Norman C Read v. Minister of National Revenue, [1980] CTC 2703, 80 DTC 1636

John B Goetz:—This is an appeal by the appellant with respect to an assessment for his 1977 taxation year whereby the Minister of National Revenue disallowed a claim for farming loss of $3,175.

Facts

The appellant is an electrician by trade and this is his main source of income. On January 27,1977 the appellant paid the sum of $3,850 to become a member of the Canadian Exotic Cattle Breeders’s Co-Operative. This membership was presumed to give him an interest in a pregnant cow, the issue of which would become his property at birth. It was opened to him to take a $5,000 debenture issued by the Co-Op or a cow and calf. The appellant chose to take a cow and calf. He never acquired ownership of a calf although he joined the Canadian Chianina Association. He admits he became aware of the operations of the Co-Op after he read an article in the newspaper which promoted an investment in the Co-Op as a tax shelter. It was the tax shelter aspect that attracted him. His actual share in the Co-Op cost him $3,750 and apparently involved some form of a breeding program, none of which materialized as the Co-Op went bankrupt. It was the Co-Op that owned the cattle in its own right and not the appellant. He felt that owning a share in the Co-Op enabled him to some form of control, although each member of a Co-Op in British Columbia is entitled to only one vote. The Co-Op is incorporated and of course is a separate legal entity. The long range plan was that if the cow had offspring, then the offspring of the heifer calf would be his. He had no control over the breeding and maintenance of the cow designated as being the pregnant cow in which he may have had an interest. He said this was all by way of oral agreement. As of January 27, 1977, he had no designated animal but was given a numbered animal in November 1977. The calf, when born, would be kept for two years and if the Co-Op could not deliver it, it would replace it with another animal of a Similar breed.

The appellant stated in cross-examination that he could have exercised his option to buy it eventually, but in 1978 the Co-Op was under investigation for trading in securities illegally.

A number of cases were cited to me by counsel. I have considered them all but feel that the case of Jeno Horvath v MNR (not yet reported) applies. In that case it was stated:

In the case of William Muldowan v Her Majesty the Queen, [1977] CTC 310; 77 DTC 5213, Mr Justice Dickson in reference to subsection 13(1) of the Income Tax Act, RSC 1952, c 148 as amended (now section 31), stated the following at pages 315 and 5216 respectively:

“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 carried on farming as a sideline business. Such a taxpayer is entitled to the deduction 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 carried on some farming activities as a hobby. The losses sustained by such a taxpayer on his nonbusiness farming are not deductible in any amount.”

Clearly, in that the appellant admits that he was a hobby farmer, and from all the other facts as set forth above, he clearly does not qualify to claim for a farming loss under section 31 of the Income Tax Act which reads as follows:

(1) Where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, for the purposes of sections 3 and 111 his loss, if any, for the year from all farming businesses carried on by him shall be deemed to be the aggregate of

(a) the lesser of

(i) the amount by which the aggregate of his losses for the year, determined without reference to this section and before making any deductions in respect of expenditures described in section 37, from all farming businesses carried on by him exceeds the aggregate of his incomes for the year, so determined from all such businesses, and

(ii) $2,500 plus the lesser of

(A) /2 of the amount by which the amount determined under subparagraph (i) exceeds $2,500, and

(B) $2,500, and

(b) the amount, if any, by which

(i) the amount that would be determined under subparagraph (a)(i) if it were read as though the words “and before making any deductions in respect of expenditures described in section 37” were deleted,

exceeds

(ii) the amount determined under subparagraph (a)(i);

and for the purposes of this Act the amount, if any, by which the amount determined under subparagraph (a)(i) exceeds the amount determined under subparagraph (a)(ii) is the taxpayer’s “restricted farm loss” for the year.

The Minister was quite correct in disallowing the claim for the farming loss in the amount of $3,175. “Business” and “Farming” are defined in subsection 248(1) of the Act as follows:

“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and includes an adventure or concern in the nature of trade but does not include an office or employment;

“farming” includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growingand the keeping of bees, but does not include an office or employment under a person engaged in the business of farming;

Obviously, the appellant does not qualify under either of these definitions and consequently section 31 of the Act is of no assistance to him.

I therefore dismiss the appeal.

Appeal dismissed.