A ground breaking decision by a Tax Court of Canada judge is being called a huge victory for farmers who must earn off-farm income to keep their operations afloat.
In his decision handed down Aug. 23, Saskatoon judge Dave Beaubier ruled in favor of Brian Finch, a Kelvington, Sask., farmer who was appealing a tax reassessment by the Canada Customs and Revenue Agency.
Finch was told by officials that under Section 31 of the Income Tax Act, he could only apply a small portion of his farm losses in 1992, 1993 and 1994 against the income he earned as a lead and zinc miner.
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The agency reassessed Finch for those tax years. Finch appealed the reassessment through the court system and won.
It’s a decision with far-reaching implications.
Tax lawyers say the judge sent a strong message to the revenue agency to ease up on its definition of who is a farmer and who should be able to take advantage of farm deductions.
Finch’s lawyer, James Sanderson, said 82 percent of Saskatchewan farmers have off-farm income and thousands would be in situations similar to Finch.
“(A judgment) of this nature is of great importance to them because they will have claimed a loss and will be sitting on pins and needles wondering whether Revenue Canada will miss them or whether the hammer will fall,” said Sanderson, who has been practising law for 45 years.
“Now Revenue Canada will basically be looking at all those income tax returns and interpreting them from this Finch decision.”
Still digesting
A spokesperson for the revenue agency said it’s not that cut-and-dried. He said the agency will need time to interpret the decision, but his first thought is that it won’t change the way cases are approached.
“I would think we’d pursue them as we have in the past,” said Jerry Shoemaker.
The agency won’t appeal the judge’s decision but is appealing the $25,000 in court costs awarded to the Finches, an unprecedented amount in a case like this.
Beaubier’s decision has sent shock waves through the legal community. Farm tax lawyers who were not involved in the case marvel at the judgment.
The length of the 21-page decision and the language used by the judge send a strong message to the revenue agency that cases like this should never come to trial, said Saskatoon tax lawyer Melvin Gerspacher.
In his decision, Beaubier harshly rebuked the government tax collector, calling the case “an abuse of the appellant and of the court process.”
“I can assure you that those are extraordinary words for a judge. It might not sound like much to you, but those words are as damning as you’re going to get,” Gerspacher said.
“Basically the judge is saying Revenue should never assess under this provision where you’ve been a farmer and then seek off-farm income as a means to support what remains a commercial operation.”
The crux of the case centred on whether Finch should be considered a full-time farmer or a sideline farmer. Sideline farmers can only deduct the first $2,000 of their farm losses plus half of their remaining losses up to a maximum of $8,750. Full-time farmers are free of those limitations.
Beaubier said Finch took permanent employment in 1990 to help save the farm on the direction of the Farm Credit Corporation and the Farm Debt Review Board. His wife Brenda worked the farm while her husband was away at the mine.
“It was not a sideline business to either of them. It was their whole life and they have devoted their lives to it. It was the centre of their work routine for both of them and the major preoccupation of each of them,” Beaubier said in his decision.
Brenda Finch is thrilled with the outcome.
“I tell you there was a lot of tears that day. We were on the verge of losing our farm. If we had to pay that tax bill, we would have had to sell our farm to do it.”
She said they were facing bills exceeding $200,000. That includes reassessments from the 1995, 1996 and 1997 tax years.
Beaubier’s ruling on the 1992, 1993 and 1994 reassessments may deter the revenue agency from taking action on the 1995, 1996 and 1997 reassessments, which the Finches have appealed.
“I hope they leave us alone,” said Finch.
Shoemaker wouldn’t comment on the specifics of the Finches reassessments.
