http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/144184/index.do
Living Friends Tree Farm v. The Queen (May 11, 2016 – 2016 TCC 116, Campbell J.).
Précis: Living Friends Tree Farm was a partnership of Mr. and Mrs. Dahl which was registered for GST purposes. They claimed input tax credits (“ITCs”) of $15,689 in 2009 in respect of their activity on a 10 acre Christmas tree farm they operated. The Minister subsequently reassessed denying the ITCs on the basis that they did not have a business operation. The Tax Court examined the facts and agreed with the Minister’s position. As a result the appeal was dismissed. There was no order as to costs as this was an informal procedure appeal.
Decision: The Dahls moved from British Columbia to Alberta where they acquired a 160 acre property, 10 acres of which they dedicated to growing Christmas trees.
The Minister’s position was simple:
[13] In determining the Appellants’ net worth for the Period, the Minister relied on the following assumptions of fact in its Reply to the Notice of Appeal:
The Barn
a) In or around June 2009, Agnes and Eldon purchased an agricultural property near Cochrane, Alberta with the legal description 5;4;28;15 SW;
b) In 2009, the Agnes and Eldon began construction of a barn on their property;
c) The barn structure consisted of:
i. A basement mechanical room;
ii. A main floor, consisting of parking spaces, equipment space, and stalls for horses; and
iii. An upper floor which Agnes and Eldon began to use as their principal residence in 2011;
d) Agnes and Eldon do not own horses or other livestock;
Living Friends
…
g) Living Friends has never conducted any mass planting of trees;
h) Living Friends has not conducted any other agricultural activities;
i) Living Friends does not own horses or other livestock;
j) Living Friends has not purchased equipment, trees, or any other items necessary for the operation of a tree farm;
k) Living Friends has never generated, recorded, or reported revenue; and
l) During the Reporting Period, Agnes and Eldon did not operate a tree farm or any other business as Living Friends.
The Court accepted the Minister’s position:
[20] While I recognize that a tree farm has an initial start-up phase that will be substantially longer than many other commercial enterprises due to the length of time it takes for trees to reach maturity, I cannot ignore that, according to the evidence before me, the Appellants have yet to formulate clear positive steps in establishing the future path of this tree-growing operation as a potentially viable commercial endeavour in the years to come. Although it was Mrs. Dahl’s evidence that, weather permitting, it generally took two to three years before tree growth would permit sales, there have been no sales to date since the first planting of the 50 saplings in 2010 and, presently, less than half of the 10 acres, originally designated for the tree growing activities, has been planted with saplings. She explained that this limited planting has occurred because their attention and monetary reserves have been taken up with the several court actions against seemingly unscrupulous tradespeople. However, the saplings that have been planted have been foraged at no cost from surrounding areas. While I appreciate that these court actions have taken years to wind their way through the system and have extracated their toll on the Appellants, both financially and emotionally, it appears that, although the intent existed from the outset to operate a tree farm, the goal has been for all intents and purposes shelved, perhaps until the actions are dealt with or, perhaps as the evidence suggests, until they can retire and devote full-time attention to the activities through a more definitive business plan. This would include greater and deliberate planting, advertising for customers and a focus on profit from the activities. There is no business plan. No partnership agreement was produced. Mrs. Dahl did state, in cross-examination, that she is an economist and was constantly thinking about the numbers and financial estimates. However, nothing appears to have been committed to paper and I have nothing concrete before me, either orally or through documentary evidence, respecting a business plan with long-range profit projections.
[21] In 2010, 50 saplings were foraged and planted and thereafter 30 to 50 in subsequent years, with none planted in 2014. Even if I assume a yearly average of 40 trees planted in 2011, 2012, 2013, and 2015 together with 50 saplings in 2010, this totals 210 saplings over six years compared to the one-time purchase of 150 saplings by Mr. and Mrs. Dahl for their personal use at another residence prior to purchasing the 160 acres.
[22] To reiterate my comments in Land & Sea Enterprises, the eligibility of expenses that give rise to ITCs in the start-up phase of any business will require that a taxpayer show not only a clear intention to commence a commercial enterprise but also evidence of the steps taken in support of that stated intention. In the present appeal, I believe that the Appellants had an intention to commence a Christmas tree growing operation when they purchased the property in 2009. However, it was intermingled with a lifestyle that the Appellants envisioned for themselves surrounded by nature, particularly trees and wildlife habitat. These personal objectives are so co‑mingled with the business goals that, even if I could allow this appeal, I would be unable to do so because I have very little evidence on the actual split between personal and business. Their home is now located on the 160 acres so some of the preparatory costs for the roads, fencing and utilities may have been in respect to personal use. The barn is used for both business and personal storage but I have no evidence respecting the percentage breakdown.
[23] While it is commendable that Mrs. and Mrs. Dahl exhibit such respect for their surroundings and are excellent stewards of the land, based on the evidence, I cannot conclude there existed a commercial endeavour with a goal of actively pursuing profit. ITCs cannot be allowed where, from the overall totality of the relevant facts, there is no evidence of the indicia of commerciality.
As a result the appeal was dismissed. There was no order as to costs since this was an informal procedure appeal.