A-648-86
The Queen (Appellant)
v.
Raymond Morrissey (Respondent)
INDEXED AS: MORRISSEY V. CANADA (C.A.)
Court of Appeal, Mahoney, MacGuigan and Des-
jardins JJ.—Toronto, November 16, 17; Ottawa,
December 21, 1988.
Income tax — Income calculation — Farming — Taxpayer
employed part-time as ship's engineer — Also running cattle
farm, assisted by family — Deemed farming losses for three
years restricted to $5,000 under Income Tax Act, s. 31(1),
although losses much greater — Trial Judge holding farming
"chief source of income" — Whether chief source of income
farming or combination of farming and other occupation —
Whether factors in Moldowan (time spent, capital committed,
profitability both actual and potential) to be interpreted dis-
junctively or conjunctively.
This was an appeal from a trial judgment holding that
farming was a chief source of the respondent's income. The
taxpayer was employed as chief engineer on a Great Lakes
freighter six or seven months a year. He also ran a cattle farm,
with extensive help from his family. In 1977, 1978 and 1979 his
losses were restricted to $5,000 under subsection 31(1) of the
Income Tax Act, although his actual losses were much higher.
Subsection 31(1) applies where a chief source of income is not
farming or a combination of farming and another occupation.
The taxpayer argued that the criteria in Moldowan v. The
Queen (time spent, capital committed, profitability both actual
and potential) should be interpreted disjunctively, as did the
Trial Judge who found that farming was a chief source of
income as the taxpayer had shown a serious commitment to
farming in relation to the first two factors. The Trial Judge
held that profitability was but one of several factors to be
considered. It was further argued that subsection 31(1) had
become a burden upon real farmers although Parliament's
original intention had been to grant limited relief to the gentle
men farmer.
Held (Desjardins J. dissenting), the appeal should be
allowed.
Per Mahoney J. (MacGuigan J. concurring): Moldowan did
not suggest disjunctive consideration of factors in the way that
they had been dealt with by the Trial Judge. It being admitted
that the taxpayer had a reasonable expectation of profit, a
question remained as to whether his farming operation was
potentially a chief source of income alone or in combination
with another source. Although, in considering subsection 31(1),
potentiality rather than actuality is the question, since the
provision applies only when there is a loss, profitability in other
years may be evidence of the potential :or profit. On the
evidence, the taxpayer's farm had not been, and was unlikely to
become, profitable. Absent actual or potential profitability,
farming cannot be a chief source of income.
While it may be argued that remedial action is desirable in
that Parliament's original intentions may not have been real
ized, the Moldowan test was not so elastic as to permit it to be
judicially provided.
Per Desjardins J. (dissenting): The statement in Moldowan,
that the two distinguishing features of chief source of income
were to be tested by considering, inter alia, time spent, capital
committed and profitability, indicated that these tests were
illustrative, not exhaustive. Profitability was only one of several
factors that had to be weighed.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, R.S.C. 1952, c. 248, s. 31(1) (as am. by
S.C. 1970-71-72, c. 63, s. 1 [as am. by S.C. 1973-74, c.
14, s. 7]).
Income War Tax Act, 1917, S.C. 1917, c. 28, s. 3(1)(/)
(as am. by S.C. 1919, c. 55, s. 2; S.C. 1919 (2d Sess.),
c. 49, s. 2).
Income War Tax Act, R.S.C. 1927, c. 97, s. 10.
The Income Tax Act, S.C. 1948, c. 52, s. 13 (as am. by
S.C. 1951, c. 51,s. 4). .
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Moldowan v. The Queen, [ 1978] 1 S.C.R. 480.
DISTINGUISHED:
P.E. Graham v. The Queen (1983), 83 DTC 5399; affd.
[1985] 2 F.C. 107; 85 DTC 5256 (C.A.).
AUTHORS CITED
Canada. House of Commons Debates, Vol. V, 4th Sess.,
21st Parl., June 13, 1951, at p. 4054.
Canada. House of Commons Debates, Vol. III, 6th Sess.,
21st Parl., May 27, 1952, at pp. 2626 ff.
COUNSEL:
Ian S. MacGregor and Susan L. Van Der
Hout for appellant.
William I. Innes for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Stikeman, Elliott, Toronto, for respondent.
The following are the reasons for judgment
rendered in English by
MAHONEY J.: This appeal is concerned with the
application of subsection 31(1) of the Income Tax
Act [S.C. 1970-71-72, c. 63 (as am. by S.C.
1973-74, c. 14, s. 7)] to the respondent in respect
of his 1977, 1978 and 1979 taxation years. The
issue is whether in those years his "chief source of
income" was a combination of farming and his
employment as chief engineer on a Great Lakes
freighter. The Act provides:
31. (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 I l 1 his loss, if any, for the year from all farming businesses
carried on by him shall be deemed to be ....
There follows a formula which need not be recited.
Suffice it to say, applied to his actual farming loss,
the deemed farming loss for each year was $5,000.
I have not been persuaded that the learned Trial
Judge [(1986), 6 F.T.R. 227 (F.C.T.D.)] erred in
any of his findings of fact. All are supported by
admissions or evidence.
The respondent was raised on a farm. His wife
also had a farming background. The respondent
sought other employment as he approached adult
hood and has been employed on Great Lakes ships
since 1948. In 1967, they traded their home in St.
Catherines as down payment on a 178-acre farm
at Wainfleet and have lived there ever since. They
rented the land to another farmer in 1968. Since
1969 they have carried on their cow-calf operation,
breeding cows, selling calves and using the land for
grazing and growing feed. The respondent had
attained the position of chief engineer by 1965. He
normally works six to seven months a year on the
ships and spends the rest of his time working the
farm. Employment on the ships starts in early
April and goes on until December. However, the
respondent is able to take time off, much of it
without pay, when he has to work on the farm.
Calving is scheduled to occur before the shipping
season opens in the spring. His wife works hard,
especially during his absences. The children, the
oldest 13 in 1977, also help. The respondent has
taken pertinent courses at the University of
Guelph and, at the date of trial, had been a
director of the Canadian Cattlemen's Association
for about five years.
For the years in issue, the relevant figures are:
1977 1978 1979
Employment Income $39,169.20 $43,618.00 $46,889.06
Gross Farm Income 6,281.93 6,272.59 6,541.60
Farm Expenses 30,371.05 36,048.76 41,108.35
Farm Losses (22,726.66) (27,427.28) (32,108.27)
Prior to 1975, the respondent claimed and was
allowed only the deduction of the restricted farm
ing losses as permitted a taxpayer whose chief
source of income was neither farming nor a combi
nation of farming and some other source. For 1975
and 1976, he claimed and was allowed the deduc
tion of his full farming losses from his employment
income.
The appellant admitted that the farming opera
tion was being carried on with a reasonable expec
tation of profit. The learned Trial Judge found [at
pages 230-231]:
It is hard to construe the plaintiff's farm losses during the
years in question as transitory, accidental, or wholly unforesee
able. It is true that he suffered misfortunes in having rabies in
his herd in 1976 and scour in 1978. Yet his losses in those years
do not appear to be significantly worse than several other years.
He also says that meat prices were depressed toward the end of
this period, but as counsel for the defendant pointed out, even if
meat prices had quadrupled they would not have made his farm
profitable.
For whatever reasons, the plaintiff has demonstrated that his
farm has not been and is not likely to become profitable, at
least if he operates it at the level of which he seems to be
capable in terms of time and available capital. The Minister's
representative on examination for discovery, however, did not
take the position that the operation could be profitable with
more time or more capital and I need not go into that issue.
The fact is that it was far from being profitable in the years in
question and nothing that happened either before or since that
time suggests that those years were on arberration. Further, it
is hard to characterize many of the expenses incurred as
"start-up costs", given the fact that they were incurred some 8
to 10 years after farming commenced.
The respondent made a serious policy-based
argument. I shall try to do it justice. An apprecia
tion of the legislative history is necessary to an
understanding of the argument.
From its inception in 1917, Canada's federal
income tax legislation contained a prohibition
against the reduction of a taxpayer's income from
his chief business, trade, profession or occupation
by losses sustained in unconnected business trans
actions. The Income War Tax Act, 1917, S.C.
1917, c. 28, paragraph 3(1)(f) as amended by S.C.
1919, c. 55, section 2 and S.C. 1919 (2nd Sess.) c.
49, section 2. A prohibition to the same general
effect was carried forward in section 10 of the
Income War Act, R.S.C. 1927, c. 97, and in 1948
was expressed in the following terms, S.C. 1948, c.
52 [The Income Tax Act]:
13. (1) The income of a person for a taxation year shall be
deemed to be not less than his income for the year from his
chief source of income.
(2) The Minister may determine which source of income or
sources of income combined is a taxpayer's chief source of
income for the purpose of this section.
By an amendment retroactively effective to 1949,
S.C. 1951, c. 51, subsection 4(1), subsection (3)
was added to section 13. It allowed the deduction
of one-half a taxpayer's cash farming loss, to a
maximum of $5,000, from his chief source income.
Then, effective in 1952, the limitation of subsec
tion 31(1) was enacted [Income Tax Act, R.S.C.
1952, c. 148] and the general prohibition against
reducing chief source income by other business
losses was repealed.
If one looks at the provisions of the taxing
statute throughout the years, the situation has
been as follows.
a. Prior to 1949, a taxpayer's chief source
income could not be reduced by other business
losses including farming losses.
b. For 1949, 1950 and 1951, a taxpayer's chief
source income could not be reduced by other
business losses except only by 50% of cash farm
ing losses to a maximum of $5,000.
c. Since 1951, a taxpayer's chief source income
can be reduced in unlimited amounts by other
business losses but only by $5,000 farming
losses.
In fact, unsanctioned by statute, the administrative
policy of the Department of National Revenue
prior to 1949 had been to permit the deduction of
50% of cash losses from farming from chief source
income. That practice was described in the House
of Commons by then Minister of Finance, the
Hon. Douglas Abbott, in proposing the 1951
amendment.
[T]his section is intended to give some measure of relief to
those who may be colloquially known as gentlemen farmers,
whose principal occupation is not farming. Again this confirms
what was a practice over a great many years, during which the
income tax branch allowed 50 per cent of the cash losses
incurred in this type of farming; secondary income; and by cash
losses it meant without charging depreciation. It was a rule
which as it developed, probably was not strictly justified under
the act. We had a great many representations that the practice
which had existed for many years, I believe going back to the
early twenties, should be maintained. It was felt that it would
not be appropriate to do so without any limit, because some
might run very elaborate farms with very large losses in fancy
horses and that sort of thing. Probably it would not be fair to
allow such losses without limit, so the present section was
inserted fixing a limit of $5,000. This means in effect that on
the net cash basis, without allowance for depreciation, a man
who has a cash loss of $10,000 will have to stand $5,000 of it
himself and the other $5,000 can be deducted from his other
income. I agree with my hon. friend that this type of farming
has proved beneficial to a great many parts of the country, and
we had representations from agricultural associations asking us
to maintain the practice which had been followed in previous
years. That is the reason for this amendment.
House of Commons Debates, Vol. V, 4th Sess., 2I st Parl., June
13, 1951, at p. 4054.
Mr. Abbott was still Minister of Finance when
the 1952 amendments were dealt with by
Parliament.
Mr. Macdonnell (Greenwood): Will the minister explain to
me these negatives, which I find it hard to understand.
Mr. Abbott: As the hon. member will recall, this was the
section which referred to the principal source of income, and
then section 13(1) was introduced last year as a loophole
section to cover what, for want of a better term, I shall call the
hobby farmers—
Mr. Fleming: Gentleman farmers.
Mr. Abbott: Well, gentleman farmers. The idea of the provi
sion was to limit the deduction which a gentleman farmer may
take for income tax purposes against other income as a result of
farm losses. It was felt it was no longer necessary to have the
definition of principal source of income as contained in the
original section.
Mr. Macdonnell (Greenwood): Yes, but will the minister
explain to me these two words. The section reads in part:
Where a taxpayer's chief source of income for a taxation
year is neither farming—
I think I can understand that. Then the next thing is "nor a
combination of farming and some other source of income." Is
that a single source? Because it goes on to say:
... his income for the year shall be deemed to be not less
than his income from all sources other than farming ...
Mr. Abbott: Perhaps it is a little bit confusing, but almost
invariably these gentlemen farmers never make money from
their farms. They always lose money; and they write off that
loss against income from other sources, such as salary or
investment income. The section as introduced last year was of
course to limit that write-off to the lesser of the two figures
mentioned.
Mr. Graydon: They make money in the city and lose it in the
country ...
Mr. Knowles: May I ask the minister to explain the real
effect of this clause 4? The part that appears here in print is for
the most part that portion of section 13 which is being retained.
Mr. Abbott: That is right.
Mr. Knowles: What we are actually doing by this is to
eliminate the previous subsection 1 and subsection 2. Those
subsections indicated that the income of a person for the
taxation year shall be deemed to be not less than his income for
the year from his chief source of income.
Mr. Abbott: It is no longer necessary. I thought I explained
that a moment ago. If you are running a grocery business and a
drug business, you can offset the loss in the grocery business
against the profit in the drug business. The only case in which
we do not allow that is in the case of the gentleman farmer,
who is limited as to the amount of loss. It therefore no longer
became necessary to put in a provision that the income of a
person for the fiscal year shall be deemed to be not less than his
income from his chief source of income.
Mr. Knowles: Are there no gentleman grocers or gentleman
druggists?
House of Commons Debates, Vol. III, 6th Sess., 21st Parl.,
May 27, 1952, at pp. 2626 ff.
The respondent is said not be the gentleman
farmer Parliament had in mind when it enacted
what is now subsection 31(1) and repealed the
prohibition against reducing chief source income
by other business losses. What was intended as a
limited concession to gentleman farmers has been
turned into a burden on real farmers, he argues.
He asks, what is the policy basis for discriminating
against him, who is admitted to be farming as a
business, when he would not be subject to like
discrimination had he chosen any other business?
Why is farming the only entrepreneurial activity
so treated even though it is undertaken as a busi
ness, not a hobby, when the stated purpose of the
legislation was to deal with hobbyists and only
hobbyists?
The $5,000 limit has not changed since incep
tion of the provision. We have no evidence on the
relative purchasing power of the dollar over the
years. One may speculate whether the limit would
have had any real impact on a salaried marine
engineer with a farm in 1951 and whether, had it
been indexed, it would have had much, if any,
impact on the respondent in the years in issue. It
may be that the absence of periodic upward revi
sions has, in a practical way, made the limitation
applicable to taxpayers in relative income brackets
not initially intended by Parliament to be affected.
The authoritative judicial decision is that of
Dickson J., as he then was, for the Court in
Moldowan v. The Queen, [1978] 1 S.C.R. 480.
Relevant passages, at pp. 486 ff., follow:
Whether a source of income is a taxpayer's "chief source" of
income is both a relative and objective test. It is decidedly not a
pure quantum measurement. A man who has farmed all of his
life does not cease to have his chief source of income from
farming because he unexpectedly wins a lottery. The distin
guishing features of "chief source" are the taxpayer's reason
able expectation of income from his various revenue sources
and his ordinary mode and habit of work. These may be tested
by considering, inter alia in relation to a source of income, the
time spent, the capital committed, the profitability both actual
and potential. A change in the taxpayer's mode and habit of
work or reasonable expectations may signify a change in the
chief source, but that is a question of fact in the circumstances.
... the Income Taxt 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. 31(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.
31(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. 31(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 employ
ment or business. The section 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.
It may appear that class 3 describes those whom
the Minister of Finance described in 1952 in the
following terms:
... almost invariably these gentlemen farmers never make
money from their farms. They always lose money; and they
write off that loss against income from other sources, such as
salary or investment income. The section as introduced last
year was of course to limit that write-off to the lesser of the two
figures mentioned.
Those of whom the Minister said the provision was
"to limit that write-off" appear to be those of
whom the Supreme Court has said "the losses ...
are not deductible in any amount". If that is
correct, then it seems to me that the logical result
of the respondent's argument is that Moldowan
has read out of subsection 31(1) those whom it
was intended to benefit in a limited way.
The respondent does not, of course, take his
argument to that point. He cannot, because we are
bound by Moldowan. Rather, he argues that Mol-
dowan suggests an approach entirely consistent
with the policy underlying subsection 31(1) which
the Trial Judge has correctly adopted. That
approach is to consider disjunctively the various
criteria Dickson J., mentioned: time spent, capital
committed and profitability. The Trial Judge
expressed it thus [at pages 231-232]:
It will be noted that the learned judge says that the distinguish
ing features of "chief source" are the taxpayer's "reasonable
expectation of income from his various revenue sources" and
his ordinary mode and habit of work". It appears to me that
these are to be read disjunctively; that they are each factors to
be taken into account but neither is an absolute requirement.
This seems to be the tone of the judgment as a whole, and
moreover on page 315 where Dickson, J., describes his first
class of farmers, namely the kind within the exception in what
is now s. 31(1), he says that they must be persons "for whom
farming may reasonably be expected to provide the bulk of
income or the centre of work routine". (Emphasis added).
Later on that page he describes such a farmer as one "whose
major preoccupation is farming". Again, profitability is not set
up as an essential requirement.
Focusing on the three factors mentioned by Dickson, J., in
the quotation above, namely, time spent, capital committed,
and profitability, it appears that the taxpayer here can show a
substantial commitment to farming in relation to the first two
factors.
The third criterion referred to by Dickson, J., in the passage
quoted above is, of course, "profitability both actual and poten
tial". As I have said, if this were the sole criterion or the most
important one and if it were a sine qua non then I think the
plaintiff could not succeed. But I understand it to be only one
factor of several which may be relevant.
The Trial Judge concluded [at page 232]:
1 believe that I should not be guided solely by the improba
bility of profit from the taxpayer's farming during the years in
question or the foreseeable future. This is only one factor to be
taken into account. Looking at all the circumstances, I am
satisfied that the plaintiff here was a dedicated farmer trying to
make a profit from his farm like so many full-time farmers do,
unsuccessfully, year after year. The test of "chief source of
income" is not one of economic wisdom. Nor do I think it
particularly critical in the present case that the prospects for
the taxpayer leaving his employment and devoting all of his
time to farming were not very good. It must be kept in mind
that s. 31(1) contemplates the possibility of a taxpayer's chief
source of income being "a combination of farming and some
other source of income". Whatever this may mean, and there
remains room for clarification even after Moldowan, it does not
require the taxpayer to abandon his employment in favour of
farming. Moldowan merely requires that farming be the
"major preoccupation" and I am satisfied from all the circum
stances here that such is the case with this taxpayer.
With respect, I do not agree that Moldowan
suggests disjunctive consideration of pertinent fac
tors in quite the way the learned Trial Judge has
dealt with them. The discussion in Moldowan
begins as follows [at page 486]:
Whether a source of income is a taxpayer's "chief source" of
income is both a relative and objective test. It is decidedly not a
pure quantum measurement.
Moldowan also says, dealing with the difference
between classes 1 and 2, "While a quantum meas
urement of farming income is relevant, it is not
alone decisive". While the determination that
farming is a chief source of income is not a pure
quantum measurement, it is equally not a determi
nation in which quantum can be ignored.
The appellant has admitted that the respondent
was farming with a reasonable expectation of
profit. That means he was farming as a business
and is conclusive that he was not a class 3 farmer.
It also implies that farming was a potential source
of income and calls for an enquiry whether it was
potentially a chief source of income either alone or
in combination with another source. In considering
subsection 31(1), it seems to me that potentiality,
rather than actuality, is the question in all cases
since the provision applies only where there is a
loss in a taxation year. That is not, of course, to
say that actual profitability in other years may not
be evidence of the potential for profit in years of
losses.
Moldowan suggests that there may be a number
of factors to be considered but we are here con
cerned only with three: time spent, capital commit
ted and profitability. In defining the test as rela
tive and not one of pure quantum measurement,
Moldowan teaches that all three factors are to be
weighed. It does not, with respect, merely require
that farming be the taxpayer's major preoccupa
tion in terms of available time and capital.
In my opinion, this case is clearly distinguish
able from P.E. Graham v. The Queen (1983), 83
DTC 5399; affd. [1985] 2 F.C. 107; 85 DTC 5256
(C.A.). There, the Trial Judge, at page 5406, had
found:
In the circumstances of these appeals I do not accept the
premise predicated upon the evidence that the plaintiff might
not reasonably expect his farming operations to "provide the
bulk of income" and it most certainly is "the centre of work
routine".
While expressed in a double negative, that was
understood by this Court to be a finding, support
ed by the evidence, that farming was both the
centre of the taxpayer's work routine and could be
reasonably expected to provide the bulk of his
income. That finding, in the opinion of a majority
of this Court, placed that taxpayer clearly within
class 1.
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.
I have set out, fairly I hope and certainly at
some length, the basis for the respondent's policy-
based argument that the test of Moldowan ought
to be applied as it was by the Trial Judge to
achieve Parliament's desired result. I should not
have done so had I not been persuaded that the
government's intentions as told to Parliament in
1951 and 1952 may indeed not have been realized.
Parliament chose to draw the line between gentle
man farmers and real farmers in terms of source of
income. It may not have intended to treat taxpay
ers like the respondent as it intended to treat
gentleman farmers, not to deny gentleman farmers
any relief at all. There may be a serious argument
for remedial action, however I have not been per
suaded that the Moldowan test is so elastic as to
permit it to be judicially provided. The judiciary
must interpret what Parliament has said, which is
not necessarily what it may have intended to say.
I would allow the appeal with costs and set aside
the judgment of the Trial Division and dismiss the
respondent's action with costs.
MACGUIGAN J.: I agree.
The following are the reasons for judgment
rendered in English by
DESJARDINS J. (dissenting): I have no difficulty
with the Trial Judge's reasons for judgment, par
ticularly with the fact that he read disjunctively
the distinguishing features of "chief source of
income" of subsection 31(1) of the Income Tax
Act as mentioned by Dickson J. for the Court in
Moldowan v. The Queen, [1978] 1 S.C.R. 480.
At page 486 of Moldowan, Dickson J. [as he
then was], stated:
Whether a source of income is a taxpayer's "chief source" of
income is both a relative and objective test. It is decidedly not a
pure quantum measurement. A man who has farmed all of his
life does not cease to have his chief source of income from
farming because he unexpectedly wins a lottery. The distin
guishing features of "chief source" are the taxpayer's reason
able expectation of income from his various revenue sources
and his ordinary mode and habit of work. These may be tested
by considering, inter alia in relation to a source of income, the
time spent, the capital committed, the profitability both actual
and potential. A change in the taxpayer's mode and habit of
work or reasonable expectations may signify a change in the
chief source, but that is a question of fact in the circumstances.
[Emphasis added.]
After quoting this passage, the Trial Judge said
[at page 231]:
It will be noted that the learned judge says that the distinguish
ing features of "chief source" are the taxpayer's "reasonable
expectation of income from his various revenue sources" and
"his ordinary mode and habit of work". It appears to me that
these are to be read disjunctively; that they are each factors to
be taken into account but neither is an absolute requirement.
This seems to be the tone of the judgement as a whole, and
moreover on page 315 where Dickson, J., describes his first
class of farmers, namely the kind within the exception in what
is now s. 31(1), he says that they must be persons "for whom
farming may reasonably be expected to provide the bulk of
income or the centre of work routine". (Emphasis added).
Later on that page he describes such a farmer as one "whose
major preoccupation is farming". Again, profitability is not set
up as an essential requirement.
I understand, like the Trial Judge, that what
Dickson J. is saying is that the two distinguishing
features of "chief source of income" may be tested
by considering inter alia (emphasis added) the
time spent, the capital committed, the profitability
both actual and potential. These tests are illustra
tive, not exhaustive. They are to be weighed in the
light of all the circumstances. Not one is absolute.
Profitability is only one factor out of several. Pure
quantum measurement is not a deciding consider
ation.
With regard to the first two factors mentioned
by Dickson J. namely, time spent, capital commit
ted and profitability, the Trial Judge found as a
fact (appeal book at 1132) that the taxpayer was
spending considerable time on the farm taking off
from his other employment, much of it without
pay and that he was investing a relatively impor
tant amount of capital in it. He said [at pages
231-232] :
... it appears that the taxpayer here can show a substantial
commitment to farming in relation to the first two factors. I am
satisfied that the taxpayer spends virtually as much time
farming as he does on the boats. The fact that he lives on the
farm when not on the boats, that his family lives there and
contributes substantially to the management of the farm in his
absence, together with his obvious personal commitment to
farming, satisfy me that his major preoccupation is farming. In
this connection it should also be noted that he has not in any
way altered his status or responsibilities on the boats since he
commenced farming which suggests that he has made no effort
to develop further his employment career. As for capital it
appears likely that he has committed as much as he had
available. His counsel estimated that he had invested in the
order of $200,000 and 1 do not disagree with that estimate. In
terms of commitment this is as important as the investment of
millions by a millionaire.
With regard to profitability, both actual and
potential, the Trial Judge said [at page 232]:
I should not be guided solely by the improbability of profit
from the taxpayer's farming during the years in question or the
foreseeable future. [Emphasis added.]
He added [at page 232]:
The test of "chief source of income" is not one of economic
wisdom.
The taxpayer testified:
... if I can feed my family, educate my family, and 1 am
happy—which 1 am happy doing farming—if I can meet those
obligations, that is all I am satisfied with. That is what I feel is
a profitable farm. If I can meet my obligations, that is it.
(Transcript, September 16, 1986)
I am satisfied by the finding of facts made by
the Trial Judge, that the taxpayer here in question
has chosen neither the hobby farming nor farming
as "a sideline business" so as to put him in the
second and third class of farmers referred to by
Dickson J. at pages 487-488 of Moldowan. His
main preoccupation is farming although he is not
at present in a situation of leaving his employment
to devote all of his time to farming. Subsection
31(1) contemplates the possibility of a taxpayer's
chief source of income being "a combination of
farming and some other source of income". I
understand the present case to be of such a nature.
I would therefore have dismissed the appeal
with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.