Ernest Radies v. Minister of National Revenue, [1978] CTC 2601, [1978] DTC 1448

Delmer E Taylor:—This is an appeal against an income tax assessment in which the Minister of National Revenue disallowed an amount of $3,475 claimed by the appellant as a restricted farm loss for the year 1974. The respondent relied, inter alia, upon paragraphs 18(1)(a),

(h) and subsection 248(1) of the Income Tax Act, RSC 1952, chapter 148 as amended in particular by SC 1970-71-72, chapter 63.

Facts

The appellant is an airline pilot, and during 1973 he purchased for $75,000 some 13 /2 acres of farm land situated 25 miles from the Toronto International Airport. On the property were located a brick house, two barns, a two-car garage and an in-ground swimming pool. He purchased a small herd of Hereford breeding cattle and during 1974 maintained three cows and three calves on the property. The Statement of Income and Expenses from which his claim arose is as follows:

Contentions

Basically, the position of the taxpayer was that he could not be expected to start operations in 1973 and make a profit in 1974. Since the disallowance by the Minister had occurred so quickly, there had been no opportunity for him to stabilize his farming operations and support his intentions by showing actual, instead of projected, earnings.

The respondent asserted that:

—the appellant was not, in the 1974 taxation year, carrying on the farm Operation as a business carried on for profit or with a reasonable expectation of profit;

—'the amounts expended, if any, were not incurred to produce

income but were personal or living expenditures of the appellant.

Evidence

The appellant explained to the Board his reasons for searching ‘out and purchasing the property and his ultimate goal of becoming a recognized breeder of special cattle called “Simmental” using the Herefords only as a preliminary measure. His “start up” costs should be considered valid, and the care and attention required by his animals was detailed for the Board. He estimated that his herd would: have been finally about ten animals—five cows and five calves at any one time. Even then, although he believed that operation could have produced a profit, to have made this kind of farming a full-time or substantially revenue-producing would have required larger acreage and more sophisticated and costly equipment, in addition to better cattle. He had about $15,000 to invest, and would have done so had it not been for the adverse income tax ruling. He has since turned to investment in the Canadian film industry as a tax shelter.

Argument

The appellant maintained that the property was not too small for a limited but successful farming operation with a specialized herd, and that costs in addition to those shown for 1974 might have been about $1,000 largely for exhibitions and cattle breeder shows.

Counsel for the respondent argued that the farm was too small for any reasonable expectation of profit; that even when the costs stabilized they would continue to show on operating loss; that the appellant had not proceeded with his alleged plan to purchase and breed Simmental cattle; and that in any event the costs: of shows and exhibitions would be very great, only aggravating the already experienced loss.

Findings

It should be noted that the Board pointed out to the appellant its recognition that legitimate “start up*"’ costs might be expected in any business—and that the disallowance of his claim was not on such an elementary basis as he had portrayed. The fundamental responsibility rested with him to show in fact that his operation on the 13 /2 acres was a “business” to claim the restricted farming loss. In the decision of Fred L Johnson v MNR, [1978] CTC 2122; 78 DTC 1109, which appeal was allowed, the Board dealt at length with the distinctions to be made between “hobby farming”, “restricted loss for business farming” and “full loss business farming’’. Little would be gained by repetition here of the opinions given in that case where the facts and circumstances bear some relation to the instant case, but following the same reasoning there is no basis to conclude that this appellant looked to farming the subject property “for his livelihood”, or that he could have anticipated doing so, even under the most propitious circumstances. While the personal constraints attendant upon the appellant in Johnson (supra) mitigated against his efforts, the physical circumstances and potential for a contribution to his livelihood existed there. These are not to be found in the matter at hand.

Decision

The appeal is dismissed.

Appeal dismissed.