John E McLachlen v. Minister of National Revenue, [1974] CTC 2003, [1974] DTC 1035

The Assistant Chairman:—This is the appeal of John E McLachlen from an income tax assessment in respect of the appellant’s 1970 taxation year.

The appellant, who is a graduate from an agricultural college, was born and raised on a farm. Over the years notwithstanding his activities in the Air Force, the insurance business, and the teaching profession, the appellant made several attempts to go into farming. At the time pertinent to his appeal, the appellant was a professor of Applied Economics at Algonquin College earning a salary of between $14,000 and $15,000 a year. Late in 1968 the appellant bought a 400-acre farm (88 acres of which were under cultivation) for $13,900—paying $3,500 cash and he took a mortgage for the balance. Nothing was done on the farm in that year because of the season.

In 1969 the appellant rented the farm for $190 and was forced to make minor repairs to the fences and the water system in the amount of approximately $500. In 1970 the appellant’s intention was to rent the farm but he was unsuccessful in his attempt in spite of advertisements he placed in the paper for that purpose.

However in that year the appellant repaired the fence posts and installed electric fences. With the help of the government some 14,300 spruce, red pine and white pine trees were planted on the farm. Repairs to the plumbing, the water system and septic tank servicing the farmhouse were also effectuated.

From the statement of farming income and expenses for the 1970 taxation year, the income was nil. The expenses were as follows:

In his 1970 tax return the appellant classified the amount of $1,770.66 as a farming loss. The deduction was disallowed by the respondent and the appellant subsequently filed this appeal. In 1971, although the appellant and his family resided at 23 Laurier Drive, Aylmer, Quebec, the appellant, himself, moved to the farm. In 1971 he bought some 35 head of cattle and wintered 20 of them. He also expended some $500 on additional farm equipment such as a hay elevator, a wagon, a hay rake and hammer mill.

‘In the summer of 1972 the appellant entered into a share arrangement with James Beckta by which the appellant would keep the revenue derived from cattle-raising and Mr James Beckta would keep the revenue from garden farming but both would share in the general or common farm expenditures. In that year the appellant purchased 8 head of cattle and again he wintered 20 head of cattle.

In 1973 the appellant purchased some 15 head of cattle and his herd presently comprises some 30 head of cattle. In studying the possibility of granting additional bank credit to the appellant, the bank evaluated the appellant’s holdings in 1973 at $50,000.

There is no doubt whatsoever in my mind that the appellant is now engaged in the business of farming and can entertain a reasonable expectation of making a profit from his operation, but that of course is not the issue of this appeal. The present issue is whether the appellant was involved in a farming operation in 1970 and whether his activities in that year can be considered as having a reasonable expectation of profit.

I am satisfied from the facts of this case that the appellant’s intention in purchasing the 400-acre farm was to operate with a sizeable herd of cattle. The appellant’s competence in agriculture, the availability, as a professor, of many hours’ free time during the week, the long summer holidays which could be devoted to farming, the fact that the appellant will retire from the teaching profession within a few years, are plausible and credible reasons which support his declared intentions of operating a cattle farm.

However, the important point to consider in this appeal is the period of time at which the preparatory and planning stage of the appellant’s project terminated and the actual farming operations began. I do not believe that farming operations can be considered as having started at the time the idea or the intention of farming was conceived, nor at any stage prior to the actual operations of the farm.

From the evidence given by the appellant, I can imagine that if the appellant had had the necessary capital he would perhaps have been able to commence his farming operations sooner than he actually did without the necessary finances, but in either case the only criteria to be applied in defining farming or farm operations would necessarily be the same and that is the actual tillage of the soil, the raising of livestock, etc as defined in paragraph 139(1 )(p) of the Income Tax Act.

From the appellant’s statement of farming income and expenses for 1970, the year pertinent to this appeal, the expenses listed are attributable to the land and the buildings but none are attributable to farming within the meaning of the Act. Moreover, in 1970 it was the appellant’s intention to rent the farm and, of course, had he done so he would not have been engaged in the business of farming. In my view the appellant’s activities in 1970, although they may have been preparatory to farming, were not “farming” within the meaning of the Act. There is no equity in tax law and the Board must apply the Income Tax Act as it is.

I hold therefore that the appellant in 1970 was not engaged in a farming operation and the amount of $1,770.66 claimed as a farming loss was properly disallowed by the Minister and rightly considered by him as non-deductible personal or living expenses within the meaning of paragraph 139(1)(ae) of the Act.

The appeal is dismissed.

Appeal dismissed.