Court File No. 34144

IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE FEDERAL COURT OF APPEAL)

BETWEEN: HER MAJESTY THE QUEEN Appellant (Appellant)

-and-

JOHN H. CRAIG Respondent (Respondent)

FACTUM OF THE RESPONDENT ON APPEAL Pursuant to Rule 42 of the Rules oft!te Supreme Court of Canada, SOR/2011-74

Counsel for the Respondent, Agents for the Respondent, GOODMANS LLP NELLIGAN O'BRIEN PAYNE LLP Barristers & Solicitors 50 O'Connor 333 Bay Street, Suite 3400 Suite 1500 Toronto, ON M5H 2S7 Ottawa, Ontario KIP 6L2 Glenn Ernst Dougald E. Brown Sandon Shogilev Marisa Wyse Telephone: (613) 238-8080 Telephone: ( 416) 979-2211 Facsimile: (613) 238-2098 Facsimile: (416) 979-1234 Email: [email protected] Email: [email protected] Email: [email protected] Email: [email protected]

Counsel for the Appellant, Agent for the Appellant, Myles J. Kirvan Depat1ment of Justice DEPUTY ATTORNEY GENERAL OF CANADA Bank of Canada Building Depat1ment of Justice East Tower Bank of Canada Building Room 1216 East Tower, 9111 Floor 234 Wellington Street 234 Wellington Street Ottawa, ON K 1A OH8 Ottawa, ON KIA OH8 Simon Fothergill Christopher Rupar Daniel Bourgeois Susan Shaughnessy Telephone: ( 613) 946-23 51 Telephone: (613) 957-4840 I (613) 941-2278 Facsimile: (613) 954-1920 Facsimile: (613) 941-2293 Email: [email protected] Email: [email protected] Email: [email protected] Email: [email protected] TABLE OF CONTENTS

PART I- OVERVIEW AND STATEMENT OF FACTS ...... I A. OVERVIEW ...... 1 B. STATEMENTOFFACTS ...... 3 Mr. Craig's Activities...... 4 Taxation ofMr. Craig ...... 8 The Decisions Below ...... 8 PART II- QUESTIONS IN ISSUE ...... 10 PART III- ARGUMENT ...... ll A. CORRECT FORMULATION OF THE COMBINATION TEST ...... 11 Section 31 ofthe Act ...... 11 Three Classes ofFarmers ...... 12 Factors in Determining Chief Source ...... 13 The l'vfoldowan Combination Forrnulation ...... 14 The Gunn Formulation ...... 16 Text and Context o.f Section 31 ...... 18 Rewriting or "Reading in" is Inappropriate ...... 20 Residual Presumption ...... 22 Difficulties with the Moldowan Formulation ...... 22 Overturning Precedent of this Court ...... 23 Craig and Gunn Promote Certainty ...... 25 The Gunn Formulation has been Satisfied...... 27 The Moldowan Formulation has also been Satisfied...... 28 B. STARE DECISIS ...... 29 Craig ...... 29 Gunn ...... 31 PART IV- COSTS ...... 33 PART V - ORDER SOUGHT ...... 33 PART VI- TABLE OF AUTHORITIES ...... 34 PART VII- STATUTES RELIED ON ...... 36 - 1 -

PART I- OVERVIEW AND STATEMENT OF FACTS

A. Overview

1. Mr. Craig carries on a horseracing business. 1 He has invested significant time and capital in the business. He also pays a trainer who spends significant time and expends significant effort in the business. He has enjoyed some profitable years in the business. At trial, Hershfield J. found with respect to Mr. Craig's horseracing business that Mr. Craig was a "committed, viable commercial player in a genuine economic sector". 2

2. Mr. Craig also carries on the practice of law and earns substantial income from it. As Mr. Craig is defined to be a farmer for the purposes of the Income Tax Act (Canada) (the "Act"),3 section 31 of the Act potentially restricts Mr. Craig's ability to deduct losses arising from his horseracing business from his other income. Only a taxpayer who is in the business of fanning is subject to the restricted deductibility of losses set out in section 31. If Mr. Craig had chosen to devote his time, effort and capital pursuing any other business in addition to his law practice - such as stamp collecting, or owning a restaurant or a sports team he could deduct his losses from that business from his income from his law practice. There is no well established policy basis for the different treatment of farmers from taxpayers who carry on any other business.

3. Section 31 restricts a taxpayer's ability to deduct in full losses from his or her farming business against his or her other income unless his or her "chief source of income is farming, or a combination of farming and some other source of income". The issue in this appeal is how to determine when a combination of farming and some other source of income is a taxpayer's chief source of income for the purposes of section 31.

4. In 1977, this Court stated in Moldowan v R,4 a decision under the similarly, but not identically, worded section 13 of the pre-1972 Act, 5 that a combination of farming and some

The Appellant does not dispute that Mr. Craig's horseracing business is a source of income to him. 2 Reasons for Judgment of the Tax Comi of Canada ("Tax Court Reasons"), Appellant's Record, Vol I, Tab 2 at 28, para 72. Income Tax Act, R.S.C. 1985, c. 1 (5 111 Supp.). All section references herein are to the Act. 4 Moldowan v R, [1978] 1 SCR 480, 77 DTC 5213 [Appellant's Authorities, Tab 14]. Income Tax Act, R.S.C. 1952, c. 148, s. 13. - 2 - other source of income was a taxpayer's chief source of income for purposes of section 13 only when farming was the predominant part of the combination.

5. In several more recent decisions, this Court has provided guidance on, and clarified, the proper approach to the interpretation of the Act. These decisions cast doubt on the soundness of the interpretive approach taken in Moldowan.

6. In Gunn v Her Majesty the Queen, 6 Sharlow J.A. applied the more recent pronouncements of this Comi on the interpretation of the Act to the interpretation of section 31 and concluded that the combination test is satisfied when a taxpayer's farming business has a profit potential and the taxpayer has invested a significant amount of time and capital into the business; farming did not have to be the predominant part of the combination.

7. This Court must, therefore, having regard to the interpretation of section 31 in Moldowan and the principles of statutory interpretation stated by this Court after Moldowan, resolve the issue of whether the Gunn formulation or the Moldowan formulation should be applied to determine whether a taxpayer's chief source of income is farming and some other source.

8. The Respondent's position is that the Gunn fonnulation should be adopted as it is the formulation that is consistent with the modern approach to the interpretation of the provisions of the Act. In Gunn, Sharlow J.A. interpreted section 31 in the textual, contextual and purposive manner mandated by this Court. Sharlow J.A. also followed modern interpretation principles by avoiding the adoption of unexpressed notions of policy and principle in the guise of purposive interpretation. Using these well settled principles of statutory interpretation, Sharlow J.A. set out a combination formulation that best coheres with the language of the section, avoids an interpretation that makes the combination test redundant, and produces results that are not arbitrary and unfair.

9. At trial, Hershfield J., for the Tax Court of Canada, applied the interpretation of the combination test set out in Gunn and held that Mr. Craig's chief source of income was a combination of farming and his law practice. Hershfield J. also held that the facts in Craig could not be meaningfully distinguished from the facts in Gunn. Therefore, as the Federal Comi of

Gunn v Her Majesty the Queen, 2006 FCA 281, [2007] 3 FCR 57 [Appellant's Authorities, Tab 8]. - 3 -

Appeal held that Mr. Gunn satisfied the Moldowan test, Mr. Craig also satisfied the Moldowan test.

10. The Federal Court of Appeal unanimously held that Hershfield J. used the correct legal test in his interpretation of section 31 and that he made no palpable and overriding error in concluding that, under the Gunn test, Mr. Craig's chief source of income was a combination of farming and some other source of income. The Federal Court of Appeal made no finding that Hershfield J. made a palpable and overriding error in holding that Mr. Craig also satisfied the Moldowan test. Therefore, regardless of whether this Court adopts the Gunn formulation for the combination question or maintains the Moldowan formulation, this appeal should be dismissed.

11. There is a second aspect to this appeal, concerning stare decisis. The Appellant argues that the doctrine of stare decisis should have compelled the Federal Comi of Appeal, both in Craig and in Gunn, to follow this Comi's decision in Moldowan. The Respondent's position is that the Federal Court of Appeal did not violate stare decisis in its decisions in Craig or in Gunn. In Craig, the Federal Comi of Appeal followed its well established rule that, in the interests of jurisprudential stability and certainty in law, it is normally bound by its previous decisions. This rule is discussed fully by Evans J.A. in the court below. His reasons for following the rule are logical and compelling. In fact, greater uncertainty in the law would have been created had Evans J.A. followed Moldowan and not Gunn.

12. Sharlow J.A.'s decision in Gunn does not offend any principle of stare decisis. Sharlow J.A. did not refuse to follow Moldowan without authority provided by this Court. Instead, Sharlow J.A. considered, addressed and reconciled the precedential decisions of this Court that were binding upon her, including both Moldowan and the subsequent decisions on statutory interpretation. Sharlow J.A. properly gave effect to the most recent guidance of this Comi provided in its decisions setting out the modern approach to statutory interpretation.

13. Accordingly, this appeal should be dismissed with costs to the Respondent.

B. Statement of Facts

14. The relevant facts in this appeal are as follows. The Appellant has not taken issue with any of these findings made by Hershfield J. in the Tax Comi of Canada. - 4 -

Mr. Craig's Activities

15. For over twenty five years, Mr. Craig has been actively involved in a farming business, namely standardbred horse ownership and racing, which included the buying and selling of standardbred horses. 7 It was not contested by the Appellant that Mr. Craig's horseracing business was a business for the purposes of section 31. 8 Although Mr. Craig did not have a background in horseracing prior to his entry into the horseracing business, Hershfield J. was satisfied by Mr. Craig's testimony that by 2000 he played a very active role in the business.9

16. The evidence established that Mr. Craig paid a trainer to undertake the day-to-day activities of his horseracing business. 10 While the trainer had responsibility for the training and maintenance of the horses, he only made recommendations on other aspects of the operation. Mr. Craig made the final decision on which horses to buy or sell, which horses to rest, which horses to race in one category or another and at which track particular horses will race. II

17. Mr. Craig was also responsible for all business matters relating to his horseracing 2 business: he maintained records for annual tax returns and for filing quarterly GST returns; I he monitored the profitability of the horses as compared to others; and he paid the required fees for entry into stakes races.

18. The time spent on Mr. Craig's horseracing business included weekly visits to the track to observe training, daily update calls with his trainer on all aspects of the business including training progress, lameness issues and racing strategies, regular meetings with the veterinarians, regular monitoring of race results, attendance at the track to watch his and other horses that he is interested in race, preparation for and attendance at horse sales and attendance at appeal board

7 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 7, para 6(j). Transcripts of evidence submitted by the Tax Court of Canada ("Transcripts"), Appellant's Record, Vol II, Tab 9 at 5, lines 2-5. Tax Comt Reasons, Appellant's Record, Vol I, Tab 2 at 21, para 42. 9 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 12, para 7. 10 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 7, para 6(k). Transcripts, Appellant's Record, Vol II, Tab 9 at 24, lines 14-25. The trainer owns an interest in some of the horses included in Mr. Craig's horseracing business. Transcripts, Appellant's Record, Vol II, Tab 9 at 9, lines 9-15. II Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 12, para 7. Transcripts, Appellant's Record, Vol II, Tab 9 at 24, lines 20-25. 12 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 9, para 6(n). Transcripts, Appellant's Record, Vol II, Tab 9 at 18, line 21, 44, line 25, 45, lines 1-21. - 5 - hearings. 13 Hershfield J. found that Mr. Craig's mornmgs, evenings and weekends were consumed by a dedication to enhancing the potential profitability of the business. 14

19. In addition, Mr. Craig was Chair of the Standardbred Appeal Board and a founding member of the Standardbred Horse Owners Panel, a group dedicated to freeing the industry of drug use that has haunted the horseracing world and has impacted the success of clean operations such as his. 15 Hershfield J. found that Mr. Craig was an active member of and contributor to the community of standardbred horseracing. 16

20. The Court found that Mr. Craig spent the vast majority of his working time on a combination of his law practice and his horseracing business. Mr. Craig spent between 900 to 1,300 hours per year in his law practice 17 and at least 600 hours a year on his horseracing business. 18 Hershfield J. was satisfied that Mr. Craig's devotion to his horseracing business over the years had contributed to knowledge and experience that support a finding that he is more than a simple investor who contracted out operations. 19 Hershfield J. was satisfied that Mr. Craig had, by the years in question, become experienced in all areas about which a successful operator would have to be informed.20

21. Revenues for Mr. Craig's horseracing business are derived from winnings ("purses") and horse sales.21 Purses have gone up dramatically since being enriched by increased stakes payments, revenues from slot machines and Ontario grants for Ontario-sired horses. 22 The average purse at an A-track would be in the range between $12,000 and $50,000 per race and the

13 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 5-6, para 6(n). Transcripts, Appellant's Record, Vol II, Tab 9 at 17, lines 2-25, 18, lines 1-25, 19, lines 1-25,20, lines 1-25,21, lines 1-17,29, lines 1-25. 14 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 29, para 76. 15 Tax Comi Reasons, Appellant's Record, Vol I, Tab 2 at 7-8, para 6(1). Transcripts, Appellant's Record, Vol II, Tab 9 at 73, lines 13-25, 74, lines 18-19. 16 Tax Comi Reasons, Appellant's Record, Vol I, Tab 2 at 29, para 77. 17 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 2, para 6(b). Transcripts, Appellant's Record, Vol II, Tab 9 at 79, lines 22-24. 18 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 8, para 6(n). Transcripts, Appellant's Record, Vol II, Tab 9 at 16, lines 12-14. 19 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 13, para 8. 20 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 13, para 8. 21 Transcripts, Appellant's Record, Vol II, Tab 9 at 37, lines 7-11. 22 Transcripts, Appellant's Record, Vol II, Tab 9 at 40, lines 17-25, 41, lines 1-9. - 6 -

top five horses share the purse?3 The percentages from first to fifth are 50%, 25%, 12%, 8% and 5%. 24 Stakes races pay substantially higher pursues but require a series of payments to be made to enter a horse?5 There are hundreds of stakes races each year. 26 In 2000, Mr. Craig had six wins and several seconds and thirds. In 2001, he had the same number of wins but fewer seconds.27

22. Hershfield I. noted that, in horseracing, profitability is a gamble where the intervention of good or bad breaks play an important role. Nevertheless, Hershfield I. was satisfied that Mr. Craig's approach, experience, knowledge and devotion of time and resources gave him a foundation for as realistic a vision and expectation of profitability as might be expected of a horseracing operator. 28 In fact, Mr. Craig's horseracing business was profitable in each of the follmving six years. 29

Year Income 1986 $27,222 1992 $25,500 1994 $28,850 1995 $73,000 2002 $69,000 2003 $32,000

0 23. Except for temporary low points, Mr. Craig invested significant capitae - generally between $200,000 to $300,000 and up to $400,000 in 2000 -into his horseracing business, and

23 Transcripts, Appellant's Record, Vol II, Tab 9 at 37, lines 12-25,38, lines 1-10. 24 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 9, paras 6(o) and 6(p). Transcripts, Appellant's Record, Vol II, Tab 9 at 38, lines 8-13. 25 Transcripts, Appellant's Record, Vol II, Tab 9 at 38, line 25, 39, lines 1-8. 26 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 9, para 6(q). Transcripts, Appellant's Record, Vol II, Tab 9 at 40, lines 14-16. 27 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 9, para 6(q). Transcripts, Appellant's Record, Vol II, Tab 9 at 42, lines 8-15. 28 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 13, para 8. 29 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 9-10, para 6(r). 30 In addition to capital invested in his horses, Mr. Craig funded operating losses. Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 10-11, para 6(s). - 7- he owned at least 14 and as many as 20 horses during the taxation years at issue. 31 Specifically, the investment in his horseracing activities from 1994 to 2001 was as follows: 32

Taxation Year Capital 1994 $190,000 1995 $206,000 1996 $341,000 1997 $130,000 1998 $221,000 1999 $222,000 2000 $412,000 2001 $254,000

24. Mr. Craig has been a lawyer for approximately 35 years. 33 In 2000 and 2001, his reported professional income was $770,423 and $646,600 respectively. 34 Mr. Craig had a capital investment in his law practice of $165,000 in 2000 and $150,000 in 2001. 35 In addition to his law practice, Mr. Craig has also acted on the boards of directors of several companies for which he was remunerated by way of fees as well as stock options. Mr. Craig also made significant capital gains on equity investments in the oil and gas sector.36

25. In his 1996 to 2001 taxation years, Mr. Craig's income or loss from employment (from the exercise of stock options), his law practice and his investment income were held to be as follows: 37

31 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 8, para 6(m). Transcripts, Appellant's Record, Vol II, Tab 9 at 8, lines 21-25. 32 Tax Comt Reasons, Appellant's Record, Vol I, Tab 2 at 10-11, para 6(s). Exhibit A-1, Appellant's Record, Vol II, Tab 10 at 150. 33 Transcripts, Appellant's Record, Vol II, Tab 9 at4, lines 13-15. 34 Transcripts, Appellant's Record, Vol II, Tab 9 at 97, lines 7-9 and lines 18-23. 35 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 7, para 6(g). Transcripts, Appellant's Recm·d, Vol II, Tab 9 at 82, line 25, 83, lines 1-3. ' 36 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 6, para 6(d). 37 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 6, para 6(e). - 8 -

Net Professional Income Investment Employment (from the Law Income (Taxable Farming Income Year Income Practice) Capital Gains) (Loss) 1996 588,600 715,085 213,915 (63,924) 1997 517,350 668,579 259,989 (273,061) 1998 35,200 653,715 128,667 (185,142) 1999 487,500 710,066 313,881 (142,803) 2000 24,000 770,423 372,732 (222,642) 2001 36,000 646,600 129,331 (205,655)

26. Mr. Craig sees himself slowing down and phasing out his law practice over the next six years, at which time he will have reached the age of retirement prescribed by his law firm. 38

Taxation of Mr. Craig

27. This appeal is in respect of Mr. Craig's 2000 and 2001 taxation years. In each of those taxation years, pursuant to section 31, the Minister of National Revenue (the "Minister") limited the farming losses that Mr. Craig could deduct in computing his income to $8,750 per year. In limiting the amount of losses deductible by Mr. Craig, the Minister thus concluded that Mr. Craig's horseracing business did not, independently, or in combination with his law practice, constitute his chief source of income in either of the two taxation years in question.

The Decisions Below

28. In the Tax Court of Canada, Mr. Craig did not argue that horseracing by itself was his chief source of income. He argued that horseracing, in combination with his law practice, was his chief source of income such that section 31 had no application to him. As such, Mr. Craig requested that the reassessments be referred back to the Minister for reconsideration and reassessment allowing the deduction in full of the losses from his horseracing business in computing his income.

38 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 7, para 6(i). Transcripts, Appellant's Record, Vol II, Tab 9 at 83, lines 7-10. - 9-

29. Hershfield J. allowed Mr. Craig's appeal. In so holding, Hershfield J. held that Mr. Craig's horseracing business:

(i) constituted a business;

(ii) involved a considerable commitment of time on the part of Mr. Craig;

(iii) involved a considerable amount of capital investment on the part of Mr. Craig; and

(iv) had considerable profit potential such that Mr. Craig could expect to continue with his horseracing business absent his law practice,

and that Mr. Craig could be recognized as a committed, viable, commercial player in a genuine economic sector, namely, the horseracing business. These factual findings are unchallenged by the Appellant.

30. Consequently, Hershfield J. concluded that Mr. Craig's horseracing business was a significant business, which, combined with his law practice, was Mr. Craig's chief source of income in those taxation years.

31. Hershfield J. further held that the facts in Craig were indistinguishable from the facts in the Federal Court of Appeal's decision in Gunn. Therefore, even on the Moldowan formulation, Mr. Craig's horseracing business, when combined with his law practice, constituted his chief source of income in 2000 and 2001.

32. In a unanimous decision, the Federal Court of Appeal found that Hershfield J. did not err in applying the test set out in Gunn and did not make a palpable and overriding error in concluding that Mr. Craig satisfied the Gunn formulation. Accordingly, the Federal Court of Appeal dismissed the Appellant's appeal. In addition, although Evans J.A. expressed doubt that he would have reached the same conclusion, he made no finding that Hershfield J. made a palpable and overriding error in finding that Mr. Craig satisfied the Moldowan test. - 10 -

PART II - QUESTIONS IN ISSUE

3 3. The Appellant asserts that the following questions are raised in this appeal:

(i) whether this Court's previous interpretation of section 31 in Moldowan is correct, with the result that Mr. Craig's chief source of income was neither farming nor a combination of farming and his law practice.

It is the Respondent's position that this Court's interpretation of section 31 in Moldowan is not correct having regard to the rules of interpretation of the Act set out in this Court's post­ Moldowan jurisprudence. Furthermore, even if Moldowan is the correct formulation of the combination test, Hershfield J. in the Tax Court of Canada did not make a palpable and overriding error in finding that :Mr. Craig met that test.

(ii) whether the doctrine of stare decisis compelled the Federal Court of Appeal to follow this Court's decision in Moldowan, and should discourage this Court from revisiting its previous interpretation of section 31 of the Act.

It is the Respondent's position that the Federal Court of Appeal in Craig did not err in following its well established rule in Miller39 that it should follow its own previous decisions unless the previous decision failed to take into account a statutory provision or a decision that was binding on it. Furthermore, the Federal Court of Appeal in Gunn correctly applied the principles of stare decisis by considering both Moldowan and the decisions of this Court after Moldowan dealing with the interpretation of the Act. The Federal Court of Appeal did not err by choosing to follow the later precedents of this Court. Finally, the tests set out in Bernarrf0 and Henr/ 1 to determine when this Court should not follow one of its previous decisions are satisfied. Therefore, this Court should revisit and overturn the combination formulation in Moldowan.

39 Miller v Canada (Attorney General), 2002 FCA 370, 220 DLR (4th) 149 [Appellant's Authorities, Tab 11). 40 R v Bernard, [1988] 2 SCR 833, 90 NR 321 [Appellant's Authorities, Tab 17]. 41 R v Henry, 2005 SCC 76, (2005] 3 SCR 609 [Respondent's Authorities, Tab 1). - 11 -

PART III -ARGUMENT

A. Correct Formulation of the Combination Test

Section 31 of the Act

34. The relevant provisions of the Act read as follows:

31(1) Loss from farming where chief source of income not farming-- 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 111 the taxpayer's loss, if any, for the year from all farming businesses carried on by the taxpayer shall be deemed to be the total of

(a) the lesser of

(i) the amount by which the total of the taxpayer's losses for the year, determined without reference to this section and before making any deduction under section 3 7 or 3 7.1, from all fanning businesses carried on by the taxpayer exceeds the total of the taxpayer's incomes for the year, so determined from all such businesses, and

(ii) $2,500 plus the lesser of

(A) 1h of the amount by which the amount determined under subparagraph 31 (1)(a)(i) exceeds $2,500, and

(B) $6,250, and

(b) the amount, if any, by which

(i) the amount that would be determined under subparagraph 31(1)(a)(i) if it were read as though the words "and before making any deduction under section 3 7 or 3 7 .1" were deleted,

exceeds

(ii) the amount determined under subparagraph 31(1)(a)(i).

(1.1) Restricted farm loss --For the purposes of this Act, a taxpayer's "restricted farm loss" for a taxation year is the amount, if any, by which

(a) the amount determined under subparagraph 31(1)(a)(i) in respect of the taxpayer for the year - 12 -

exceeds

(b) the total of the amount determined under subparagraph 3 1( 1)(a )(ii) in respect of the taxpayer for the year and all amounts each of which is an amount by which the taxpayer's restricted farm loss for the year is required to be reduced because of section 80.

(2) Determination by Minister -- For the purpose of this section, the Minister may determine that 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.

248(1) "farming" includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees, but does not include an office or employment under a person engaged in the business of farming;

35. In summary, section 31 states that unless a taxpayer's chief source of income is farming, or a combination of farming and some other source, the taxpayer may only deduct in computing his or her income for a particular taxation year a maximum of $8,750 in respect of losses from his or her farming business.

36. Only a taxpayer who is in the business of farming is subject to the restricted deductibility of losses set out in section 31. A taxpayer engaged in any other business, from tar sands exploration to stamp collecting, is not limited in his or her ability to deduct business losses from that business from other sources of income. As discussed by Sharlow J.A. in Gunn, there does not appear to be a well established policy basis for the different treatment of farmers from taxpayers who carry on any other businesses.42

Three Classes of Farmers

37. In Moldowan, Dickson J. (as he then was) stated that the Act envisages three classes of farmers:

(i) a taxpayer for whom farming may reasonably be expected 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) (now 31) in those years in which he sustains a farming loss.

42 Gunn, supra note 6 at paras 45-52. - 13 -

(ii) a taxpayer who does not look to farming, or to farming and some subordinate source of income, for his livelihood but carried 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.

(iii) a taxpayer who does not look to farming, or to farming and some subordinate source of income, for his livelihood and who carried 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.43

38. The Respondent agrees that the Act contemplates: (i) farmers who carry on the business of farming, either by itself or in combination with some other income earning activity, to such a degree thai they can fully deduct their farm losses; (ii) farmers who carry on a farming business to a lesser degree than the farmers described in (i) such that they can deduct only a pmiion of their farm losses against their other sources of income (farming losses are deductible in full 44 against farming income ); and (iii) farmers who do not carry on their farming operation as a business and who are not entitled to any deduction at all in respect of their farming operation. However, Dickson J. 's description of a taxpayer who is a class (i) farmer is flawed because, as discussed below, it conflates a taxpayer whose chief source of income is farming and a taxpayer whose chief source of income is a combination of farming and some other source of income, whereas section 31 expressly separates these two classes of farmers.

Factors in Determining Chief Source

39. In addition, in Moldowan, Dickson J. held that determining whether farming or some other activity was a taxpayer's chief source of income was a relative and objective test and not a pure quantum measurement. Dickson J. identified the following factors as being relevant to the determination of a taxpayer's chief source of income:

(i) the taxpayer's reasonable expectation of income from his various sources;

(ii) his ordinary mode and habit of work;

43 Moldowan, supra note 4 at 487-488. 44 This is the effect of subsection 31 ( 1.1) and paragraph Ill (I)( c) of the Act. - 14 -

(iii) the time spent in each activity;

(iv) the capital committed to each activity; and

(v) the profitability of each operation, both actual and potential.45

The Moldowan Combination Formulation

40. In Moldowan, Dickson J. formulated the following test to determine whether a taxpayer's chief source of income is a combination of farming and some other source:

The reference ins. 13(1) to a taxpayer whose chief 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 recognizes that such a man may have other pecuniary interests as well, such as income from investments, or income from a sideline employment 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, 1t 1s 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.46

41. As interpreted by subsequent decisions, Moldowan provides that the combination test may be satisfied only where farming is a taxpayer's predominant source of income (i.e. a "major preoccupation" coupled with other "subsidiary" interest). Therefore, in the Moldowan formulation, a taxpayer who satisfies the combination test must satisfy the "chief source" test.

45 Moldowan, supra note 4 at 486. 46 Moldowan, supra note 4 at 488. - 15 -

42. The combination formulation in Moldowan has attracted criticism from judges and legal scholars. In 1980, D.K. McNair, in his textbook "Taxation of Farmers and Fishermen",47 reviewed the "chequered history" of section 31. 48 Mr. McNair suggested that, while some of the problems with the interpretation of section 31 were resolved by the decision of this Court in Moldowan, the combination question was not settled:

With respect, however, the decision does not succeed in lending a real meaning to the word "combination" as used in this section. It appears to have settled that, for a source to be, in combination with farming, the chief source of income, there need no inter-connection, but has done little else. Mr. Justice Dickson rejected the notion that for the chief source of income to be determined to be a combination of income from farming and another source involved only a simple process of addition. This, he said, would render the section without meaning since the limitation of losses provided by the section would never apply. lnstead, he construed the section to mean that such a combination could only exist where "farming may reasonably be expected to provide the bulk of income or the centre of work routine" and where the taxpayer's "major pre-occupation is farming". The tests he laid down to determine whether farming meets these qualifications are the same as those to be used in determining whether farming represents the chief source of income. The conclusion that a taxpayer's chief source of income cannot qualify as being a combination of farming and some other source unless farming is also the taxpayer's chief source of income is inescapable. Thus under Mr. Justice Dickson's interpretation the word "combination" is as lacking in meaning as under the alternative interpretation rejected by him. 49 [Emphasis added.]

43. Further, Richard Thomas stated, in a case comment entitled A Farm Loss with a Difference - the Farmer is Successful!, 50 that the Moldowan view of the combination question strips it of meaning and effect. The same criticism is made by Bowman T.C.C.J. (as he then

47 D.K. McNair, Taxation of Farmers and Fishermen (Toronto: Richard De Boo Limited, 1980) at 123-141 [Respondent's Authorities, Tab 24]. 48 Ibid at 130-131. 49 Ibid at 135. 50 Richard Thomas, "A Farm Loss with a Difference - the Farmer is Successful!" in "Current Cases" (1993) 41 Canadian Tax Journal, No.3 at 513 [Appellant's Authorities, Tab 32]. - 16 - was) in the case that IS the subject of Mr. Thomas' miicle: Hover v. Minister of National Revenue. 51

The Gunn Formulation

44. In Gunn, Sharlow J.A. analyzed the history of section 31 and Moldowan extensively. Indeed, in the Federal Court of Appeal, counsel for the Appellant paid tribute to Sharlow J.A.'s "brilliant analysis". 52 Sharlow J.A. did not take issue with many aspects of the interpretation of section 31 (then section 13) set out in Moldowan. In particular, she accepted that determining a taxpayer's chief source of income was a relative and objective test and not a pure quantum measurement. In addition, Sharlow J.A. accepted that the factors set out in Moldowan (ordinary mode and habit of work, time spent, capital committed and profitability) were the appropriate factors to consider in making the "chief source" determination.

45. However, Sharlow J.A. noted the criticism attracted by the Moldowan formulation. Sharlow J.A. stated:

That criticism is focussed on Justice Dickson's statement that section 31 should apply to a person for whom farming is a "sideline" business or a "subordinate" source of income. The problem is that section 3 1 does not use the words "sideline" or "subordinate", or any analogous term.

According to Justice Dickson, the combination question in section 31 must be answered in the negative (and therefore section 31 would necessarily apply) in the case of a taxpayer for whom farming is a sideline business, or whose non-farming source of income is "subordinate" to farming.

[ ... ]

Consider the case of a person for whom farming is not the chief source of income, but who wishes to argue that his chief source of income is farming and something else. Based on Justice Dickson's view of the combination question, that person cannot avoid the application of section 31 unless he can establish that his other source of income is subordinate to

51 Hover v Minister of National Revenue, [1993] 1 CTC 2585 at paras 59-64, 93 DTC 98 (TCC) [Respondent's Authorities, Tab 2]. 52 Reasons for judgment of the Federal Court of Appeal ("Court of Appeal Reasons"), Appellant's Record, Vol. I, Tab 3 at 42-43, para 18. - 17 -

farming. But if he could establish that, he probably would be able to establish that farming is his chief source of income. 53

46. Sharlow J.A. held that the Moldowan formulation is inconsistent with the interpretive approach to the Act suggested by this Court in its decisions after Moldowan. In particular, Sharlow J.A. states that insofar as the Moldowan formulation requires a comi to find that farming constitutes a taxpayer's "predominant" source of income, it is imbuing the provision with words and meaning that it does not have and cmmot reasonably be inferred to have. As such, the Moldowan formulation represents a departure from the principle that judges should not 54 5 create policy by creating judge-made rules in tax matters. ' 5 Based on this analysis, Sharlow J.A. felt she was permitted, or required, to interpret the combination question differently. Sharlow J.A. stated:

In my view, the combination question should be interpreted to require only an examination of the cumulative effect of the aggregate of the capital invested in farming and a second source of income, the aggregate of the income derived from farming and a second source of income, and the aggregate of the time spent on farming and on the second source of income, considered in the light of the taxpayer's ordinary mode of living, farming history and future intentions and expectations. This would avoid the judge-made test that requires farming to be the predominant element in the combination of farming with the second source of income, which in my view is a test that cannot stand with subsequent jurisprudence. It would result in a positive answer to the combination question if, for example, the taxpayer has invested significant capital in a farming enterprise, the taxpayer spends virtually all of his or her working time on a combination of farming and the other principal income earning activity, and the taxpayer's day to day activities are a combination of farming and the other income earning activity, in which the time spent in each is significant. 56 [Emphasis added.]

53 Gunn, supra note 6 at paras 70-71. 54 Ibid at paras 74-76. See, for example, the comments of Iacobucci J., writing for the majority in Royal Bank of Canada v Sparrow Electric Corp., 1 SCR 411 at para 112, 143 DLR (4th) 385 [Appellant's Authorities, Tab 21]; Shell Canada Ltd v R, [1999] 3 SCR 622 at para 43, 178 DLR (4th) 26 [Appellant's Authorities, Tab 22]; 65302 BC Ltd v R, [1999] 3 SCR 804 at para 51, 99 DTC 5799 [Respondent's Authorities, Tab 3]; Canada Trustco Mortgage Co v R, 2005 SCC 54, 2 SCR 601 at para 12 (Respndent's Authorities, Tab 4]. 55 The combination formulation is also inconsistent with a longer standing principle of interpretation that the legislature avoids superfluous or meaningless words, that it does not pointlessly repeat itself or speak in vain. See Winters v Legal Services Society, [1999] 3 SCR 160 at para 48, 177 DLR (4th) 94 [Respondent's Authorities, Tab 5]. 56 Gunn, supra note 6 at para 83. - 18 -

4 7. Sharlow J.A. 's Gunn formulation of the combination question uses the factors set out in Moldowan to determine whether farming constitutes a substantial or significant part of a taxpayer's livelihood (in a way suggested by Moldowan 's focus on objective elements) rather than determining the relative sizes of the taxpayer's farming and other source of income, which determination is not contemplated by the words of section 31.

48. The Appellant argues that Sharlow J.A. adopted an "aggregation" interpretation of combination. 57 That is, farming and any other source of income of any size was sufficient to meet the combination test. A careful reading of the paragraph above clearly shows that Sharlow J.A. did not adopt a simple aggregation test. She recognized that such an approach would also strip section 31 of practical effect. Instead, she requires that both the farming and non-farming source in the combination be substantial in terms of capital invested and time spent. The profitability and future profitability factor must also be considered to be subject to the same threshold. 58

49. Hershfield J. correctly interpreted Gunn as requiring that farming "make a relevant or meaningful contribution to the aggregation formula assessed by using the Moldowan criteria". 59

Text and Context of Section 31

50. The provisions of the Act must be interpreted having regard to their text, context and purpose. 6° Fmiher suppmi for the Gunn formulation is derived from the text and context of section 31. It is clear from a textual and contextual reading of section 31 that a taxpayer does not have to be engaged solely in the business of farming in order to fully deduct farm losses against income from other sources.61 This in inherent in both the words "chief source" and the phrase

57 Factum of the Appellant in the Supreme Comt of Canada at page 16, para 49. 58 In addition, in her reasons for judgment, Sharlow J.A. rejected the aggregation approach because it would render the entire section 31 redundant if a taxpayer could combine a farm of any size with another source of income and thereby satisfy the combination test. 59 Tax Comt Reasons, Appellant's Record, Vol I, Tab 2 at 25, para 57. 60 Canada Trustco, supra note 54 at para 10. 61 In fact, as a contextual matter, section 31 presupposes that the farmer has another source of income against which to deduct fanning losses. If a taxpayer's only source of income is fanning, there is nothing against which to deduct the farming loss. Further, the definition of "restricted farm loss" in subsection 31 ( 1.1) and paragraph 111(1)(c) make it clear that a farming loss can always be deducted in full from farming income, subject only to time limits set out in section 111. As a practical matter, section 31 determines how much of the farming loss can be deducted against other income. - 19 -

"combination of farming and some other source". It is also clear from the text of section 31 that two different types of farmers are free from the loss limitations in section 31; they are

(i) one whose chief source of income is farming; and

(ii) one whose chief source of income is a combination of farming and some other source of income.

There is no other construction of section 31 that is consistent with its text.

51. Further, although the purpose of the combination language in section 31 does not appear to have been definitively established, it is reasonable to infer that Parliament recognized that many persons in Canada operate and maintain farms as a business but do not (or cannot) do so as their sole occupation. As borne out by the many cases dealing with section 31, many farmers require another source of income to fund their farming operations.

52. As recognized by Dickson I. in Moldowan, section 31 is intended to provide relief from its loss restrictions to farmers that operate a farm of significance. Indeed, the tests of time spent, capital invested and present and future profitability established by Moldowan are designed to determine when a farm business has reached the degree of significance that a taxpayer engaged in that business should be free of the loss limitation in section 31.

53. The combination language of section 31 recognizes that a farmer may have different levels of non-farm business activity. The combination language must be intended to protect a taxpayer operating a significant farm business (such that it can be considered to form part of the taxpayer's chief source of income) from the loss limitation in section 31 if the taxpayer also has significant other sources of income such that farming by itself is not the chief source of income. The taxpayer who is predominantly a farmer but who has another income source is freed from the loss limitation in section 31 because the taxpayer's chief source of income is farming. The taxpayer who operates a significant farm but who also has significant other income sources is freed from the loss limitation because the taxpayer's chief source of income is a "combination of farming and some other source of income". As stated by Hershfield J., the combination language - 20- must surely have been added by Parliament to expand the class of taxpayers that are free from the loss restrictions of section 3 1. 62

54. The Gunn formulation is consistent with the text and context of section 31. The Moldowan formulation eliminates the protection of the combination language for significant farmers with significant other sources of income.

Rewriting or "Reading in" is Inappropriate

55. The Gunn formulation should also be preferred because its approach to resolving conflicts between older interpretations of the Act and newer decisions on principles of statutory interpretation is consistent with the approach previously established by this Court.

56. In Ludco, 63 the proper interpretation of paragraph 20(1 )(c) of the Act was in issue. The relevant portions of paragraph 20( 1)(c) are as follows:

20(1) ... in computing a taxpayer's income for a taxation year from a business or properiy, there may be deducted ...

(c) an amount paid in the year or payable in respect of the year. .. pursuant to a legal obligation to pay interest on

(i) borrowed money used for the purpose of earning income from a business or property ...

57. In an earlier decision dealing with paragraph 20(1)(c), Bronfman Trust, 64 this Comi stated, in obiter dicta, that in order to satisfy the purpose test in paragraph 20( 1)(c), the "taxpayer must satisfy the Court that his or her bonafide purpose in using the funds was to earn income". 65 Several decisions, including the lower court decisions in Ludco66 adopted the "bona fide purpose" test as the correct one for the purpose test in paragraph 20(1)(c).

62 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 26, para 64. 63 Ludco Enterprises Ltdv Canada, 2001 SCC 62, [2001] 2 SCR 1082 [Respondent's Authorities, Tab 6]. 64 Bronfman Trust v R, [1987] 1 SCR 32, 87 DTC 5059 [Respondent's Authorities, Tab 7]. 65 Ibid at 54. 66 Ludmer v Minister of National Revenue, 99 DTC 5153,240 NR 70 (FCA) [Respondent's Authorities, Tab 8]; Ludmer v Minister of National Revenue, 98 DTC 6045 at para 66, [1998] 2 CTC 104 (FCTD) [Respondent's Authorities, Tab 9]. - 21 -

58. In Ludco, the "bonafide purpose" test was rejected. In so doing, Iacobucci J. stated:

It appears to me that Dickson C.J. 's suggestion that a bona fide purpose test should apply was made as a passing comment and did not result from an analysis of the text of the provision. In my opinion, Dickson C.J. 's comments fall shmi of elevating the bona fide purpose test to a rule of law. Indeed, as discussed below, the impmiation of the bona fide purpose test into s. 20(1 )( c )(i) is not supported by the principles of statutory interpretation outlined above, especially as applied in our recent tax law JUnspru. . dence. 67

59. Iacobucci J. continued:

There are other compelling reasons to reject both the bona fide and dominant purpose tests proposed in this case. I note that in this respect, Major J. has reached a similar conclusion in Singleton, supra, and I agree with him. Reading such tests into s. 20(1 )( c )(i) would require a rewriting of the provision to introduce a concept of degree, exclusivity or primacy in the taxpayer's purposes. Presumably, a court would take such an approach in response to concerns over tax avoidance. However, this Court has repeatedly stated that in matters of tax law, a comi should always be reluctant to engage in judicial innovation and rule making: see Sparrow Electric, supra, Canderel, supra and Shell Canada, supra. 68

60. Sharlow J.A. 's approach to resolving the conflict between the existing interpretation of the combination formulation in Moldowan and subsequent jurisprudence is consistent with this Court's approach to the same question in Ludco. Although the combination formulation in Moldowan cannot be considered obiter dicta, the statutory interpretation issue before this Court in this appeal is similar to that in Ludco. The combination test created in Moldowan requires a rewriting of section 31 to introduce a concept of primacy of the farming business in the combination test that is inconsistent with the text and context of section 31. As it did in Ludco, this Court should correct the interpretation of the combination test in section 31 in Moldowan because is inconsistent with its more recent guidance on statutory interpretation.

61. In summary, the Gunn formulation is the better interpretation of the combination test when the words of section 31 are read in a textual, contextual and purposive manner as required by this Court. Indeed, as noted by Evans J.A., counsel for the Appellant conceded in her

67 Ludco, supra note 63 at para 49. 68 Ibid at para 53. - 22- memorandum of fact and law at the Federal Comi of Appeal that, in view of subsequent decisions of this Court on the interpretation of taxation statutes, the combination aspect of Moldowan might be decided differently today. 69

Residual Presumption

62. Sharlow J.A. also based her preference for the Gunn formulation on the principle set out by this Court in Johns-Manville/0 as modified by Notre-Dame de Bonsecours,71 that "where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer". 72 In so doing, Sharlow J.A., again, followed the guidance of this Court in cases decided after Moldowan. Thus, even if it can be argued that the imprecision of the language of section 31 allows for other interpretations of the combination formulation, such as in Moldowan, as required by Johns-Manville, the Gunn formulation should be preferred because it provides, at worst, an equally valid interpretation that favours the taxpayer.

Difficulties with the Moldowan Formulation

63. In Canada Trustco, this Court said that the Act should be consistent, predictable and fair. 73 The interpretation of the combination formulation in Moldowan does not reflect this principle.

64. The problems with the Moldowan formulation are readily apparent by noting the difficulties that arise when analyzing the combination question based on the relative sizes of the taxpayer's farming and other source of income as suggested by the Moldowan formulation.

65. For example, consider two taxpayers, Mr. A and Mr. B, who operate identical farming businesses on farms situated beside each other. Both farming businesses are significant in terms of capital, size and time spent and the profitability (or losses) is the same. Mr. A also carries on

69 Court of Appeal Reasons, Appellant's Record, Vol. I, Tab 3 at 42-43, para 18. 70 Johns-Manville v The Queen, [1985) 2 SCR 46 at 72, [1985] 2 CTC 1111 [Respondent's Authorities, Tab 10). 71 CUQ c Corp Notre-Dame de Bonsecours, [1994] 3 SCR 3 at 19-20, 1994 Carswel!Que 86 [Respondent's Authorities, Tab 11]. In Bonsecours, Gonthier J. cautioned that the Johns-Manville principle is to be used only as a last resort, where the application of the ordinary principles of statutory interpretation leave a reasonable uncertainty as to whether the provision is intended to apply in a particular case. 72 Ibid at 19. 73 Canada Trustco, supra note 54 at para 12. - 23 -

a small business with a small profit. Mr. B carries on a large manufacturing business that is more profitable than Mr. A's business and takes up much more time and capital than Mr. A's business, but Mr. B continues to carry on a similar farming business as Mr. A.

66. Using the Moldowan formulation, Mr. A can deduct all of his farm losses against his other business income but Mr. B may not despite the fact that they carry on identical farming businesses. This is not a result that is consistent or predictable and it is certainly not fair. Parliament could not have intended a result that prejudices a farmer because he has succeeded to a greater extent in other activities than another farmer.

67. Continuing with the example, under the Moldowan formulation, Mr. A puts at risk his ability to deduct his farm losses against income from his other business if the size of, and his commitment to, the other business increases - even if his commitment to his farming business does not decrease in any way. Again, this result is not consistent, predictable and fair.

68. These results are avoided under the Gunn formulation. The Gunn formulation correctly realizes that having regard to the factors of profitability, time spent and capital invested, at some point a taxpayer's farming business reaches a level of commerciality, commitment and importance within the taxpayer's settled routine of business life, that it is not a sideline business and that the taxpayer engaged in the business should not be subject to the restrictions in section 31.

Overturning Precedent of this Court

69. As stated above, the general principles of interpretation articulated by this Court subsequent to Moldowan provide a basis for revising and revisiting that decision. If, however, an express overruling of Moldowan is required, the circumstances warrant such an overruling. As stated by Rothstein I. in this Court's recent decision in Fraser: 74

The authorities are abundant that this Court may overrule its own decisions, and indeed it has done so on numerous occasions. 75

74 Ontario (Attorney General) v Fraser, 2011 SCC 20, [2011] 2 SCR 3 [Respondent's Authorities Tab 12]. 75 Ibid at para 129. - 24-

70. In considering whether to overrule a precedent, this Comi must balance two important values: correctness and certainty. 76 As stated by Rothstein J. in Fraser:

A court must ask whether it is preferable to adhere to an incorrect precedent to maintain certainty or to correct the error. 77 71. This Court has provided a number of factors that should be considered in deciding between upholding precedent and correcting error. In Bernard, Dickson C.J. in dissent, identified four reasons for overruling an earlier precedent. These reasons were adopted by this Court in Chaulk. 78 Among them are the following:

(i) subsequent developments in the law that undermine the validity of the precedent; and

(ii) a prior decision that creates uncertainty contrary to the underlying values of clarity and certainty that lie behind stare decisis. 79

More recently, in Henry, Binnie J. identified the following reasons for overturning precedent:

(i) experience shows that the prior decision is unworkable as its application rs mmecessarily complex and technical;

(ii) the prior decision is contrary to sound principle; and

(iii) the prior decision results in unfairness. 80

72. The following considerations justify overruling Moldowan:

(i) subsequent developments in the interpretation of the Act have undermined the validity of Moldowan. As discussed above, the decision in Moldowan is not consistent with the modern approach to the interpretation of the Act.

76 Ibid at para 133. 77 Ibid at para 133. 78 R v Chaulk, [1990] 3 SCR 1303 at 1353, 119 NR 161 [Respondent's Authorities, Tab 13]. 79 Bernard, supra note 40 at 855-859. 80 Henry, supra note 41 at paras 45-47. - 25 -

(ii) as noted in paragraphs 42 and 43 above, there has been significant criticism, by both judges and authors, of this Comi's decision in Moldowan. As noted by Rothstein J.A. in Fraser:

I reiterate that in light of such academic criticism, it is appropriate for this Court to take notice and acknowledge the errors that have been identified. 81

(iii) the Moldowan formulation results in unfairness as illustrated by the Mr. A and Mr. B examples at paragraphs 65 to 68 above.

73. The Appellant asserts that there are no compelling circumstances to justify a depmiure from Moldowan and that the approach articulated in Moldowan provides an "effective framework for the application of an admittedly difficult legislative provision, and for the resolution of a vast range of different situations". 82 The Appellant states that "the central complaint against the Moldowan decision is that this Court's interpretation of section 31 is wrong, not t h at 1t. 1s . amb' 1guous , . 83

74. This suggestion ignores the abundant case law subsequent to Moldowan that belies the effectiveness of the framework. Similarly, the academic criticism of the decision clearly demonstrates that the Moldowan formulation is not an "effective framework". Finally, the Moldowan test may provide resolution to a range of circumstances because it is easy to apply. However, a legal test that is easy to apply but that is not well principled and that is unfair cannot be the objective of the law.

Craig and Gunn Promote Certainty

75. The Appellant argues that "Moldowan brought certainty to a provision that had been the subject of significant debate, but the recent decisions of the Federal Court of Appeal have caused instability in the law that governs the deduction of farming losses". 84 This position is unsound for two reasons.

81 Fraser, supra note 74 at para 148. 82 Factum of the Appellant in the Supreme Court of Canada at page 14, para 44. 83 Factum of the Appellant in the Supreme Court of Canada at page 15, para 47. 84 Factum of the Appellant in the Supreme Comi of Canada at page 16, para 48. - 26-

76. First, the alleged unce1iainty is temporary. This Comi will create certainty for the courts below by its decision in this appeal whether it agrees with the Respondent's position and accepts the Gunn formulation or it accepts the Appellant's position and maintains the Moldowan formulation.

77. Second, reviewing the appeals dealing with section 31 in the Tax Comi of Canada after Gunn in chronological order shows not confusion in the Tax Court of Canada, but the gradual acceptance by that Comi of the correctness of the Gunn formulation. The acceptance of the Gunn formulation in the Tax Court of Canada is evidence that the Courts have recognized that Gunn provides a formulation that is more consistent with the modern interpretation of the Act and one that provides appropriate results.

78. In Stackhouse, 85 both counsel agreed that 1vfoldowan was binding. In F alkener, 86 it was accepted that Moldowan was binding. Loyens, 87 although citing Moldowan, begins the acceptance of Gunn as the more correct statement of the combination formulation. Johnson 88 is the first decision to accept Gunn as binding authority. The Comi in Johnson considered the application of the combination test to a taxpayer who carried on a sheep and cow farming operation with successive losses and who also earned income from employment as an engineer for the Province ofNova Scotia. In that decision, Webb J. identified Gunn as a binding authority on the issue and decided the case based on its broader interpretation.

79. Scharfe89 cites Moldowan, Gunn and other jurisprudence dealing with section 31 but ultimately applies the Gunn formulation in deciding the combination issue. Craig accepted Gunn as the correct authority. Finally, Turbide, 90 the only decision of the Tax Court of Canada on this issue since the Federal Court of Appeal's decision in Craig, accepts Gunn as the correct authority.

85 Stackhouse v Her Majesty the Queen, 2007 TCC 146, 2007 DTC 620 [Respondent's Authorities, Tab 14]. 86 Falkener v Her Majesty the Queen, 2007 TCC 514,2007 DTC 1470 [Appellant's Authorities, Tab 6]. 87 Loyens v Her Majesty the Queen, 2008 TCC 486, 2008 DTC 4698 [Respondent's Authorities, Tab 15]. 88 Johnson v Her Majesty the Queen, 2009 TCC 383, 2009 DTC 1245 [Respondent's Authorities, Tab 16]. 89 Scharfe v Her Majesty the Queen, 20 I 0 TCC 39, 2010 DTC 29 [Respondent's Authorities, Tab 17]. 90 Turbide c R, 2011 TCC 371, 2011 DTC 1270 (Fr.) [Respondent's Authorities, Tab 18]. On November 22, 2011, the Federal Court of Appeal allowed a stay in proceedings in Turbide until such time as this Court renders its decision in this appeal. R c Turbide, 2011 FCA 324, 2011 CarsweiiNat 5772 [Respondent's Authorities, Tab 19] - 27-

The Gunn Formulation has been Satisfied

80. With respect to the case at bar, Hershfield J. concluded that the Gunn formulation of the combination test has been satisfied by Mr. Craig. Indeed, the Appellant has not argued in this Court that, when applying the Gunn formulation, Hershfield J. was wrong to conclude that Mr. Craig's horseracing business, in combination with his law practice, constituted his chief source of income.

81. The conclusions of Hershfield J. about the nature and level of Mr. Craig's investment and time commitment devoted by Mr. Craig to his farming business and the future profitability91 of the farming business constitute factual findings that can only be upset if it has been demonstrated that he made a palpable and overriding error in his appreciation of the record. Further, Hershfield J. 's acceptance that Mr. Craig's chief source of income was a combination of Mr. Craig's farming business and his law practice is an inference drawn from his factual findings, that, likewise, should only be interfered with if there is a demonstrated palpable and overriding error.

82. The Appellant has not pointed to any such errors committed by Hershfield J. Indeed, nowhere is it alleged that he ignored or fundamentally misappreciated any of the evidence adduced.

83. Moreover, as set out above, the evidence plainly established that Mr. Craig invested significant capital- generally between $200,000 to $300,000 and up to $400,000 in 2000 (except for temporary low points)- into his horseracing business, that he owned at least 14 and as many as 20 horses during the taxation years at issue and that he devoted the entirety of his working time to a combination of his law practice and his horseracing business. The time spent by Mr. Craig in each of his activities is significant. Mr. Craig reported income from his horseracing business in three years out of four in taxation years shortly before the taxation years in issue and in the two taxation years immediately after. All of these facts make it plain that combination test as miiculated in Gunn has been readily satisfied.

84. Furthermore, given the factual similarity of this case to Gunn, Hershfield J. made no palpable and overriding error in concluding that Mr. Craig's appeal could not be distinguished

91 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 29, para 75. - 28- from Gunn. 92 Hershfield J. did not err in concluding that if Mr. Gunn was a Class 1 farmer, then Mr. Craig must also be a Class 1 farmer. There is no basis to distinguish Craig and Gunn. The combination of Mr. Craig's horseracing business and his law practice was his chief source of income just as the combination of Mr. Gunn's farming operation and his law practice was Mr. Gunn's chief source of income.

85. Finally, contrary to the comments in several cases such as Donnelly,93 the Act provides no basis for distinguishing horseracing from crop or livestock farming. In fact, it is impmiant to note that Dickson J. developed his interpretation of section 31 in a case involving horseracing. In Moldowan, Dickson J. did not distinguish horseracing from traditional farming in any manner. Hershfield J. also recognized that under the Act there is no difference between horseracing and traditional farming. Hershfield J. stated:

As well, and perhaps most importantly, I note that the Act defines farming to include horseracing and imposes the same test for the application of a loss restriction rule on both the Appellant and Mr. Gunn. This might be sufficient to dispose of this concern over the perception of horseracing inherently being a personal indulgence. As the Act reads, Mr. Gunn cannot be given a better tax treatment than the Appellant simply because we perceive horseracing differently than grain and cattle farming. The Act should address this concern not the Comis.94

The Moldowan Formulation has also been Satisfied

86. Finally, the appeal is flawed insofar as it ignores that Hershfield J. concluded that, even using the Moldowan formulation, he would have allowed the appeal. This follows from the fact that, given the factual similarity between this case and Gunn, and given that Sharlow J.A. concluded that she would have decided Gunn in the same way even using the Moldowan formulation, there was no basis to reach a different conclusion in Craig.

87. Hershfield J. 's finding that Mr. Craig made substantial investment of capital, time and expe1iise to his horseracing business and had a reasonable basis to believe that his horseracing business might one day become his chief source of income, are all factual findings and or

92 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 29-30, paras 75-80. 93 R v Donnelly, [1998] I FC 513 at paras 20-21, 97 DTC 5499 (FCA) (Respondent's Authorities, Tab 20]. 94 Tax Comt Reasons, Appellant's Record, Vol I, Tab 2 at 31, para 85. - 29-

inferences drawn thereupon that cannot be upset absent a palpable and overriding error. These findings clearly demonstrate that Mr. Craig's fanning business was not a "sideline business".

88. As stated by Hershfield J.:

Viewing the two cases as a whole, I agree with the Appellant. They cannot be sufficiently distinguished to warrant a different result. If the Federal Court of Appeal found that Mr. Gunn was not subject to section 31 loss restrictions even on the Moldowan interpretation of the combination test, as it did at paragraph 93, then the Appellant should be allowed the same result. As such, even if my acceptance of the expanded construction of the combination test in section 31 in Gunn is misguided, I am satisfied, in any event, that the facts of the two cases are not sufficiently distinguishable to give a different result. 95

89. Thus, even if Hershfield J. erred by accepting the Gunn formulation of the combination test, his decision should still be upheld as he correctly held that, following Gunn, Mr. Craig would have succeeded under the Moldowan formulation.

B. Stare Decisis

90. Finally, with respect to the secondary issue raised in this appeal, the Federal Comi of Appeal did not violate any principles of stare decisis in its decisions in Craig and Gunn.

Craig

91. In Craig, the Federal Court of Appeal was correct to follow its previous decision in Gunn. The Appellant asserts that insofar as the Federal Court of Appeal in this case followed its prior decision in Gunn, its decision directly undermines the principle of stare decisis. This argument was considered at length and rightly rejected by the Federal Court of Appeal:

First, the argument that we should not follow Gunn does not fall within any of the exceptions to the general principle formulated in Miller v. Canada (Attorney General), 2002 FCA 320, 220 D.L.R. (4th) 149 (Miller), that, in the interests of jurisprudential stability and certain7 in law, a panel of this Court is normally bound by its previous decisions.9

95 Tax Court Reasons, Appellant's Record, Vol I, Tab 2 at 32, para 89. 96 Court of Appeal Reasons, Appellant's Record, Vol. I, Tab 3 at 40, para 9. - 30-

92. In particular, Evans J.A. held that:

(i) the decision in Gunn was not made without regard to a decision that it ought to have followed. Evans J.A. noted that Sharlow J.A. considered Moldowan at length and largely adopted its analytical framework:

Justice Sharlow justified her decision in Gunn on the basis of her analysis of the shortcomings of Moldowan's requirement that farming be the predominant source of income before it may be combined with another. She grounded her criticisms of this aspect of the decision in the history and objectives of section 31, the difficulties of applying it, its tendency to produce arbitrary results, and critical commentary by judges and others. 97

Evans J.A. continued:

Gunn was anything but a per incuriam decision: relevant precedents were not "overlooked"· 98 '

(ii) the court was not at liberty to depart from Gunn on the ground that it had been overruled by a subsequent decision of this Court; 99

(iii) a decision by a panel of the Federal Comi of Appeal on the precedential effect of a prior decision of this Court deserves as much respect from a subsequent panel of the Federal Court of Appeal as a decision by a previous panel on any other questiOn. o f 1aw; 100

(iv) even if the Federal Court of Appeal may depart from one of its previous decisions that it believes to be manifestly wrong in a sense not itemized in Miller, Gunn was not such a decision. Evans J.A. stated:

Indeed, before us, counsel for the Minister paid tribute to what she called the "brilliant analysis" of Justice Sharlow in Gunn. Counsel also conceded in her memorandum of fact and law (at para. 46) that, in view of subsequent decisions from the Supreme Court of Canada on the

97 Court of Appeal Reasons, Appellant's Record, Vol. I, Tab 3 at 40-41, para 12. 98 Court of Appeal Reasons, Appellant's Record, Vol I, Tab 3 at 41, para 14. 99 Court of Appeal Reasons, Appellant's Record, Vol I, Tab 3 at 42, para 16. 10° Court of Appeal Reasons, Appellant's Record, Vol I, Tab 3 at 42, para 17. - 31 -

interpretation of taxation statutes, the aspect of Moldowan in question here might be decided differently today. 101

93. The Appellant argues that by failing to follow Moldowan, the Federal Court of Appeal created uncertainty in the law. 102 As stated above, this Court will resolve the unce1iainty of the interpretation of section 31. In addition, the Appellant does not address the uncertainty in the law that would be created by one panel of the Federal Court of Appeal following Gunn and another panel following Moldowan. In that event, the Tax Comi of Canada and the Federal Comi of Appeal in subsequent appeals dealing with section 31 would still face uncertainty. Furthermore, if the panel of the Federal Court of Appeal in Craig did not follow Gunn but, instead, chose to adhere to Moldowan, it would not have followed Miller and the binding nature of its own Miller decision would be cast into doubt. Having different panels of the Federal Court of Appeal making different decisions on points of law is the very issue Miller seeks to avoid.

94. In addition, Miller already provides the answer to the stare decisis issue that the Appellant wrongly argues is created by Craig. The tests set out in Miller permit the Federal Court of Appeal not to follow one of its previous decisions where a statute or a binding precedent was not considered in the previous decision. If, in Gunn, Sharlow J.A. had not considered Moldowan, or decided not to follow it for an arbitrary reason, the application of Miller would have required the subsequent panel in Craig not to follow the decision. 103

Gunn

95. In Gunn, the Federal Court of Appeal was required to interpret section 31. The Court had before it Moldowan, a decision of this Court from 1977 interpreting the predecessor to section 31. This decision was, prima facie, binding on the Comi. The Court also had before it numerous decisions of this Court decided after Moldowan providing guidance as to the proper approach to the interpretation of the Act as a whole. These principles of statutory interpretation are overarching principles of universal application to the Act. These decisions do not make

101 Court of Appeal Reasons, Appellant's Record, Vol I, Tab 3 at 42-43, para 18. 102 Factum of the Appellant in the Supreme Court of Canada at 16, para 48. 103 However, Evans J.A. properly concluded that Gunn was not decided per incuriam. Therefore, Miller did not allow the Court in Craig to depart from it. - 32- exceptions for previOus judicial interpretations of specific provisiOns of the Act. These precedents are also binding on the Federal Court of Appeal.

96. In Gunn, Sharlow J.A. did not ignore Moldowan, nor did she refuse to follow it without a well founded basis in the law. Simply stated, Sharlow J.A. considered, addressed and reconciled all of the authorities that were binding upon her in determining the proper interpretation of section 31 thirty years after Moldowan was decided.

97. Where the current interpretation of a provision of the Act is at issue, the principle of stare decisis mandates that Courts follow this Court's post-Moldowan pronouncements on that very issue. It is inevitable that as a result of the growth of the principles of statutory interpretation, previous decisions of this Court may lose their precedential weight because the decisions are not consistent with the modern approach to the interpretation of the Act (as demonstrated in Ludco).

98. Faced with conflicting decisions of this Comi, Sharlow J.A. gave effect to the most recent decisions. Sharlow J.A. 's approach was entirely consistent with the law established by the Comis on the reconciliation of conflicting decisions of superior comis. 104

104 Fisken v Meehan, 40 UCQB 146, 1877 CarsweliOnt 159 at para 40 [Respondent's Authorities, Tab 21]; Laidlaw Waste Systems Ltd v Minister of National Revenue, [1989] 1 CTC 2375, 89 DTC 259 at para 26 [Respondent's Authorities, Tab 22]; Dover Financial Corp v Basin View Village Ltd, 140 NSR (2d) 1, 1995 CarsweliNS 407 (SC) at para 122 [Respondent's Authorities, Tab 23]. - 33 -

PART IV - COSTS

99. The Respondent requests costs of this appeal and in the courts below.

PARTV-ORDERSOUGHT

100. It is hereby requested that the appeal be dismissed with costs to the Respondent throughout.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

Dated at Toronto, this 1st day of February, 2012.

Glenn Ernst Sandon Shogilev Marisa Wyse

Goodmans LLP Barristers & Solicitors 333 Bay Street, Suite 3400 Toronto, ON M5H 2S7

Tel: (416) 979-2211 Facsimile: (416) 979-1234 Email: [email protected] Email: [email protected] Email: [email protected] Counsel for the Respondent, John H. Craig - 34-

PART VI- TABLE OF AUTHORITIES

Jurisprudence Paragraph

65302 BC Ltd v R, [1999] 3 SCR 804, 99 DTC 5799 46

Bronfman Trust v R, [1987] 1 SCR 32, 87 DTC 5059 57

Canada Trustco Mortgage Co v R, 2005 SCC 54, 2 SCR 601 46,50,63

CUQ c Corp Notre-Dame de Bonsecours, [1994] 3 SCR 3, 1994 62 CarswellQue 86

Dover Financial Corp v Basin View Village Ltd, 140 NSR (2d) 1, 1995 98 CarswellNS 407 (SC)

Falkener v Her Majesty the Queen, 2007 TCC 514,2007 DTC 1470 78

Fisken v Meehan, 40 UCQB 146, 1877 CarswellOnt 159 98

Gunn v Her Majesty the Queen, 2006 FCA 281, [2007] 3 FCR 57 6, 8, 12, 33, 36, 44, 45, 46, 47, 48, 49, 62, 86, 92,95,96,98

Hover v Minister of National Revenue, [1993] 1 CTC 2585, 93 DTC 98 43 (TCC)

Johns-Manville v The Queen, [1985] 2 SCR 46, [1985] 2 CTC 111 62

Johnson v Her Majesty the Queen, 2009 TCC 383, 2009 DTC 1245 78

Laidlaw Waste Systems Ltd v Minister of National Revenue, [1989] 1 CTC 98 2375, 89 DTC 259

Loyens v Her Majesty the Queen, 2008 TCC 486, 2008 DTC 4698 78

Ludco Enterprises Ltd v Canada, 2001 SCC 62, [200 1] 2 SCR 1082 56, 57, 58, 59, 60

Ludmer v Minister of National Revenue, 98 DTC 6045, [1998] 2 CTC 104 57 (FCTD)

Ludmer v Minister ofNational Revenue, 99 DTC 5153, 240 NR 70 (FCA) 57

Miller v Canada (Attorney General), 2002 FCA 370, 220 DLR (4th) 149 33,92,93,94 - 35 -

Moldowan v R, [1978] 1 SCR 480,77 DTC 5213 4, 37, 39, 40, 41, 42,43, 52

Ontario (Attorney General) v Fraser, 2011 SCC 20, [20 11] 2 SCR 3 69, 70, 72

R c Turbide, 2011 FCA 324, 2011 CarswellNat 5772 79

R v Bernard, [1988] 2 SCR 833, 90 NR 321 33, 71

R v Chaulk, [1990] 3 SCR 1303 at 1353, 119 NR 161 71

R v Donnelly, [ 1998] 1 FC 513, 97 DTC 5499 (FCA) 85

R v Hemy, 2005 sec 76, [2005] 3 SCR 609 33, 71

Royal Bank of Canada v Sparrow Electric Corp., 1 SCR 411, 143 DLR (4th) 46 385

Scharfe v Her Majesty the Queen, 2010 TCC 39,2010 DTC 29 79

Shell Canada Ltd v R, [1999] 3 SCR 622, 178 DLR (4th) 26 46

Stackhouse v Her Majesty the Queen, 2007 TCC 146, 2007 DTC 620 78

Turbide c R, 2011 TCC 371, 2011 DTC 1270 (Fr.) 79

Winters v Legal Services Society, [1999] 3 SCR 160, 177 DLR (4th) 94 46

Secondary Sources

McNair, D.K., Taxation of Farmers and Fishermen (Toronto: Richard De 42 Boo Limited, 1980)

Richard Thomas, "A Farm Loss with a Difference - the Farmer is Successful!" in "Current Cases" (1993) 41 Canadian Tax Journal, No. 3 at 43 513 - 36-

PART VII - STATUTES RELIED ON

The Respondent relies on the statutes included in Part VII of the Factum of the Appellant and on the provisions included herein. - 37 - Income Tax Act, RSC 1985, c 1 (5th Supp.) paragraph 20(1) (c)

CANADA

CONSOLIDATION CODIFICATION

Income Tax Act Loi de l'impot sur le revenu

R.S.C., 1985, c. 1 (5th Supp.) L.R.C., 1985, ch. 1 (5' suppl.)

NOTE NOTE Application provisions are not included in the consolidated Les dispositions d'application ne sont pas incluses dans Ia text; see relevant amending Acts. presente codification; voir les lois modificatives appro­ priees.

Current to January 18, 2012 Ajour au 18 janvier 2012

Last amended on January 1, 2012 Derrriere modification 1e 1 janvier 2012

Published by the Minister of Justice at the following address: Publie par le rrrinistre de la Justice al'adresse suivante : http :1 /laws-lois.justice. gc.ca http://lois-laws.justice. gc.ca - 38 -

Income Tax-January 18, 2012

"foreign "foreign broadcasting undertaking" means a «entreprise etrangere de radiodiffusion» Entre­ « entrepnse broadcasting network operation or a broadcasting transmit­ prise d'emission de radiodiffusion ou d'exploi­ etrangere de undertaking" radiodiffusion }) « entrepn'se ting undertaking located outside Canada or on a tation d'un reseau situee a l'etranger ou sur un "foreign etrangere de ship or aircraft not registered in Canada; navire ou un aeronef non immatricules au broadcasting radiodiffusion )) undertaking" Canada. "network" "network" includes any operation involving « rdseau >> two or more broadcasting undertakings where­ « reseau» Est comprise dans un reseau toute ex­ « r6seau I> "netr11ork" by control over all or any part of the programs ploitation a laquelle participent plusieurs entre­ or program schedules of any of the broadcast­ prises de radiodiffusion et mile controle de tout ing undertakings involved in the opemtion is ou partie des emissions ou des programmes delegated to a network operator. d'emission d'une entreprise de radiodiffusion participant 1'exploitation est delegue un ex­ NOTE: Application provisions are not included in the con­ a a solidated text; see relevant amending Acts. 1974-75-76, c. ploitant de reseau. 106, s. 3; 1977-78, c. 1, s. 13; 1985, c. 45, s. 126(F). NOTE: Les dispositions d'application ne son! pas incluses daus Ia presente codification; voir les lois modificatives ap­ propriees. 1974-75-76, ch. 106, art. 3; 1977-78, ch. 1, art. 13; 1985, ch. 45, art. 126(F).

Deductions 20. (1) Notwithstanding paragraphs 20. (l) Malgre les alineas 18(l)a), b) et h), Deductions pennitted in 18(l)(a), 18(l)(b) and 18(l)(h), in computing a sont deductibles dans le calcul du revenu tire admises dans le computing calcul du revenu income from taxpayer's income for a taxation year from a par un contribuable d'une entrep1ise ou d'un tir6 d'une business or business or property, there may be deducted bien pour une annee d'imposition celles des entreprise au property d'un bien such of the following amounts as are wholly so1mnes suivantes qui se rapportent entierement applicable to that source or such part of the fol­ <1 cette source de revenus ou la partie des lowing amounts as may reasonably be regarded sommes suivantes qu 'il est raisonnable de as applicable thereto considerer comme s'y rapportant:

Capital cost of (a) such part of the capital cost to the tax­ a) la partie du cout en capital des biens sup­ CoOt en capital property payer of property, or such amount in respect porte par le contribuable ou le montant au des btens of the capital cost to the taxpayer of proper­ titre de ce coiit ainsi supporte que le regle­ ty, if any, as is allowed by regulation; ment auto rise;

Cumulative (b) such amount as the taxpayer claims in b) Ia somme qu'un contribuable dectuit au Mont ant eligible capital respect of a business, not exceeding 7% of titre d'une entreprise, ne depassant pas 7 % cumulatif des amount immobilisations the taxpayer's cumulative eligible capital in du montant cumulatif des immobilisations admissibles respect of the business at the end of the year admissibles relatives a l'entreprise a la fin de except that, where the year is less than 12 l 'annee; toutefois, lorsque l'annee compte months, the amount allowed as a deduction moins de douze mois, Ia somme deductible under this paragraph shall not exceed that en application du present alinea ne peut de­ proportion of the maximum amount other­ passer la proportion de Ia somme maximale wise allowable that the number of days in the deductible par ailleurs que represente le taxation year is of 365; nombre de jours de l'annee d'imposition par rapport a 365; Interest (c) an amount paid in the year or payable in respect of the year (depending on the method c) Ia moins elevee d'une somme payee au Interets regularly followed by the taxpayer in com­ cours de l'annee ou payable pour l'annee puting the taxpayer's income), pursuant to a (suivant Ia methode habituellement utilisee legal obligation to pay interest on par le contribuable dans le calcul de son re­ (i) borrowed money used for the purpose venu) et d'une somme raisonnable a cet egard, en execution d'une obligation legale of earning income from a business or de verser des interets sur: property (other than borrowed money used to acquire property the income from which (i) de !'argent emprunte et utilise en vue would be exempt or to acquire a life insur­ de tirer un revenu d 'une entreprise ou d 'un ance policy), bien (autre que !'argent emprunte et utilise pour acquerir un bien dont le revenu serait

222 - 39 -

Jmpot sur le revenu - 18 janvier 2012

(ii) an amount payable for property ac­ exonere ou pour contracter une police quired for the purpose of gaining or pro­ d 'assurance-vie), ducing income from the property or for the (ii) une sonune payable pour un bien ac­ purpose of gaining or producing income quis en vue d'en tirer un revenu ou de tirer from a business (other than property the un revenu d'une entreprise (a !'exception income from which would be exempt or d'un bien donl Ie revenu serait exonere ou property that is an interest in a life insur­ a ]'exception d'un bien representant un in­ ance policy), teret dans nne police d'assurance-vie), (iii) an amOtmt paid to the taxpayer under (iii) une somme payee au contribuable: (A) an appropriation Act and on terms (A) en VCI1U d'une Ioi de credits et sc­ and conditions approved by the Trea­ Ion Ies modalites approuvees par le sury Board for the purpose of advancing Conseil du Tresor en vue de relever ou or sustaining the teclmological capabili­ de maintenir le niveau de competence ty of Canadian manufacturing or other teclmolot,>ique des industries manufactu­ industry, or rieres canadiennes ou d'autres indus­ (B) the Northern Mineral Exploration tries canadiennes, Assistance Regulations made under an (B) en vertu des Reglements sur 1'aide appropriation Act that provides for pay­ a I 'exploration minzere dans le Nord, ments in respect of the Northem Miner­ pliS en vertu d'une Ioi de credits qui al Grants Program, or prevoit les paiements a effectuer relati­ (iv) borrowed money used to acquire an vement au Programme de subventions interest in an annuity contract in respect of visant les mineraux dans Ie Nord, which section 12.2 applies (or would ap­ (iv) de !'argent emprunte et utilise pour ply if the contract had an am1iversary day acquerir un interet dans un contrat de rente in the year at a time when the taxpayer auquel !'article 12.2 s'applique, ou s'ap­ held the interest) except that, where arum­ pliquerait si le jour anniversaire du contrat ity payments have begun under the con­ tombait dans l'annee a un moment ou le tract in a preceding taxation year, the contribuable detient I 'interet; toutefois, amount of interest paid or payable in the lorsque Ia rente a commence a etre versee year shall not be deducted to the extent aux termes du contrat au cours d'une an­ that it exceeds the amount included under nee d'imposition anterieure, les interets section 12.2 in computing the taxpayer's payes ou payables au cours de l'annee ne income for the year in respect of the tax­ sont pas deduits dans Ia mesure ou ils de­ payer's interest in the contract, passent le montant inclus en application de or a reasonable amount in respect thereof, !'article 12.2 dans Ie calcul du revenu du wl1ichever is the lesser; contribuable pour l'annee quanta son inte­ ret dans le contrat; Compound (d) an amount paid in the year pursuant to a interest legal obligation to pay interest on an amount d) une sonune payee au cours de l'annee en Interets that would be deductible under paragraph execution d'une obligation legale de verser composes 20(l)(c) if it were paid in the year or payable des interets sur une somme qui sera it deduc­ in respect of the year; tible scion l'alinea c) si elle etait payee au cours de I 'annee ou payable pour I 'annee; Expenses re (e) such part of an amount (other than an ex­ financing cluded amount) that is not otherwise de­ e) Ia partie d'un montant (sauf un montant Frais d'6mission ou de vente ductible in computing the income of the tax­ exclu) qui n'est pas deductible par ailleurs d'actions, payer and that is an expense incurred in the dans Ie calcul du revenu du contribuable et d'unites ou de participations et year or a preceding taxation year qui est nne depense engagee au cours de frais d'emprunt l'annee ou d'une annee d'imposition ante­ (i) in the course of an issuance or sale of rieure: units of the taxpayer where the taxpayer is a m1it trust, of interests in a partnership or

223 - 40 -

Income Tax Act, RSC 1985, c 1 (5th Supp.) section 31

CANADA

CONSOLIDATION CODIFICATION

Income Tax Act Loi de l 'impot sur le revenu

R.S.C., 1985, c. 1 (5th Supp.) L.R.C., 1985, ch. 1 (5' suppl.)

NOTE NOTE Application provisions are not included in the consolidated Lcs dispositions d 'application ne sont pas inc! uses dans Ia text; see relevant amending Acts. presente codification; voir les lois modificatives appro­ priees.

Current to January I 8, 20 I 2 A jour au IS janvier 2012

Last amended on January I, 2012 Derniere modification le I janvier 2012

Published by the Minister of Justice at the following address: Publie par le ministre de Ia Justice a l'adresse suivante: http://laws-lois .j ustice.gc.ca http://I o is-laws .j usti ce.g c. ca - 41 -

Imp6t sur le revenu- 18janvier 2012

taxpayer's animals described in subpara­ cette espece qui appartiendraient par ai lleurs graphs 29(3)(b)(i) and 29(3)(b)(ii) of that a deux categories distinctes en vertu du pre­ species shall be deemed to be of a single sent alinea, ses animaux de cette espece, vi­ class; and ses aux sous-alineas (i) et (ii), sont reputes appartenir une seule categoric; (c) in determining the number of animals of a any class on hand at any time, an animal c) en determinant le nombre d'animaux shall not be included if it was acquired for a d'une categoric quelconque en sa possession feeder operation, and an animal shall be in­ a un moment donne, il ne faut pas inclure un cluded only if its actual age is not less than, animal qui a ete acquis pour l'engraissement, et il ne faut inclure un animal que si son age (i) in the case of cattle, 2 years, veritable n'est pas inferieur a: (ii) in the case of horses, 3 years, and (i) 2 ans pour les bovins, (iii) in the case of sheep or swine, one (ii) 3 ans pour les chevaux, year, (iii) I an pour les ovins et les pores; except that 2 animals of a class under the age specified m subparagraph 29(3 )( c )(i), 2 animaux d'une categoric donnee et dont 29(3)(c)(ii) or 29(3)(c)(iii), as the case may !'age est inferieur a !'age indique aux sous­ be, shall be counted as one animal of the age alineas (i), (ii) ou (iii), selon le cas, sont tou­ so specified. tefois comptes comme un seul animal ayant NOTE: Application provisions are not included in the con­ !'age ainsi indique. solidated text; see relevant amending Acts. 1970-71-72, c. NOTE: Les dispositions d'application ne sont pas incluses 63, s. I "29"; 1985, c. 45, s. 126(F). dans Ia presentc codification; voir les lois rnodificativcs ap­ propriecs. 1970-71-72, ch. 63, a1t. 1«29»; 1985, ch. 45, art. 126(F).

Improving Llili Notwithstanding paragraphs 18(1 )(a) 30. Malgre les alineas 18(1 )a) et b), est de­ Defrichement, for farming and 18(1 )(b), there may be deducted in co mput­ ductible dans lc cal cui du revcnu qu 'un conlri­ nivellement et installation d 'un ing a taxpayer's income for a taxation year buable tire d 'une entreprise agricole pour une systCme de from a farming business any amount paid by annee d'imposition tout montant qu'il paye drainage the taxpayer before the end of the year for avant Ia fin de I'an nee pour le defrichement ou clearing land, levelling land or installing a land le nivellement de Ia terre ou !'installation d'un drainage system for the purposes of the busi­ systeme de drainage, dans le cadre de !'entre­ ness, to the extent that the amount has not been prise, dans Ia mesure ou ce montant n'a pas ete deducted in a preceding taxation year. deduit pour une annee d'imposition anterieure. NOTE: Application provisions are not included in the con­ NOTE: Les dispositions d'application ne sont pas incluses solidated text; see relevant amending Acts. 1970-71-72, c. dans Ia presente codification; voir les lois rnodificatives ap­ 63, S. 1"30"; 1988, C. 55, S. 15. propriees. 1970-71-72, ch. 63, art. 1«30»; 1988, ch. 55, art. 15.

Loss from 31. (I) Where a taxpayer's chief source of 31. (I) Lorsque le revenu d'un contri­ Pertes provenant fanning where income for a taxation year is neither farming buable, pour une annee d'imposition, ne pro­ d'une activite chief source of agricole ne income not nor a combination of farming and some other vient principal em ent ni de !'agriculture ni constituant pas fanning source of income, for the purposes of sections 3 d'une combinaison de !'agriculture et de Ia principale source de revenu and Ill the taxpayer's loss, if any, for the year quelque autre source, pour I'application des ar­ from all farming businesses carried on by the ticles 3 et Ill, ses peties pour I' an nee, prove­ taxpayer shall be deemed to be the total of nan! de toutes les entreprises agricoles exploi­ tees par lui, sont reputees etre le total des (a) the lesser of montants suivants: (i) the amount by which the total of the a) Ia moins elevee des sommes suivantes: taxpayer's losses for the year, determined without reference to this section and be­ (i) l'excedent du total de ses pertes pour fore making any deduction under section l'annee, determinees compte non tenu du 37 or 37.1, from all farming businesses present article et avant toute deduction carried on by the taxpayer exceeds the to- prevue aux articles 37 ou 37.1 et prove-

291 - 42 -

Income Tax-Janua1y 18,2012

tal of the taxpayer's incomes for the year, nant de toutes les entreprises agricoles ex­ so determined from all such businesses, ploitees par lui, sur lc total des revenus, and ainsi determines, qu'il a tires pour l'annee de ces entreprises, (ii) $2,500 plus the lesser of (ii) 2 500$ plus Ia moins elevee des (A) 1/2 of the amount by which the sommes suivantes: amount determined under subparagraph 31 (I )(a)(i) exceeds $2,500, and (A) 112 de l'cxcedent du montant vise au sous-alinca (i) sur 2 500$, (B) $6,250, and (B) 6 250$; (b) the amount, if any, by which b) l'excedent eventuel de Ia sommc visee au (i) the amount that would be determined sous-alinea (i) sur Ia somme visee au sous­ under subparagraph 31 (I )(a)(i) if it were alinea (ii): read as though the words "and before making any deduction under section 37 or (i) Ia somme qui serait determinee en ver­ 3 7 .I" were dele ted, tu du sous-alinea a)(i) compte non tenu du passage « et avant toute deduction prevue exceeds aux articles 37 ou 37.1 », (ii) the amount determined under subpara­ graph 31(1)(a)(i). (ii) Ia somme determinee en venu du sous-alinea a)(i).

Restricted farm (!.I) For the purposes of this Act, a taxpay­ ( 1.1) Pour I' application de Ia presente loi, Ia Petie agricole loss er's "restricted farm loss" for a taxation year is perte agricole restreinte d'un contribuable pour restreinte the amount, if any, by which une annee d'imposition correspond a l'excedent eventuel du montant vise I 'alinea a) sur le to­ (a) the amount determined under subpara­ a tal vise l'alinea b): graph 31 (I )(a)(i) in respect of the taxpayer a for the year a) le montant determine scion le sous-alinea (I )a)(i) relativement au contribuable pour exceeds l'annee; (b) the total of the amount determined under b) le total du montant determine scion le subparagraph 31(1)(a)(ii) in respect of the sous-alinea (l)a)(ii) relativement au contri­ taxpayer for the year and all amounts each of buable pour l'annee et des montants repre­ which is an amount by which the taxpayer's sentant chacun un montant qui, par l'effet de restricted farm loss for the year is required to l'ariicle 80, est appliquer en reduction de Ia be reduced because of section 80. a perte agricole restreinte du contribuable pour l'annee.

Detennination (2) For the purpose of this section, the Min­ (2) Pour I 'application du present article, le Decision du by Minister ister may determine that a taxpayer's chief ministre peut determiner si le revenu d 'un ministre source of income for a taxation year is neither contribuable, pour une annee d'imposition, ne farming nor a combination of farming and provient principalement ni de !'agriculture ni some other source of income. d'une combinaison de !'agriculture et de NOTE: Application provisions are not included in the con­ quelque autre source. solidated text; see relevant amending Acts. R.S., 1985, c. I NOTE: Les dispositions d'application ne sont pas incluses (5th Supp.), s. 31; 1995, c. 21, s. 8. dans Ia presente codification; voir les lois modificatives ap­ propriees. L.R. (1985), ch. I (5' suppl.), art. 31; 1995, ch. 21, art. 8.

Insurance agents 32. (1) In computing a taxpayer's income 32. (1) Dans le calcul du revenu qu'un Agents ou and brokers courtiers for a taxation year from the taxpayer's business contribuable tire pour une annee d'imposition d'assurance as an insurance agent or broker, no amount may de son entreprise en qualite d'agent ou de cour­ be deducted under paragraph 20(1 )(m) for the tier d'assurance, aucun montant n'est deduc­ year in respect of unearned commissions from tible en application de l'alinea 20(1)m) pour

292 - 43 -

Income Tax Act, RSC 1985, c 1 (5th Supp.) subsection 111(1)

CANADA

CONSOLIDATION CODIFICATION

Income Tax Act Loi de l'imp6t sur le revenu

R.S.C., 1985, c. 1 (5th Supp.) L.R.C., 1985, ch. I (5' suppl.)

NOTE NOTE Application provisions are not included in the consolidated Les dispositions d'application ne sont pas incluses dans Ia text; see relevant amending Acts. presente codification; voir les lois modificatives appro­ priees.

Current to January 18, 2012 Ajour au !&janvier 2012

Last amended on January I, 2012 Derniere modification le I janvier 2012

Published by the Minister of Justice at the following address: Publie par le ministre de !a Justice a l'adresse suivante: http://laws-lo is.j ustice.gc. ca http ://lois-laws .j ustice.gc.ca - 44 -

Imp6t sur le revenu- 18janvier 2012

Jar area for the year exceeds the value of, or an vement a Ia region sur Ia valeur de Ia pension et allowance in respect of expenses incurred by du logement du contribuable dans Ia region the taxpayer for, the taxpayer's board and lodg­ (ailleurs que sur un chantier vise a l'alinea ing in the particular area (other than at a work 67.1(2)e)), ou !'allocation pour les frais qu'il site described in paragraph 67.1 (2)(e)) that supporte a cet egard, qui, a Ia fois: (a) would, but for subparagraph 6(6)(a)(i), a) sans le sous-alinea 6(6)a)(i), serait in­ be included in computing the taxpayer's in­ cluse dans le calcul de son revenu pour !'an­ come for the year; and nee; (b) can reasonably be considered to be at­ b) peut raisonnablem ent etre consideree tributable to that portion of the qualifying pe­ comme attribuable a Ia partie de Ia periode riod that is in the year and during which the admissible comprise dans l'annee et pendant taxpayer maintained a self-contained domes­ laquelle il tient un etablissement domestique tic establishment as the taxpayer's principal autonome comme lieu principal de residence place of residence in an area other than a pre­ dans une region qui n'est, pour l'annee, ni scribed northern zone or a prescribed inter­ une zone nordique visee par reglement, ni mediate zone for the year. une zone intermediaire visee par reglement.

Idem (5) Where on any day an individual resides (5) Le particulier qui, un jour donne, reside Residence in more than one particular area referred to in dans plusieurs regions vi sees au paragraphe (I) unique subsection 110.7(1), for the purpose of that est repute, pour !'application de ce paragraphe, subsection, the individual shall be deemed to ne resider que dans une seule de ces regions ce reside in only one such area on that day. jour-la. NOTE: Application provisions arc not included in the con­ NOTE: Les dispositions d'application ne sont pas incluses solidated text: see relevant amending Acts. R.S., 1985, c. 1 dans Ia presente codification: voir les lois modificatives ap­ (5th Supp.), s. 110.7; 1994, c. 7, Sch. II, s. 82, Sch. Vlll, s. propriees. L.R. (1985), ch. 1 (5' suppl.), art. 110.7: 1994, 48: 1999, c. 22, s. 27: 2008, c. 28, s. 13. ch. 7, ann. II, art. 82, ann. VIII, art. 48: 1999, ch. 22, art. 27; 2008, ch. 28, art. 13.

Losses 111. (I) For the purpose of computing the 111. ( 1) Pour le cal cui du revenu im posable Pertes deductible taxable income of a taxpayer for a taxation d'un contribuable pour une annee d'imposition, dectuctibles year, there may be deducted such portion as the peuvent etre deduites les sommes appropriees taxpayer may claim of the taxpayer's suivantes:

Non-capital (a) non-capital losses for the 20 taxation a) ses pertes autres que des pe1ies en capital Pertes auh·es que losses des pertes en years immediately preceding and the 3 taxa­ subies au cours des 20 annees d'imposition capital tion years immediately following the year; precedentes et des 3 annees d'imposition sui­ vantes; Net capital (b) net capital losses for taxation years pre­ losses ceding and the three taxation years immedi­ b) les pertes en capital nettes que le contri­ Pe11es en capital ately following the year; buable subit pour les annees d 'imposition qui ncttes precedent et pour les trois annees d'imposi­ Restricted farm (c) restricted farm losses for the 20 taxation tion qui suivent I' an nee; losses years immediately preceding and the 3 taxa­ tion years immediately following the year, c) ses pertes agricoles restreintes subies au Pertes agricoles but no amount is deductible for the year in coUI·s des 20 annees d'imposition prece­ restreintcs respect of restricted farm losses except to the dentes et des 3 annees d'imposition sui­ extent of the taxpayer's incomes for the year vantes; toutefois, Ia somme deductible pour from all farming businesses carried on by the I 'an nee a titre de pertes agricoles restreintes taxpayer; ne peut ex ceder le revenu tire, pour I 'annee, des entreprises agricoles exploitees par le Fann losses (d) farm losses for the 20 taxation years im­ contribuab le; mediately preceding and the 3 taxation years immediately following the year; and d) ses pertes agricoles subies au cours des Pertes agricoles 20 annees d'imposition precedentes et des 3 Limited (e) limited partnership losses in respect of a annees d' imposition suivantes; partnership partnership for taxation years preceding the losses

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Income Tax -Janua1y 18, 2012

year, but no amount is deductible for the year e) les pcrtes comme commanditaire subies Pe1tes com me in respect of a limited partnership loss except dans une societe de personnes par le contri­ commanditaire to the extent of the amount by which buable pour !es annees d'imposition prece­ dant l'annec; toutefois, le montant deductible (i) the taxpayer's at-risk amount in re­ pour l'annee au titre d'une perte comme spect of the partnership (within the mean­ commanditaire ne !'est qu'a concurrence de ing assigned by subsection 96(2.2)) at the l'excedent du montant vise au sous-alinea (i) end of the last fiscal period of the partner­ sur le total vise au sous-alinea (ii): ship ending in the taxation year (i) Ia fraction a risques de I' interet du exceeds contribuable dans Ia societe de personnes, (ii) the total of all amounts each of which au sens du paragraphe 96(2.2), a Ia fin du is dernier exercice de Ia societe de personnes (A) the amount required by subsection se terminant au cours de l'annee, 127(8) in respect of the partnership to (ii) le total des montants dont chacun re­ be added in computing the investment presente: tax credit of the taxpayer for the taxa­ (A) Ia partie du montant determine a tion year, l'egard de Ia societe de personnes que le (B) the taxpayer's share of any losses paragraphe 127(8) prevoit d'ajouter au of the partnership for that fiscal period credit d'impot a l'investissement du from a business or property, or contribuable pour l'annec, (C) the taxpayer's share of (B) Ia part dont !e contribuable est tenu (I) the foreign resource pool expens­ des pertes de Ia societe de personnes nS­ es, if any, incurred by the partnership sultant d'une entreprise ou d'un bien in that fiscal period, pour le dernier exercice de Ia societe de personnes se term in ant au cow·s de I' an­ (II) the Canadian exploration ex­ nee, pense, if any, incurred by the partner­ ship in that fiscal period, (C) Ia part attribuable au contribuable des frais globaux relati fs a des res­ (III) the Canadian development ex­ sources a l'etranger, des frais d'explora­ pense, if any, incurred by the partner­ tion au Canada, des frais d'amenage­ ship in that fiscal period, and ment au Canada et des frais a I 'egard de (IV) the Canadian oil and gas prop­ biens canadiens relatifs au petrole et au erty expense, if any, incurred by the gaz, engages par Ia societe de personnes partnership in that fiscal period. au cour·s de cet exercice.

Net capital (1.1) Notwithstanding paragraph lll(l)(b), (1.1) Malgre l'alinea (!)b), le montant qu'un Pertes en capital losses the amount that may be deducted under that contribuable peut deduire en application de cet nettes paragraph in computing a taxpayer's taxable in­ alinea dans le ca!cul de son revenu imposable come for a particular taxation year is the total pour une an nee d' imposition donnee corres­ of pond au total des montants suivants: (a) the lesser of a) le moins eleve des m ontants suivants: (i) the amount, if any, determined under (i) l'excedent calcule selon l'alinea 3b) a paragraph 3(b) in respect of the taxpayer l'egard du contribuable pour l'annee don­ for the patiicular year, and nee, (ii) the total of all amounts each of which (ii) le total des montants dont chacun re­ is an amount determined by the formula presente un montant calcule selon Ia for­ mule suivante: A X B/C A X B/C where

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Income Tax Act, RSC 1985, c l (5th Supp.) subsection 248(1) "farming" subsection 248(1) "agriculture"

CANADA

CONSOLIDATION CODIFICATION

Income Tax Act Loi de l'impot sur le revenu

R.S.C., 1985, c. 1 (5th Supp.) L.R.C., 1985, ch. 1 (5' suppl.)

NOTE NOTE Application provisions are not included in the consolidated Les dispositions d'application ne sont pas inc!uses dans Ia text; see relevant amending Acts. presente codification; voir les lois modificatives appro­ pri ees.

Current to January 18, 2012 Ajour au 18 janvier 20 12

Last amended on January 1, 2012 Derniere modification le 1 janvier 2012

Published by the Minister of Justice at the following address: Pub lie par le rninistre de Ia Justice a1 'adresse suivante: http://laws-lois.justice. gc. ca http://lois-laws.justice.gc.ca - 47 -

Income Tax-January 18, 2012

"exernpt "exempt income" means property received or «activites de recherche scientifique et de deve­ « actiVItes de income" acquired by a person in such circumstances that loppement experimental» Investigation ou re­ recherche <( revenu scientrfique et de exonere)) it is, because of any provision of Part I, not in­ cherche systematique d 'ordre scientifique ou developpement experimental » cluded in computing the person's income, but technologique, effectuee par voie d'experimen­ "scientific does not include a dividend on a share or a sup­ tation ou d'analyse, c'est-a-dire: research and port amount (as defined in subsection 56.1(4)); experimental a) Ia recherche pure, a savoir lcs travaux en­ development" "fanning" "farming" includes tillage of the soil, livestock trepris pour I' avancement de Ia science sans (> veaux materiaux, dispositifs, produits ou pro­ "filmg-due date" "filing-due date" for a taxation year of a tax­ cedes ou de !'amelioration, meme Iegere, de «date payer means the day on or before which the ceux qui existent. d 'JchJance de production >! taxpayer's return of income under Part Tfor the Pour I' application de la presente definition <'t wt year is required to be filed or would be required contribuable, sont compris parmi les activites to be filed if tax under that Part were payable de recherche scientifique et de developpement by the taxpayer for the year; experimental : "fiscal period" [Repealed, 1996, c. 21, s. 60(1)] d) les travaux entrepris par le contribuable "fishing" "fishing" includes fishing for or catching shell­ ou pour son compte relativernent aux travaux « peche >> fish, crustaceans and marine animals but does techniques, a Ia conception, a Ia recherche not include an office or employment under H operationnelle, a !'analyse mathCmatique, (l person engaged in the business of fishing; Ia programnmtion infonnatique, a !a collecte de donnees, aux essais et a Ia recherche psy­ "flow-through "flow-through share" has the meaning assigned chologique, lorsque ces travaux sont propor­ share" by subsection 66(15); «action tionnels aux besoins des travaux vises aux accniditive >> alineas a), b) ou c) qui sont entrepris au "foreign accrual "foreign accrual property income" has the Canada par le contribuable ou pour son property meaning assigned by section 95; income" compte et servent a les appuyer directement. << revenu etranger Ne constituent pas des activites de recherche accumu!e, tire scientifique et de developpement experimental de bien.•:~ » les travaux relatifs aux activites suivantes : "foreign "foreign affiliate" has the meaning assigned by affiliate" subsection 95(1); e) !'etude du marche et Ia promotion des «societe ventes; etrangere affi/iJe » f) le controle de Ia qualite ou Ia mise a l'es­ "foreign "foreign currency" means currency of a country sai norrnale des materiaux, dispositifs, pro­ currency" other than Canada; "monnaie duits ou procedes; etrangl!re )) g) Ia recherche dans les sciences sociales ou "foreign "foreign currency debt" has the meaning as­ humaines; currency debt" signed by subsection 111 (8); « dette en h) Ia prospection, !'exploration et le forage monncne etrangere)} fait en vue de Ia decouverte de mineraux, de petrole ou de gaz nature! et leur production; i) Ia production commerciale d'un materiau, d'un dispositif ou d'un produit nouveau ou

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Jmp6t sur !e revenu - 18 janvier 2012

"foreign "foreign explomtion and development expens­ ameliore, et l'uWisation commerciale d'un exploration and es" has tl1e meaning assigned by subsection development procede nouveau ou ameliore; expenses" 66(15); «frais j) les modificabons de style; d 'exploration et d 'amimagement k) la col!ecte normale de donnees. a l 'etrangen> «affaires» S'entend au sens de «entreprise». « affaires >> "foreign "foreign resource expense" has the meaning as­ "business" resource signed by subsection 66.21(1); expense" «agriculture» Sont compris dans !'agriculture « agriculture >> «frais relatifs a Ia culture du sol, l'elevage ou !'exposition ''farming" des ressources d l 'etranger )) d'animaux de ferme, l'entretien de chevaux de course, I' elevage de Ia volaille, 1' elevage des "foreign "foreign resource pool expenses" of a taxpayer resource pool means the taxpayer's foreign resource expenses animaux a fourrure, Ia producbon laibere, Ia expenses" pornoculture et !'apiculture. Ne sont toutefois «frais globaux in respect of all countries and the ta:\'J)aycr's relatifi ades foreign cxplorabon and development expenses; pas vises par Ia presente definition Ia charge ou ressources cl 1, etranger )) l'emploi aupres d'une personne exploitant une entreplise aglicole. "foreign "foreign resource property" has the meaning resource assigned by subsection 66(15), and a foreign «allocabon de retmite» Somme, sauf une pres­ «allocatiOn de property" tation de retraite ou de pension, une somme rc­ retraite » « avoir numer resource property in respect of a country means "retinng etranger )) a foreign resource property that is r;uc en raison du deces d'u11 employe ou un allowance" avantage vise au sous-alinea 6(l)a)(iv), rer;ue (a) a right, licence or privilege to explore par un contribuable ou, apres son deces, par for, drill for or take petroleum, natural gas or une personne qui eta:it a sa charge ou qui lui related hydrocarbons in that counlly, etait apparentee, on par un representant legal du (b) a right, licence or plivilege to contribuable: (i) store tmderground petroleum, natural a) soit en reconnaissance de longs etats de gas or related hydrocarbons in that coun­ service du contribuable au moment oi1 il try, or prend sa retraite d'une charge ou d'un em­ ploi ou par Ia suite; (ii) prospect, explore, drill or mine for minerals in a mineral resource in that b) soit a l'egard de Ia perte par le contri­ country, buable d'une charge ou d'un emploi, qu'elle ait ete rer;ue ou non a btre de dOirunages ou (c) an oil or gas well in that country or real confonnement aune ordonnance ou sur juge­ property in that country the plincipal value ment d'un tribunal competent. of which depends on its petroleum or natural gas content (but not including depreciable «ancien bien d'entreprise» Immobilisation « ancien b1en d 'entreprise >> property), d 'un contribuable utilisee par lui ou par une "former business personne qui lui est liee principalement en vue property" (d) a rental or royalty computed by refer­ de brer un revenu d 'une entreprise et qui etait ence to the amount or value of production un bien immeuble du contribuable ou un droit y from an oil or gas well in that country or afferent, aI' exclusion toutefois: from a natural accumulation of petroleum or natural gas in that country, a) d'un bien locatif du contlibuable; (e) a rental or royalty computed by reference b) du fonds de terre sous-jacent a un bien lo­ to the amount or value of production from a catif du contribuable; mineral resource in that country, c) du terrain contigu au fonds de terre vise a (j) a real property in that country the princi­ l'alinea b) et qui sert de pare de stationne­ pal value of which depends upon its mineral ment, de voie d'acces, de cour, de jardin ou resource content (but not including deprecia­ qui est par ailleurs necessaire pour !'usage du ble property), or bien locatifvise acet alinea; (g) a light to or interest in any property de­ d) d'une tenure a bail sur tout bien decrit scribed in any of paragraphs (a) to (j), other aux alineas a) a c).

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