Date: 19990201
Dossier: A-191-94
Coram : DESJARDINS J.A.
DÉCARY J.A.
NOËL J.A.
Between : THE ATTORNEY GENERAL OF CANADA
Appellant
AND
MARTH REALTIES LTD.
Respondent
Heard at Montreal, Quebec on Monday, February 1st, 1999
Judgment delivered from the Bench at Montreal, Quebec
on Monday, February 1st, 1999
REASONS FOR JUDGMENT OF THE COURT BY: DÉCARY J.A.
Date: 19990201
Docket: A-191-94
CORAM: DESJARDINS J.A.
DÉCARY J.A.
NOËL J.A.
BETWEEN:
THE ATTORNEY GENERAL OF CANADA
Appellant
- and -
MARTH REALTIES LTD.
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Montreal, Quebec
on Monday, February 1, 1999)
DÉCARY J.A.
[1] Under section 31 of the Income Tax Act, it was incumbent on the Tax Court Judge to compare the sources of income of the corporate taxpayer, both actual and potential, in order to determine whether farming was its chief source of income. That, he failed to do1. The judge's approach was more consonant with that used to determine whether there is a reasonable expectation of profit rather than that used to determine what is the chief source of income of the taxpayer in the taxation years at issue, i.e. 1985, 1986 and 1987.
[2] No evidence was led by the respondent which would have allowed the judge to engage in an analysis of what profit might have been earned by the taxpayer in farming activities in each of the three taxation years in question, as compared to the profit it had earned during each of these three years from its consulting business.
[3] Furthermore, the judge was clearly in error when he relied on the intention of the taxpayer to get out of the construction business and to redirect its activities to farming operations by 1985, rather than on the actual redirection which was found to have effectively taken place after the taxation years at issue because the taxpayer had agreed to stay on longer than it had planned in order to undertake or fulfil important construction contracts. The fact is, that during the three taxation years, the taxpayer had not yet displaced, to use the words of Dickson J. in Moldowan v. The Queen2, "the centre of [its] work routine".
[4] Had he applied the test properly, it would have been obvious to the Tax Court Judge, as it is to us, that in 1985, 1986 and 1987 farming as a source of income was not the chief source of income of the taxpayer.
[5] The appeal will be allowed with costs, the judgment of the Tax Court of Canada will be set aside and the appeal of the Respondent with respect to the reassessments issued by the Minister of National Revenue concerning the 1985, 1986 and 1987 taxation years will be dismissed with costs.
Robert Décary
J.A.
FEDERAL COURT OF APPEAL
Date: 19990201
Docket: A-191-94
Between :
THE ATTORNEY GENERAL OF CANADA
Appellant
AND
MARTH REALTIES LTD.
Respondent
REASONS FOR JUDGMENT
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