Colbert v. Canada
T-1667-89
Wetston J.
10/8/94
9 pp.
Appeals from Tax Court's dismissal of appeals from Minister's assessments for 1984, 1985-Plaintiffs owned chicken farm-Incorporating in 1981 as concerned about accident claims which could arise from periodic employment of summer students-Goodwill, all equipment, vehicles used on farm transferred to corporation-Plaintiffs retaining ownership of land, chicken quota-Selling farm in 1984-Capital gain from disposition included in 1984 income-In 1985 plaintiffs purchasing new farm in partnership with third party-Plaintiffs not involved in day-to-day operations of second farm-Electing under ss. 13(4), 44(1) to treat farm sold in 1984 as "former business property" and farm purchased in 1985 as "replacement property" within meaning of s. 248 for both 1984, 1985 taxation years-Election to treat assets of new farm as replacement properties to defer tax payable on capital gain and recaptured capital cost allowance with respect to farm property disposed of in 1984-"Former business property" not generally including rental property-Rental property not including property leased by taxpayer in ordinary course of business under agreement by which lessee agreeing to use property to carry on business of selling taxpayer's goods or services-Minister disallowing election-Treating first farm as "rental property"-Tax Court holding first farm rental property, chickens property of corporation, therefore no agreement whereby lessee undertaking to carry on business of selling taxpayers' goods or services-Whether, as required by definition of "former business property" in s. 248(1), land and chicken quota used by plaintiffs in business of farming so as to entitle them to deferral in ss. 13(4), 44(1)-Plaintiffs arguing carrying on business in conjunction with corporation as continuing to own land, chickens-Submitted both corporation and plaintiffs contributing assets to business and therefore taxpayers remaining in business of farming even after incorporation-Whether agency or partnership relationship established-Appeals dismissed-That corporation bought chickens and paid all operating expenses indicating intention to transfer business to corporation-After incorporation, taxpayer receiving salary from company, reported as employment income-Plaintiff performing same functions on farm in different capacity i.e. as salaried employee-While absence of formal lease document making it difficult to find conclusively land, quota leased to corporation, plaintiffs' conduct, accounting statements indicating corporation used quota and paid Colberts "rent" to compensate them for this use-Such payment rental income-Corporation, not plaintiffs, using land, quota to generate business income-Plaintiffs eventually receiving income as employment, rental income-Corporation not mere agent of plaintiffs-No implied agreement to jointly carry out business-Farm not used to generate income from business of farming and not falling within definition of "former business property" in s. 248(1)-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 13(4) (as am. by S.C. 1977-78, c. 1, s. 6), 44(1) (as am. idem, s. 18), 85, 248(1) (as am. idem, s. 98).