Edward M. Maber v. Minister of National Revenue, [1971] CTC 866

KERR, J.:—This is an appeal from the assessment of the appellant under the Income Tax Act for his 1967 and 1968 taxation years, whereby the respondent disallowed $1,939.59 of the appellant’s claim for capital cost allowance in respect of the 1967 year and disallowed $3,625.83 claimed as capital cost allowance and $1,766.33 claimed as farming expenses for the 1968 year.

Both the appellant and the respondent agree that the appellant acquired about 1,810 acres of land near Clinton, B.C., in 1960, on which he carried on cattle ranching operations until June 24, 1967, when he sold about 1,693 acres of the land to 50 Ranch Ltd., retaining 117 acres for himself.

The appellant claims that in the period from June 24, 1967 to December 31, 1968 he was carrying on the business of farming on the 117 acres and that he is entitled to deductions of his claimed expenditures and capital cost allowances and also is entitled to the benefit of Section 18 of the Income Tax Act, which reads as follows:

13. (1) 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, his income for the year shall be deemed to be not less than his income from all sources other than farming minus the lesser of

(a) his farming loss for the year, or

(b) $2,500 plus the lesser of

(i) one-half of the amount by which his farming loss for the year exceeds $2,500, or

(ii) $2,500.

(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.

(3) For the purposes of this section, “farming loss” means a loss from farming computed by applying the provisions of this

Act respecting the computation of income from a business mutatis

mutandis.

In his reply to the notice of appeal the respondent says that in assessing the appellant for 1967 and 1968 he acted upon certain assumptions, including the following:

(b) Contemporaneously with the sale of land to 50 Ranch Ltd., the Appellant sold all his cattle and substantially all the equipment he had been using in a cattle business in which he had been engaged.

(c) The 117 acres, which the Appellant retained following the sale of the greater portion of his property at Clinton, B.C., was vacant range land since a dwelling house and certain sheds and other buildings which the Appellant had used in his business were located upon the property sold to 50 Ranch Ltd.

(d) The 117 acres of land near Clinton, which the Appellant retained following the sale of land to 50 Ranch Ltd. in June, 1967, was not used for business purposes during the remaining months of 1967, nor during the calendar year

1968.

(e) That upon assessing the Appellant for 1967 he has properly computed in the under-stated manner the deduction to which the Appellant is entitled in respect of the capital cost of property used for the purpose of gaining income from farming in that year:

Capital cost allowance claimed	$4,710.04
Less: capital cost allowance for period 1st
January to 24th June, 1967
175
X $5,778.37 —	2,770.45
365
Amount of claim disallowed upon assessment	$1,939.59

(f) That upon assessment for 1968 he has properly disallowed $5,392.16 claimed as farming expenses and capital cost allowance on property used in the business of farming because the Appellant was not carrying on the business of farming, nor in fact carrying on any business upon or with respect to the heretofore mentioned 117 acres of property at Clinton in British Columbia in that year.

and in the reply, the respondent also stated, inter alia, that :

(a) the amount of capital cost allowance deductible by the Appellant for 1967 under the provisions of paragraph (a) of subsection (1) of Section 11 of the said Act has been properly determined in accordance with the provisions of subsections (1) and (2) of Income Tax Regulation 1700, because the property in respect of which capital cost allowance was claimed was used for the purpose of gaining income from farming for only part of the Appellant’s 1967 fiscal year.

(Paragraph 10—Reply to notice of appeal.)

(b) expenditures to the extent of $1,766.33 claimed as deductions from income in the 1968 taxation year were not outlays incurred by the Appellant for the purpose of gaining or producing income within the meaning of paragraph

(a) of subsection (1) of Section 12 of the said Act.

(Paragraph 11—Reply to notice of appeal.)

(c) he has properly disallowed, by virtue of the provisions of paragraph (e) of subsection (1) of Income Tax Regulation 1702 the Appellant’s claim for capital cost allowance in the amount of $3,625.83 in 1968 because the property in respect of which capital cost allowance was claimed was not used for the purpose of gaining income from farming.

(Paragraph 12—Reply to notice of appeal.)

(d) in respect of 1968 the alleged farming expenses, which have been disallowed, were outlays upon capital account within the meaning of paragraph (b) of subsection (1) of Section 12 of the Income Tax Act and the Appellant is not entitled in that year to the amounts claimed by way of capital cost allowance, or in fact any amounts by virtue of paragraph (a) of subsection (1) of Section 11 thereof because the property in respect of which capital cost allowance has been claimed was not used for business purposes in that year.

(Paragraph 13—Reply to notice of appeal.)

The basic question is whether the appellant was farming on the 117 acres in the period from June 24,.1967 to December 31, 1968.

The appellant was 60 years of age in 1967. Leaving aside the period in question, he has spent all his years since his boyhood in farming and cattle ranching. At the trial he appeared to me to be still hale and hearty and quite capable of continuing such activities. As a boy he worked on his father’s farm, followed by crop sharing in his own right; then, with farm loans and borrowed money he purchased part of his father’s farm and other land at Saanich and lived there for about 10 years; in 1949 he bought a ranch in the Williams Lake area of the Caribou, and operated it along with his other farm lands until he sold it in 1954; he sold the Saanich farm to his son in 1961 and was in receipt of yearly payments thereafter on account of the purchase price; he bought the Clinton land in 1960 and sold it on June 24, 1967 for $164,000. While on the witness stand he volunteered information that he had married while still a young man, with only $30 to his name, but that it was the best investment he had ever made, for his wife had been his helpmate all down the years and they have shared their life together, with its ups and downs. In the last few years they have had a measure of financial means, which has enabled them to do some travelling.

The Clinton property adjoins Crown range lands on which the appellant had range rights. In the years 1960-67 he was using the land for cattle raising. He also cultivated about 175 acres of it to grow feed for his stock. When he sold the major portion of it in June 1967 the sale included. the dwelling house and all farm buildings, all his cattle, and most of the farm implements and equipment, and the property was sold as a going concern. The appellant and his wife continued to live on the property from the date of the sale in June until October of that year in order to assist. the purchaser’s son in looking after the ranch. The appellant sold nothing from the property in that period.

The appellant’s cattle operation was carried on in the years 1960-1967 principally on the portion that he sold, but in those years he was also using the 117 retained acres as a holding area for cattle and as a winter holding area for bulls. A creek runs through that portion and it has unfrozen water and trees, and cattle can range through it. About 10.6 acres of it were cleared and grass-covered at the time of the sale.

The appellant said that he wanted to retain the 117 acres and excluded it from the sale. He retained along with it articles of farm equipment, including a Massey Ferguson tractor and an- other tractor, and International truck, a sleigh, tractor chains, a wagon, a field cultivator, a brush mower, a trailer and a bale carrier; also two saddle horses and a border collie trained for herding cattle.

In the fall of 1967 the appellant erected a steel building, in size about 50 feet by 25 feet, on the retained portion, and stored his equipment and household effects in it, and he also did slashing of trees at that time. In 1968 he did more slashing, dug a well on the cleared 10.6 acres and installed domestic water pipes, burned slash, picked rocks, and extended the cleared area to about 25 acres. In 1969 he cultivated the cleared portion and installed irrigation pipes to get water from the creek. He has applied for a license to take water from the creek and expects to have it by 1972. In 1969 he also-built a cabin on the retained portion. Since 1958 he has purchased a feed mill for a feed lot there, and stock racks, a rock picker and other articles for use in farming the portion, and he has bought and sold steers. He intends to cultivate the land and run cattle on it for profit.

In October 1967, after selling the ranch, the appellant and his wife went to Expo ’67, in Montreal. On their return to Alberta later in that year they lived in a motel and trailers in the Kamloops area, and near the end of 1967 bought a house in Kamloops and went to live in it. In the winter they took a trip to New Zealand, returning in the spring. The appellant said that he also in that period took a real estate sales course as a novelty, but did not pass it. He has been living in the cabin that he built on the retained land, and goes back and forth to his house in Kamloops, about 75 miles away. His wife lives in the Kamloops house and comes to the Clinton property about once each week in good weather. In the period from the time of the sale of the property through 1968, the appellant did not sell anything from the retained portion.

The respondent does not dispute the good faith of the appellant nor contend that he did not have a reasonable expectation of profit from the future use of the retained portion, within the meaning of Section 139(1)(ae) of the Income Tax Act. In substance, the contention of the respondent is that in the period June 24, 1967 to December 31, 1968 the appellant was not carrying on any business or farming within the meaning of Section 139(1) (p), that although he had been farming prior thereto there was a hiatus in his farming operations at Clinton from June 24, 1967 to the end of 1968 and that anything he did on the retained portion in that period was not farming, even if it may have been preliminary to later farming, and that, if the appellant was not farming during that period, he cannot have the benefit of Section 18 of the Act and is not entitled to the claimed deductions of capital cost allowances or of expenditures.

The appellant’s case is that he has been a farmer all his life and that he retained the 117 acres and certain farming equipment in order to farm the retained portion and raise livestock on it for profit, and that he carried on farming operations on it in the period in question.

“Farming” is defined in Section 139(1) (p) of the Act as follows:

(p) “farming” includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees, but does not include an office or employment under a person engaged in the business of farming;

Prior to the sale of the major part of the Clinton property the appellant was ‘‘farming’’ it, within the meaning of that word as used in the Act, for he had cultivated about 175 acres and was growing hay and feed and using the land, including the 117 acres that he retained, for cattle ranching. His activities on the retained portion after he sold the major part support his evidence that he intended and still intends to use that portion for like purposes, for in late 1967 he put a steel building on it and commenced. to clear the wooded area, and he retained certain useful implements and equipment and his two horses; in 1968 he continued to clear the land, burned slash, extended the 10.6 previously cleared acres, and dug a well; in 1969 he installed piping to get irrigation water from the creek, built a cabin in which to live when there, and did some cultivating; since 1968 he purchased additional equipment and also bought cattle, which he kept for several months before selling them. He has declared an intention to continue to use the retained portion for such purposes. I see no reason not to believe his testimony. The retained portion adjoins available Crown grazing land, it has water all year, it now has a storage shed, equipment for cattle, and a cabin in which the appellant can live when working there. And he is capable and experienced.

I am convinced that the appellant intended to keep his hand in the cattle ranching occupation that he was following prior to the sale of the major part of the Clinton ranch property, that he retained the 117 acres for that purpose and with the intention to make a profit from it, and that his activities on it were for the purpose of accomplishing that objective. No other reason has been suggested for his retention of that portion and his work and expenditures on it.

The respondent appears to place considerable importance on the evidence that soon after the sale the appellant and his wife went on trips to Expo in 1967 and to New Zealand in the ensuing winter months, and bought a home at Kamloops. I think that the trips were belated holiday trips probably made possible by the money from the sale, and that they were made at a convenient season of the year when the retained portion did not need the presence or attention of the appellant. Many farmers absent themselves from their farms during the winter months. Many live all year elsewhere than on their farms. Before going on the trips the appellant commenced his slashing and clearing of the retained portion and he continued his activities on it when the coming of spring made it feasible to do so.

The respondent also contends that for the whole of the period in question there was a hiatus in the farming and ranching operations of the appellant, and that his activities were, at the most, preliminary to and in preparation for future use of the retained portion. If possession of cattle, cultivation of the soil, or raising farm products was necessary in the period in question in order that the appellant’s activities could be considered as coming within the embrace of ‘‘farming’’, the contention would be valid, for, admittedly, the appellant did not have cattle and did not cultivate the soil or have farm produce in that period and his activities were on a much smaller scale than that which his previous operation of the whole ranch demanded. But the 117 acres portion had been used in that cattle operation and, as I view the situation, the appellant retained that portion and conducted activities on it, limited in extent and degree though they were, as a continuation of his ranching, without the hiatus that the respondent says took place. In reaching that conclusion I am treating the slashing and clearing of the retained portion as “farming” within the meaning of the Act, even although it did not produce revenues immediately, just as it would, I think, have been part of a farming operation if it had been done before the 117 acres were separated in ownership by the sale. The definition of ‘‘farming’’ in Section 139(1) (p) includes certain named activities, but it is not an exhaustive definition, and, as used in Section 18 the term is a comprehensive one and, as understood in rural Canada, includes, in addition to cultivation of the soil and growing of crops, such things as clearing the land, slashing and burning brush and trees, removing stones and other activities on the farm property in the course of its use as a farm. In short, I consider that the appellant continued his farming activity, and the difference between his activities in the period in question and his former activities on the Clinton property was in degree rather than in kind. Some of his work, such as building the cabin, was of a capital nature, but, apart from that, if what the appellant did on the retained portion in the period in question was ‘‘farming’’ he is entitled to the benefit of Section 13 of the Act.

The appeal is allowed and the assessments for the appellant’s 1967 and 1968 taxation years will be referred back to the respondent for re-assessment on the basis that following the sale of a portion of his land in the Clinton area in June 1967 the appellant continued farming for profit during the remainder of 1967 and 1968 on the 117 acres that he retained.

The appellant will be entitled to be paid by the respondent his costs of the appeal, to be taxed.