Roseland Farms Ltd. v. Canada
T-452-86
Sharlow J.
4/10/99
15 pp.
Appeal from Tax Court of Canada decision ((1985), 86 DTC 1086) dismissing plaintiff's appeal from reassessment by Revenue Canada-In 1980, plaintiff sold farm property resulting in gain of $420,630-Treated gain as capital-In 1982, Revenue Canada reassessed on basis gain taxable in full as income, increasing plaintiff's 1980 income by $310,315-Plaintiff's income increased by further $12,455, value of grain inventory at end of 1980 sold in 1981-Appeal by trial de novo-Two issues: (1) whether gain on sale of farm land income or capital gain; (2) tax treatment of value of plaintiff's closing 1980 grain inventory-Shareholders not directors of plaintiff-In April 1976, plaintiff purchased 634 acres of farmland for $220,000-Funds provided by shareholder loans-In June 1977, plaintiff purchased further 2201 acres of farmland for $1,100,000-Funds again provided by loans from shareholders-Property used for farming throughout period of plaintiff's ownership-In November 1980, all of farm land sold for $1,826,241-Fact that property produced rental income prior to sale, at time of sale showing efforts undertaken to ensure property would retain value as farm property-Revenue Canada making factual assumption one of motivating factors inducing plaintiff to purchase property possibility of reselling it at profit-Crown raising question of "secondary intention"-Onus on plaintiff to adduce evidence to contradict Crown's factual assumption prospect of reselling land at profit operating motivation for purchase-No evidence contradicting Crown's factual assumption prospect of resale of property at profit operating motivation for purchase-No evidence factual assumption true-Assessment based on factual assumption Crown cannot prove will stand if taxpayer cannot adduce evidence that contradicts assumption-Assessment of gain on sale of property as income must stand-As to closing 1980 grain inventory, evidence of plaintiff's director rebutted Crown's factual assumption on question of plaintiff's accounting method for years prior to 1980-Plaintiff elected in those years to compute income on cash basis under Income Tax Act, s. 28(1)-Grain that comprised plaintiff's 1980 closing grain inventory product of farm-Sale of grain integral part of farming business-Plaintiff entitled to continue to use cash method of accounting in 1980, correct in excluding from 1980 income value of 1980 closing inventory-Reassessment under appeal wrong in respect of that item-Appeal allowed in part-Income Tax Act, S.C. 197071-72, c. 63, s. 28(1) (as am. by S.C. 1973-74, c. 14, s. 6).