McGillis,
J.:—
In
the
taxation
years
1977,
1978
and
1979,
Mr.
Bertrand
claimed
deductions
from
income
for
farm
losses
in
the
amounts
of
$20,650.39,
$30,967
and
$47,552
respectively.
The
Minister
of
National
Revenue
assessed
Mr.
Bertrand
and,
pursuant
to
section
31
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
allowed
him
restricted
losses
of
$5,000
for
each
of
those
years
on
the
basis
that
his
chief
source
of
income
was
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income.
Mr.
Bertrand
appealed
unsuccessfully
to
the
Tax
Court
of
Canada.
He
now
appeals
by
way
of
trial
de
novo
to
this
Court.
Facts
The
plaintiff
Raymond
Bertrand
is
the
president
of
the
family
firm
Bertrand
&
Frères
Construction
Co.
Ltd.
(Bertrand
&
Frères),
a
very
successful
and
well
structured
construction
company
which
currently
earns
a
yearly
gross
income
of
approximately
$6
or
7
million
dollars.
Mr.
Bertrand
began
working
at
the
bottom
rung
of
the
company
in
1959
following
his
graduation
from
university.
In
1960,
he
began
to
develop
the
concrete
division
of
the
company,
even
though
he
had
no
previous
knowledge
in
this
area.
Under
the
stewardship
of
Mr.
Bertrand,
the
concrete
division
became
very
successful.
In
1968
or
1969,
Mr.
Bertrand
became
the
vice-president
of
Bertrand
&
Frères
and,
in
1990,
he
assumed
the
presidency
after
he
fought
and
won
an
internal
battle
for
control
of
the
company.
The
day-to-day
operations
of
Bertrand
&
Fréres,
including
the
supervision
of
the
managers
and
sales
personnel
in
the
various
divisions,
are
handled
by
the
general
manager
who
has
worked
for
the
company
for
25
years.
In
1974,
Mr.
Bertrand
purchased
horses
and
four
acres
of
vacant
land
near
his
home
to
create
a
recreational
activity
for
his
children.
A
stable
which
included
stalls
for
the
five
family
horses,
tack
stalls,
an
office
and
a
top
floor
for
the
storage
of
hay
was
constructed.
Mr.
Bertrand
saw
that
there
was
a
potential
market
for
a
business
and,
in
late
1975
or
1976,
he
made
the
decision
to
start
a
Quarter
horse
breeding,
training
and
riding
lesson
business.
In
mid-1976,
he
hired
a
trainer
and
doubled
the
size
of
his
stables.
He
began
to
spend
time
developing
the
business
by
attending
horse
shows,
buying
and
selling
horses
and
advertising
the
various
services
offered.
An
indoor
practice
arena
and
a
loafing
barn
for
the
horses
were
built
and
a
stallion
was
purchased
for
breeding
purposes.
Errors
were
made
in
the
early
years
of
the
business
and
its
development
was
hampered
by
the
inexperience
of
Mr.
Bertrand
and
the
hiring
of
certain
incompetent
employees.
However,
Mr.
Bertrand
hired
a
very
good
trainer
approximately
eight
years
ago
and
believes
that
the
business
is
now
on
the
track
to
success.
One
of
his
horses
has
acquired
a
superior
rating
and
another
has
qualified
for
the
world,
an
expression
which
has
significant
meaning
in
the
Quarter
horse
business.
He
expanded
in
November
1991
by
adding
a
new
stable
with
additional
stalls
at
a
cost
of
$16,000
to
$17,000.
Furthermore,
he
has
recently
had
a
very
good
response
from
customers
and
is
now
being
asked
by
people
knowledgeable
in
the
field
to
train
their
horses.
There
is
a
waiting
list
for
training
and
the
breeding
program
is
doing
well.
According
to
Mr.
Bertrand,
the
Quarter
horse
business
is
experiencing
its
best
year
ever
with
a
net
profit
of
$20,000
recorded
at
the
end
of
September
1992.
No
documents
were
tendered
by
Mr.
Bertrand
to
support
this
claim.
Since
his
involvement
in
the
Quarter
horse
business,
Mr.
Bertrand
has
divided
his
time
during
the
week
between
it
and
the
construction
firm,
spending
approximately
two
to
three
hours
a
day
at
Bertrand
&
Frères
and
the
rest
of
his
time
at
the
farm
working
on
his
Quarter
horse
business.
He
is
available
by
telephone
to
deal
with
problems
arising
at
Bertrand
&
Frères
and
usually
attends
a
weekly
meeting
each
Wednesday
morning
with
other
directors
and
managers
of
the
company.
Mr.
Bertrand
devotes
his
weekends
to
the
Quarter
horse
business,
particularly
in
the
months
from
May
to
September
when
he
attends
horse
shows
almost
every
weekend
in
either
Quebec,
Ontario
or
the
northern
United
States.
Mr.
Bertrand
is
also
a
director
of
L'Orignal
Realty
and
attends
one
or
two
meetings
a
year
in
relation
to
its
activities.
During
the
past
16
years,
Mr.
Bertrand
has
had
total
gross
incomes
from
the
construction
company
Bertrand
&
Frères,
L"
Orignal
Realty
and
the
farm
totalling
$1,325,318,
$21,000
and
$393,041
respectively.
He
has
committed
capital
to
the
farm
in
the
amount
of
approximately
$300,000,
including
the
purchase
of
horses.
In
the
16
years
since
its
inception
in
1976,
the
Quarter
horse
business
of
Mr.
Bertrand
has
always
generated
a
net
loss,
save
and
except
for
three
years
in
which
minor
profits
were
recorded.
However,
the
accounting
practices
of
Mr.
Bertrand
have
been
selective
and
have
resulted
in
the
reporting
of
smaller
farm
losses
during
several
taxation
years.
For
example,
since
1981,
there
have
been
no
claims
for
capital
cost
allowance
and,
since
1983,
no
expenditures
claimed
for
expenses
pertaining
to
horse
shows,
including
the
transportation
of
horses.
Similarly,
although
the
wages
for
the
trainer
were
claimed
in
1989
in
the
amount
of
$13,262,
no
such
wages
were
claimed
in
1991,
despite
the
fact
that
wage
expenses
were
incurred
during
that
taxation
year.
Furthermore,
no
expenses
for
light,
taxes
or
insurance
were
claimed
in
1991.
Accordingly,
a
review
of
the
income
tax
returns
of
Mr.
Bertrand
reveals
that
his
farm
losses
in
several
taxation
years
would
have
been
greater
than
those
reported
if
he
had
claimed
all
of
his
expenses.
Furthermore,
although
Mr.
Bertrand
was
generally
a
credible
witness,
I
specifically
find
as
a
fact
that
he
has
attempted
in
his
evidence
to
enhance
the
prospective
profitability
of
his
quarter
horse
business.
In
particular,
I
find
his
evidence
concerning
the
net
profit
of
$20,000
allegedly
recorded
at
the
end
of
September
1992
to
be
unbelievable
in
view
of
the
16
year
track
record
of
the
business,
the
selective
accounting
methods
used
by
him
in
previous
years
and
the
lack
of
documentation
to
support
this
claim.
Even
if
I
am
wrong
in
disbelieving
this
portion
of
his
evidence,
I
would
still
have
concluded
on
the
basis
of
the
evidence
as
a
whole
that
Mr.
Bertrand
attempted
to
cast
the
business
in
a
more
positive
light
than
an
objective
review
of
the
facts
would
substantiate.
A
summary
of
the
gross
income
and
net
farm
losses
of
Mr.
Bertrand
for
the
taxation
years
1976
to
1991
inclusive
is
attached
as
Schedule
A
to
the
judgment.
Issue
Whether
the
income
from
the
quarterhorse
business
of
Mr.
Bertrand
was
a
chief
source
of
income
within
the
meaning
of
subsection
31(1)
of
the
Income
Tax
Act,
thereby
enabling
him
to
deduct
from
income
the
entire
amount
of
farming
losses
suffered
by
him
in
the
1977,1978
and
1979
taxation
years.
Analysis
It
is
common
ground
in
this
case
that
Mr.
Bertrand
was
engaging
in
farming
activities
which
constituted
a
source
of
income
for
the
purposes
of
the
Income
Tax
Act.
Subsection
31(1)
of
the
Act
restricts
the
deduction
available
for
farming
losses
to
$5,000
in
circumstances
where
the
chief
source
of
income
of
the
taxpayer
is
neither
farming
nor
a
combination
of
farming
and
some
other
source
of
income.
The
leading
case
dealing
with
the
interpretation
to
be
accorded
to
subsection
31(1)
of
the
Act
is
Moldowan
v.
The
Queen,
[1978]
1
S.C.R.
480,
[1977]
C.T.C.
310,
77
D.T.C.
5213.
In
this
decision,
Dickson,
J.,
as
he
then
was,
writing
on
behalf
of
the
Court,
stated
at
C.T.C.
page
314
(D.T.C.
5215)
of
the
judgment
that
a
taxpayer
must
have
a
profit
or
a
reasonable
expectation
of
profit
in
order
to
have
a
source
of
income.
The
question
of
a
reasonable
expectation
of
profit
must
be
determined
on
an
objective
basis
having
regard
to
all
of
the
facts
of
the
case.
In
making
this
assessment,
the
criteria
to
be
considered
are
”.
.
.the
profit
and
loss
experience
in
recent
years,
the
taxpayer's
training,
the
taxpayer's
intended
course
of
action,
the
capability
of
the
venture
as
Capitalized
to
snow
a
profit
after
charging
capital
cost
allowance".
Furthermore,
the
test
for
determining
whether
a
source
of
income
constitutes
a
chief
source
of
income
for
a
taxpayer
is
both
relative
and
objective.
In
this
regard,
"the
distinguishing
features
of
'chief
source’
are
the
taxpayer's
reasonable
expectation
of
income
from
his
various
sources
and
his
ordinary
mode
and
habit
of
work.”
Dickson,
J.
concluded
that
the
Act
as
a
whole
contemplates
the
existence
of
discrete
classes
of
taxpayers
who
farm
as
a
livelihood,
as
sideline
businesses
and
as
hobbies.
In
relation
to
these
three
classes
of
farmers,
only
those
who
farm
for
their
livelihood
are
entitled
to
the
full
deduction
for
farm
losses;
those
who
engage
in
sideline
businesses
may
deduct
losses
of
$5,000
in
a
taxation
year
and
those
who
are
hobby
farmers
are
not
entitled
to
a
deduction
for
farm
losses.
In
describing
more
fully
the
taxpayer
who
farms
for
his
livelihood,
Dickson,
J.
stated
at
page
315
(D.T.C.
5216)
of
the
judgment
that,
for
such
an
individual,
the
farming
”.
.
.may
reasonably
be
expected
to
provide
the
bulk
of
income
or
the
centre
of
work
routine.”
Furthermore,
a
farmer
who
farms
for
his
livelihood”.
.
.may
have
other
pecuniary
interests
as
well,
such
as
income
from
investments,
or
income
from
a
sideline
employment
or
business”.
Applying
the
principles
enunciated
by
the
Supreme
Court
of
Canada
in
Moldowan,
supra,
I
cannot
conclude
on
an
objective
review
of
the
facts
that
Mr.
Bertrand
has
a
reasonable
expectation
of
profit
from
his
Quarter
horse
business.
In
the
past
16
years,
the
business
has
shown
a
minor
profit
in
only
three
years,
despite
the
selective
accounting
procedures
used
by
Mr.
Bertrand
in
which
capital
cost
allowance
and
certain
expenses
have
not
been
claimed
in
several
of
the
taxation
years.
Furthermore,
even
if
I
were
to
find
that
Mr.
Bertrand
had
a
reasonable
expectation
of
profit
from
the
Quarter
horse
business,
I
would
be
unable
to
conclude
that
this
source
of
income
constitutes
his
chief
source
of
income.
The
facts
of
this
case,
when
viewed
in
their
totality
on
a
relative
and
objective
basis,
demonstrate
that
Mr.
Bertrand
reasonably
expects
to
receive
his
income
from
Bertrand
&
Frères,
the
very
successful
construction
company
of
which
he
is
the
president.
Indeed,
when
another
family
member
moved
to
assume
control
of
Bertrand
&
Frères,
Mr.
Bertrand
fought
the
internal
battle
and
emerged
as
president,
thereby
protecting
and
solidifying
his
position
in
the
company
and
his
financial
interests.
Admittedly,
his
ordinary
mode
and
habit
of
work
are
divided
between
the
Quarter
horse
business
and
Bertrand
&
Frères,
with
the
bulk
of
his
time
being
devoted
to
the
former.
However,
this
alone
cannot
detract
from
the
fact
that
Mr.
Bertrand
exercises
control
over
Bertrand
&
Frères
as
its
president
and
derives
the
money
on
which
he
actually
lives
from
that
company.
In
my
opinion,
Mr.
Bertrand
does
not
look
to
farming
for
his
livelihood
and
his
farming
interests
are
a
sideline
business
within
the
meaning
of
the
principles
in
Moldowan,
supra.
Decision
The
appeal
is
therefore
dismissed
with
costs.
Appeal
dismissed.
Email this Content