D
E
Taylor:—This
is
an
appeal
heard
in
Halifax,
Nova
Scotia,
on
July
29,
1981
against
income
tax
assessments
for
the
years
1977
and
1978
in
which
the
Minister
of
National
Revenue
disallowed
the
amounts
of
$9,165.62
and
of
$7,187.82
respectively
as
losses
claimed
for
“scientific
research”
under
section
37
of
the
Income
Tax
Act,
SC
1970-71-72
c
63,
as
amended,
but
allowed
the
maximum
of
$5,000
for
each
year
as
a
restricted
farm
loss
under
section
31
of
the
Act.
The
appellant
operated
a
grape
vineyard
during
the
years
in
question,
and
also
in
conjunction
therewith
operated
a
dog-raising
kennel.
The
notice
of
appeal,
the
notice
of
objection
and
the
reply
to
notice
of
appeal
set
out
the
position
and
contentions
of
the
respective
parties.
For
the
appellant:
Losses
have
been
incurred
from
1972
to
1976
on
kennel
operations
and
experimental
grape
production.
The
longest
running
experiment
has
been
on
the
Van-
Buren
variety
of
grapes.
The
results
of
the
testing
indicate
that
this
variety
cannot
be
used
for
commercial
production.
At
present
most
of
this
variety
has
been
replaced
with
other
varieties
of
grapes.
It
is
imperative
that
I
be
exempted
from
the
reassessment
so
that
I
may
proceed
with
a
project
which
is
so
highly
developmental
(research
oriented)
in
nature
but
now
carries
very
high
prospects
of
ultimate
commercial
success
in
four
or
five
years.
Owing
to
its
size
and
complexity
and
the
difficulties
encountered
it
far
exceeds
the
limits
of
hobby
farming
and
the
tax
limitations
imposed
by
Section
31.
Particularly
is
this
the
case
under
conditions
of
inflation
and
high
interest
rates
over
which
I
have
no
control.
Both
federal
and
provincial
agricultural
officials
support
me
as
explained
above.
Furthermore,
since
investment
is
being
made
in
the
development
of
a
cottage
wine
industry
it
is
crucial
that
I
have
working
capital
to
bring
forth
a
supply
of
grapes
to
make
the
whole
project
viable
and
in
so
doing
arrive
at
a
satisfactory
resolution
of
my
own
predicament.
For
the
respondent:
In
so
assessing
the
appellant,
the
respondent
made,
intera
alia,
the
following
assumptions
of
fact:
(a)
at
all
material
times
the
appellant
was
a
full
time
professor
at
Dalhousie
University
in
the
Province
of
Nova
Scotia
and
earned
income
from
that
source
in
the
amount
of
$33,762
in
1977
and
136,303
in
1978;
(b)
in
1972
the
appellant
entered
into
a
grape
growing
operation
on
approximately
5
acres
of
land
at
Grand
Pré
in
the
Province
of
Nova
Scotia;
(c)
in
the
1977
and
1978
taxation
years
the
appellant
received
gross
revenue
from
the
sale
of
grapes
in
the
amounts
of
$4,638.95
and
$6,119.60;
(d)
at
all
material
times,
the
appellant
also
operated
a
Kennel
which,
if
separated
from
the
grape
operation,
would
show
a
small
profit;
(e)
in
1977
and
1978
the
appellant
claimed
net
losses
in
respect
of
his
Kennel
and
vine
yard
in
the
amounts
of
$9,165.62
and
$7,187.82
respectively;
(f)
the
appellant
claimed
to
have
losses
accumulated
prior
to
1977
in
the
amount
of
$20,052.71;
(g)
the
amounts
claimed
as
expenses
in
respect
of
the
operation
of
the
appellant’s
vine
yard
are
not
expenditures
made
in
respect
of
scientific
research;
(h)
the
appellant’s
chief
source
of
income
was
neither
farming
nor
a
combination
of
farming
and
some
other
source
but
was
his
occupation
as
a
professor
at
Dalhousie
University.
The
respondent
relied,
inter
alia,
upon
sections
31
and
37
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended,
and
upon
section
2900
of
the
Income
Tax
Regulations.
At
the
hearing,
Dr
Morse
(the
appellant)
provided
further
details
regarding
his
operation,
and
it
was
clear
that
he
understood
the
nature
of
the
problem
which
he
posed
to
the
Board.
It
was
also
clear
that
there
was
no
basis
upon
which
he
could
pursue
an
avenue
leading
to
classifying
his
operation
as
a
“combination
of
farming
and
some
other
source
of
income”.
He
made
substantial
reference
to
the
support
and
encouragement
he
had
received
from
both
public
and
private
bodies
in
the
pursuit
of
his
efforts
in
the
vineyard.
It
was
his
firm
conviction
that
the
major
difficulties
had
now
been
overcome,
that
his
experiments
and
expenses
had
proven
the
viability
of
the
grapegrowing
industry
in
the
area
and
that,
based
upon
his
efforts
and
investment,
profitable
operations
could
not
be
commenced.
It
was
the
position
of
counsel
for
the
Minister
that
the
“restricted
farm
loss”
allowance
was
difficult
for
the
Minister
to
justify
in
the
light
of
the
results
of
the
operation,
but
it
had
been
permitted
for
the
years
under
review.
With
regard
to
the
possible
application
of
section
37,
counsel
quoted
from
the
Act
and
the
relevant
regulation.
According
to
counsel,
the
appellant
did
not
qualify
under
any
of
paragraphs
(a),
(b)
or
(c)
of
Regulation
2900
and,
even
if
so
qualified
(under
any
one
of
these),
was
disqualified
by
virtue
of
either
paragraph
(d)
or
(h)
of
that
regulation.
Counsel
agreed
that
there
was
little
background
or
case
law
on
the
particular
point
at
issue
which
appeared
to
be
directly
relevant
to
this
appeal.
It
is
my
opinion
that
the
work
described
by
the
appellant
could
fit
within
the
bounds
of
Regulation
2900
(b)
or
(c):
(b)
applied
research,
namely,
work
undertaken
for
the
advancement
of
scientific
knowledge
with
a
specific
practical
application
in
view,
and
(c)
development,
namely,
use
of
the
results
of
basic
or
applied
research
for
the
purpose
of
creating
new,
or
improving
existing,
materials,
devices,
products
or
processes,
.
.
.
However,
the
exemptions
(d)
or
(h)
to
which
counsel
has
referred
would
not
permit
the
deduction
claimed,
at
least
according
to
the
facts
as
I
understand
them.
(d)
market
research
or
sales
promotion,
(h)
the
commercial
production
of
a
new
or
improved
material,
device
or
product
or
the
commercial
use
of
a
new
or
improved
process.
It
would
appear
to
me
that
a
taxpayer
does
not
graduate
from
a
business
operation
(farming
—
no
matter
how
restricted)
to
research,
based
solely
upon
losses
incurred.
While
I
would
make
no
definitive
effort
to
determine
what
“research”
activities
might
escape
the
exemptions
under
Regulation
2900,
it
seems
certain
that
research
efforts
tainted
with
any
expectation
of
profit
to
the
participant,
let
alone
the
reasonable
expectation
of
a
business
venture,
would
be
highly
suspect.
Decision
The
appeal
is
dismissed.
Appeal
dismissed.
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