New Brunswick physician loses tax battle over beef farm
A New Brunswick doctor and farmer who tried to deduct more than a million dollars in farm losses from her substantial income as a physician has lost her case at the Federal Court of Appeal.
Dr. Dianne L. Stackhouse declared her net professional income from her medical practice was $851,621 in 2014 and $697,050 the following year. Her beef farm in Cambridge Narrows, N.B., launched in 1994, had losses of $530,363 in 2014 and $595,904 in 2015.
“The appellant, Dianne Stackhouse, is a physician. She is also a farmer. However, the appellant has consistently incurred losses in her farming business and deducted them against the income from her medical practice,” Justice K.A. Siobhan Monaghan wrote in a recent decision from the three-judge panel.
But the minister of national revenue determined she could only deduct $17,500 of her farming losses in 2014 and 2015, due to changes in the farming loss restriction rule made in 2013, which limit the deductible portion of a taxpayer’s farming loss unless their chief source of income is farming, or a combination of farming and some other source.
Stackhouse, whose grass-fed beef farm is dubbed Angus Arabian Devon East, appealed that decision to the Tax Court of Canada. She lost when it concluded that farming was her “subordinate source of income.”
She just lost again on appeal.
“The appellant suggests that in determining which of the two sources is subordinate, priority should be given to time, attention (energy) and capital invested, and not actual or potential profitability. She says this approach is much more consistent with the farming loss restriction rule applying only to taxpayers who are not fully dedicated to farming. I cannot agree,” Monaghan said in the decision, dated Sept. 26.
The appeal court saw “nothing in the text, context or purpose (of the rule) that supports such an approach,” Monaghan said.
Depending on the context, some of the factors Stackhouse “prioritizes may favour farming while one or more of the other favours the other source, or are neutral,” said the decision.
“For example, farming tends to be a capital-intensive activity, so one would invariably expect capital invested to favour farming,” Monaghan said. “This could lead to capital invested being determinative. I see no basis for that.”
For more than 70 years, the Income Tax Act has restricted the deduction of farming losses, Monaghan said.
“Although the details have changed from time to time, one feature has not changed—a taxpayer with a farming loss may deduct it against income from other sources without restriction only where farming, either alone or in combination with another source of income, is the taxpayer’s chief source of income.”
Stackhouse’s farm reported revenues of $176,433 in 2014 and $31,128 the following year. She attempted to offset the taxes she paid on her physician’s income with a total of $1,126,267 in farm losses from those two years.
Stackhouse argued the Tax Court made a mistake when it applied a reasonable expectation of profit test to her farm.
“Again, I disagree,” Monaghan said.
The Tax Court didn’t impose that requirement on the doctor, said the judge.
But at the same time, the Tax Court said a farm’s income-producing history and the potential of the business can’t be ignored, according to Monaghan’s decision.
“While the Tax Court accepted that the appellant expected higher revenues from farming in the future, ‘the objective facts’ indicated that ‘substantial expenditures’ were ‘needed to bring any such expectations to fruition.’ The appellant provided ‘no objective evidence that as of 2015 the farm would become a self-sustaining business in the foreseeable future notwithstanding (her) best efforts.”
Stackhouse argued the Tax Court “made a palpable and overriding error in concluding that farming was subordinate to her medical practice.”
But the appeal court judges weren’t buying it; they dismissed her case.
The Tax Court considered the evidence, including Stackhouse’s “ordinary mode of living, farming history, and expectations,” said Monaghan.
“Having done so, it concluded that farming was subordinate to the appellant’s medical practice. I see no grounds for interfering with that conclusion of mixed fact and law.”
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