Gunn v. Canada, 2006 FCA 281 (2006)

Federal Court of Appeal

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Gunn v. Canada, 2006 FCA 281 (2006)

Date: 20060821

Docket: A-424-05

Citation: 2006 FCA 281

CORAM: SEXTON J.A.

SHARLOW J.A.

MALONE J.A.

BETWEEN:

DOUGLAS G. GUNN

Appellant

and

HER MAJESTY THE QUEEN

Respondent

Heard at Toronto, Ontario , on April 4, 2006.

Judgment delivered at Ottawa, Ontario , on August 21, 2006.

REASONS FOR JUDGMENT BY: SHARLOW J.A.

CONCURRED IN BY: SEXTON J.A.

MALONE J.A.

Date: 20060821

Docket: A-424-05

Citation: 2006 FCA 281

CORAM: SEXTON J.A.

SHARLOW J.A.

MALONE J.A.

BETWEEN:

DOUGLAS G. GUNN

Appellant

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT

SHARLOW J.A.

[1] This is an appeal from a judgment of the Tax Court of Canada (2005 TCC 437) dismissing Mr. Gunn’s appeal from reassessments made under the Income Tax Act , R.S.C. 1985, c. 1 (5 th supp.), for the years 1997, 1998 and 1999. The only issue is whether the Judge was correct in concluding that section 31 of the Income Tax Act applied in each of those years to limit Mr. Gunn’s farm loss deduction to $8,750.

FACTS

[2] The facts are undisputed. For over thirty years, Mr. Gunn has built up a law practice and a farming business through the investment of capital and the application of skill, knowledge and hard work. His law practice required a relatively modest investment of capital and it has been profitable. His farming business required a greater capital investment, but it has resulted mostly in operating losses. Despite Mr. Gunn’s record of farming losses, it is undisputed that his farming operations comprise a business, a commercial activity undertaken for profit and with a reasonable expectation of profit.

[3] Mr. Gunn grew up near St. Thomas, Ontario, on a farm settled by his grandfather. His father raised cattle, sheep and cash crops on the farm. Mr. Gunn worked on his father’s farm during the summers when he was attending the University of Western Ontario. That is how he earned the money for his education. In 1962, Mr. Gun acquired a 25% interest in a farm. His parents and his brother were the other owners. The property was sold some years later.

[4] In 1965, Mr. Gunn graduated from the faculty of law of the University of Western Ontario. He was admitted to the bar of Ontario in 1967, and has practiced law ever since. In 1984 he formed his own firm, Gunn and Associates, in St. Thomas. At the time of the Tax Court hearing, Mr. Gunn had four lawyers working for him.

[5] In 1972, Mr. Gunn bought the property that he now calls his home farm. It is located near St. Thomas, a short distance from his law office. At that time the buildings were run down, and over the next several years Mr. Gunn and his wife together built the home that they still live in, and replaced the farm buildings on the property. The property now has five barns, in which Mr. Gunn has been raising pure-bred Hereford cattle for the past 30 years. By 2005, Mr. Gunn had an established herd of approximately 50 breeding cows.

[6] The breeding of cattle requires a considerable amount of time, attention and expertise. Mr. Gunn does most of the work involved in the cattle breeding operation himself, with the help of his wife. Until September 2004 he had a hired hand as well. He makes all of the decisions in connection with the livestock breeding. In the calving season he checks and feeds the cattle, visiting the barns twice daily, in the early morning and in the evening. His wife checks them during the day, and he is available to return home on short notice if needed. He is never away from home for more than a few days at any time. He also works on the farm during weekends, and some week days in the summer, doing much of the manual work of seeding and haying, with the assistance of people hired on a casual basis. He also does all of the paper work and record-keeping required in connection with the breeding and registration of his cattle.

[7] Between 1990 and 1997, Mr. Gunn acquired six additional farm properties in the vicinity of St. Thomas, where he grows rye, hay and his major...

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