Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
MINISTER/DEPUTY MINISTER'S OFFICE 7-07298M
ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWER
March 18, 1998
XXXXXXXXXX
Dear Colleague:
Thank you for sneding me a copy of your letter of April 27, 1997, received on December 9, 1997, addressed to the Honorable Jane Stewart, former Minister of National Revenue. You wrote on behalf of one of your constituents, XXXXXXXXXX, about raising race horses as a farming activity for income tax purposes.
Your constituent believes that the income from raising race horses should not be taxed as farming income, but rather should be viewed as a non-taxable sporting activity. The Income Tax Act defines the term “farming” to include raising livestock as well as maintaining horses for racing. A taxpayer must include in the calculation of income for a taxation year all amounts that are income from any source, including income from a farming business. Generally, a farming activity will be considered a source of income from a business if it is carried on with a reasonable expectation of profit. If a taxpayer’s farming activity results in losses, the deduction of the losses would be denied if the farming activity was not carried on with a reasonable expectation of profit. The losses may also be restricted if the taxpayer’s chief source of income is not farming or a combination of farming and some other source of income. Interpretation Bulletin IT-322R, Farm Losses, a copy of which is enclosed, sets out some of the criteria that are considered in determining whether a farming operation is a business, and comments on the deductibility of farm losses.
A taxpayer who carries on a sporting activity may also be considered to be carrying on a business, since any hobby or activity undertaken in a businesslike manner that has a reasonable expectation of profit is treated as a business, and income from such a hobby or activity is taxable as business income. Accordingly, even if raising race horses were considered to be a sporting activity, the income it generates might be taxed as business income, to the extent that the activity has the characteristics of a business and is not solely a hobby.
I hope these comments will be of assistance in responding to your constituent.
Yours sincerely,
Herb Dhaliwal, P.C., M.P.
Attachment
C.C. Minister's Office
Political Assistant
B. Kerr
957-2139
973314
January 14, 1998