January 27, 2012

William Moldowan v. Her Majesty The Queen

77 DTC 5213
Supreme Court of Canada
Date: May 31, 1977

Farming losses — Businessman — Income from employment and investments — Engaged in horse-racing activities — Losses — Farming — Source of income — Combination and connection — Reasonable expectation of profit — Hobby farming — Income Tax Act, 1952, ss. 13(1) and 199(1)(P) [see ss. 31(1) and 248(1) of the new Act].

Facts: The appellant taxpayer, a businessman who received substantial income from employment and several business investments, also engaged in horse-racing activities. In 1963 he realized a small profit of $1,593 from his farming activities, but thereafter he sustained a succession of losses, peaking $21,097 and $20,810 in 1968 and 1969 respectively. He engaged in training, boarding and racing horses for himself and others. After 1969, he reduced his farming activities. In computing his income for the 1968 and 1969 taxation years he deducted the full amount of the losses suffered in those years. The Minister only allowed the restricted farming losses of $5,000 in each of the respective years pursuant to subsection 13(1) of the former Act on the basis that the taxpayer’s chief source of income was neither farming nor combination of farming and some other source of income. The taxpayer appealed contending that he was actively engaged in horse racing which was a source of income to him. In affirming earlier decisions of the Board [73 DTC 228] and the Trial Division [74 DTC 6496] the Federal Court of Appeal [75 DTC 5216] dismissed the taxpayer’s appeal and held that the latter never seriously expected his farming activities to yield more than an income of insignificant importance in relation to his income from other sources. Therefore, his chief source of income was neither farming nor a combination of farming and some other source of income with the result that he was only entitled to the restricted farming losses. The taxpayer appealed further.

Held: The appeal was dismissed. While the taxpayer devoted a considerable amount of his time to his other business ventures, his horse-racing activities consumed only a few hours per day for only a part of the year. His horse-racing operation was not a business carried on for profit or with a reasonable expectation of profit. Therefore, his chief source of income was neither farming nor a combination of farming and some other source of income with the result that he was only entitled to the restrictive farming losses.