Date: 20010406
Docket: 1999-3835-IT-G
BETWEEN:
TILOKIE (TOM) BHAGWANDIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1] These are appeals from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the 1994, 1995 and 1996 taxation years.
[2] In computing income for the 1994, 1995 and 1996 taxation years, the appellant deducted the amounts of $35,889, $35,893 and $25,129 respectively as farming losses.
[3] The Minister of National Revenue issued Notices of Reassessment dated January 12, 1998, restricting the appellant's farming losses in accordance with subsection 31(1) of the Act.
[4] In so assessing the appellant, the Minister relied on, inter alia, the following assumptions:
a) at all material times the Appellant was employed by Consoltex Inc.; (admitted)
b) the Appellant earned the following amounts of employment income during the 1994, 1995 and 1996 taxation years respectively: (admitted)
Taxation Year T4 Income
1994 $34,832.59
1995 $41,601.04
1996 $29,269.69
c) the Appellant acquired 100 acres of farm land in 1983; (admitted)
d) for the period from 1983 to 1998, the Appellant reported gross farm revenue, farm expenses, farm losses and employment income as indicated in [the amended] Schedule A to this Reply; (admitted)
e) during the period under appeal, the farming operation was subordinate to the Appellant's employment occupation in term [sic] of income; (admitted)
f) during the 1994, 1995 and 1996 taxation years, the Appellant's farming operation could not reasonably be expected to provide the bulk of income or centre of work routine for the Appellant; (admitted)
g) during the period under appeal, the Appellant's occupational direction has not changed; (admitted)
h) notwithstanding the significant losses during the last 15 years, the Appellant has not demonstrated that he has any plans to alter the manner or type of farming operation from that of its present undertaking; and
i) the Appellant's chief source of income during the 1994, 1995 and 1996 taxation years was neither farming nor a combination of farming and some other source of income.
[5] For the appellant to be able to claim full farm losses, he must demonstrate that his chief source of income was farming or a combination of farming and some other source of income (section 31 of the Act).
[6] The Federal Court of Appeal developed, in The Queen v. Donnelly, 97 DTC 5499, at pages 5500-01, the parameters to be used in determining whether farming is a taxpayer's chief source of income:
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. . . .
In summary, the cumulative factors of capital committed, time spent and profitability will determine whether farming will be regarded as a "sideline business" to which the restricted farm loss provisions apply.
[7] In the present case, there is no dispute that the appellant committed all his money to his cow-calf farming operation. However the figures show that the appellant's gross revenue from farming was far less than his employment income for the years at issue and the precedent and subsequent years. The appellant said that he kept a herd of approximately 25 cows in each of those years and he acknowledged that with that number he could never foreseeably make a living from the operation. He said that he would have to double his herd to be able just to break even.
[8] Although he testified that he was working nights for his employer, Consoltex, and slept only five hours a day, leaving him plenty of time to devote to the farm during the day, he also acknowledged that he could not survive on his farm without his employment income. He said as well that he never refused to do overtime for his employer, and in fact did overtime quite often.
[9] As Robertson J.A. said in Donnelly at page 5501:
. . . This leads inexorably to my third point: the taxpayer acknowledged that he required his medical income to live off and fund the purchase of new horses and other aspects of the horse operations. . . . Under these circumstances, it is difficult to see how he can be described as having changed his occupational direction. It cannot be denied that the time devoted to horse-farming was significant, but this quantitative factor alone does not accurately reflect the reality that the taxpayer was financially dependent upon his medical practice and primary income-earning occupation.
[10] The appellant testified that he was being helped on the farm by his son, who was also studying at the same time. Recently he had planned to buy more land to expand his herd in the hope that he could retire in the future and live off the farm. Unfortunately, his son died in an accident and his dream is now over. Although this is very sad and I feel very sorry for the appellant, my duty is to look for evidence to support a finding that there was a reasonable expectation of making substantial profits from farming. It seems obvious from the appellant's testimony that the expenses of $20,000 a year -- before the deduction of capital cost allowance -- cannot be reduced by much if he wants to keep the farm operating as it now is. And it also seems obvious that since he can handle a herd of only 25 cows on his farm, there is no chance that he will ever make profit from that farm. In the circumstances, and as was said in Donnelly, any doubt as to whether the appellant's chief source of income is farming is resolved once consideration is given to the element of profitability.
[11] From the evidence, I find that this farm has not been and is not likely to become profitable, at least if the appellant operates it at the level of which he seems to be capable in terms of time and available capital.
[12] For these reasons, it is difficult for me to conclude that the appellant's chief source of income was farming or a combination of farming and another source of income within the meaning of section 31 of the Act.
[13] The respondent having already assessed the appellant on the basis that he is entitled to a restricted farm loss pursuant to section 31 for each year at issue, the assessments will remain unchanged.
[14] As for the secondary question of whether the respondent was right in adjusting the expenses based on the documentation provided by the appellant, there was no evidence put before this Court that would justify me in revising the adjustments made by the Minister.
[15] For these reasons, the appeals will be dismissed.
[16] With respect to costs, although the respondent would normally be entitled to costs, I will grant none in the present case given the appellant's precarious financial situation.
Signed at Ottawa, Canada, this 6th day of April 2001.
"Lucie Lamarre"
J.T.C.C.
Amended Schedule A
Taxation Year Gross Farm Expenses Farm Losses Employment
Farm Revenue Income
1997 $ 8,203 $32,581 ($24,378) $34,252
1996 $ 7,796 $32,925 ($25,129) $29,269
1995 $ 7,001 $42,894 ($35,893) $41,601
1994 $ 8,784 $44,674 ($35,889) $34,832
1993 $12,820 $45,362 ($32,542) $39,566
1992 $ 6,337 $34,110 ($27,773) $25,824
1991 $ 6,247 $35,518 ($29,271) $35,901
1990 $ 5,000 $21,692 ($16,692) $19,503
1989 $14,345 $24,368 ($10,023) $10,010
1988 $ 6,274 $19,888 ($13,614) $16,103
1987 $12,525 $21,761 ($ 9,236) $ 9,692