Judge Kenneth Frederick Arkell v. Minister of National Revenue, [1972] CTC 2515, 72 DTC 1414

The Chairman (orally):—This is an appeal by Kenneth Frederick Arkell, taxpayer, against a reassessment for the taxation year 1969. The facts briefly are as follows.

Up until about the middle of June—June 14 or 15—1969 the appellant carried on business as a member of a law firm. The firm had the usual type of agreement that in the event of one of the partners ceasing to be a member of the partnership — either by death or departure for other reasons — the partnership would carry on. There was also, in the evidence of the appellant, a buy-sell agreement to provide funds. Perhaps the evidence is not always clear, but at least a buy-sell agreement to take care of such an eventuality.

Because of a mix-up in the forwarding of documents and the change of the venue in this case that appears to have taken place, the original partnership agreement was not available, but I accept the evidence of the witness as to its general purport.

On June 14, 1969 — or immediately thereafter — the appellant sold his interest in the partnership to one R C Hunter, who was already a member of the firm, and the partnership continued, and the inference from the evidence is that the appellant is being paid over a period of time for the amount on which he agreed to settle at the time of his departure.

Within a couple of days he was appointed to the Provincial Bench of British Columbia and, I assume, as required by law in the other provinces, it was a full-time appointment, and he no longer practised law as a barrister and solicitor.

In or about the year 1967 he purchased, in the Province of Alberta, a quarter-section of 160 acres which, he said, had a house in a very run-down condition, but which contained a well, and although the hydro was on the premises it was not hooked up to the dwelling house. During the years 1967 to 1969 inclusive, he cleared the land — which he had purchased from an estate for some $10,150. He found that about half of the land was cultivated, and was on lease, and that planting had already taken place, and he received income in that year of approximately $130 and had expenses of $2,800 odd.

The next year he planted barley, and received in return for the produce some $427, but had expenses of about $1,448. In 1969 he planted barley and received income of only $213.50, but had considerably more expense, and showed a loss of $2,413.40, which is the loss shown in the Reply to the Notice of Appeal in this matter, and is in the relevant year — taxation year 1969.

The appeal deals with whether or not the appellant is entitled to make an election under section 37, whereby a formula is provided for a taxpayer who has income from two different sources in the same fiscal year, and there are exceptions — under section 37 — to those who are entitled to make such use of the formula.

One of the subsections — 37(2) — provides that he must not have been a partner or a proprietor in any other business. The taxpayer alleges that he was not in the business of farming and “farming” was not a business within the meaning of the relevant sections of the Income Tax Act, and that he should, therefore, be entitled to the benefits of section 37, and, in my mind, there is no doubt that he would be if he was not engaged in a farming operation to which section 13 applied. I say that because there is no question on the evidence — that he was not a full-time farmer, as I have said, he was one of Her Majesty’s Judges at the material time.

On the evidence that the appellant gave, in my view there was not a reasonable expectation of profit, as has come to be the phrase that has applied to hobby-farmers or gentleman-farmers who seek to take advantage of the Act. One does not find, in the provisions of the Income Tax Act, when reading the provisions that deal with farming as such, the application of any such words. However, over the course of the years, the reported cases of the predecessor of this Board have clearly invoked the provisions of paragraph 139(1)(e), and have with consistent regularity stated “that in order for one to qualify as a farmer where he is not engaged in full-time farming, he must be able to satisfy the Board that he had a reasonable expectation of profit”.

Whether or not I agree with that law, it is well-established and long- established before the Tax Appeal Board and has been accepted by this Board since its inception.

As I have said, in the course of the evidence and argument, in my view, if this appellant were before this Board based on those previous decisions, seeking to claim the losses of his farming operation, he would not succeed. The problem that does arise is that over the course of the years, and in the particular year in question, he has claimed — and has had accepted — the losses sustained in the farming operation including those for the year 1969. The Minister, in effect, says that the taxpayer cannot have it both ways; he cannot claim the loss under section 13 — the loss incurred in the farming operation — and at the same time allege that he was not engaged in farming or in a business that would allow him to claim this loss.

I must say, with some reluctance, that I must agree with the Minister’s contention in this case, that the appellant, having elected to take advantage of section 13 and to claim his farming losses over a period of years, cannot now be heard to say to this Board that he was not engaged in a farming operation and is not subject to the exclusion of section 37. I think that he made his choice in 1969 and the preceding years and is now unfortunately — since it has been accepted by the Department — bound by that result.

For those reasons, the appeal, in my view, must be dismissed, and the assessment of the Minister reaffirmed.

Appeal dismissed.