Stackhouse - Federal Court of Appeal confirms that the farming operation of a doctor to which she devoted significant time and capital was a subordinate source for s. 31(1) purposes

After being amended to overrule Craig, s. 31(1) generally provides that where the taxpayer’s chief source of income is a combination of farming and another source, the farming loss restriction rule in s. 31(1) applies unless that other (non-farming) source is a subordinate source.

From 2007 to 2015, the taxpayer earned aggregate net income of $4.1 million from her medical practice, and incurred losses exceeding $4 million from her farming business to which she devoted substantial time and capital. In confirming the denial of farming losses claimed by her for her 2014 and 2015 taxation years, the Tax Court had found that her farming business had always been subordinate to her medical practice as a source of income and that there was no evidence that this would change in the foreseeable future.

Monaghan JA rejected the taxpayer's submission that, to determine which of the two sources was subordinate, priority should be given to time, attention, energy, and capital invested, and not actual or potential profitability. More generally, she found that there was no reviewable error in the Tax Court’s application of the relevant factors in applying the subordinate source test “including the appellant’s ‘ordinary mode of living, farming history, and expectations’: Craig at para. 42” and in its conclusion that farming was subordinate to the taxpayer’s medical practice.

Neal Armstrong. Summary of Stackhouse v. Canada, 2025 FCA 175 under s. 31(1) and Statutory Interpretation – Prior Cases.