Robert Charles Simpson v. Minister of National Revenue, [1961] CTC 174, 61 DTC 1117

THORSON, P.:—This is an appeal from the decision of the Income Tax Appeal Board, 22 Tax A.B.C. 421, dated September 11, 1959, dismissing the appellant’s appeal against his income tax assessment for 1957.

The facts are not in dispute. In the fall of 1952 the appellant and his wife purchased a large farm of approximately 393 acres, consisting of the South-half of Lot 19, the whole of Lot 20 and the North-half of Lot 23, all in Concession 2 of the Township of Clarke in the County of Durham. The farm is near Newcastle. The appellant moved to the premises with his wife and family on October 28, 1952, began farming immediately and has been farming there continuously ever since.

A description of the farm and its operations was given by the appellant. There are four houses on it, three sets of barns and other farm buildings. The appellant and his wife and four children live in one of the houses, the hird man and his family occupy another and the other two houses are rented out. The appellant and his family live on the farm all the year round and so do the hired man and his family. In addition to the houses there are the barns that I have mentioned, a large chicken house, a sheep shed, a driving shed, a large tool house and several smaller buildings.

The appellant had about $11,000 worth of farm machinery and equipment, some of which had been on the farm when he purchased it.

In 1957 he had about 200 acres in hay and pasture, about 80 in oats and barley and about 100 in fall wheat. The rest of the farm was in bush from which he cut fence posts and saw logs. There was also about an acre around his house for a lawn and vegetable garden.

There is a good source of water in a river that runs through the back half of the farm and a dugout which catches the rain water.

In 1957 the appellant had 91 head of beef cattle and about 300 laying chickens. He had no sheep and no hogs, having gone out of hog production in 1955 when the price of pork fell.

In 1957 the appellant was also engaged in another activity. He was a partner in Sponsors & Co., a registered partnership, which operated a dance hall business at the Masonic Temple at 888 Yonge Street in Toronto. This ran in the evenings three times a week. The members of the partnership other than the appellant were his brother, Stanley George Simpson, and Robert Monie. The appellant had an arrangement with his partners whereby they looked after everything that had to be attended to in the daytime and he looked after the business in the evenings. His farm was 46 miles from the dance hall. During the months of June, July and August the dance hall was closed.

During 1957 the appellant also had income from a mortgage which he had taken as part payment for his interest in a planing mill business which he had conducted at Ingersoll but had sold prior to 1957. But the dance hall business was the only business in which he was engaged other than his farming.

The appellant had never farmed prior to 1952. He had been in the dance hall business since 1938 and lived in Toronto until 1945. In that year he bought a farm at Markham because he and his wife wanted to live in the country and they lived there Until the fall of 1952. He then had an offer of $30,000 for the property, which he had purchased for $13,000. He sold it on the recommendation of the agricultural representative of the district who advised him to go to Newcastle. At the time the appellant was not operating his dance hall in the summer time and was looking for something else to do to keep him occupied. The purchase of the farm at Newcastle followed.

Prior to 1952 the appellant had engaged in other activities. He had been employed as a licensed plumber. He had also joined a partnership in the Eglington Radio & Furniture Company and had also had an interest in the Ingersoll Planing Mill & Lumber Company. In 1953 he disposed of his interest in the planing mill company and gave up the radio and furniture company, so that from 1954 on his only activities were his dance hall business and his farming.

It was established that there was no relationship between the appellant’s farming operation and his interest in the dance hall business. They were entirely independent and separate activities. No part of the produce of the farm was used at the dance hall nor was any of the farm equipment. The farm hired man did not help at the dance hall nor did any of its employees do any work on the farm. The books were kept in separate places and the banking was done separately.

In each of the years 1953, 1954, 1955 and 1956 the appellant had a farming loss which showed on his income tax return for the year which was prepared for him by his brother, Stanley George Simpson, a chartered accountant. In each case he deducted the full amount of his farming loss for the year from the amount of his share of the profits of Sponsors & Co. from their dance hall business and his other income and in each case the Minister allowed such deduction.

The appellant followed the same course in his income tax return for 1957 but the Minister then invoked Section 13 of. the Income Tax Act, R.S.C. 1952, e. 148, allowed only the deduction permitted by it and assessed the appellant accordingly.

He objected to the assessment, but the Minister affirmed it. The appellant then appealed to the Income Tax Appeal Board which dismissed his appeal. It is from that decision that the present appeal is brought.

The issue in the appeal is whether Section 13 of the Income Tax Act applies. It provides 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) one-half of his farming loss for the year, or

(b) $5,000.

(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 purpose of this section, a ‘farming loss’ is a loss from farming computed by applying the provisions of this Act respecting computation of income from a business mut at is mutandis except that no deduction may be made under paragraph (a) of subsection (1) of section 11.”

At the hearing counsel for the respondent informed the Court that the Minister abandoned the allegation in his reply to the notice of appeal that before the assessment appealed against was made a determination was made under subsection (2) of the section that the appellant’s chief source of income for 1957 was neither farming nor a combination of farming and some other source of income, and that no argument would be advanced in support of the contention in the reply that such alleged determination was final and conclusive and not subject to review.

The issue thus becomes a very narrow one. The only question to be determined is whether the Minister’s assessment was right, independently of whether any determination had been made under subsection (2). The Court is entitled to consider that the assessment was based on the assumption with the finding of fact implied in it that the appellant’s chief source of income for 1957 was “neither farming nor a combination of farming and some other source of income’’. The validity of the assessment is based on such an assumption with its implied findings of fact and it stands, unless the basic fact on which the taxation rested is demolished, the onus of such demolition being on the appellant : vide Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195, per Rand, J., at page 489 [[1948] C.T.C. 202].

In my opinion, this case is free from difficulty. At any rate, I have not been able to find any. It is obvious that Section 13(1) applies only in a case where the taxpayer, in the year under review, was engaged in farming and also had a source or sources of income other than farming and had a farming loss for the year. But it is also clear that the applicability of the section in such a case is dependent on the existence of the conditions specified in it. One of these is that the taxpayer must have had a source or sources of income other than farming that resulted in profit. Another condition is put negatively and is two-fold. It is essential that the taxpayer’s chief source of income was ‘‘neither farming nor a combination of farming and some other source of income’’,

In my opinion, all the statutory conditions required for the applicability of Section 18(1) exist in the present case. The facts establish that in 1957 the appellant had two sources of income other than farming, namely, his investments and his interest in the dance hall business operated by Sponsors & Co., of which he was a partner. And, whether farming should be considered as one of his sources of income for 1957 or not, the facts establish that his chief source of income for 1957 was his interest in the dance hall business. That being so, his chief source of income was other than farming and other than a combination of farming and some other source of income and was, therefore, ‘‘neither farming nor a combination of farming and some other source of income’’, with the result that Section 13(1) applies. It follows that I must reject the submission of counsel for the appellant that his chief source of income for 1957 was a combination of farming and another source of income, namely, his partnership dance hall business and that, consequently, Section 13(1) does not apply.

In view of my finding I need not deal with the submission of counsel for the respondent that the expression ‘‘combination of farming and some other source of income” in Section 13(1) must mean a combination of farming and some other source of income that is physically related to farming beyond saying that I do not see why there must be such a limitation. The statement of the condition for the applicability of the section that the taxpayer’s chief source of income must be ‘‘neither farming nor a combination of farming and some other source of income’’ is simply another way of saying that the taxpayer’s chief source of income must be a source that is not only a source other than farming but is also a source that is other than farming and some other source of income taken together. The use of the word combination does not, in my opinion, imply any more than that.

It is no answer to the validity of the appellant’s assessment for 1957 that the Minister allowed him to deduct his whole farming loss in each of the years prior to 1957. Indeed, he may consider himself fortunate that the Minister did not invoke Section 13 before he did and re-assess him within the time when he might lawfully have done so.

For the reasons given I find that the appellant has not been able to demolish the basic fact on which the assessment was made and it stands. The appeal herein must, therefore, be dismissed with costs.

Judgment accordingly.