A J Frost:—This is an income tax appeal in respect of the appellant’s 1969 taxation year. Upon Notice of Objection duly signed and filed, the Minister of National Revenue confirmed the assessment on September 23, 1971.
In 1958 the appellant purchased a 150-acre property known as the Holland farm and in 1964 acquired a one-quarter interest in another property known as the Gwillimbury farm. The two properties were operated as tree farms for several years prior to the 1969 taxation year, during which time the Minister recognized the appellant’s farming status as coming under section 13 of the Income Tax Act. However, in respect of the 1969 taxation year, the Minister reversed his position and denied the appellant the right to claim any benefits under section 13 of the said Act, and assessed the appellant on the ground that the expenses claimed were personal and living expenses within the meaning of subparagraph 139(1 )(ae)(i) of the Income Tax Act and therefore not deductible by virtue of the provisions of paragraph 12(1)(h) of the Act.
On the evidence, I find that the appellant did in fact operate a tree farm which entailed some initial tillage to fit the ground for the growing of trees. The evidence further indicated that the essential difference between a tree farm and a vegetable garden is the time element. The expert witnesses called by the appellant agreed on one main point, namely, that the appellant was operating farms in an economic sense despite the fact that they were not a source of immediate income and might not be a source of income for many years to come. It takes time to grow trees.
Counsel for the respondent, in his argument, contended that the expenses relating to the two farms were not incurred in respect of properties maintained in connection with a business carried on with a reasonable expectation of profit. The question of what is reasonable in this case must of necessity relate to the circumstances involved. Fifty years may not be an unreasonable period for a tree farmer, whereas a single year might be too long for a chicken or bee farmer to wait. However, the prospect of profit is not the main question in issue but rather — what is the relationship of subparagraph 139(1 )(ae)(i) to section 13 of the Income Tax Act?
Subparagraph 139(1 )(ae)(i) speaks of the expense of properties not maintained in connection with a business carried on with a reasonable expectation of profit. The word “farming” isn’t even mentioned in the section. On the other hand, section 13 deals specifically with farming and although it sets a limit in respect of losses claimed as a result of farming where it is not a principal source of income, it does not speak of “a reasonable expectation of profit”. If one could apply subparagraph 139(1 )(ae)(i) to farming in the same manner as to the expense of maintaining properties for the use of the taxpayer, then farm- ing of marginal land, and perhaps other types of farming such as “hobby farming”, might well come under that particular section of the Act.
However, without stressing the obvious, it seems to me that Parliament enacted the provisions of subsections 13(1) and (2) to curtail farming enthusiasts taxwise without, in the national interest, placing too great a restriction on their love of farming. Hobby farmers may indulge their hobby, but the Act places a limitation on the amount of loss such taxpayers can claim. In other words, Parliament decided, in effect, that a reasonable expectation of profit is not a criterion for farming per se. This means that section 13 takes precedence over the limitation contained in subparagraph 139(1 )(ae)(i) and, as a consequence, the business of farming has been lifted out of that provision of the Income Tax Act.
I am therefore of the opinion that land owned by a taxpayer and used for the growing of natural or primary products, including trees, and under management with a view to ultimate marketing, regardless of the time element, constitutes farming within the meaning of paragraph 139(1)(p) irrespective of subparagraph 139(1 )(ae)(i) of the Income Tax Act. It is my view that in this case subparagraph 139(1 )(ae)(i) has been incorrectly and inappropriately applied by the Minister.
The appeal is allowed and the matter referred back to the Minister for reassessment in accordance with the foregoing.
Appeal allowed.