Albert J Lipsett v. Minister of National Revenue, [1972] CTC 2416, 72 DTC 1361

Lucien Cardin:—This is an income tax appeal from assessments dated June 9, 1970 in respect of the appellant’s 1967 and 1968 taxation years which was heard at Kitchener, Ontario, on March 21, 1971 by Mr J O Weldon, QC, then a member of the Tax Appeal Board.

Mr Weldon having retired from the Board before a decision in this matter was taken the appellant, through his counsel, Mr Bruce E Keill, agreed by letter dated April 19, 1972 that the case be determined by another member of the Tax Review Board on the transcript of evidence adduced at the hearing. Precedents for the procedure presently followed can be found in the case of His Majesty the King v IV D Morris Realty Limited, [1943] Ex CR 140, and that of Brampton Brick Limited v MNR, [1963] Ex CR 305; [1963] CTC 57; 63 DTC 1033.

The facts in this case are as follows: The appellant is a farmer who lived with his parents on a 100-acre farm operated by his father. In 1962 the appellant took over the ownership of the family farm and operated it on his own to which he added an additional 50 acres which he purchased. The appellant operated the farm on a full-time basis until 1966, at which time he sold the original 100 acres of land and the cattle on hand. He retained the 50 acres he had purchased and as well the farming equipment and machinery. The appellant then left the farm to live with his parents in Meaford. Ontario, and took up full-time employment.

In 1967 the appellant purchased another 5-acre farm on which there is a barn and a house. The house was rented for the taxation years 1967 and 1968 which are the years of concern in the present instance. During this period the appellant’s farming operations seem to have been restricted to the purchase of seven head of cattle in 1967 and three in 1968. Three head of cattle were sold in 1968 and none were sold in 1967. In these two years the appellant cash-cropped grain from the 50-acre holding. In 1969 the appellant married and now lives in Meaford.

From the evidence adduced at the hearing, the appellant was employed on a full-time basis as a lumberman for the Georgian Bay Fruit Growers Limited at Thornbury which is 9 miles from the 5-acre farm. This farm is not contiguous with the 50-acre section which is approximately 12 miles away. The appellant also worked for a month for the Canadian Art China Limited in Collingwood, Ontario, 22 miles from Meaford. During this time the appellant’s father, 70 years of age, looked after the farm. In 1967 the appellant, while in Collingwood, also worked for the Allied Wrecking Company and for Neil McKenzie. The same pattern of work was followed in 1968.

The question in issue is whether or not the appellant was engaged in farming with a reasonable expectation of profit in 1967 and 1968.

The appellant’s farming expenses were disallowed by the Minister of National Revenue on the grounds that no farming operations of a commercial or business-like character were carried out by the appellant and no reasonable expectation of profit could be entertained from the appellant’s activities. Further, the respondent maintains that the appellant did not make any outlays or expenditures on his land for the purpose of gaining or producing income from the farming operation but the lands were purchased and retained for the appellant’s personal use — all of which is pursuant to paragraphs 12(1)(h), 139(1)(p) and 139(1)(ae) of the Income Tax Act, RSC 1952, c 148 as amended.

Counsel for the appellant in his argument said that the appellant who has always been a farmer found it necessary to accept employment because of the high prices of machinery, interest, cost of feed, seeds and fertilizer which are required in the appellant’s farming operations and concludes that the appellant comes within the provisions of subsection 13(1) of the Income Tax Act and that the farming expenses included in the appellant’s tax returns for 1967 and 1968 should have been allowed.

From the evidence adduced at the hearing, it would be difficult to hold that the appellant was not engaged in some form of farming operation. He was an industrious person and there is uncontradicted evidence that he has put in long hours on farming chores which can hardly be considered as recreational. His antecedents, the purchase of his father’s farm, the additional extension of 50 acres to his holdings, the harvesting of hay and grain and the purchase and sale of livestock even on a small scale, are legitimate farming activities which were not in fact contradicted. However, the purchase of the 5-acre farm and according to the appellant’s testimony, the very extensive repairs made to the house for rental purposes, are not in my opinion to be considered entirely as part of the appellant’s farming operations. Although the appellant carried on some farming activities on the 5-acre farm, the expenditures on the improvements to the house which has since been continuously rented cannot be logically considered as farming expenditures.

The second point is whether the appellant’s farming activities as exercised in 1967 and 1968, a period when the appellant was fully employed elsewhere, justifies a reasonable expectation of profit from his farm. At a time when full-time farmers found it difficult indeed to make a profit from their operations, the expectation of profit from operations as conducted by the appellant in 1967 and 1968 was, in my opinion, non-existent.

As did Mr Weldon at the hearing of the appeal, I find a considerable difference in the appellant’s farming activities from those of Mr Graham in Graham v MNR, [1970] Tax ABC 624; 70 DTC 1425 cited by counsel for the respondent; those of Mr Brown in H McCrae Brown v MNR, [1970] Tax ABC 1163; 70 DTC 1726, also cited by counsel and those of Mrs G Beryl Furstenau v MNR, [1970] Tax ABC 773; 70 DTC 1495; in that the appellant was not seeking to live on a 10-acre farm, 8 acres of which were bush, as did the Grahams. Nor can the appellant be considered, as was Mr Brown, as an absentee farmer, since the appellant worked on the farm every day — admittedly on off hours. Neither is the appellant to be considered as a hobby farmer and his farming operations, though limited, are within the meaning of paragraph 139(1)(p) of the Income Tax Act, RSC 1952, c 148.

Though the appellant’s activities must be considered as farming, he cannot be considered as having a reasonable expectation of profit in 1967 and 1968. I agree with the words of Mr Davis in Graham v MNR that are applicable to this case:

I have followed the evidence of the appellant and his wife intently, and I regard them as completely honest and credible witnesses. There is no doubt that, in seeking a rural type of life, both the appellant and his wife are prepared to make considerable sacrifices in their endeavour to cling to the type of life they knew before they left Ireland for Canada. However, be that as it may, (and notwithstanding the fact that “farming” is defined in paragraph (p) of section 139(1) of the Income Tax Act as including “livestock raising”), I do not think the appellant has been able to establish that he is carrying on his farming activities “with a reasonable expectation of profit”.

For these reasons, I have no alternative but to dismiss the appeal.

Appeal dismissed.