Delmer
E
Taylor:—This
appeal
was
heard
in
Toronto,
Ontario,
and
is
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
disallowed
an
amount
of
$4,221.14
claimed
as
a
farming
loss
for
the
taxation
year
1974.
In
the
reply
to
notice
of
appeal,
the
respondent
relied,
inter
alia,
on
paragraph
18(1)(h),
subsections
31(1)
and
248(1)
of
the
Income
Tax
Act,
SC
1970-71-72,
chapter
63
as
amended.
Facts
During
the
year
in
question,
the
appellant’s
address
was
RR
#1,
Barrie,
Ontario,
and
he
was
employed
full
time
as
a
forester
by
the
Government
of
the
Province
of
Ontario.
Contentions
According
to
the
appellant,
it
was
contended
that:
—the
farm
in
question
(RR
#1,
Barrie,
Ontario)
had
been
purchased
in
1970;
—during
1970,
1971
and
1972,
he
proceeded
to
build
up
the
farm,
fences,
fields
and
buildings;
—after
a
discussion
with
Revenue
Canada
in
1974,
he
commenced
to
claim
the
“restricted
farm
loss”
starting
with
the
taxation
year
1973
(not
disallowed,
therefore
not
appealed);
—
he
anticipated
profits
before
the
year
1977.
The
respondent
contended
that:
—the
amount
of
$4,221.14
did
not
relate
to
the
expenses
of
properties
maintained
in
connection
with
a
business
carried
on
for
profit
or
with
a
reasonable
expectation
of
profit;
—the
amount
of
$4,221.14
claimed
as
a
deduction
represented
personal
or
living
expenses
of
the
appellant.
Evidence
The
appellant
submitted
to
the
Board
three
tables
which
showed
respectively:
Table
I.
The
Farm
Plan
in
terms
of
numbers
of
cattle
by
annual
projections
(1973
through
1979)
Table
II.
The
Expected
(theoretical)
costs
and
returns
of
the
Farm
Plan
(1973
through
1977)
Table
III.
Actual
Farm
Costs
and
Returns
(1973
through
1977).
It
was
the
evidence
of
Mr
Mullin
that
although
these
tables
had
been
prepared
recently
for
the
purpose
of
this
hearing,
the
information
contained
in
them
had
been
available
to
him
in
1970
and
the
tables
represented
the
basis
upon
which
he
had
entered
into
farming.
The
expected
profit
of
$713
(shown
on
Table
III
for
the
year
1977)
would
have
been
realized
except
for
two
factors
which
it
had
not
been
possible
to
anticipate—a
greater
number
of
male
than
female
calves
over
the
years
1973
to
1977,
and
the
drop
in
beef
prices
during
the
same
period.
The
farm
comprised
50
acres,
all
of
which
were
in
poor
condition
at
the
date
of
purchase,
and
the
buildings
were
also
badly
run
down.
His
son
who
had
been
studying
agriculture
at
college
during
the
early
1970’s
had
helped
him,
particularly
with
respect
to
soil
analysis
and
crop
planning.
During
cross-examination,
the
appellant
gave
additional
details
regarding
the
operation
and
elaborated
upon
the
nature
of
the
three
tables
he
had
filed
with
the
Board.
His
information
was
specific
and
straightforward.
Counsel
for
the
respondent,
through
the
appellant,
identified
and
filed
the
following:
Exhibit
R-1:
Copy
of
“STATEMENT
OF
FARMING
INCOME
AND
EX-
PENSES”
(T2042)
for
1973;
Exhibit
R-2:
Copy
of
“STATEMENT
OF
FARMING
INCOME
AND
EX-
PENSES”
(12042)
for
1974;
Exhibit
R-3:
Copy
of
“STATEMENT
OF
FARMING
INCOME
AND
EX-
PENSES”
(12042)
for
1975;
Exhibit
R-4:
Copy
of
“STATEMENT
OF
FARMING
INCOME
AND
EX-
PENSES”
(12042)
for
1976;
Exhibit
R-5:
Chart
of
summary
of
figures
contained
on
Exhibits
R-1
to
4.
Exhibit
R-5
above
showed
a
profit
for
the
year
1977
of
$712.76
but
it
was
quickly
established
by
counsel
that
the
appellant
had
liquidated
his
entire
herd
of
cattle
during
1977.
The
losses
for
the
other
years
were
as
follows:
1973—$5,120.32;
1974—$5,942.28;
1975—$5,081.68;
and
1976—$4,874.99.
Argument
The
appellant
summarized
his
case
in
this
way:
Why
did
we
go
into
farming?
Because
at
that
time
it
was
a
promising
business.
We
had
good
land.
We
had
the
location.
We
had
the
advice
and
we
had
the
prospects.
What
were
our
expectations?
Well,
like
everyone
else,
we
were
optimistic.
We
thought
that
with
that
area
of
land
at
that
time
it
was
a
chance
of
making
a
profit.
Why
did
it
not
turn
out
that
way?
Well,
it
was
a
short
fall,
first
of
all
biological,
because
we
were
short
on
a
number
of
females.
Secondly,
the
main
cause
was
because
of
the
tremendous
increase
in
farming
costs
and
third,
because
of
a
drop
in
sales
price,
which
I
don’t
think
anyone
predicted
in
1973
or
1974.
The
farm
was
Originally
purchased
in
order
to
aid
my
retirement
income.
It
was
hoped
that
by
the
time
I
retired,
which
is
in
about
a
year
or
two,
that
I
would
have
had
an
outstanding
herd
of
beef
that
would
have
added
to
my
income
then
on.
Counsel
for
the
respondent
pointed
out
that
the
projections
contained
in
Tables
I,
Il
and
III
submitted
by
the
appellant
bore
very
little
relationship
to
the
actual
results
as
shown
by
Exhibits
R-1,
R-2,
R-3
and
R-4,
all
submitted
by
the
appellant
with
the
appropriate
year’s
income
tax
return.
The
appellant
could
not
have
devoted
much
time
to
the
farm
since
he
was
employed
full
time.
In
the
view
of
counsel,
there
was
no
indication
of
a
reasonable
expectation
of
profit,
certainly
as
one
would
interpret
the
decision
in
William
Moldowan
v
Her
Majesty
The
Queen,
[1977]
CTC
323;
77
DTC
5213.
The
appellant
pointed
out
that
he
had
made
allowances
for
what
he
considered
personal
or
living
expenses
before
he
had
filed
the
financial
statements
for
the
farm
during
each
of
the
years
1973,
1974,1975
and
1976,
and
he
had
claimed
the
losses
shown
to
the
maximum
allowable
under
the
Act.
Counsel
for
the
respondent
agreed
that
the
activity
of
the
appellant
fitted
within
the
definition
of
“farming”
to
be
used
in
the
Income
Tax
Act
but
claimed
that
whether
or
not
it
was
a
business
was
not
crucial
to
the
assessment.
The
test
was
whether
or
not
the
expenses
were
personal
living
expenses,
and
they
should
be
so
classed
(personal
living
expenses)
in
this
case.
Counsel
stated
..
it
is
not
whether
or
not
the
operation
constitutes
a
business,
that
is
the
statutory
prerequisite
to
deductibility,
but
whether
or
not
the
activity
was
carried
on
with
a
reasonable
expectation
of
profit”.
In
support
of
his
contention
that
the
efforts
of
a
taxpayer
could
be
both
“farming”
and
a
“business”,
but
not
necessarily
a
“business
carried
on
with
a
reasonable
expectation
of
profit”
and
therefore
not
deductible,
counsel
relied
upon
the
decision
of
Deputy
Judge
Dubinsky
in
Donald
J
Gillis
v
Her
Majesty
The
Queen,
[1978]
CTC
44;
78
DTC
6103.
Findings
It
might
appear
that
counsel
for
the
respondent
has
determined
that
the
activities
of
the
appellant
during
the
year
under
review
should
be
classified
both
as
farming
and
as
a
business,
and
that
the
only
point
to
be
decided
by
this
Board
is
whether
or
not
the
“farming
business”
was
carried
on
with
a
reasonable
expectation
of
profit—and
therefore
on
that
basis
the
expenses
incurred
would
be
deductible.
While
counsel
relied
strongly
upon
Gillis
(supra),
it
is
worth
reviewing
the
definitions
provided
in
Moldowan
(supra)
regarding
such
matters,
which
definitions
are
found
at
[1977]
CTC
315
and
77
DTC
5216
respectively:
In
my
opinion,
the
Income
Tax
Act
as
a
whole
envisages
three
classes
of
farmers:
(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,
is
free
of
the
limitation
of
s
13(1)
in
those
years
in
which
he
sustains
a
farming
loss.
(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.
Such
a
taxpayer
is
entitled
to
the
deductions
spelled
out
in
s
13(1)
in
respect
of
farming
losses.
(3)
the
taxpayer
who
does
not
look
to
farming,
or
to
farming
and
some
subordinate
sources
of
income,
for
his
livelihood
and
who
carried
on
some
farming
activities
as
a
hobby.
The
losses
sustained
by
such
a
taxpayer
on
his
nonbusiness
farming
are
not
deductible
in
any
amount.
With
reference
to
the
above
decision,
I
would
point
out
the
phrase
“carried
on
farming
as
a
sideline
business”
(italics
mine)
which
provided
for
a
restricted
farm
loss,
and
the
phrase
“carried
on
some
farming
activities
as
a
hobby”
(italics
mine),
later
described
as
“non-business
farming”
the
result
of
which
was
not
deductible.
There
is
little
in
that
decision
which
would
permit
the
narrow
distinction
put
forward
by
counsel.
In
Gillis
(supra),
the
learned
Justice
not
only
reviewed
Moldowan
(supra),
but
quoted
from
and
reflected
upon
selected
portions
from
McLaws
v
The
Queen,
[1976]
CTC
15;
76
DTC
6005;
Holley
v
MNR,
[1973]
CTC
539;
73
DTC
5417;
and
CBA
Engineering
Limited
v
MNR,
[1971]
CTC
504;
71
DTC
5282.
Summarizing
his
views,
he
states
as
follows
at
[1978]
CTC
55
and
78
DTC
6110
respectively:
In
order
for
this
taxpayer
to
obtain
the
benefit
of
any
farming
losses
which
he
sustained,
that
is
to
say,
for
him
to
fall
into
the
second
of
the
categories
envisaged
by
S
13(1),
he
must
needs
have
carried
on
his
farming
venture
as
a
business.
To
put
it
differently,
in
order
for
his
farming
to
have
constituted
a
‘source
of
income’
against
which
(in
accordance
with
the
spirit
of
the
Income
Tax
Act)
he
would
be
entitled
to
off-set
legitimate
expenditures
incurred
in
producing
the
income,
he
must
have
had
—if
not
a
profit—at
least
the
reasonable
expectation
of
profit.
As
I
read
Gillis
(supra),
it
says
that
for
the
appellant’s
farming
venture
to
have
been
carried
on
as
a
business,
he
must
have
had
at
least
the
reasonable
expectation
of
profit.
I
would
conclude
therefrom
that
carrying
on
a
“business”
presupposes
‘‘a
reasonable
expectation
of
profit”.
The
position
of
counsel
in
the
instant
case,
that
this
taxpayer
could
be
carrying
on
a
business
but
not
doing
so
with
a
reasonable
expectation
of
profit,
does
not
appear
to
me
to
be
supported
by
the
Gi/lis
decision
(supra):
Consequently,
if
I
were
to
interpret
counsel’s
position
literally—that
the
farming
in
this
appeal
was
indeed
a
business—it
would
be
in
order
for
me
to
allow
the
appeal
without
further
examination.
However,
if
the
assertion
and
argument
of
the
respondent
in
reality
is
that
the
farming
activity
conducted
by
this
appellant
did
not
have
a
reasonable
expectation
of
profit
(and
was
then
by
definition
not
a
business),
the
queries
raised
and
the
course
of
examination
followed
by
the
Board
in
Fred
L
Johnson
v
MNR,
[1978]
CTC
2122;
78
DTC
1109,
would
be
in
order.
Even
approaching
the
matter
from
this
latter
viewpoint,
I
do
not
see
any
distinction
of
merit
between
Johnson
(supra)
and
the
instant
appeal,
and
it
would
still
be
in
order
to
allow
the
appeal.
Indeed
there
are
additional
factors
which
might
strengthen
a
finding
that
this
appeal
should
be
allowed.
The
Johnson
appeal
(supra)
covered
two
years
whereas
this
appeal
is
for
one
year
only;
and
the
Gillis
appeal
(supra)
(later
in
1977
than
Johnson
(supra))
covered
a
total
of
five
years
(1969
through
1973),
and
information
was
provided
continuing
through
1976,
therein
providing
the
learned
Justice
with
a
considerable
time
span
within
which
it
might
be
expected
the
appellant
had
an
opportunity
to
show
some
evidence
that
the
operation
was
indeed
a
business—defined
for
my
purposes
in
this
appeal
as
a
commercial
venture
with
a
reasonable
expectation
of
profit.
Obviously
the
Judge
concluded
that
notwithstanding
the
energy,
devotion
and
optimism
of
the
appellant,
the
results
showed
his
efforts
were
in
the
nature
of
a
hobby
and
not
a
business.
It
might
be
argued
that
in
the
instant
appeal,
since
summaries
of
the
farming
income
and
expenses
have
been
made
available
to
the
Board
on
Exhibit
R-5
for
the
years
1973
through
1977
(which
includes
the
year
1974
under
appeal),
and
the
loss
results
are
not
dissimilar
to
those
in
Gillis
(supra),
the
same
result
(dismissal)
should
ensue.
I
do
not
agree.
A
perusal
of
the
details
on
the
above-noted
summaries
of
income
and
expenses
shows
that
the
farming
operation
in
this
appeal
was
indeed
of
a
commercial
nature
as
contrasted
with
the
activities
described
in
Gillis
(supra).
Further,
the
objective
of
this
appellant
was
to
produce
a
“breeding
herd”
from
the
cattle
he
owned
and
he
had
made
some
progress
toward
that
objective,
including
keeping
his
own
breeding
bull,
quite
a
different
interim
result
from
that
evident
in
Gi/lis
(supra).
Finally
on
the
same
note,
in
1977
this
appellant
disposed
of
his
entire
herd,
coming
to
the
conclusion,
perhaps
belatedly,
that
the
operation
did
not
have
a
reasonable
expectation
of
profit.
In
contrast
to
the
perspective
which
I
take
in
this
appeal
with
regard
to
the
single
year
1974,
it
would
appear
that
in
Gi/lis
(supra)
there
was
neither
evidence
of
a
reasonable
expectation
of
profit
during
the
years
under
appeal,
nor
evidence
that
in
the
three
years
subsequent
to
1973
the
appellant
had
reached
that
conclusion
and
considered
winding
up
the
operation.
According
to
the
evidence
in
Gillis,
the
efforts
of
the
appellant
continued
right
up
until
the
date
of
the
appeal,
uninterrupted,
unabated
and
unchanged,
beside
being
unprofitable.
A
determination
by
the
Court
that
the
primary
motivation
of
the
appellant
was
something
other
than
a
reasonable
expectation
of
profit
was
the
inevitable
result
of
that
appeal.
I
find
no
similar
situation
in
this
appeal
before
the
Board.
The
appellant
Mullin
carried
on
a
farming
business
and
should
be
entitled
to
the
deduction
claimed
during
the
year
in
question.
Additional
support
for
this
view
may
be
found
in
a
judgment
of
the
Chairman
of
this
Board,
the
Honourable
L
Cardin,
QC,
in
McCleary
Drope
v
MNR,
11978]
CTC
2639;
78
DTC
1483.
Decision
The
appeal
is
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.