Jean-Pierre Longpré, Michèle Longpré v. Minister of National Revenue, [1985] 1 CTC 2163, 85 DTC 183

Rip, TCJ [TRANSLATION]:—The appeals by Jean-Pierre Longpré and his wife Michèle Longpré were heard on common evidence. Mr Longpré filed an appeal from assessments for the 1978, 1979 and 1980 taxation years, and Mrs Longpré filed an appeal from an assessment for 1980. Mrs Longpré alleged that she was in partnership with her husband in a farming business. The point at issue concerns the deduction for farm losses which was claimed by the two taxpayers.

At the start of the hearing, the respondent agreed to allow Mr Longpré a loss of $1,968 in the computation of his income for 1978.

Mr Longpré styles himself a “businessman”. During the years in question — and in the past twenty years or so — Mr and Mrs Longpré were shareholders in and employed by a company that has been operating a business started in 1942 by Mrs Longpré’s father. The business did not necessitate Mr Longpré’s presence there at all times; there were seldom any emergencies, and he spent a great deal of time on the farm.

1970 Mr Longpré leased a farm on which he raised farm animals and grew grain. There was no evidence that he made any operating profits from his farming efforts during the years that he was a lessee, that is, from 1970 to 1979. In 1978 Mr Longpré leased a second farm, a woodlot located at St-Faustin, Quebec.

In November 1980 the appellants bought a 123-acre farm at La Plaine. Before the sale, Mr Longpré had leased it from the vendor since 1977. Mr Longpré said that they bought the farm because they wanted to sell the business and live on the farm. They did not sell the business because of the economic recession in Canada; and furthermore, they could not earn their livelihood on the farm.

In 1979 and 1980 Mr Longpré spent several early mornings on the farm. He worked at his job from 10:00 am to 4:30 pm. Friday evenings, Saturdays and Sundays were devoted to the farm. Mrs Longpré helped him groom the animals and do the daily chores, but Mrs Longpré’s main responsibility was administration.

At one point, there were ten calves, two steers, two cows and six horses on the farm. During the years in question, the main activities on the farm were the raising and training of horses. In 1979 they spent $8,974; $1,997 was for feed for the horses and $725 for their upkeep; the rent was $5,100. In 1980 they spent $20,360; $3,225 was for feed and $2,084 for upkeep; the rent up to the time of purchase of the farm was $3,300. The gross income in 1979 was $4,710 and came exclusively from the sale of wood; the gross income in 1980 was $4,216.

Mr and Mrs Longpré’s son trained the horses. Their eldest son worked with the horses and prepared them for horse shows; he took courses in order to better judge the quality and value of a horse. Since their son enjoyed this work, the appellants spent money so that their son could work with horses. The horses also competed in shows. Mr Longpré admitted that he was not able to win much money in the shows, but if a horse won a prize, its value increased. His son trained the horses and took them to horse shows. Mr Longpré testified that it took three years to train a horse for a show.

In 1983 the income from the farming operation was $12,619.19; expenditures were $23,312.01. Mr Longpré had fifteen horses on the farm (and also boarded three horses which he had bought on conditional sale); he said that he began to sell the cattle in 1983 because cattle were not a liquid asset.

Mrs Longpré estimated that the market value of the horses at the time of the hearing was between $60,000 and $70,000. A horse may be injured, and for that reason, among others, its value varies. Mrs Longpré testified that horses were a “very high risk”.

To succeed in their appeals, the appellants had to prove to the Court that they had a reasonable expectation of profit from their farming activities. If there was a reasonable expectation of profit, a farming business was operated, and therefore the owner (or owners) of the business was (were) entitled to deduct the loss sustained by him (them) in the operation of the business when computing income for the year. If there was no reasonable expectation of profit from those activities, the expenses that caused the loss are deemed to be personal, and the loss is not a loss for income tax purposes.

The current Chief Justice of the Supreme Court of Canada discussed the expression “a reasonable expectation of profit”* [1] in William Moldowan v The Queen, [1978] 1 SCR 480; [1977] CTC 310; 77 DTC 5213. At 485-86, 313, 314 he said:

There is a vast case literature on what reasonable expectation of profit means and it is by no means entirely consistent. In my view, whether a taxpayer has a reasonable expectation of profit is an objective determination to be made from all of the facts. The following criteria should be considered: the profit and loss experience in past years, the taxpayer’s training, the taxpayer’s intended course of action, the capability of the ven- ture as capitalized to show a profit after charging capital cost allowance. The list is not intended to be exhaustive. The factors will differ with the nature and extent of the undertaking: The Queen v Matthews. One would not expect a farmer who purchased a productive going operation to suffer the same start-up losses as the man who begins a tree farm on raw land.

The burden of proof in income tax matters rests on the taxpayer. There was no evidence in this appeal concerning Mr Longpré’s profit or loss experience in the years prior to 1978. During the years in question and in 1983 as well, four years after 1979, the farming activities operated at a loss.* [2] The cost of feed for the horses, training and farm rent came to the same amount as the income in 1979 and 1980; in 1983 the cost of feed for the animals was more than the income. The taxpayer had scant training in farm life, and there was no evidence to show either his intended course of action or the capability of the venture, after purchase, as capitalized to show a profit after charging capital cost allowance. I cannot find any factor that I could seriously consider and that would help me find that Mr Longpré had a reasonable expectation of profit from his farming activities.

The respondent consented to judgment allowing Mr Longpré to deduct $1,968, the amount of the farm loss in 1978. Therefore Mr Longpré’s appeal is allowed, and the assessment for 1978 will be referred back to the respondent for reconsideration and reassessment under the terms of these reasons. The appellant is not entitled to any further redress.

It was my finding that Mr Longpré could not deduct his farm losses for 1979 and 1980; therefore, it is not necessary to discuss whether Mr and Mrs Longpré were partners in the farming activities in 1980. Mrs Longpré’s appeal is also dismissed.

Appeals dismissed.