Tax Court of Canada Judgments

Date: 200010824

Docket: 2001-590-IT-I

2001-591-GST-I

BETWEEN:

ROBERT PARTRIDGE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Rip, J.T.C.

[1]            These are appeals in which a taxpayer who has devoted his full time and attention to farming is denied the right to deduct expenses in computing income in 1997 and 1998 for purposes of the Income Tax Act ("ITA") and claim input tax credits under Part IX of the Excise Tax Act ("ETA") for the period from January 1, 1997 to December 31, 1999, on the basis that he is not in the business of farming for purposes of the ITA and that his farm activity is not a commercial activity for purposes of the ETA. The appellant acted on his own behalf.

[2]            On retiring from the Armed Forces in 1979 or so, Mr. Robert Partridge purchased a 100-acre farm in the Eastern Township of Quebec and then spent all his time farming. Subsequently the farm was sold. The appellant purchased a dairy farm in 1984 in Delta, Ontario, consisting of 365 acres. Previously he had a 30-year career in the Canadian Armed Forces. He testified that since 1979 he has not taken any holidays, always attending to the needs of his farms. In 1995, due to age, and to some extent to illness, he put the Delta farm up for sale and purchased a smaller farm of 67 acres in Portland, Ontario. The Delta farm was sold in 1997.

[3]            The new farm, the Portland farm, had not been farmed for 10 years and required "considerable" work to be used for farming. Land had to be cleared for pasture, buildings had to be repaired and a fence had to be installed. Also, a right of way permitting people access divided the farm, thus reducing its use as a farm.

[4]            The Portland farm is mixed: cows, sheep, goats and beef cattle. Since 1995, Mr. Partridge has claimed farm losses from the Portland farm as follows:

Taxation Year	Gross Farm Income	Adjusted Farm Income*	Total Farm Expenses	Farm Losses Claimed
1995	$ 22,758	$ 9,553	$ 52,191	$ (29,433)
1996	20,093	9,605	44,930	(24,837)
1997	15,906	8,003	39,815	(23,909)
1998	12,446	5,388	46,156	(33,710)
1999	12,633	6,634	38,776	(26,142)
2000	11,599	5,599	35,1261	(23,527)

* Net of optional inventory adjustments, rebates and tax refunds.

¹ This does not include legal expenses to defend against right of way.

[5]            Mr. Partridge's sources of income at all relevant times were from pensions and investments. In 1997 his pension income, not including Old Age Security and Canada Pension Plan, was $35,519 and his investment income was $14,226; in 1998 the amounts were $36,183 and $16,396 respectively. Prior to 1995 it also appears Mr. Partridge's farm losses from farming exceeded his other income. The Minister of National Revenue ("Minister") assumed he also had farm losses during the period from 1987 to 1994 inclusive. Mr. Partridge acknowledged the losses for all years up to 2000. He stated that had he not claimed capital cost allowance he would have had a profit from farming in the years 1984, 1987, 1988, 1989 and 1993. He also said that today he could prepare a financial plan to show a profit within three or four years since the undepreciated capital cost of farm property was steadily being eroded.

[6]            Mr. Partridge testified that he made efforts to farm profitably: he purchased used machinery and equipment to reduce costs, he did not hire professional help, preferring to prepare his own books and tax returns, diligently reporting expenses; he never applied for government grants or assistance. He stated that no small mixed farm in Canada is profitable; without a subsidy or quota, a small farmer cannot make a profit.

[7]            Although the vendor of the Delta farm had a dairy quota, Mr. Partridge did not. Neither did he have an egg quota. At time of purchase of the Delta farm, he did not realize the quota was not transferable together with the farm.

[8]            Once he moved from Delta, to Portland, approximately 20 kilometres distance, Mr. Partridge continued farming but, due to age and health, did so on a more modest basis. For example, during the period under appeal he had 12 to 15 head of cattle, 15 sheep, four goats, two deer and 20 chickens. At time of trial, one deer was still alive and the other was in Mr. Partridge's freezer. The chickens (and eggs) were for personal consumption since he had no quota. In 1997 he sold three goats for $200. (He had sold seven goats that year and intended to increase this number in future years.)

[9]            Mr. Partridge lives on the Portland farm with his wife. Many of the expenses disallowed by the Canada Custom and Revenue Agency related to repairs or capital cost to the house which Mr. Partridge claimed as farm expenses. It is Mr. Partridge's view that a farmhouse is an integral asset of a farm business and all expenses of the house are farm expenses. He also failed to account for the half-year rule on acquiring capital property in 1995. These errors are relevant only if I find he was engaged in the business of farming during the years in appeal.

[10]          As far as the ETA assessment is concerned, Mr. Partridge will be entitled to input tax credits if I allow his appeal from the income tax assessments. In assessing Mr. Partridge under the ETA, the Minister assessed a penalty pursuant to section 285 of that statute. The Minister did not refer to the penalty provision in his Reply to the Notice of Appeal. The Minister has the onus of establishing the facts supporting the penalty. Hence, the appeal with respect to the penalty will be allowed.

[11]          Mr. Partridge declared that he operated the farm not to make a profit but to contribute to the community. The farms, he said, were to provide him with a "livelihood", a "living not a profit", permitting him to consume the products he grew. And, during the years in appeal, he and his wife did consume vegetables and meat produced on the farm.

[12]          Unlike taxpayers in cases cited by respondent's counsel[1], Mr. Partridge noted that he does no other work except work on the farm. He has no other income from business or employment. Thus, he concluded these cases are irrelevant.

[13]          Mr. Partridge took great comfort in Dickson J.'s (as he then was) description of a class (1) farmer in Moldowan,[2]:

(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.

[14]          It is Mr. Partridge's main submission, if I understand him correctly, that farming was "the centre of his work routine" and, therefore, he is a class (1) farmer, notwithstanding farming provides him with no net income.

[15]          The words "the centre of work routine" and "ordinary mode and habit of work" used by Dickson J. in Moldowan must mean the centre of a person's economic work routine or habit of work, where a person is working for his livelihood. The word "livelihood" is defined in The Canadian Oxford Dictionary as "a way of earning a living; an occupation". It does not mean efforts to provide one's self with subsistence only, as the appellant contemplates, or an activity that creates some revenue, but not a profit, but at which the taxpayer devotes all of his mental and physical energies.

[16]          Indeed, in Tonn[3] and Mastri[4] the Federal Court of Appeal considered the personal element of expenses in considering whether the expenses were incurred to produce income from a business or property. In the appeal at bar, as the appellant stated on several occasions, the purpose of his farming activity was not necessarily to earn a profit but to provide food for his table. Profit was, I gather, a secondary intent.

[17]          Nevertheless, if a person carries on the business of farming, expenses are deductible in computing income. A business requires an element of commerce or commercial activity. The activity, farming in the appeal at bar, must have some commercial flavour, at least, to a business.

[18]          To be successful, Mr. Partridge must convince me that farming, or farming and some other source of income, is his chief source of income, not his income from pensions or investments. As Dickson J. stated in Moldowan[5]:

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 distinguishing 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. 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.

[19]          In R. v. Donnelly,[6] Robertson J.A. explained that:

8               A determination as to whether farming is a taxpayer's chief source of income requires a favourable comparison of that occupational endeavour with the taxpayer's other income source in terms of capital committed, time spent and profitability, actual or potential. The test is both a relative and objective one. It is not a pure quantum measurement. All three factors must be weighed with no one factor being decisive. Yet there can be no doubt that the profitability factor poses the greatest obstacle to taxpayers seeking to persuade the courts that farming is their chief source of income. This is so because the evidential burden is on taxpayers to establish that the net income that could reasonably be expected to be earned from farming is substantial in relation to their other income source: invariably, employment or professional income. Were the law otherwise there would be no basis on which the Tax Court could make a comparison between the relative amounts expected to be earned from farming and the other income source, as required by section 31 of the Act. . . .

[20]          Unfortunately, I cannot agree with Mr. Partridge that he carried on the business of farming. He was preoccupied with farming. Farming was his life. However, at no time during the time he farmed in Portland did he carry on the business of farming. He did not expect the farm to provide the bulk of income although it was the centre of his daily work routine.

[21]          The appeals are dismissed except for the deletion of penalties.

Signed at Ottawa, Canada, this 24th day of August 2001.

J.T.C.C.COURT FILE NO.:                                   2001-590(IT)I & 2001-591(GST)I

STYLE OF CAUSE:                                               Robert D. Partridge v. The Queen

PLACE OF HEARING:                                         Kingston, Ontario

DATE OF HEARING:                                           August 8, 2001

REASONS FOR JUDGMENT BY:      The Honourable Judge Gerald J. Rip

DATE OF JUDGMENT:                                       August 24, 2001

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Rosemary Fincham

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-591(GST)I

BETWEEN:

ROBERT D. PARTRIDGE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on August 8, 2001, at Kingston, Ontario, by

the Honourable Judge Gerald J. Rip

Appearances

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Rosemary Fincham

AMENDED JUDGMENT

                Whereas on the 24th day of August, 2001 a formal Judgment with Reasons for Judgment were mailed to the parties regarding the above appeal;

And whereas an error was made on the formal judgment whereby the last line of the paragraph should read section "285" instead of section "275" of that statute and where this error also occurred on page 3 of the Reasons for Judgment;

Please substitute the formal judgment and page 3 of the Reasons for Judgment with the attached amended copies.

Signed at Ottawa, Canada, this 23rd day of January 2002.

"Gerald J. Rip"

J.T.C.C.

2001-591(GST)I

BETWEEN:

ROBERT D. PARTRIDGE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on August 8, 2001, at Kingston, Ontario, by

the Honourable Judge Gerald J. Rip

Appearances

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Rosemary Fincham

JUDGMENT

          The appeal from the assessment made under Part IX of the Excise Tax Act for the period from January 1, 1997 to December 31, 1999, is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in order to delete the penalty assessed pursuant to section 275 of that statute.

          The appellant is entitled to no further relief.

Signed at Ottawa, Canada, this 24th day of August 2001.

J.T.C.C.

2001-590(IT)I

BETWEEN:

ROBERT D. PARTRIDGE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on August 8, 2001, at Kingston, Ontario, by

the Honourable Judge Gerald J. Rip

Appearances

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Rosemary Fincham

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.

Signed at Ottawa, Canada, this 24th day of August 2001.

J.T.C.C.

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