[OFFICIAL ENGLISH TRANSLATION]
Date: 20021214
Docket: 2000-761(IT)G
BETWEEN:
RAYNALD GRENIER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(delivered
orally from the bench
on
September 26, 2002, at Québec, Quebec,
and amended
for greater clarity)
Archambault, J.T.C.C.
[1] Dr. Raynald Grenier is
appealing from income tax reassessments made by the Minister of National
Revenue (Minister) for the 1993 to 1996 taxation years inclusive. First,
in computing Dr. Grenier's income, the Minister disallowed a portion of
his losses from a farming business for 1994 to 1996. It is the Minister's view
that the chief source of Dr. Grenier's income was neither farming nor a
combination of farming and some other source of income and that the amount of
deductible farm losses was accordingly subject to the restrictions provided for
in subsection 31(1) of the Income Tax Act (Act).
[2] Second, the
Minister added unreported income of $26,184 and $29,368 to Dr. Grenier's income for the
1993 and 1994 taxation years respectively. Dr. Grenier does not dispute
the inclusion of the last amount for the 1994 taxation year. He contends,
however, that the Minister was not entitled to reassess him for the 1993
taxation year because he did so after the normal reassessment period. The
Minister contends that Dr. Grenier made a misrepresentation attributable
to neglect, carelessness or wilful default in respect of that year and that the
reassessment was made in accordance with subsection 152(4) of the Act.
Facts
[3] Dr. Grenier was born on a
farm in the Thetford Mines region. At the age of 12 or 13, he went to boarding
school. He completed his education at the Congregation of Jesus and Mary in
Québec and studied medicine at Laval University. He worked on his father's farm
during his school vacations. He began his general medical practice in the Lac
Mégantic region in 1966 and says that he invested less than $1,000 in order to
furnish his doctor's office. In 1971, he began specializing in dermatology,
which he began practising in Québec in 1975.
[4] Dr. Grenier purchased his
first piece of forest land for $15,000 in 1967. It was a 272‑acre lot.
Over the next 30 years, he acquired some 60 other lots in various regions
of Quebec: Thetford Mines, Québec and the township of Leeds. He says he became
one of the largest forestry producers in the Québec region. However,
Dr. Grenier did not keep accounting records and was unable to provide very
detailed and accurate answers concerning either his gross farming income or a
portion of his expenses.
[5] He says he
invested virtually all his savings in that farming activity and also devoted a
large part of his spare time to it. He says that he does not like television or
golf. He has not taken any courses in sylviculture but is self-taught, having acquired part of his
knowledge by consulting forest engineers. Generally, he has a forest engineer
draw up forest management plans, which constitute a kind of general management
guide for a given lot. Those management plans enable him, in particular, to
obtain property tax refunds of up to 85 percent and also to obtain
subsidies to develop forest lands, subsidies which consist in particular in the
payment of up to 80 percent of the cost of planted trees. A forest
management plan costs approximately $250, of which $100 is paid by
Dr. Grenier and the rest by the Ministère des Ressources naturelles.
[6] Over his career
as a sylviculturalist,
he says that, with his family's help, he has planted approximately
500,000 trees, invested some $750,000 in the purchase of forest lands and
at least $300,000 in farming operations. Dr. Grenier is registered with
the Ministère des Ressources naturelles as a forestry producer and has been a
member of the Union des producteurs agricoles since 1966. In 1989, the Minister
of Natural Resources awarded him a prize as a "forest builder" in the
Québec region. He even sat on a parliamentary committee that examined
sylvicultural production problems. He subscribes to various sylvicultural
magazines and journals.
[7] The farm losses
he reported from 1980 to 2000 amounted to more than $385,000, whereas his net income from his
medical practice for the same period was $2,908,504 out of gross income of
$3,663,807.
[8] During the
relevant period, from 1994 to 1996, he spent at least four days a week on
his medical practice. At the start of his medical practice, he said, he worked
three half-days at the hospital and devoted the rest of his time to planting on
his forest lands. He admitted that he had always accepted new patients and that
the number of medical acts he performed in 1993 was lower than at present. His
gross income from his medical practice from 1993 to 1996 was as follows: $254,932 in 1993; $261,146 in
1994; $257,864 in 1995; and $255,661 in 1996.
[9] He says that he
himself completed his tax returns in 1993 and 1994 and that he did not notice the omission of
medical income of $26,184 in 1993 and of $29,368 in 1994. As is the case for
his farming business, he keeps no accounting records for his professional practice.
He receives statements from the Régie de l'assurance maladie every two, three
or four weeks and adds them up at the end of the year. He refused to use
the computer services of an accounting business out of a concern to respect the
confidentiality of his patients' personal information. At the end of 1993, he
did not obtain a comprehensive annual statement from the Régie de l'assurance
maladie. Nor did he check the total of the cheques he had deposited in his bank
account. Dr. Grenier does not know the source of his error. However, he
believes that the unreported amounts might correspond to the equivalent of
two statements that may have been lost or even stolen from his residence.
He corrected the situation in part by asking the Régie to make direct deposits
to his bank account starting in May 1993.
[10] The evidence only
shows very few forest harvests from 1980 to 2000, virtually none in fact, except in the period
from 1997 to 2000. Income from forestry activity seems to have been $26,193 in
1997, $37,537 in 1998, $44,087 in 1999 and $17,735 in 2000, although it is
unclear whether that income came solely from logging. However, the unusually
high sales could be explained by tax problems resulting from the Minister's
assessments disallowing the deduction of Dr. Grenier's farming losses. He
apparently needed money to pay his tax liability. The wood sales also could
have enabled him to show profits in his tax returns. For 1997, 1998 and 1999,
he reported profits from his farming business of $7,827 in 1997, $3,409 in 1998
and $9,621 in 1999. Dr. Grenier said that he had grown and sold Christmas
trees in the 1970s, but he stopped in 1989 because of the introduction of the
GST. I note, however, that Part IX of the Excise Tax Act did not
come into effect until 1991.
[11] It was not clearly
explained to the Court why there have been few harvests. The impression given
was that Dr. Grenier
appears to want to defer those activities until his retirement. It should also
be added that sylvicultural production is carried out over a long period of
time: softwood trees take between 40 and 70 years to mature. However, as
counsel for the respondent noted, part of the harvest could have been expected
to be available during the relevant period and in previous years. I further note
that the gross income that Dr. Grenier derived from sylviculture often
consisted of subsidies and property tax refunds. For 1994 and 1995, for
example, those amounts represented 60 percent and 79 percent of the
gross income reported by Dr. Grenier.
[12] Dr. Grenier is now
64 years old, and he says he is considering transferring part of his
forest lands to his children.
Analysis
Restricted Farm Losses
[13] First, I will
address the question of restricted farm losses raised by the application of section 31 of the Act.
Considerable difficulties are involved in the application of that section, and
it is therefore not surprising to note that there is a large number of often
seemingly contradictory cases. Counsel for the parties moreover cited a number
of them.
[14] In my view, the
three most important decisions for determining the relevant legal principles
regarding the application of section 31
are the following. First, there is Moldowan v. The Queen, [1978]
1 S.C.R. 480; 77 DTC 5213, which is the most frequently cited
decision by the highest court in Canada—the Supreme Court of Canada. Then there
are two decisions by the Federal Court of Appeal, which to my knowledge
are the most recent decisions providing a detailed analysis of the application
of section 31 of the Act. They are Watt v. Canada,
[2001] F.C.J. No. 517; and Canada v. Donnelly, [1998]
1 F.C. 513; [1997] F.C.J. No. 1351.
[15] I would first like
to quote the following passage from Moldowan, supra, in which Dickson J.
states the scope of section 31 (then section 13), at pages 487
and 488:
In
my opinion, the Income Tax Act as a whole envisages three classes
of farmers:
(1) a
taxpayer, for whom farming may reasonably be expected to provide the bulk of
income or the centre of work routine. Such a taxpayer, who looks to
farming for his livelihood, is free of the limitation of s. 13(1) in
those years in which he sustains a farming loss.
(2) the
taxpayer who does not look to farming, or to farming and some subordinate
source of income, for his livelihood but carries on farming as a sideline
business. Such a taxpayer is entitled to the deductions spelled out in
s. 13(1) in respect of farming losses.
(3) the
taxpayer who does not look to farming, or to farming and some subordinate
source of income, for his livelihood and who carries on some farming activities
as a hobby. The losses sustained by such a taxpayer on his non-business farming
are not deductible in any amount.
The reference in s. 13(1) to a taxpayer whose source of income is a
combination of farming and some other source of income is a reference to
class (1). It contemplates a man whose major preoccupation is farming.
But it recognize [sic] that such a man may have other pecuniary
interests as well, such as income from investments, or income from a sideline
employment or business. The second provides that these subsidiary interests
will not place the taxpayer in class (2) and thereby limit the
deductibility of any loss which may be suffered to $5,000. While a quantum
measurement of farming income is relevant, it is not alone decisive. The test
is again both relative and objective, and one may employ the criteria
indicative of "chief source" to distinguish whether or not the
interest is auxiliary. A man who has farmed all of his life does not become
disentitled to class (1) classification simply because he comes into an
inheritance. On the other hand, a man who changes occupational direction
and commits his energies and capital to farming as a main expectation of income
is not disentitled to deduct the full impact of start‑up costs.
[My
emphasis.]
[16] In Donnelly,
the Federal Court of Appeal, per Robertson J., stated the following
at paragraphs 8 and 9:
A determination as to
whether farming is a taxpayer's chief source of income requires a favourable
comparison of that occupational endeavour with the taxpayer's other income
source in terms of capital committed, time spent and profitability, actual or
potential. The test is both a relative and objective one. It is not a pure quantum
measurement. All three factors must be weighed with no one factor being
decisive. Yet there can be no doubt that the profitability factor poses the
greatest obstacle to taxpayers seeking to persuade the courts that farming is
their chief source of income. This is so because the evidential burden is on
taxpayers to establish that the net income that could reasonably be expected to
be earned from farming is substantial in relation to their other income source:
invariably, employment or professional income. Were the law otherwise there
would be no basis on which the Tax Court could make a comparison between the
relative amounts expected to be earned from farming and the other income
source, as required by section 31 of the Act. The extent to which the evidential
burden regarding the profitability factor or test differs from the one
governing the reasonable expectation of profit requirement is a matter which I
will address more fully below.
In summary, the
cumulative factors of capital committed, time spent and profitability will
determine whether farming will be regarded as a "sideline business"
to which the restricted farm loss provisions apply. These guiding principles
flow from the following decisions: Moldowan (supra); Timpson (R.) v.
M.N.R., [1993] 2 C.T.C. 55 (F.C.A.); Poirier (B.) Estate v.
Canada, [1992] 2 C.T.C. 9 (F.C.A.); Connell (J.P.) v. M.N.R.,
[1992] 1 C.T.C. 182 (F.C.A.); Roney (C.H.) v. M.N.R., [1991]
1 C.T.C. 280 (F.C.A.); Morrissey v. Canada, [1989]
2 F.C. 418 (C.A.); Gordon (R.T.) v. The Queen, [1986]
2 C.T.C. 280 (F.C.T.D.); Mott (P.S.) v. M.N.R., [1988]
2 C.T.C. 127 (F.C.T.D.); and Mohl (G.) v. Canada, [1989]
1 C.T.C. 425 (F.C.T.D.).
[My
emphasis.]
[17] In
paragraph 13 of the decision in Watt, Sexton J. quotes the following
passage from the Federal Court of Appeal's decision in The Queen v.
Morrissey:
We are of the view that
the Tax Court Judge properly applied the law on this point as outlined by this
Court in The Queen v. Morrissey:
On a proper application of the test
propounded in Moldowan, when, as here, it is found that profitability is
improbable notwithstanding all the time and capital the taxpayer is able and
willing to devote to farming, the conclusion based on the civil burden of proof
must be that farming is not a chief source of that taxpayer's income. To be
income in the context of the Income Tax Act that which is received must be
money or money's worth. Absent actual or potential profitability, farming
cannot be a chief source of his income even though the admission that he
was farming with a reasonable expectation of profit is tantamount to an
admission which itself may not be borne out by the evidence, namely, that it is
at least a source of income.
[My
emphasis.]
[18] These legal
principles shall be applied to the facts of these appeals. Dr. Grenier, regrettably
for him, was unable to show that during the relevant years he was a farmer of
class (1) as described by the Supreme Court of Canada in Moldowan.
In other words, he did not manage to show that the chief source of his income
was farming or a combination of farming and another source of income.
[19] The main tests for determining whether farming is a
chief source of income are the time devoted to farming activities, capital
invested and present and future profitability. In general, I must note that the
evidence adduced by Dr. Grenier was insufficient to meet those tests. The
tests for which he brought the best evidence—which however does not mean that
that evidence was entirely satisfactory—was the capital invested. The only
evidence on that point is an estimate by Dr. Grenier that he invested a
minimum of between $500,000 and $800,000 in his capital assets, mainly forest
lands, and between $300,000 and $350,000 in operations. I have no doubt that
Dr. Grenier invested more money in his farming business than in his
medical practice. Even on that aspect, however, the evidence is far from clear.
Dr. Grenier did not file balance sheets that would have made it possible
to determine the amount of capital invested in his farming business and in his
professional practice. In addition, the only evidence concerning the
acquisition cost of the furniture necessary to operate his medical practice
refers to the start of his career in Lac Mégantic. At that time, he spent less
than $1,000 to furnish his office. Nothing was said about the capital assets
used when he practiced in dermatology in Québec during the relevant taxation
years.
[20] There are no
accurate data to quantify the time devoted to farming activities. Dr. Grenier was vague in
his answers. In argument, his counsel contended that Dr. Grenier was
constantly preoccupied with sylviculture. However, there is no specific
evidence showing that Dr. Grenier devoted more time to his farming
activities than to his professional activities. He said that, with his family's
help, he had planted at least 500,000 trees on his many lots (68 in 2001)
acquired over some 30 years. There is no question that Dr. Grenier
must have spent many hours planting those trees. However, as counsel for
Dr. Grenier acknowledged, that was not an activity that required spending
a large number of hours throughout the year to carry it out, as is the case,
for example, in dairy farming.
[21] As to the time
spent on his professional activities, it appears from the evidence as a whole
that Dr. Grenier
must have spent four to four-and-a-half days a week on his medical practice.
The gross income he earned from his profession started at about $79,226 in
1980, the first year for which the evidence provides information, and remained
around $100,000 for most of the 1980s. In 1989, his income increased
considerably to more than $210,000 and remained between $220,000 and $261,000
during the 1990s. In the relevant years, income amounted to $254,932 in 1993;
$261,146 in 1994; $257,864 in 1995; and $255,661 in 1996. For 2000, the last
year for which figures were available, his gross professional income was
$247,756. These figures therefore show that Dr. Grenier's professional
activity remained at a very high level compared to what it had been at the
start of his career, and this does not indicate a change in professional
orientation at all.
[22] Dr. Grenier's
farming business constantly produced losses during the period from 1980 to 2000. It is true that,
for 1997, 1998 and 1999—that is to say after the services of an accountant were
retained—small net incomes of $7,827 for 1997, $3,409 for 1998 and $9,621 for
1999 may be noted. However, in all likelihood, those figures do not reflect the
actual financial situation of the farming business. Property taxes were in fact
not deducted for those three taxation years. The amounts of property tax paid
from 1993 to 1996 varied between $17,954 and $45,644 whereas, for 1997, 1998
and 1999, the amounts reported were only $2,607 for 1997, $907 for 1998 and
$938 for 1999. Property tax amounted to $40,261 for the 2000 taxation year.
[23] Even if it were
accepted that the
annual amount of property tax was only $35,000, the taxpayer would also have
incurred large losses for the years from 1997 to 1999, that is, cumulative
losses of $79,691 instead of a cumulative profit of $20,857. The taxpayer would
therefore have incurred farm losses for each of the last 21 years of
farming operation for which the evidence provides figures. The cumulative losses
from 1980 to 2000 would then be $485,674 rather than $385,126.
[24] This finding leads
me to address the third test: the present and future profitability of the
business. The figures stated above provide an adequate response to the question
of present profitability. As to the future profitability of the business, the
evidence brought by Dr. Grenier
consists of his statements that his many forest lands are worth several
millions of dollars and that the annual growth of his trees represents an
annual economic value of $200,000.
[25] Those statements
are utterly insufficient to establish the profitability of the farming
business, an element I distinguish from the reasonable expectation of profit
that Dr. Grenier
may have. The Court has no objective element on the basis of which to conclude
that, even at the time of his retirement, Dr. Grenier could make large
profits. It is not impossible that Dr. Grenier's activity may generate
large profits. However, the evidence did not establish that on a balance of
probabilities. No evidence was adduced either on the value of the lands owned
by Dr. Grenier or on the issue as to whether the operation of those
woodlands could generate substantial profits. Even for the years from 1997 to
1999, during which certain wood sales likely took place, the taxpayer continued
to incur losses. The forestry engineer even acknowledged in his testimony that
selective wood-cutting on forest lands could prove to be not very profitable.
[26] It is also
disturbing to see that Dr. Grenier
did little wood-cutting and harvesting during those 21 years. The only
wood-cutting activities, and modest ones at that, during the 1997 to 2000
taxation years appear to have been the result of financial difficulties arising
from assessments whereby the Minister disallowed a portion of farm losses.
[27] Dr. Grenier does not appear to have
concerned himself with cutting wood. His only strategy appears to have been to
plant the largest possible number of trees in the most efficient way possible
on the basis of the forest management plans suggested by the engineers. On that
point, he filed management plans that provide a general indication of the
approach that had to be followed. However, no documentary evidence was adduced
to confirm the existence of sylvicultural directives, which outlined a more
specific approach to operating the sylvicultural business.
[28] There are no
specific figures on the value of the wood grown by Dr. Grenier that
enabled me to conclude that his activities were profitable. Even if there is an
agent who can sell the wood grown by Dr. Grenier, there is no indication
that that can constitute a profitable operation. I note that, in 2000, a wood
sale was clearly reported for an amount of $17,735 and the direct costs related
to cutting that wood appear to have been $8,326, which therefore represents
47 percent of the proceeds of the sale. Fixed costs in particular must be
added to those costs.
[29] In view of the
flagrant lack of evidence on the profitability of Dr. Grenier's farming activity, his counsel
suggested that the Court rely on its judicial knowledge. First of all, the
Court does not have such knowledge and cannot conjecture as to whether the
estimates made by Dr. Grenier in his testimony were reasonable.
Furthermore, I have read articles published in two magazines filed in evidence
by Dr. Grenier to show that he had subscribed to magazines on sylviculture
and that he was operating as a serious agricultural producer. In an article in
the January 1992 edition of Le Progrès forestier, Jacques Hébert
defines the small-scale forestry producer as follows, at page 43:
[TRANSLATION]
. . . he who
owns his lots, who is knowledgeable in his sylvicultural techniques and who has
a concern for the progressive practice of his art; he does his own work himself
with his family and makes a living out of it.
[30] In an article
published in Forêt
Conservation
in February 1993, Louise Desautels writes as follows, at page 8:
[TRANSLATION]
Forest farms have long
been talked about in Quebec. But the concept that people could make a decent
living from the many resources of their forests has not yet really been applied
in actual fact.
[My
emphasis.]
[31] After stating that
two serious projects had been developed in the Gaspé Peninsula and the Lower
St. Lawrence to transform theory into practice, she went on to say at
page 9:
[TRANSLATION]
. . . In both
cases, the objective is to establish forest farms, that is to say, units
on which multiple-use forestry and sustainable use of resources by individuals
would become permanent activities capable of generating decent annual
revenues.
[My
emphasis.]
[32] In referring to a
project being carried out in the area of Témiscouata, she notes the following on
the same page:
[TRANSLATION]
. . . A small
private forest in that area currently covers an average of 80 ha, whereas
the minimum area for anyone considering living off his forest would be
250 ha.
[33] She later refers
to a certain Richard Savard
at page 10:
[TRANSLATION]
In any case, the project
coordinator believes, the arrangement will make it possible to conduct an
initial test of the concept of forest farms. "The argument constantly made
against those who propose such farms is that they are not profitable over
the long term," he explains. "So before developing the project,
we brought together a team of forestry engineers and economists to make some
calculations and computer simulations."
The group's finding is
clear. Three factors stand in the way of the profitability of forest farms:
the low price paid by wood buyers, mortgage expenses where the
farmer has had to buy his land, and over-equipping, which consists in
acquiring too much machinery operating only a few days a year. . . .
This prospect
of non-profitability is also a concern for Gérald Tremblay, spokesman
for the Matane Region Forestry Committee.
[My
emphasis.]
[34] Lastly, Ms. Desautels writes at
page 12:
[TRANSLATION]
. . .
Gérald Tremblay notes, "a farmer's annual salary would quite
quickly be about $25,000." That income would come from subsidized
developments, wood sales and, depending on the potential in the
area, one or two related activities: hospitality services to fishermen
and hikers, deer breeding and so on.
[My
emphasis.]
[35] These passages do not prove that
sylviculture cannot be profitable since that is evidence that one or more
expert witnesses would have had to show. However, they at least indicate that
it is far from obvious that sylviculture can be profitable and that
Dr. Grenier should have established profitability in his case by means of
convincing evidence, more convincing than simply expressing his conviction that
he would make millions from the sale of his wood and his land once retired. To
make a profit, one must incur expenses, and the profitability of an economic activity
can be determined by subtracting all expenses from revenues. In view of the
lack of probative evidence that Dr. Grenier’s farming operation was
profitable, I conclude that evidence on the question of profitability would not
have supported his position.
[36] Consequently, it
is not open for me to conclude that Dr. Grenier's sylvicultural operation was profitable or
that the farming business or combination of farming and another source was his
chief source of income. It is far from clear that Dr. Grenier was a farmer
of class 01 as described by Dickson J.
[37] Before concluding,
I would like to cite certain passages from Donnelly and Watt, which present facts
quite similar to those of the instant appeals. It is therefore not surprising
that some of the comments and statements made by the judges in those decisions
are entirely applicable in this case. In paragraph 1 of his reasons in Donnelly,
Robertson J. refers to taxpayers "who earn their income in the
city and lose it in the country". In this case, there was no evidence
at all that Dr. Grenier lived on one of his forest lands. On the contrary,
at the time he came to testify, Dr. Grenier was living in the city of
Québec. The address stated on his tax returns for the years 1993 to 2000 and on
the forest management plans is his address in Québec or Sillery. I have no
reason to believe that he was living elsewhere since he carried on his medical
profession in Québec.
[38] In Donnelly, even though the taxpayer
devoted 40 hours a week to his farming operation and only 24 hours to
his medical practice, that did not prevent the Federal Court of Appeal from
finding that his medical practice constituted the chief source of his income.
In paragraph 3, Robertson J. concluded that the taxpayer "lived,
ate and breathed horses". I have no doubt here that Dr. Grenier
was passionate about planting his trees and that, through that activity, he
made a great and valuable contribution to the reforestation of Quebec. The
prize awarded to him moreover attests eloquently to Dr. Grenier's
contribution. However, such acknowledgement does not establish that
Dr. Grenier was a class 01 farmer for the purposes of section 31
of the Act.
[39] Furthermore, it is
interesting to note the following comments by Robertson J. in Donnelly on the
question of the lack of evidence, at paragraph 13:
In the present case, it
was incumbent on the taxpayer to establish what he might have reasonably earned
but for the two setbacks which gave rise to the loss: namely the death of
Mr. Rankin and the decline in horse prices. I say this because the Tax
Court Judge concluded that but for these setbacks the taxpayer would have
earned the bulk of his income from farming in the three taxation years in
question. While there is no doubt that the loss of Mr. Rankin, and the
changes in American tax law had a negative and unexpected impact on the
business, no evidence was presented to show what profit the taxpayer might
have earned had these events not occurred and whether the amount would have
been considered substantial when compared to his professional income. It was
not enough for the taxpayer to claim that he might have earned a profit. He
should have provided sufficient evidence to enable the Tax Court Judge to
estimate quantitatively what that profit might have been.
[My
emphasis.]
[40] Later, he adds the
following at paragraph 14:
. . . The
Tax Court Judge did not engage in an analysis of what profit might have been
earned by the taxpayer in each of the three taxation years in question. No
doubt this gap was occasioned in part by the taxpayer's failure to adduce the
necessary evidence as reflected in the testimony of Dr. McCarthy. His
evidence was directed at whether the horse-farming operation gave rise to a
reasonable expectation of profit. He admitted that he had never reviewed the
taxpayer's books nor compared the business' revenue and expenses
. . . . He could offer no opinion on the potential profitability of
the horse-farming business.
[My
emphasis.]
[41] As was done in Donnelly, at paragraph 16, it
could be stated here (with the necessary changes, of course):
. . . that
. . . additional income transferred from the medical practice, was
used to purchase new horses. Arguably, his actions do not indicate any
desire to earn income from the horse-farming business during the taxation
years in question. Rather, it would seem that his consistent reinvestment in
new stock pointed to a desire to improve his stables, perhaps with the hope
that he could retire in the future and live off the horse-farming income at
that time.
[My
emphasis.]
In this instance, it seems that
Dr. Grenier, as mentioned earlier, is interested solely in planting trees
and does not expect to live off his lands until he has retired. Rather, it is
indeed surprising to note that Dr. Grenier is considering transferring his
lands to his children
once he reaches retirement age.
[42] Lastly, the
following comments by Robertson J.
at paragraph 21 should be recalled:
It may well be that in
tax law a distinction is to be drawn between the country person who goes to
the city and the city person who goes to the country. In future, those
insisting on obtaining tax relief in circumstances approaching those under
consideration should do so through legislative channels and not through the Tax
Court of Canada. The judicial system can no longer afford to encourage
taxpayers or their counsel to pursue such litigation in the expectation that
hope will triumph over experience.
[My
emphasis.]
Need I recall that Dr. Grenier lived and earned his income
in the city and lost it in the country?
[43] Finally, there are
the following comments by Sexton J.
in Watt, paragraph 15, with which I unreservedly concur:
In dismissing this
appeal we do not want to be taken as having no sympathy for the lot of farmers
such as the Appellant. Clearly the Appellant was genuinely involved in
farming. However, section 31 of the Income Tax Act and the cases which
have considered that section, apply a test which may, in some cases, seem to be
unfair. While we feel bound by the authorities in this Court to dismiss this
appeal, we cannot help but note the many section 31 cases being
brought before the Tax Court and this Court producing sometimes conflicting
results. Despite the appearance of unfairness in some of those cases, where
a taxpayer with a well-paying job is also seriously involved in unprofitable
farming but not a "hobby farm", Parliament has not re‑examined
this provision which Justice Dickson in 1977 described as an "awkwardly
worded and intractable section". Nor has the Supreme Court of Canada
revisited this problem since 1977. Perhaps it is time to amend or at least
clarify this provision to make it more suited to our time.
[My
emphasis.]
Statute-barred Year
[44] Now I will address
the question of the statute-barred year, 1993. In my view, the Minister discharged
the burden of showing that the taxpayer made a misrepresentation attributable
to neglect or carelessness. I am not convinced that Dr. Grenier did so by
wilful default, and the Minister rightly cancelled the penalty. However, as
Strayer J. acknowledged in Venne v. Canada, [1984]
F.C.J. 314; 84 DTC 6247, the Minister's burden is not as great when
it comes to reopening a statute-barred year. Strayer J. wrote as follows:
I am satisfied that it
is sufficient for the Minister, in order to invoke the power under sub‑paragraph 152(4)(a)(i)
of the Act to show that, with respect to any one or more aspects of his
income tax return for a given year, a taxpayer has been negligent. Such
negligence is established if it is shown that the taxpayer has not exercised
reasonable care. This is surely what the words "misrepresentation that
is attributable to neglects [sic]" must mean, particularly when combined
with other grounds such as "carelessness" or "wilful
default" which
refer to a higher degree of negligence or to intentional misconduct.
[My
emphasis.]
[45] In this instance, Dr. Grenier's
negligence consisted of relying solely on the statements the Régie de
l'assurance maladie sent him in response to each of his requests for payment of
fees and which he kept in his files and of failing to check the totals of the
figures appearing on those statements by comparing them with the totals of his
deposits of the cheques issued by the Régie or of failing to request the total
of his fees from the Régie at the end of the year. Since he did not keep any
books and had decided, for ethical reasons, not to retain the services of an
accountant, who could have reconciled the amounts he had claimed from the Régie
and the statements it provided, Dr. Grenier should have exercised
reasonable care by at least calculating the total amount of his deposits or,
better yet, by requesting the annual statement from the Régie.
[46] For all these
reasons, Dr. Grenier's
appeals are dismissed, with costs.
Signed at Ottawa, Canada, this 14th day
of December 2002.
J.T.C.C.
Translation certified true
on this 10th day of February
2004.
Sophie Debbané, Revisor
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