Executive Summary: Key Legal and Evidentiary Issues

• Interpretation of the amended farming loss restriction rule under section 31 of the Income Tax Act.

• Determination of whether the appellant’s chief source of income was a combination of farming and another source, or if farming was a subordinate source.

• Evaluation of the appellant’s time, capital, and effort invested in both farming and her medical practice.

• Assessment of the significance of actual and potential profitability for each source of income.

• Consideration of the legislative intent behind the 2013 amendment to the farming loss restriction rule.

• Analysis of whether the farming loss restriction rule applied to the appellant’s circumstances for the 2014 and 2015 tax years.

Facts and outcome of the case

Background and parties

Dianne L. Stackhouse, the appellant, is both a physician and a farmer. For many years, she operated a farming business while practicing medicine full-time. She consistently incurred losses in her farming business and deducted those losses from her medical practice income. The Minister of National Revenue assessed her 2014 and 2015 tax years, limiting her ability to deduct farming losses to $17,500 per year under the amended farming loss restriction rule in section 31 of the Income Tax Act. Stackhouse objected to these assessments, arguing that her chief source of income was a combination of farming and her medical practice, and that the restriction should not apply.

Legal issues and court analysis

The central legal issue was the interpretation of the amended section 31, which restricts the deduction of farming losses unless farming, alone or in combination with a subordinate source, is the taxpayer’s chief source of income. The court examined whether Stackhouse’s farming business or her medical practice was the subordinate source. The court considered factors such as time spent, capital invested, income generated, and the appellant’s ordinary work routine. Despite Stackhouse’s significant investment of time and capital in her farm, the court found that her medical practice was the predominant source of income, as it provided her primary livelihood and funded her farming activities.

Outcome of the appeal

The court concluded that Stackhouse’s farming business was subordinate to her medical practice. As a result, the farming loss restriction rule applied, and she was limited in the amount of farming losses she could deduct in the relevant tax years. The appeal was dismissed, and costs were awarded to the respondent, His Majesty the King. The specific amount of costs was not detailed in the decision.