A-1627-83 
The Queen (Appellant) 
v. 
Paul E. Graham (Respondent) 
Court of Appeal, Urie, Mahoney and Marceau 
JJ.—Ottawa, March 21 and May 7, 1985. 
Income tax — Income calculation — Deductions — Farm
ing losses — Appeal from Trial Judge's conclusion taxpayer's 
main preoccupation farming — Taxpayer employed full time, 
but spending more time on hog operation than on job — 
Taxpayer investing salary, savings, borrowings and income 
from cash crops in farm — Reference to statement in Moldo-
wan v. The Queen, /19787 1 S.C.R. 480 that "whether source 
of income 'chief source' of income both relative and objective 
test" — Taxpayer entitled to deduct all farming losses and not 
restricted to $5,000 per year prescribed by s. 31 — Income 
Tax Act, S.C. 1970-71-72, c. 63, s. 31 (as am. by S.C. 
1973-74, c. 14, s. 7; 1979, c. 5, s. 9), 248(1) — Income War 
Tax Act, R.S.C. 1927, c. 97, s. 10 — The Income Tax Act, 
S.C. 1948, c. 52, s. 13. 
(See the Editor's Note for a summary of the fact situation.) 
The issue is whether the respondent was entitled to claim 
losses incurred in the carrying on of a farming operation, or 
whether the deductibility of such losses was to be restricted to 
$5,000 per year as prescribed by section 31 of the Income Tax 
Act. 
Held, the appeal should be dismissed. 
Per Urie J. (Mahoney J. concurring): The Trial Judge found 
that the respondent fell within category 1 of the three classes of 
farmers enumerated in Moldowan v. The Queen, [1978] 1 
S.C.R. 480, so that he was entitled to deduct his farming losses 
in their entirety from his two sources of income. In so doing, he 
did not proceed on a wrong principle nor err in his appreciation 
of the facts nor in his findings with respect thereto. The 
appellant submitted that farming could not provide a reason
able expectation of being a chief source of income. The submis
sion ignores what Dickson J. said about "chief source" of 
income in the Moldowan case, i.e., that the distinguishing 
features of "chief source" are the taxpayer's reasonable expec
tation of income from his various revenue sources and his 
ordinary mode and habit of work. The reasonable expectation 
of profit having been conceded, the next step is to consider the 
taxpayer's "ordinary mode and habit of work". These tests 
involve weighing the facts objectively and relatively. The Trial 
Judge was aware of the two-step process. He objectively 
assessed the evidence and the relative importance of the sources 
of income. He found that the cumulative effect of the unusual 
circumstances satisfied him that the main preoccupation of the 
respondent was farming, but he had income from a sideline 
employment. The appellate Court should not interfere with the 
Trial Judge's findings of fact unless they were unsupportable 
and the proper law was not applied. 
Per Marceau J. (dissenting): The appeal should be allowed. 
The meaning of section 31 is not fully clear and easily appli
cable. The three relevant facts are: (1) the respondent held a 
full-time job that he had held for many years, but he was also 
seriously involved in farming activities; (2) he intended to go 
slowly, but he was determined to build up a genuine and 
profitable operation; (3) he could not expect a profit from the 
operation as then developed, but even at full maturity and fully 
exploited, the operation his set-up permitted would not be 
capable of yielding a significant profit. 
Section 3 prescribes that a taxpayer's taxable income shall be 
his total income less the losses he may have sustained from all 
sources. A source of income remains a source of income 
notwithstanding that he may have suffered a loss therefrom. On 
the basis of the principle established by section 3, people 
involved in farming activities should come in two groups: those 
for whom farming is a hobby, who do not expect a profit and 
whose expenses are non-deductible "personal or living 
expenses", and those whose loss sustained in carrying on their 
farming activities would be deductible from their total income. 
Section 31 is a departure from the general rule of deductibility 
in the case of farm losses sustained by taxpayers for whom 
farming is a source of income, but not the only one. Those 
involved in farming for actual or eventual profit must be 
further divided into those for whom farming, or a combination 
of farming and some other source of income, is the "chief 
source of income". This second determination is difficult 
because the meaning of "chief source of income" and "combi-
nation" are unclear. In this case, the taxpayer cannot be 
regarded as having made farming his chief source of income. 
The comparison between several sources of income to deter
mine the chief source of income cannot omit their respective 
actual capacity to produce profit. For the determination to have 
a practical meaning, only expectations real and actual are 
relevant, not mere plans and long-term goals. These expecta
tions must be that the source will now provide at least part of 
the income the man may need for his own and his family's 
living needs. 
The definition of a class 1 farmer in the Moldowan case 
readily applies to a man for whom farming is "the centre of 
work routine" regardless of the income he may expect to derive 
therefrom. But a man who has a full-time job does not have 
farming as "the centre of work routine". The second part of the 
definition emphasizes that the farmer referred to is one who 
"looks to farming for his livelihood". Someone who holds a 
full-time job cannot reasonably "look to farming for his liveli
hood" until his operation is at least capable of yielding a profit. 
A man's "major preoccupation" does not refer simply to physi
cal activities, but to actual income earning activities. 
The concept that a man should not be disentitled to deduct 
the full impact of start-up costs, does not extend to a period of 
several years during which the taxpayer plans to build up 
slowly an operation that will finally yield a significant profit. 
CASES JUDICIALLY CONSIDERED 
APPLIED: 
Moldowan v. The Queen, [1978] 1 S.C.R. 480. 
REFERRED TO: 
Stein et al. v. "Kathy K" et al. (The Ship), [1976] 2 
S.C.R. 802; Lewis v. Todd and McClure, [1980] 2 S.C.R. 
694; Jaegli Enterprises Ltd. et al. v. Taylor et al., [1981] 
2 S.C.R. 2. 
COUNSEL: 
Wilfrid Lefebvre, Q.C. and Deen C. Olsen for 
appellant. 
William G. D. McCarthy for respondent. 
SOLICITORS: 
Deputy Attorney General of Canada for 
appellant. 
McCarthy & Phillips, Ottawa, for respon
dent. 
The following are the reasons for judgment 
rendered in English by 
URIE J.: The sole issue in this appeal from a 
judgment of Cattanach J. in the Trial Division 
[(1983), 83 DTC 5399] is whether the respondent 
was entitled to claim, in the computation of his 
taxable income for the taxation years 1977, 1978 
and 1979, losses incurred in the carrying out of a 
farming operation or whether the claim for the 
deductibility of such losses was to be restricted in 
each year to the sum of $5,000 as prescribed by 
section 31 of the Income Tax Act [S.C. 1970-71-
72, c. 63 (as am. by S.C. 1973-74, c. 14, s. 7; 1979, 
c. 5, s. 9)] ("the Act"). 
As it was argued, the resolution of this issue was 
dependent upon whether or not the respondent fell 
within category 1 of the three classes of farmers 
which Dickson J. (as he then was) envisaged under 
the Act in the judgment of the Supreme Court of 
Canada in Moldowan v. The Queen, [1978] 1 
S.C.R. 480, at pages 487-488, as the respondent 
urged, or under category 2 of such classes as 
counsel for the appellant submitted. The learned 
Trial Judge found that the respondent fell within 
category 1 so that he was entitled to deduct his 
farming losses in their entirety from the combina
tion of his two sources of income, namely, from his 
"major preoccupation", farming and his employ
ment, his "subsidiary interest". 
EDITOR'S NOTE 
This is the Editor's abridgment of Urie J.'s 
detailed review of the facts. 
The respondent, a farmer's son, was a full-time 
employee of Ontario Hydro. He was a stationary 
engineer. Having a dream of farming, he obtained 
a transfer to a generating station in a rural area. 
He purchased a farm and in 1975 began a hog 
operation. The respondent's routine was to work 
11 hours a day on his farm, 8 hours for the utility 
and to sleep for only 5 hours. Evidence was 
called at trial which demonstrated that the 
respondent was both a compulsive worker and a 
progressive farmer. The respondent had, in 
effect, two full-time occupations. 
At the relevant time, the respondent was earn
ing about $30,000 a year from Hydro. All of his 
money went into the farm. Over a five-year 
period, the respondent's annual losses from farm
ing ranged from a low of $5,418 in 1975 to a high 
of $12,702 in 1979. The appellant took the posi
tion that the respondent's chief source of income 
was neither farming nor a combination of farming 
and some other source of income. The assump
tion was made that the respondent was farming in 
his spare time. As noted by Cattanach J., this 
"spare time" was more than double the time 
which the respondent spent at his place of 
employment. 
Urie J. referred at length to the opinion of 
Dickson J. in Moldowan, stressing the point that 
whether "a source of income is a taxpayer's 
'chief source' of income is both a relative and 
objective test". It was not merely a quantum 
measurement. 
The Trial Judge found that the respondent had 
changed his occupational direction when he 
applied for a transfer to a rural area. He invested 
all his capital in the farm, worked hard and gener
ated a substantial cash flow which was not, how
ever, adequate to cover start-up expenses for 
machinery and land acquisition. The Trial Judge 
concluded that the respondent's main preoccupa
tion was farming and the Hydro employment a 
mere sideline. 
Ude J. held that the findings of fact made at 
trial were supported by the evidence and should 
not be disturbed. 
Did the learned Trial Judge err in law? In 
determining this aspect of the appeal, it should not 
be overlooked that counsel for the appellant 
conceded that the farming operations of the 
respondent constituted a "business" within the 
meaning of the Act and that he had a reasonable 
expectation of deriving a profit therefrom. How
ever, counsel said, despite this concession, in deter
mining whether or not section 31 should be applied 
it was necessary (employing the language of Dick-
son J. in Moldowan) to decide whether the source 
of income—farming—was a "chief source of 
income on a relative and objective" basis. In the 
appellant's submission, on that basis "although the 
farming activities of the Respondent were for him 
a way of life, they did not constitute a chief source 
of income" because of: 
(a) the absence of profit, 
(b) the comparison of employment income to farming losses, 
(c) the cash flow analysis over the years in issue, 
(d) the optimum capacity of the Respondent's operations, 
(e) the fact that the Respondent made no change in his 
occupational direction to demonstrate that farming provided 
his main expectation of income. 
In counsel's submission, although the respon
dent's preoccupation with farming was subjectively 
to him major, objectively speaking it could not 
provide him with a reasonable expectation of being 
a chief source of income either in the taxation 
years in question or in subsequent years. 
I do not agree, in part for the reasons given by 
the Trial Judge in disposing of the Minister's 
assumptions in making the assessments in issue. In 
addition, it seems to me that the submission 
ignores what Dickson J. had to say about "chief 
source of income" at page 486 of the Moldowan 
judgment, supra, which, for convenience sake, I 
repeat: 
The distinguishing features of "chief source" are the taxpayer's 
reasonable expectation of income from his various revenue 
sources and his ordinary mode and habit of work. These may be 
tested by considering, inter alia in relation to a source of 
income, the time spent, the capital committed, the profitability 
both actual and potential. A change in the taxpayer's mode and 
habit of work or reasonable expectations may signify a change 
in the chief source, but that is a question of fact in the 
circumstances. [Emphasis added.] 
It would thus appear that the reasonable expec
tation of profit from the farming operations having 
been conceded (and such a concession was a 
proper one having regard to the evidence objective
ly) the next step in the determination of the "chief 
source of income" is to consider the taxpayer's 
"ordinary mode and habit of work" employing 
tests of the kind suggested by Mr. Justice Dickson 
in the last two sentences of the quotation, supra. 
These, of course, involve a weighing of the facts 
objectively and relatively. It is abundantly clear 
from his reasons that Cattanach J. was well aware 
of the two-step process required for the determina
tion of "chief source" and that it involved his 
objective assessment of the evidence and the rela
tive importance of the sources of income. He did so 
with considerable care as is shown in the excerpts 
from his reasons for judgment at pages 5406 and 
following. He found that the cumulative effect of 
the rather unusual circumstances disclosed by the 
evidence in this case was to satisfy him that the 
main preoccupation of the respondent "is farming 
but he has income from a sideline employment". 
In so finding, he clearly applied principles enun
ciated by Dickson J. and, in so applying them to 
the evidence in this case, he neither proceeded on a 
wrong principle nor erred in his appreciation of the 
facts nor in his findings with respect thereto. In so 
saying it should not be overlooked that the Trial 
Judge had the inestimable advantage of hearing 
the witnesses, observing their demeanour and 
weighing their testimony having regard thereto. 
The task with which he was confronted here 
having been essentially a fact-finding one for the 
application of the appropriate law, an appellate 
Court should not interfere with it unless the find
ings of fact were unsupportable and the proper law 
was not applied.' I am of the opinion that the 
findings were amply supported by the evidence, 
there was no "palpable and overriding error" in 
the assessment thereof and the learned Judge did 
not err in the application of the proper law thereto. 
Accordingly, he correctly held that the respondent 
fell within category 1 of the three classes of farmer 
contemplated by subsection 31(1) of the Act and 
was thus entitled to deduct all of his farming losses 
in the computation of his taxable income in the 
taxation years in issue. I do not think that in the 
very unusual circumstances of this case his other 
source of income, namely, his employment at 
Ontario Hydro, precluded him from doing so. 
I would dismiss the appeal, therefore, with costs. 
MAHONEY J.: I concur. 
* * * 
The following are the reasons for judgment 
rendered in English by 
MARCEAU J. (dissenting): Section 31 of the 
Income Tax Act, which is concerned with the right 
of a taxpayer engaged in farming to deduct for tax 
' See: Stein et al. v. "Kathy K" et al. (The Ship), [1976] 2 
S.C.R. 802; Lewis v. Todd and McClure, [1980] 2 S.C.R. 694; 
Jaegli Enterprises Ltd. et al. v. Taylor et al., [1981] 2 
S.C.R. 2. 
purposes the farm losses he may sustain, has been 
a main feature of our income tax legislation for 
quite some time (it was formerly section 13 of the 
Income Tax Act, R.S.C. 1952, c. 148 as amend
ed). Its construction has given rise to much debate 
in the casebooks and many decisions in the case 
law. And finally, in 1978, it was the subject of a 
thorough analysis by Mr. Justice Dickson (as he 
then was), in the well-known case of Moldowan v. 
The Queen, [1978] 1 S.C.R. 480. One would have 
thought that, after such a long process, its exact 
meaning would have been fully clarified and its 
provision made easily applicable. Yet it is not so to 
me, since my understanding of the rule in the light 
of the decision of the Supreme Court does not lead 
me to the same result as my brothers Urie and 
Mahoney JJ. when applied to the clearly estab
lished facts of this case; accordingly, I feel obliged 
to respectfully dissociate myself from their conclu
sion that this appeal has no merit. Let it be 
emphasized that my disagreement is not due to a 
different perception of the facts. I may not give to 
each of the different aspects of those facts the 
same relative importance as that presupposed by 
the judgment a quo, but I accept all the basic 
findings of the Trial Judge. If I considered that 
this appeal raised a mere question of fact, I cer
tainly would not have felt obliged to register this 
dissent. My disagreement is essentially due, at 
least as I see it, to a different perception of the 
law, and this is why I feel compelled to express it. 
The facts are set forth in great detail in the 
reasons of the Trial Judge, and they are carefully 
reviewed by Mr. Justice Urie. A further complete 
account would of course serve no purpose. I need 
however to underline again the highlights of the 
evidence, from which a proper formulation of the 
issue, as I see it, can be drawn. 
During the years 1977, 1978 and 1979 the 
respondent was a full-time employee of Ontario 
Hydro. He had been with Ontario Hydro for 
nearly twenty years, and the first-class stationary 
engineer certificate he had acquired through train
ing and studies had allowed him to assume respon
sibilities that were both operational and manageri
al in nature. During those years 1977, 1978 and 
1979, the respondent was also involved in farming 
operations. Son of a farmer, he had always had the 
dream of returning to farming. In furtherance of 
that dream he had obtained from his employer, in 
1966, a transfer to a rural district, where two years 
later he purchased a property on which he could 
start and carry on the hog-producing operation he 
wished to undertake. The house and the barns on 
the property needed remodelling and he wanted to 
do the work himself; in addition some equipment 
had to be purchased, which he wanted to do only 
with the money he could save from his salary; so 
he had to delay his project but, in 1977, the 
operation was definitely on its feet. 
There may be some discussion about the exact 
amount of time the respondent was required to 
devote to his hog operation from the time it was 
started, but the evidence he gave remains to the 
effect that, in the crop season during which he 
could be relieved from his duties at Ontario 
Hydro, he spent most of his time at farming; the 
rest of the year, in spite of his regular work on a 
three eight-hour rotational shift at Ontario Hydro, 
he managed to spend considerable amount of his 
time at it in the early morning and at night. The 
seriousness and good faith of the respondent in his 
resolve, to build up a genuine and sound operation, 
his dedication and efficiency as a farmer and his 
exceptional capacity to work are, on the evidence, 
simply beyond doubt. 
During the years 1977, 1978 and 1979, the 
respondent incurred losses in carrying out his 
farming operation much in excess of $5,000, since 
they were in the amounts of $10,727, $10,017 and 
$12,702 respectively. The exact figures are, of 
course, of no particular importance, but it is, in my 
opinion, absolutely fundamental to bear in mind 
that, on the evidence, those losses were totally 
unavoidable. It was indeed established: a) that the 
respondent's livestock at January 1 of each of the 
three relevant years was 13, 18 and 28 sows and 
the maximum he ever had was 31 (page 57 of the 
transcript); b) that the ultimate capacity of his 
barns during the whole period was 40 sows and the 
barns could not be expanded; c) that even brought 
up to its full potential, his operation in those years 
would have been unable to yield any significant 
profit, he himself acknowledging that a 40-sow 
operation is "probably not" even viable (page 146 
of the transcript). The learned Trial Judge, in the 
course of his reasons, after having spoken of a 
peak of 39 sows reached by the plaintiff, went on 
to say (at page 5403): 
That number and those he owned previously did not support 
the standard of living that the plaintiff wished to provide for his 
family. To reach that standard he considered it expedient to 
continue in his employment at Ontario Hydro having reached 
the capacity of 40 sows on the home place expropriated in 1982 
and to achieve the objective of 64 sows on the new farm. 
At the time of trial in September 1983, the 
respondent was installed on a new location with 
much greater capacity than the one he had initial
ly which had been expropriated in 1982, and I 
suppose the learned Judge's observation was meant 
to describe the intention of the respondent on a 
long-term basis and for a period of his life extend
ing way beyond 1979. As applied to the relevant 
years 1977, 1978 and 1979, the observation would 
definitely be misleading. As I appreciate the evi
dence, during that period, the respondent could, in 
no way, expect any profit from his operation. 
A summary of these three paragraphs in which I 
have restated the facts focuses on, in my view, the 
three components of the factual situation that will 
have to be applied to the law. During the years in 
question, the respondent was still holding the full-
time job he had been holding for many years at 
Ontario Hydro but he had also become seriously 
involved in farming activities. His intention was to 
go slowly, but with his capacity and his experience 
he was determined to build up, over the years, a 
genuine and profitable operation. However, in 
those years, not only could he not expect a profit 
from the operation as then developed, but, even at 
full maturity and fully exploited, the operation his 
set-up permitted was not capable of yielding any 
significant profit. 
I turn now to the law. 
Section 31 of the Act (on which the Deputy 
Minister had based the assessment set aside by the 
judgment under appeal) is clear enough as to its 
purpose and general meaning. It provides that in 
certain circumstances a taxpayer engaged in the 
business of farming will not be allowed to deduct, 
in the computation of his taxable income for a 
year, the whole of the farming loss that he may 
have incurred during that year. He will then be 
entitled to deduct a maximum of $5,000 and his 
only possibility with respect to the portion of the 
loss not absorbed will be to carry it back one year 
and forward five years for it to be deducted from 
his farming income during those years. The prob
lem with the section is to see clearly how it fits into 
the scheme of the legislation and to understand in 
what circumstances it was meant to be applicable, 
the words used therein being simply: 
31. (1) Where a taxpayer's chief source of income for a 
taxation year is neither farming nor a combination of farming 
and some other source of income, for the purposes of sections 3 
and Ill his loss, if any, for the year from all farming businesses 
carried on by him shall be deemed to be ... 
It should here be recalled that the law respect
ing the right of a taxpayer, in computing his 
taxable income for a year, to deduct the losses he 
may have sustained during the year was complete
ly changed in 1952. Prior to 1952, to be deduct
ible, the losses had to be directly related to or 
"connected with" what was referred to until 1948 
as the taxpayer's "chief position, occupation, 
trade, business or calling" [Income War Tax Act, 
R.S.C. 1927, c. 97, s. 10], and after 1948, as the 
taxpayer's "chief source of income" [The Income 
Tax Act, S.C. 1948, c. 52, s. 13]. Since 1952, the 
deductibility of losses is subject to no such general 
condition. Section 3 of the Act now prescribes that 
the income of the taxpayer shall be his total 
income from all sources, whether business, 
employment, property or other, and his taxable 
income shall be this total income less the losses he 
may have sustained from all his sources. It obvi
ously follows from this that, in the scheme of the 
Act as it is today, a source of income remains for a 
taxpayer a source of income jn spite of the fact 
that he may have sustained a loss therefrom during 
a year. So, if farming is a taxpayer's source of 
income, the losses he may sustain from farming 
should normally be fully and unconditionally 
deductible. And farming obviously will be a source 
of income for a taxpayer if it is for him a business 
so as to make it impossible to categorize the 
expenses he may incur in doing it as non-deduct
ible "personal or living expenses" within the mean
ing given to that expression in the light of the 
interpretation subsection 248(1) of the Act which 
reads in part: 
248.(1)... 
"personal or living expenses" includes 
(a) the expenses of properties maintained by any person for 
the use or benefit of the taxpayer or any person connected 
with the taxpayer by blood relationship, marriage or adop
tion, and not maintained in connection with a business 
carried on for profit or with a reasonable expectation of 
profit, 
On the basis of the principle established by section 
3 of the Act, therefore, people involved in farming 
activities should normally come into two groups 
only: those for whom farming is not a business but 
a hobby, who do not expect profit from their 
farming activities and whose expenses in farming 
must simply be treated as non-deductible "person-
al or living expenses" and the others whose loss 
sustained in carrying on their farming activities 
would be deductible from their total income as any 
other business loss. Section 31 is obviously aimed 
at departing somewhat from the general rule of 
deductibility in the case of farm losses sustained 
by taxpayers for whom farming is a source of 
income, but not the only one. The group of "real 
farmers", that is to say those involved in farming 
not for leisure but for actual or eventual profit, 
will have to be further divided into those for whom 
farming or a combination of farming and some 
other source of income is the "chief source of 
income" and those for whom it is not. 
So, two successive determinations are required 
to know whether the farm losses of a taxpayer will 
be non-deductible, partially deductible or fully 
deductible against other sources of income. With 
reference to the first determination, based on the 
notions of business and expectation of profit, Mr. 
Justice Dickson, in the Moldowan case, supra, had 
this to say (at pages 485 and 486): 
There is a vast case literature on what reasonable expectation 
of profit means and it is by no means entirely consistent. In my 
view, whether a taxpayer has a reasonable expectation of profit 
is an objective determination to be made from all of the facts. 
The following criteria should be considered: the profit and loss 
experience in past years, the taxpayer's training, the taxpayer's 
intended course of action, the capability of the venture as 
capitalized to show a profit after charging capital cost allow
ance. The list is not intended to be exhaustive. 
A determination that requires the consideration of 
so many factors is bound to be difficult at times 
but it remains, it seems to me, a basic one having 
to be made in relation to two quite disparate 
groups, that is to say those who farm as a pastime 
and for their leisure and those who do it seriously 
with a view to gain from it a profit. The character
istics of the two groups are so distinct that the role 
of each factor in the determination will be simpli
fied. For instance, the plan followed by an 
individual in building up a farming operation, 
including the length of time he gives himself to 
fulfill his expectation of profit, can have no bear
ing in determining in which group he belongs 
unless the plan is formulated in such a way as to 
doubt his statement that he is not farming as a 
hobby or a pastime. I do not suppose anyone 
apprised of the facts would have any difficulty in 
our case to realize that the respondent was certain
ly not farming as a hobby. It is obviously the 
second determination required by section 31 that 
raises the real problem, not so much because it 
concerns a further division, but for the obvious 
enough reason that the criteria given by Parlia
ment is ill defined. What makes a source of income 
the chief one among the several that a taxpayer 
may have and what meaning is to be given to the 
word "combination"? 
In addressing these two questions in the Moldo-
wan case, supra, Mr. Justice Dickson opens his 
remarks thus (at page 486): 
Whether a source of income is a taxpayer's "chief source" of 
income is both a relative and objective test. It is decidedly not a 
pure quantum measurement. A man who has farmed all of his 
life does not cease to have his chief source of income from 
farming because he unexpectedly wins a lottery. The distin
guishing features of "chief source" are the taxpayer's reason
able expectation of income from his various revenue sources 
and his ordinary mode and habit of work. These may be tested 
by considering, inter alia in relation to a source of income, the 
time spent, the capital committed, the profitability both actual 
and potential. A change in the taxpayer's mode and habit of 
work or reasonable expectations may signify a change in the 
chief source, but that is a question of fact in the circumstances. 
And at page 487, after having made reference to 
the law as it was framed under the Income War 
Tax Act of 1917, he went on as follows: 
The word "connected" is not found in s. 13 of the present Act. 
As Thorson P. said, obiter, in Simpson v. Minister of National 
Revenue [[1961] C.T.C. 174] there is no reason why there 
must be such a limitation. I share this view. See also Dorfman 
v. Minister of National Revenue, supra, at p. 154 and Bert 
James v. Minister of National Revenue [[1973] C.T.C. 457], 
at p. 464. 
It is clear that "combination" in s. 13 cannot mean simple 
addition of two sources of income for any taxpayer. That would 
lead to the result that a taxpayer could combine his farming 
loss with his most important other source of income, thereby 
constituting his chief source. I do not think s. 13(1) can be 
properly so construed. Such a construction would mean that the 
limitation of the section would never apply and, in every case, 
the taxpayer could deduct the full amount of farming losses. 
But exactly what constituted a "chief source" and 
what was meant by the word "combination" 
remained to be clarified. It is at this point that the 
learned Chief Justice gave his definition of the 
three classes of farmers envisaged by the Income 
Tax Act as a whole, namely (at pages 487 and 
488): 
(1) a taxpayer, for whom farming may reasonably be expect
ed to provide the bulk of income or the centre of work routine. 
Such a taxpayer, who looks to farming for his livelihood, is free 
of the limitation of s. 13(1) in those years in which he sustains 
a farming loss. 
(2) the taxpayer who does not look to farming, or to farming 
and some subordinate source of income, for his livelihood but 
carries on farming as a sideline business. Such a taxpayer is 
entitled to the deductions spelled out in s. 13(1) in respect of 
farming losses. 
(3) the taxpayer who does not look to farming, or to farming 
and some subordinate source of income, for his livelihood and 
who carries on some farming activities as a hobby. The losses 
sustained by such a taxpayer on his non-business farming are 
not deductible in any amount. 
And then he wrote: 
The reference in s. 13(1) to a taxpayer whose source of 
income is a combination of farming and some other source of 
income is a reference to class (1). It contemplates a man whose 
major preoccupation is farming. But it recognize [sic] that such 
a man may have other pecuniary interests as well, such as 
income from investments, or income from a sideline employ
ment or business. The section provides that these subsidiary 
interests will not place the taxpayer in class (2) and thereby 
limit the deductibility of any loss which may be suffered to 
$5,000. While a quantum measurement of farming income is 
relevant, it is not alone decisive. The test is again both relative 
and objective, and one may employ the criteria indicative of 
"chief source" to distinguish whether or not the interest is 
auxiliary. A man who has farmed all of his life does not become 
disentitled to class (1) classification simply because he comes 
into an inheritance. On the other hand, a man who changes 
occupational direction and commits his energies and capital to 
farming as a main expectation of income is not disentitled to 
deduct the full impact of start-up costs. 
The case at bar involves a man whose ability 
and dedication as a farmer is special and, in that 
sense, it is an extraordinary case, but nevertheless 
it presents a pattern that is certainly not unique 
and the question it poses goes beyond its particular 
facts. I think counsel for the appellant could right
ly present the case as a test case. The general 
question raised is the following. Can a full-time 
employee who starts a farming operation without 
leaving his employment be regarded as having 
made farming his chief source of income, within 
the meaning of section 31 of the Act, before he 
even puts himself in a situation where he can 
develop an operation that can yield a profit? As I 
read the reasons in the Moldowan case and under
stand, through them, the intention of the statute, it 
seems to me that the answer to the question simply 
cannot be otherwise than in the negative. 
I took care to note previously that the determi
nation that a man is farming not only as a hobby 
but as a business ought not to be really influenced 
by the actual profitability of his farming activities, 
the length of time the operation he is building up 
may require to reach a certain maturity and the 
remoteness of his expectation of real profit. But I 
simply fail to see how the comparison between a 
man's several sources of income for the purpose of 
determining which is the chief one amongst them 
could leave aside, to the same extent, their respec
tive actual capacity to produce profit. Of course, 
the expectations of the man are involved but for 
the determination to have a certain practical 
meaning only expectations real and actual are 
relevant not mere plans and long-term goals. These 
expectations must be that the source will provide, 
not in the far future but now, at least part of the 
income the man may need for his own and his 
family's living needs. 
It is true that the definition given by Mr. Justice 
Dickson of a first class farmer, in the Moldowan 
case, supra, would readily apply to a man for 
whom farming is "the centre of work routine"— 
regardless of the income he may expect to derive 
therefrom. Of course, the definition had to cover 
the case of a man who is dedicated totally to 
farming, it being his only source of income or his 
sole on-going income-earning activity. But I do not 
think that a man who has a full-time job can be 
seen as having nevertheless farming as "the centre 
of work routine" within the meaning given to those 
words in the definition. Besides, in the second part 
of his definition, Mr. Justice Dickson emphasizes 
that the farmer referred to is one that "looks to 
farming for his livelihood" and I fail to see how a 
man who, while holding a full-time job, starts and 
carries on a farming operation can reasonably 
"look to farming for his livelihood" until his opera
tion is at least capable of yielding a profit. It is 
also true that Mr. Justice Dickson refers to a 
"man's major preoccupation" but in the context in 
which it is used the phrase does not appear to me 
to refer simply to physical activities (in which case, 
in any event, it would be doubtful that a man can 
be said to have a major preoccupation other than 
his full-time job), but to actual income earning 
activities. Otherwise, it would simply mean a 
return to the old abandoned concept of the Income 
Tax War Act, that of the "chief occupation". 
Finally, I am not oblivious of Mr. Justice Dick- 
son's last observation to the effect that a man 
should not be disentitled to deduct the full impact 
of start-up costs. But, I do not think that the 
concept of start-up expenses can be extended to a 
period reaching over several years during which 
the taxpayer plans to build up slowly, through 
gradual development, expansion and acquisition, 
an operation that will finally yield a significant 
profit. 
The limit placed by section 31 on the deductibil-
ity of farming losses is extremely difficult to 
explain as it is obviously meant to apply not only 
to "hobby farmers", who in any event would have 
difficulty in establishing that farming is for them a 
source of income, but also and even primarily to 
some serious and dedicated farmers engaged in 
farming as a business. Of course one must assume 
that the goal is to prevent abuses which in this 
area could be more difficult to detect. But it 
remains that no such limit appears to have been 
placed on the deductibility of any other type of 
business losses. The view I take of the nature and 
scope of the limit is all the more dissatisfying to 
me and I wish I would not have felt bound to adopt 
it. Unfortunately, my understanding of the mean
ing of the words used in the section does not allow 
me to support the finding of the Trial Judge that 
the provision is not applicable in this case. 
I would therefor grant the appeal, quash the 
judgment of the Trial Division and restore the 
reassessments of the Minister. 
 You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.