Leith v. R. - TCC: Taxpayer was not engaged in farming as a business

Leith v. R. - TCC:  Taxpayer was not engaged in farming as a business


Leith v. The Queen  (December 3, 2015 – 2015 TCC 314, Graham J.).

Précis:   The taxpayer was an investment advisor employed by BMO Nesbett Burns.  In 2006 and 2007 he claimed deductions from his employment income which CRA disallowed.  He also claimed farming losses which CRA disallowed on the basis that the farming was a personal and not a business activity.  The Tax Court disallowed the expenses claims as it rejected the taxpayer’s evidence based largely on his production of altered or back-dated documents.  On the issue of the farm losses the Court found that he did not carry on a farm business.

The appeal was dismissed with costs.

Decision:   This case is rather unusual in terms of the Court’s conclusions that the taxpayer was endeavouring to mislead:

[22]        Mr. Leith denied altering the T2200’s for the purpose of his dispute with the Minister. He appeared to claim that the alterations that he made were for the purpose of reflecting the reality of his employment situation rather than for the purpose of affecting the outcome of the trial. It was as if Mr. Leith wanted me to believe that he had an altruistic interest outside of his tax dispute in having the T2200’s reflect a more accurate picture of what occurred. The simple fact is that in his direct testimony Mr. Leith falsely presented the 2006 Trial T2200 as having been altered before Mr. Casey signed it, failed to draw my attention to the fact that he had provided a different set of T2200’s to his accountant and failed to draw my attention to the fact that one or both of the 2007 T2200’s had been altered after Mr. Casey signed them. On cross-examination when faced with the two differing sets of T2200’s, Mr. Leith was evasive and vacillated in his explanations of what had occurred. It was unclear exactly what Mr. Leith’s position was. At first he appeared to insist that any alterations he had made had been approved by Mr. Casey and had been made before April 30 of the years in question. This, of course, does not explain why he would have given a different set of documents to his accountant than the documents he filed in Court. At another point in his testimony he insisted that the Audit T2200’s were incorrect although he did not explain why he would have given incorrect T2200’s to his accountant. Finally he appeared to concede that he may have altered some of the T2200’s after Mr. Casey signed them but insisted that those alterations had only been made for the purpose of reflecting the truth of his employment situation. The overall impression that I had was that Mr. Leith was drowning in his own deceits and was desperately grasping at anything that he thought might save him. A witness who falsely presents altered documents either to the CRA or as evidence at trial cannot reasonably expect to either be found to be credible or to be found to have presented the documents for a reason other than to influence the outcome of his or her dispute with the Minister.

[24]        Mr. Leith also filed into evidence, two marked up calendars: one for 2006 and one for 2007. He testified that he had printed those calendars at the end of the years in question and noted in handwriting the mileage that he had driven for employment purposes on the relevant days. Mr. Leith testified in detail about how he would note the mileage on the back of meal receipts, collect the receipts in a bag until the end of the month, then transfer the receipts to monthly envelopes and finally, at year end, transfer the information from the back of the receipts to the calendar.

[25]        The date May 14, 2010 appears in the bottom right hand corner of both of the calendars. It seemed highly unlikely that such a date would appear on calendars supposedly printed in 2006 and 2007. To ensure that I was not drawing an incorrect inference from that date, at the end of Mr. Leith’s testimony I asked him what the date was. He stated that it was the date that the calendars were printed. Not only does that contradict his own testimony regarding when he printed the calendars, it also calls into question his entire detailed description of how he maintained his records and suggests that he was attempting to backdate evidence. The fact that the auditor first spoke to Mr. Leith’s accountant on May 12, 2010 and the calendars were printed on May 14, 2010, further suggests that the calendars were created not in the course of Mr. Leith’s usual record keeping practices but rather to satisfy the auditor. All of the foregoing affects my view of Mr. Leith’s credibility.

It is unusual, to say the least, for the evidence of fabrication to be so blatant.  As a consequence the expense claims were denied.

On the issue of farming losses the Court found that no business was carried on:

[27]        In 2006, Mr. Leith purchased a farm located in Duncan, Ontario. The farm buildings and fencing were in a state of disrepair. He spent a significant amount of money repairing and improving the property. The losses that he claims are mostly related to those costs.

[31]        Mr. Leith did not own, buy or sell any cattle in 2006 or 2007. He did not breed any cattle in those years. He did not raise crops. He did not purchase any farming inventory or feed. He did not have a written business plan. He testified that he knew exactly what he planned to do but he did not provide any details as to what that was nor did he provide any financial projections as to how or when the farm would become profitable. Mr. Leith provided no evidence as to his farming knowledge or, to the extent that it was lacking, how he intended to gain that knowledge. While he made the fields on the property available to some neighbours’ cattle in exchange for $1,000 per year, those cattle did not use the barn and Mr. Leith’s involvement with the cattle extended, at most, to checking in on them on weekends when he was at the property.

[32]        Based on all of the foregoing, I conclude that in 2006 and 2007 Mr. Leith’s farming activities were a personal endeavour. At best he was preparing the property for a potential future use in an as yet uncommenced farming business.

As a result the appeal was dismissed with costs.  The Crown requested and was granted 30 days to make submissions on costs.