The Queen v. Timpson, 93 DTC 5281, [1993] 2 CTC 55 (FCA)

MacGuigan, J.A. (orally):—The leading case with respect to the deduction of farming losses from income from another source is Moldowan v. The Queen, [1978] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213, per Dickson, J., as he then was.

At the time the trial judge decided this case in 1987, the implications of the Moldowan test had not been so fully spelled out by this Court as they have been since in The Queen v. Morrissey, [1989] 1 C.T.C. 235, 89 D.T.C. 5080 (F.C.A.), Gordon v. The Queen, [1989] 2 C.T.C. 277, 89 D.T.C. 5481 (F.C.A.), Roney v. M.N.R., [1991] 1 C.T.C. 280, 91 D.T.C. 5148 (F.C.A.), Connell v. The Queen, [1992] 1 C.T.C. 182, 92 D.T.C. 6134 (F.C.A.), The Queen v. Poirier, [1992] 2 C.T.C. 9, 92 D.T.C. 6335 (F.C.A.).

The trial judge limited his examination solely to the question of the taxpayer's reasonable expectation of profit (Appeal Book at page 147):

I am satisfied on the evidence here that the plaintiff had a" reasonable expectation of profit". Most assuredly this profit did not arise as soon as the plaintiff predicted but the market, the high interest rates and the time required to gain credibility all conspired to delay what he had every right to expect—a profit.

But this consideration gets, at best, only to a finding that farming is "a source of income,” not that it is "a chief source of income,” as required by subsection 31(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

We find this case to be on all fours with Poirier, supra, where we said at page 10 (D.T.C. 6336):

It is . . . now clear that what is required for a determination that farming is a chief source of income is a favourable comparison of farming with the other source of income as to such matters as the time spent, the capital committed, and the profitability, both actual and potential. . . .

Applying the present view of the law to the facts in the case at bar, it is patent to us that farming was in a subordinate position to the respondent's employment occupation. Farming comes closest to a rough equality on the time factor, but it lags far behind on the capital and income tests.

In our view, the trial judge would have come to the same conclusion in the case at bar if he had applied the correct legal test.

The appeal should therefore be allowed with costs both here and in the Trial Division, the decision of the trial judge of May 12, 1987, set aside, and the reassessments for the 1977 and 1978 taxation years restored.

Crown’s appeal allowed.