Rodney David Leslie v. Minister of National Revenue, [1987] 2 CTC 2134, 87 DTC 435

Taylor, T.C.J.:— These are appeals heard in Halifax, Nova Scotia, on May 27, 1987, against income tax assessments, for the years 1982 and 1983, in which the Minister of National Revenue restricted the taxpayer's losses from farming to the maximum of $5,000 per year permitted under section 31 of the Income Tax Act.

The appellant acquired the 100-acre farm between the years 1975 and 1980, through different purchases. He first build a residence for his family there, and then proceeded to reactivate and improve the property. He used his Registered Home Ownership Savings Plan ("RHOSP") to build his house. According to his notice of appeal he intended to farm exclusively when he could retire, which was scheduled for about the year 1990. In his view a "profit" should be realized from his operations by about the same year which together with his pension of about $800 per month would be his income. Again according to his notice of appeal — “This was the beginning of a very long range plan".The Minister's reply to notice of appeal gave the following general outline as facts admitted:

— that the Appellant was carrying on a farming business during the relevant taxation years;

— that he acquired his farm property at a cost of $32,000;

— that prior to the end of his 1983 taxation year, the Appellant had acquired a plow, a harrow, a tractor, and a truck at approximately the costs alleged in his Notice of Appeal;

— that the Appellant received a grant of $472 to subsidize the purchase of fruit trees;

In assessing, the Minister proceeded upon the following:

— at all material times, the Appellant was employed on a full-time basis as an aircraft technician with the Department of National Defence at Greenwood, Nova Scotia;

— the Appellant did not, at any time prior to the Acquisition of his farming property in 1979, have any experience in apple or grape farming;

— at the end of the 1982 and 1983 taxation years, the Appellant had planted not more than 270 and 970 apple trees, respectively; he did not plant any grapes until 1984, at which time he planted 500 vines on one acre of property;

— the Appellant earned income during his 1980 through 1983 taxation years as follows:

	1980	1981 1981	1982	1983
Employment
Income-DND	$19,515.00 $22,027.00 $26,348.00 $27,251.00
Interest
Income	—	1,000.00	316.00	217.00
Gross Farming
Income	1,300.00	1,478.00	1,350.00	4,280.00
Expenses
Claimed	6,645.00	16,208.00	14,498.00	19,855.10
Farming
Losses	(5,345.00) (14,730.00) (13,148.00) (15,575.10)
Gross farming
income in
relation to
Employment income	6.6%	6.7%	5.1%	15.7%

— the Appellant financed the acquisition of his 100 acre property in 1979 to the extent of $30,000 of its cost of $32,000; the purchase of a tractor and plow in 1983 was financed as to 100%, and the purchase of a truck, rotor tiller, and harrow in 1981 was financed as to 50%;

— the Appellant's chief source of income was not, at any material time, farming or a combination of farming and some other source of income.

Obviously, the last point immediately above, is more of a conclusion reached by the Minister than it is a fact in itself.

The appellant, in his testimony indicated a serious dedication to rural life, and stated that since the purchase of the property he had devoted all his available time, energy and resources to the project.

Analysis

I would refer to the quotations from the reply to notice of appeal, (supra). Taken along with the appellant's own evidence, it is quite clear that Mr. Leslie looked at the operation as a base for setting up a retirement income rather than providing a net return during the years under review. However, in my view, even if all the Minister's assumptions noted above were correct, they do not support the conclusion reached that "the appellant's chief source of income was not . . . farming . . .", as I understand the current relevant jurisprudence, in particular The Queen v. Paul E. Graham, [1985] 1 C.T.C. 380; 85 D.T.C. 5256, and Harold S. Hadley v. The Queen, [1985] 1 C.T.C. 62; 85 D.T.C. 5058 (F.C.T.D.). The efforts of counsel for the Minister to satisfy the Court that there were differences of merit and substance between the above two cases, and the instant case, were not persuasive. I would also make reference to the recent case of Michael G. Sidon v. M.N.R., [1987] 1 C.T.C. 2302; 87 D.T.C. 235.

The appeals are allowed, and the matter referred back to the respondent for reconsideration and reassessment.

The appellant is entitled to party and party costs.

Appeals allowed.