http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/73121/index.do 
Otteson v. The Queen (August 13, 2014 – 2014 TCC 250) was a decision on appeals by a husband and wife who had sold their tree farm and claimed a capital gains exemption for “qualified farm property”.
[1] In 2003, Ronald and Donna Otteson (the “Appellants”) purchased 50.16 acres of land (the “Land”) for the purpose, inter alia, of using the Land in a tree farm business and producing hay (the “Tree Farm”).
[2] Early in 2007, a significant quantity of gravel was unexpectedly found on the Land. Shortly thereafter, the Appellants began to receive unsolicited and persistent offers for the Land. In the fall of 2008, the Land was sold by the Appellants to an arm’s length buyer for $1,600,000.
[3] In filing their tax returns for the 2008 and 2009 taxation years, each of the Appellants claimed the maximum capital gains deduction with respect to the capital gain amount included in their income for each of those years (the “Farming Capital Gains Exemption”), they did so on the basis that the Land was “qualified farm property” within the meaning of the definition of that term. The Minister of National Revenue (the “Minister”) reassessed the Appellants to deny their claim for the Farming Capital Gains Exemption on the basis that the circumstances surrounding the ownership and use of the Land did not satisfy the eligibility requirements for that exemption.
The decision is complex but at heart it boiled down to whether the tree farm was sold by Mr. and Mrs. Otteson directly or by a de facto partnership of which they were partners. The Crown took the former position since subparagraph 110.6(1.3)(b)(i) provided a gross revenue from farming test which the Ottesons could not have met if they had sold the farm directly. The taxpayers took the latter position since the gross revenue test was not applicable where the property was owned by a partnership. It seems likely that the Minister’s position was based in part on the fact that neither taxpayer had ever claimed any gain or loss from the tree farm prior to its sale. This was based on professional advice they had received and later determined to be incorrect.
The court examined the applicable law of partnership and concluded that the preponderance of the evidence indicated that the tree farm was carried on as a partnership. The court however concluded that the partnership land did not include property leased to a neighbour who used it to grow hay. That portion of the land (24.25 acres) was held not to be qualified farm property.
Accordingly the appeals were allowed. The parties were given 30 days to agree upon costs, or failing which, make brief written costs submissions to the court.