1999-3155(IT)I
BETWEEN:
RICHARD A. TURRIFF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on June 1, 2000 at Regina, Saskatchewan, by
the Honourable Judge D.W. Beaubier
Appearances
Counsel for the Appellant: Kim Ford
Counsel for the Respondent: Perry Derkson
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1995 and 1996 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia this 14th day of June 2000.
|
"D.W. Beaubier" |
J.T.C.C.
Date: 20000614
Docket: 1999-3155(IT)I
BETWEEN:
RICHARD A. TURRIFF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.T.C.C.
[1] These appeals pursuant to the Informal Procedure were heard at Regina, Saskatchewan on June 1, 2000. The Appellant was the only witness. He has appealed reassessments which restricted farm losses which he claimed for 1995 and 1996 pursuant to subsection 31(1) of the Income Tax Act. At the opening of the hearing the parties agreed to amendments to the Reply and the Appellant withdrew a ground of appeal alleging Charter rights.
[2] Paragraph 5 of the Reply reads:
5. In so reassessing the Appellant for the 1995 and 1996 Taxation Years, the Minister made the following assumptions of fact:
(a) the facts admitted supra;
(b) at all material times the Appellant carried on the practice of optometry in the town of Assiniboia, in the Province of Saskatchewan;
(c) the Appellant earned the following amounts from his optometry practice during the 1989 to 1996 taxation years respectively:
|
TAXATION YEAR |
GROSS INCOME |
NET INCOME |
|
1998 |
$360,452.00 |
$ 99,267.00 |
|
1997 |
381,969.00 |
127,783.60 |
|
1996 |
354,399.00 |
117,343.00 |
|
1995 |
347,972.00 |
112,068.26 |
|
1994 |
349,439.00 |
105,229.00 |
|
1993 |
313,046.00 |
90,242.40 |
|
1992 |
332,891.00 |
96,341.00 |
|
1991 |
343,073.00 |
93,228.00 |
|
1990 |
348,292.00 |
105,646.00 |
|
1989 pre-bankruptcy |
215,462.00 |
76,785.00 |
|
1989 post bankruptcy |
95,051.00 |
11,823.00 |
(d) the Appellant reported farming income (losses) during the 1989 to 1996 taxation years as follows:
|
TAXATION YEAR |
GROSS INCOME |
NET INCOME (LOSS) |
|
1998 |
$23,593.01 |
$(29,774.22) |
|
1997 |
32,551.49 |
(24,317.67) |
|
1996 |
7,648.09 |
(30,515.24) |
|
1995 |
8,388.05 |
(10,935.52) |
|
1994 |
22,161.00 |
5,023.00 |
|
1993 |
8,060.30 |
(19,536.56) |
|
1992 |
7,792.85 |
(33,116.67) |
|
1991 |
7,271.00 |
(40,128.00) |
|
1990 |
5,658.00 |
(38,754.00) |
|
1989 pre-bankruptcy |
2,137.00 |
(5,873.00) |
(The underlined portions of subparagraphs (c) and (d) were amended at the opening of hearing to constitute agreed facts, rather than assumptions.)
(e) the Minister previously audited the Appellant for the 1992 and 1993 Taxation Years and reassessed the Appellant to restrict the farm losses reported as set out in paragraph (d) above;
(f) the Appellant filed an appeal with the Tax Court of Canada in respect of the reassessment to restrict his farm losses in the 1992 and 1993 Taxation Years;
(g) the Appellant subsequently signed a Consent to Judgment agreeing to the farm losses being restricted in the 1992 and 1993 Taxation Years;
(h) the Appellant began his farming operation in the 1971 Taxation Year;
(i) the Appellant purchased three ¼'s of land in the 1971 Taxation Year which he still owned in the 1995 and 1996 Taxation Years;
(j) during the 1995 and 1996 Taxation Years the Appellant rented an additional 200 acres of pasture;
(k) the Appellant operates a mixed farming operation consisting of cattle, growing grain, and some horses;
(l) the Appellant resides on the farm;
(m) the Appellant reports income from the farming operation on the cash basis;
(n) the potential profitability of the Appellant's farming operation during the 1995 and 1996 Taxation Years was not significant when compared to the Appellant's income from the practice of optometry;
(o) the Appellant committed more time to the practice of optometry than to the farming operation during the 1995 and 1996 Taxation Years;
(p) the Appellant did not change his career direction during the 1995 and 1996 Taxation Years;
(q) the Appellant's chief source of income during the 1995 and 1996 Taxation Years was neither farming nor a combination of farming and some other source of income.
[3] Assumptions (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) and (p) are correct or were not refuted.
[4] The Appellant went bankrupt in 1989 following his divorce. He then bought the farm three ¼'s back from the bank which had seized them. To do this he incurred substantial indebtedness. For this reason, the Appellant started mixed farming in grain and cattle again in 1989. However, from 1990 to 1996 inclusive, he spent approximately $6,500 purchasing cattle and $20,000 purchasing horses. He has personal interests in horses and hunting and in living in his house on the farm which have clearly affected the farming operation and its financial aspects.
[5] The Appellant continued to lose money farming in 1997 and 1998. His 1994 profit was due to an inventory adjustment and a crop insurance claim. He testified that in 1989 he acquired about 10 cattle and that he has let the herd grow without sales in the expectation that profits will come in due course in the cattle market. He sold about 20 cattle in early 2000.
[6] The Appellant testified that after major expenditures to grow durum in 1997 and 1998 he has changed direction to make money on cattle and to reduce expenditures on durum production.
[7] In 1989 the Appellant was an experienced farmer who, he says, had made some profits from farming during some of the 1980's. He had no plan to change his previous farming practices. He borrowed all the money to buy the farm back (including his home on the farm) from CIBC which had seized it as security. However, given his previous 18 years farming experience, the fact that he grew up on a farm, and the operation from 1990 through 1994, by 1995 any start-up period had concluded. In 1995 and 1996 the operation can be viewed as a going entity - profitable or not.
[8] Aside from the personal interest problem in this appeal, the Appellant must deal with the criteria established by the Federal Court of Appeal in The Queen v. Andrew Donnelly, 97 DTC 5499. On the evidence, the time spent farming was, on an annual basis, the same amount as he spent on optometry. The capital investment appears to have been about equal in each pursuit. However, the Appellant did not lead any evidence as to the quantum of profit he could expect from farming relative to optometry, exactly when it might occur, how much it would be, or if it would be substantial.
[9] Nor did the Appellant prove any sudden set-backs which prevented profits in 1995 and 1996. The general farm economy appears to have been about the same as it was when he went bankrupt. The evidence established substantial capital expenditures on pick-up trucks and an ATV, relative to normal farm equipment. It established substantial purchases of horses relative to cattle. It established fairly large sales of grain which the Appellant testified was not profitable. It also proved that he was interested in hunting. He also testified that, as a one-man farmer on a small western farm, he used a jeep, horses and an ATV to feed cattle which grew from a herd of 10 in 1989 to 80 at the beginning of 2000.
[10] In Donnelly, supra, at page 5501, Robertson, J. said:
Any doubt as to whether the taxpayer's chief source of income is farming is resolved once consideration is given to the element of profitability. There is a difference between the type of evidence the taxpayer must adduce concerning profitability under section 31 of the Act, as opposed to that relevant to the reasonable expectation of profit test. In the latter case the taxpayer need only show that there is or was an expectation of profit, be it $1 or $1 million. It is well recognized in tax law that a "reasonable expectation of profit" is not synonymous with an "expectation of reasonable profits". With respect to the section 31 profitability factor, however, quantum is relevant because it provides a basis on which to compare potential farm income with that actually received by the taxpayer from the competing occupation. In other words, we are looking for evidence to support a finding of reasonable expectation of "substantial" profits from farming.
The Appellant failed to provide evidence of a reasonable expectation of a substantial profit from farming. On criteria also established by the Federal Court of Appeal, the Appellant had a personal interest in financing his home, owning the horses and operating some of the vehicles for hunting. Moreover, any start-up period had ceased by 1995.
[11] For these reasons, the appeals are dismissed.
Signed at Vancouver, British Columbia this 14th day of June 2000.
|
"D.W. Beaubier" |
J.T.C.C.
COURT FILE NO.: 1999-3155(IT)I
STYLE OF CAUSE: Richard A. Turriff and The Queen
PLACE OF HEARING: Regina, Saskatchewan
DATE OF HEARING: June 1, 2000
REASONS FOR JUDGMENT BY: The Honourable Judge D.W. Beaubier
DATE OF JUDGMENT: June 14, 2000
APPEARANCES:
Counsel for the Appellant: Kim Ford
Counsel for the Respondent: Perry Derkson
COUNSEL OF RECORD:
For the Appellant:
Name: Paul J. Lewans
Firm: Lewans & Ford
Assiniboia, Saskatchewan
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada