On March 23, 2012, the Supreme Court of Canada is tentatively scheduled to hear the Crown’s appeal in The Queen v. John H. Craig.  The Court will have an opportunity to reconsider its 1978 decision (Moldowan v. The Queen, [1978] 1 S.C.R. 480) which has been relied on in almost every farm loss case since then.

While earning most of his income in his 2000 and 2001 taxation years as a partner of a law firm, Mr. Craig also had income from a business comprising the buying, selling, breeding, and racing of horses.  The Minister disallowed the losses deducted by Mr. Craig in those years in respect of the horse business.

Relying on subsection 31(1) of the Income Tax Act, which restricts farm losses in instances where a taxpayer’s “chief source of income” for a taxation year is neither farming nor a combination of farming and some other source of income, the Minister restricted Mr. Craig’s allowable deductions from the horse business to $8,750 for each year on the basis that his other income was not subordinate to his farming income.

Mr. Craig appealed the Minister’s reassessments.  The Tax Court of Canada allowed Mr. Craig’s appeals, and the Federal Court of Appeal dismissed the Minister’s appeal.

The questions to be addressed in this appeal include the following:

  1. Whether the test to determine whether farming is a “chief source of income” under subsection 31(1) of the Income Tax Act continues to be the test described in the decision of the Supreme Court of Canada in Moldowan.
  2. Whether an appellate court is bound by a previous decision of that appellate court when it is inconsistent with a prior decision of the Supreme Court of Canada.