Canada Case Law

Stackhouse v. Canada

Court

Federal Court of Appeal

The combination exception in amended s.31(1) requires that where farming and one other source together constitute the taxpayer's chief source of income the two qualifying sources must be compared to identify which is subordinate; that comparison is fact‑based and uses the same factors identified in Moldowan and Craig (time, capital, income history and potential, ordinary mode of work, expectations), no single factor is decisive, and on the evidence the Tax Court did not err in finding farming subordinate to the appellant's medical practice; accordingly the farming loss restriction applied and…

Source excerpt

• Farming loss restriction
• Chief source of income
• Combination exception
• Section 31 income tax act
• Bilingual statutory interpretation

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Stackhouse v. The King

Court

Tax Court of Canada

The Tax Court held that the appellant’s medical practice, not her farm, was her chief source of income in 2014 and 2015, so farm losses were limited under subsection 31(1).

• Subsection 31(1) income tax act
• Chief source of income
• Subordinate source of income
• Restriction of farming losses
• Assumptions of fact in pleadings
• Tax-law

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Curtis v. The Queen

Court

Tax Court of Canada

The appeals were dismissed because, applying Moldowan and subsequent authorities, the appellant’s farming was not his chief source of income nor part of a combination that constituted his chief source: although significant capital and time were committed, the farming operation lacked factual potential profitability and employment income predominated, so s.31 restricted the deduction of the farm losses.

Source excerpt

• Restricted farm loss
• Chief source of income
• Section 31
• Profitability test
• Combination of income sources
• Precedent interpretation

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Turbide v. The Queen

Court

Tax Court of Canada

Applying the Gunn/Craig synthesis to the facts — significant cumulative capital invested in the racehorse business, meaningful annual income and substantial time spent (averaging ~30 hours/week), considered with the taxpayer's mode of living and history — the farming activity made a meaningful contribution to the aggregation formula and thus section 31 did not apply; appeal allowed and reassessed accordingly.

Source excerpt

• Farming losses
• Section 31 restriction
• Chief source of income
• Combination test
• Application of moldowan and gunn jurisprudence

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Craig v. The Queen

Court

Tax Court of Canada

Applying Gunn's combination test (aggregate of capital invested, income, and time spent considered in light of ordinary mode of living, history and intentions) the court found the appellant's horseracing operation was a business sufficiently commercial and committed that, combined with his law practice, it constituted his chief source of income for the relevant years and therefore section 31 did not apply to restrict the losses; appeals allowed and reassessments referred back for reconsideration.

Source excerpt

• Restricted farm loss
• Section 31 income tax act
• Chief source of income
• Business v. hobby
• Statutory interpretation
• Horseracing as farming

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Johnson v. The Queen

Court

Tax Court of Canada

Applying the binding Federal Court of Appeal decision in Gunn and the Moldowan factors to the evidence of significant capital investment, substantial and combined time spent on farming and employment, and an evident profit intention, the appellant's farming and employment constitute a permissible 'combination' so that s.31 does not restrict the 2005 farming losses; appeal allowed and matter remitted for reassessment.

Source excerpt

• Section 31
• Farming losses
• Chief source of income
• Combination question
• Reassessment

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Loyens v. The Queen

Court

Tax Court of Canada

Applying Moldowan cumulatively to capital, time and profitability for 1999 and 2000, the court found the appellant had invested substantial capital, devoted substantial time and had a reasonable potential for profit in those years; therefore his chief source of income for 1999 and 2000 was a combination of farming and dentistry and s.31 did not apply to restrict his farm losses for those years.

Source excerpt

• Chief source of income
• Restricted farm loss
• Section 31 interpretation
• Farming business vs. professional income

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Gunn v. Canada

Court

Federal Court of Appeal

The Federal Court of Appeal allowed the appeal, holding that s.31 did not apply because the appellant's chief source of income was a combination of farming and his law practice; the combination question must be assessed by aggregating capital, income and time and by recognizing the factual synergy between activities rather than requiring farming to predominate, and therefore the Tax Court judgment limiting farm losses to $8,750 was set aside and the matter remitted for reassessment.

Source excerpt

• Section 31 income tax act
• Farm loss limitation
• Chief source of income
• Combination question
• Remission for reassessment

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Gunn v. The Queen

Court

Tax Court of Canada

Applying Moldowan, the Court found that despite substantial capital investment and long-term commitment to farming, the Appellant's ordinary mode and habit of work and relative profitability showed his law practice was his chief source of income; farming was a sideline and s.31 was properly applied to limit deductible losses, so the reassessments stand.

Source excerpt

• Chief source of income
• Section 31 income tax act
• Farm loss limitation
• Moldowan test
• Combination of income sources

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Brown v. The Queen

Court

Tax Court of Canada

On the totality of the evidence the Court found the appellant's farming operation was capable of making a significant profit and that the losses in 1997 and 1998 resulted from identifiable exceptional events (loss of rented acreage, unusually wet fall leading to delayed harvest and a tractor fire) rather than from an absence of a genuine farming enterprise; the appellant spent substantial time farming, federal programs treated him as a farmer and therefore the restrictions under s.31(1) were not warranted for 1997 and 1998, so the appeal was allowed.

Source excerpt

• Farm loss restriction
• Chief source of income
• Section 31(1) income tax act
• Capital cost allowance
• Expectation of profit

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