Siebren H Boersma v. Minister of National Revenue, [1973] CTC 2103, 73 DTC 87

The Chairman (orally):—This is an appeal by Siebren H Boersma against a notice of reassessment by the Minister of National Revenue for the taxation year 1969. The issue is whether the appellant is engaged both in farming and in the real estate business. The Minister has treated his farming losses as coming within section 13 of the old Income Tax Act, which provides that, where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, a limit is set on his deductible losses.

That section of course anticipates that there will be a loss from the farming aspect even though the taxpayer qualifies as a farmer. It provides for the situation of the so-called hobby farmer who previously was able to take an unfair advantage of the Income Tax Act by writing off huge losses against his general sources of income without restriction. This section was put in to cover. the situation where a person was farming legitimately, and to grant him some relief although his chief source of income was not from farming.

The appellant in this case is of Dutch ancestry. He migrated to this country in 1951. He gave evidence on his own behalf and I found him to be a most reliable witness, although a bit excitable or perhaps overly convinced of the righteousness of his own position as indicated in his answers. Nevertheless, that did not detract from his veracity as a witness.

A brief summary of his history indicates that he came to Canada in 1951 after learning some farming on his father’s farm in South Holland. He went to Abbotsford, British Columbia, where he farmed for a time. Generally speaking, his farming experience has been in dairy farming up until latter years. However, while in British Columbia, he found that more income was being earned by other immigrants in the lumbering and logging industry in British Columbia. Before he became too involved in that occupation he was injured and returned to the Sarnia area where he lived on a farm and for a short period of time sold real estate for his brother.

I think it is common ground that at all times since his coming to Canada he has lived on farms, regardless of what or where his occupation might be. Between 1951 and 1959 he worked for the Canadian Oil Company, the predecessor of Shell Canada Limited, and farmed part-time. Through a series of trades, first by going to Manitoulin Island about 1961 where he farmed for a while, he moved to different areas. He would fix up a farm and he generally continued in the dairy farming business until he found his way back to the Sarnia-London- Mount Vernon area.

He then apparently decided that his future did not lie in selling real estate for his brother because, as he put it, and I paraphrase, he (the appellant) was not interested in city real estate whereas his brother was not interested in country real estate. I take that to mean that the appellant was not particularly interested in trying to sell houses. He felt that farming was a part of his life and that he had something to offer to persons who were interested in obtaining farm properties.

He has a large family, obviously a close-knit family, and the practice was to have his main real estate office at the farm that he owned, operated and lived on at the material time, and to bring prospective clients of the real estate business to the farm where they were entertained in a wholesome farm manner as distinct from the type of entertainment or service that a city real estate agent would offer to his prospective urban clients.

That this man is of great industry, of strong will and high moral character is without question. He carried on, even after his injury, sufficiently successfully to keep himself and his family off welfare. He did this by becoming very proficient in the selling of real estate. I think in the year in question he had gross commissions of about $62,000, which indicates that he was a man of great industry. He is a man whom his family might well be proud of, and I am certain they are.

However, this is not a tribunal that passes upon the character or industry of an individual in a case such as this. This tribunal is bound, in theory at least, to a strict interpretation of the words of the Income Tax Act. I am usually faced with cases involving section 13 where the Minister has denied that the taxpayer is entitled to any loss by reason of the well-established and oft-accepted phrase that there was no real expectation of profit in the operation. However, in this case the Minister has accepted that as a fact, if it were necessary to accept it as a fact, because in reassessing the taxpayer appellant the Minister has granted the maximum loss permissible under section 13 of the Act.

The thrust of the appellant’s argument of course is that either his real estate and farming were all one operation, or were at least related to each other, and should be treated as one business (this portion of the argument did not really emerge until the reply), or that his farming is a separate and distinct business, apart from the real estate, and full losses should be allowed to that business as in any other business, that is, subject to the restrictions of the Act but not to the restrictions of section 13.

The Minister has pleaded, in a stronger fashion than he intended, that this Board has no jurisdiction to interfere with a determination made under subsection 13(2) of the Act which provides:

13. (2) For the purpose of this section, the Minister may determine that a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income.

I think it is conceded by counsel for the Minister that this is subject to review if it can be shown that the Minister has acted unwisely, without grounds, and has exercised what is commonly called in the courts judicial. discretion in an unjudicial way. There must be certain rules that bind even Ministers of the Crown when acting under statutes such as this.

In order to sustain the Minister’s determination under subsection 13(2), counsel for the respondent has produced the income tax returns of the appellant for the years 1965 to 1971. I have allowed these to be entered as exhibits even though the returns for 1970 and 1971 go past the taxation year in question. But if I retain only my knowledge of the 1965 to 1969 years inclusive, the farming operations showed losses in the respective years—I am using round figures—of $11,000, $7,600, $8,700, $9,700, and $18,500. So if I were forced to make a determination as to whether or not the Minister had exercised his functions within reasonable bounds, I would have no difficulty in finding that he did. Nor do I have any difficulty in finding that, on the evidence, the taxpayer appellant falls clearly within the confines of section 13 of the Act, that the maximum allowance for losses is that provided by that section, and that the Minister’s reassessment is neither wrong in law nor in fact. Regrettably therefore the appeal must be dismissed.

Appeal dismissed.