have any meaning is to place emphasis on the words “source of income”;

(5) section 31 is the “Hobby Farm Section” with no reasonable expectation of profit. According to the evidence, the appellant’s operation does not constitute a “Hobby Farm” and there is a reasonable expectation or profit.

He then referred the Board to the following cases:

(1) Oscar Dorfman v MNR, [1972] CTC 151; 72 DTC 6131;

(2) CBA Engineering Limited v MNR, [1971] CTC 504; 71 DTC 5282;

(3) Bert James v MNR, [1973] CTC 457; 73 DTC 5333;

(4) Nesthyr Rudniski v MNR, [1975] CTC 2019; 75 DTC 14;

(5) DC Matthews v MNR, [1974] CTC 230; 74 DTC 6193;

(6) William Moldowan v Her Majesty The Queen, [1977] CTC 310; 77 DTC 5213.

In Moldowan (supra), Mr Justice Dickson did not say what constitutes the combination of farming and another source but at 315 [5216] of his decision he completes his analysis of his example by saying:

... On the other hand, a man who changes occupational direction and commits his energies and capital to farming as a main expectation of income is not disentitled to deduct the full impact of start-up costs.

I do not think it can fairly be said that appellant was a person whose chief source of income was a combination of farming and some other source of income in the sense I have indicated.

Counsel for the appellant argued that this cannot be said for the case at bar because:

(1) the capital commitment was far from cautious;

(2) the nature of the enterprise was not risky.

As to the CBA Engineering Limited case (supra), Mr Justice Cattanach gives three tests:

(1) the farming losses of a full-time farmer;

(2) farming losses incurred in a farming operation with the expectation of profit but where farming is not the taxpayer’s chief source of income nor part of it;

(3) an operation which is in the nature of a hobby, pastime or way of life, the losses from which are not deductible being personal or living expenses.

Counsel for the appellant then commented on the mink ranch case in Oscar Dorfman v MNR (supra) where the Federal Court allowed the taxpayer’s appeal and the appellant was not restrained by the limit of $5,000 because the losses were caused by:

(1) high labour costs;

(2) low prices;

(3) a flood of pelts imported from Scandinavia.

In that decision, Mr Justice Collier said:

.. . the taxpayer always had, in his mind, the expectation of making profit from the mink business. ThiS was no sideline or hobby.

Counsel for the appellant went on to Say:

So Mr Justice Collier is deciding in Dorfman approved by the Supreme Court of Canada, Mr Dorfman on these facts, had a combination of farming and business, and was not restricted by Section 13, now 31, and how he concludes that is because of the nature and extent of the operation, the capital committed and the personal commitment.

He then summarized by saying that:

(1) Mr Justice Collier affirms Mr Justice Cattanach in CBA Engineering Limited in the three sources;

(2) the three sources are quoted with approval by Mr Justice Collier in Dorfman, and affirmed by Mr Justice Dickson in Moldowan.

Mr Justice Cattanach talks about a positive test that there can be a chief Source, a combination of farming and another source and thereby, a taxpayer is not restricted by section 13, now section 31 of the Act.

In the Bert James decision (supra), the taxpayer was in the car business and decided to quit this business to go into the horse racing business. Mr Justice Gibson went for the analysis of what is a source, what is a chief source, and what is a combination and he went through whether or not there has to be a connection. Counsel for the appellant then said that:

the Act, before it was amended, was clear in that you could not reduce your chief source of income from losses from another source . . . current provisions where you have at least a chief source or a combination of, you are entitled to all your losses.

Counsel for the appellant alluded that Mr Justice Gibson affirmed with approval

(i) the Dorfman decision;

(ii) the CBA Engineering Limited decision.

He then commented on the Rudniski decision where, because of the severe recession in Charolais cattle sales, the taxpayer sustained a loss of $22,000. The Board decided he was entitled to that loss as a business loss because it was a speculative venture.

In the case of Chester Douglas Brown v The Queen, [1975] CTC 611; 75 DTC 5433, the taxpayer sold his farm, invested his money and interest therefrom, thereby producing a source of income. He continued his farming operations and suffered a loss. His chief source of income was farming.

Counsel for the appellant then rested on the decision of Mr K A Flanigan, then Chairman of the Board, in the case of Stewart J Cooke v MNR, [1975] CTC 2296; 75 DTC 223, where it is mentioned that one determines his income in accordance with section 3 of the Act and this is income from all source and if one should happen to suffer a loss from one source, he is entitled to net his income from other sources. It is only when one cannot find enough activity in the farming business that the chief source is neither farming nor a combination. Consequently, the limitation applies.

Mr Justice Sweet said that there were three aspects to be considered:

(1) the situation where there are only two sources of income, one of them being farming;

(2) characteristics other than “connection” qualifying farming for inclusion in a combination of farming and some other source of income within the meaning of section 13 of the Act as indicated by Moldowan;

(3) whether there need be any “connection” between farming and the other source of income.

On this issue, counsel for the appellant argued that in the case at bar, the appellant had only two sources of income: the farming operation and the income from HOJ Industries Limited which operates a motor vehicle dealership business at various locations.

Counsel for the respondent may say that the appellant did not stay long enough in the farming business. The appellant’s answer is that it would take “a stupid person to continue to stay in business when you are sliding down the other side of Mount Everest”.

Counsel for the respondent rested his case on the Supreme Court decision in Moldowan and said that the appellant’s chief source of income in 1976-1977 was not farming nor was it a combination of farming and some other sources of income. He then put forward the words of Mr Justice Dickson in Moldowan at 316 [5216]:

It is clear that “combination” in section 13 cannot mean simple addition of two sources of income for any taxpayer.

Otherwise, it would lead to the result that a taxpayer could combine his farming loss with his other most important sources of income, thereby constituting his chief source; if this was the interpretation of section 13, it would mean that the limitation of the section would never apply and, in every case, the taxpayer could deduct the full amount of his farming losses.

Mr Justice Dickson in Moldowan talks about three classes:

(1) the unrestricted class—a farmer can deduct everything. The appellant in the case at bar is not a farmer;

(2) the taxpayer who does not look to farming or to farming and some subordinate source of income for his livelihood but carried on farming as a sideline business. In the case at bar, is the income of HOJ Industries Limited subordinate to farming? On the contrary, the income from HOJ Industries Limited is by far the taxpayer’s chief source of income. It is difficult to conceive that the energies devoted by the appellant to farming is done principally in the expectation of a steady livelihood. Indeed, the farming income that Mr Hadley was reasonably expecting to obtain could not conceivably constitute what he would look to for an expectation of a steady livelihood;

(3) the taxpayer who does not look to farming, or to farming and some subordinate source of income, for his livelihood and who carried on some farming activities as a hobby. The losses sustained by such a taxpayer on his non-business farming are not deductible in any amount.

The respondent admits vat:

(1) there was a source of income;

(2) there was a business;

(3) it was carried on with a reasonable expectation of profit.

The Dorfman decision is one which the Federal Court rendered well before the Moldowan decision at the Supreme Court of Canada.

In the Dorfman case, Mr Justice Collier is using the combination or the running test which has been expressly disapproved of by Mr Justice Dickson in Moldowan where he states:

“Whether a source of income is a taxpayer’s ‘chief source’ of income is both a relative and objective test. It is decidedly not a pure quantum measurement”.

Because of the word “pure”, it cannot be said that quantum is not important and quantum of profit derived from Exhibit A-14 shows that the salary from HOJ Industries Limited is astronomical as compared to the losses from farming operation. The only profit realized is $2,215 in 1977.

As mentioned by Mr Justice Dickson in Moldowan, his ordinary mode and habit of work did not change significantly. In the case at bar, the appellant’s ordinary mode and habit of work did not change; he was still involved with HOJ Industries Limited and Glenglasco, a multi-million dollar operation. His modus operandi did not change at all.

The appellant spent more time in his regular mode of life, namely his car dealership operation than looking after his net investment in Ancona Pharms.

Counsel for the respondent concluded his arguments by referring the Board to another statement in Moldowan with respect to subsection 13(1):

The reference in subsection 13(1) to a taxpayer whose source of income is a combination of farming and some other source of income is a reference to class (1).

Class (1)

A taxpayer, for whom farming may reasonably be expected to provide the bulk of income or the centre of work routine. Such a taxpayer, who looks to farming for his livelihood . ..

In the case at bar, it is obvious that the appellant did not look to farming or to farming and some subordinate source of income for his livelihood. Indeed, the appellant had no experience in farming, did not change occupational direction and would have taken a minimum of five years to build up a name in viable breeding operation.

According to the evidence adduced, the appellant’s income from HOJ Industries Limited is not subordinate to farming but is the appellant’s chief source of income. As mentioned in the Moldowan decision, although the “quantum element is not a deciding factor”, it is an important one which should be taken into consideration. Also, the fact that the appellant’s ordinary mode and habit of work did not change significantly is another factor to reinforce the quantum element.

Indeed, the appellant is still involved with HOJ Industries Limited and with the Glenglasco’s multi-million dollar operations. He spent more time in his regular mode of life than on his farm which was first acquired for the purpose of weekend and holiday activities and also as a retreat for himself (Mrs Hadley’s testimony). As a matter of fact, the appellant was still giving orders to the numerous general managers of his various businesses, either at the location of the business or from his office in Toronto.

Furthermore, if section 31 was given the interpretation that the appellant gives the simple addition of two sources of income, it would mean that a taxpayer could combine his farming loss with his most important other source of income, thereby constituting his chief source. Such an interpretation would never allow the application of section 13, now section 31 of the Act and it is not the intention of the legislator to enact a section that would not have any application.

The Moldowan decision mentions three classes:

(1) the unrestricted class where a farmer can deduct everything;

(2) the taxpayer who does not look to farming or to farming and some subordinate source of income for his livelihood;

(3) the taxpayer who does not look to farming, or to farming and some subordinate source of income for his livelihood and who carried on some farming activities as a hobby.

The first class covers a farmer who would have other occupations or investments to increase his chief source of income, eg a farmer who would work during the winter for a lumber company for a salary or one who sold his farm and received investment income although he still continued farming. In these cases, the limitation section does not apply.

In the case at bar, the appellant falls in the second class because he does not depend on farming and some subordinate source of income for his livelihood. On the contrary, his astronomical chief source of income allows him to enjoy the pride of possessing some of the best purebred animals in the country beside a mansion near Sturgeon Lake, a large swimming pool, five snowmobiles, three riding horses, a lot of space for the children to play and, if it went sour, the possibility to deduct some substantial losses, reducing thereby his taxable income. It is the reverse situation of a farmer who tries to increase his taxable income with other subordinate sources such as the two examples given in class 1.

There is no doubt that the Moldowan Supreme Court decision applies in the case at bar and not the numerous other cases referred to by counsel for the appellant for these two reasons:

(1) the main principles enunciated in the Moldowan decision find their application in the case at bar;

(2) all the other cases referred to the Board by the appellant are lower court decisions and pre Moldowan.

According to the relevant sections of the Act, the limitative section does not apply to the full-time farmer or the farmer who has investment income or sideline occupations but in spite of these other sources of income, remains a farmer with a reasonable expectation of profit.

On the contrary, the limitative section applies to the businessman, the doctor, the lawyer, whatever their investments and activities, provided they carry on their farming operation with a reasonable expectation of profit and remain practicing businessmen, doctors, lawyers, or other professions or occupations. However, if they do not have a reasonable expectation of profit, they are not allowed to claim losses under the said limiting section (hobby farm).

For the purpose of this case, I would like to submit the following three classes:

(1) the taxpayer who is a full-time farmer—no limitation in farming losses;

(2) the taxpayer who does not look to farming or to farming and some subordinate source of income for his livelihood but carries on some farming Operations with a reasonable expectation of profit—farming losses limited to $5,000 (Section 31);

(3) the taxpayer who does not look to farming or to farming and some subordinate source of income for his livelihood and who carried on some farming activities without a reasonable expectation of profit—no farming loss is allowed.

In a nut shell: three classes:

(1) full-time farmer: no restrictions;

(2) a taxpayer with a sideline in farming (reasonable expectation of profit): restriction to $5,000;

(3) a taxpayer with a hobby farm (without any reasonable expectation of profit): no farming loss allowed.

In the case at bar, the appellant was first a businessman; he had substantial investments and some sideline activities in farming but during these sideline activities, he remained first and above all a practicing businessman.

Consequently, the appellant’s chief source of income was neither farming nor a combination of farming and another source of income and his loss is limited to $5,000.

For these reasons, the appeal is dismissed.

Appeal dismissed.