October 07, 2011

The Clarkson Company, Trustee of the Estate of Benoit Poirier, a Bankrupt (Plaintiff) v. Her Majesty The Queen in Right of Canada (Defendant)

86 DTC 6124
Federal Court-Trial Division
February 14, 1986

Farming losses — Whether farming chief source of income — Full losses allowed — Income Tax Act, S.C. 1970-71-72, c. 63, s. 31.

The taxpayer worked on a farm in his youth but he later became a truck driver. Beginning in 1972 he acquired interests in various businesses, all of which were related in some way to each other. However, the taxpayer was not required to devote significant amounts of time to most of these businesses. In 1976 the taxpayer decided to begin a purebred cattle breeding operation and he acquired his first seven head of cattle. In 1976, the taxpayer resided on a 30-acre parcel of land which was owned by his wife. This parcel was adjacent to a parcel of several hundred acres owned by one of the taxpayer’s companies. During 1976 and 1977 an additional 486 acres were acquired. By the end of 1978 the taxpayer’s investment in cattle inventory was $197,000. Ultimately, the total investment in the farming business was in excess of $600,000. Several aspects of the farming operation required the taxpayer’s personal involvement. His other business activities were conducted from an office located on the farm. In 1980 and 1981 the taxpayer experienced financial difficulties and he was eventually forced to declare personal bankruptcy. The Minister restricted the taxpayer’s claim of full farming losses in respect of his 1977 and 1978 taxation years and the taxpayer’s trustee in bankruptcy appealed to the Federal Court-Trial Division.

Held: The trustee’s appeal was allowed. The Court found that the taxpayer’s commitment of time and money to the farming business was of such a magnitude that it would reasonably be expected to be a source of income which, combined with his other sources of income, would form his chief source of income in the taxation years in issue. The taxpayer was therefore entitled to deduct his full farming losses in those years.