Won At The Supreme Court, Lost In The Budget

Canadian farming is full of people who farm and also do something else, because farming alone frequently does not pay the mortgage. The tax treatment of that entirely ordinary arrangement has been litigated for half a century, decided by the Supreme Court twice in opposite directions, and settled by Parliament.

A Note On Currency

Everything here is stated as verified in August 2026 and requires confirmation before reliance. This area has changed more than once and could change again.

The judicial history is taken from the Supreme Court's own reasons and from professional commentary; the legislative response is taken from commentary describing budget proposals rather than from the enacted provision, which we did not verify against the current statutory text. That distinction matters here more than usual, and we flag it again in the limits section.

One source gives the effective date of the legislative change as taxation years ending after 21 March 2013[1]. We report that date as stated and recommend confirming it, since a date at a year boundary determines which rule applies to a given year.

This is not tax or legal advice. Whether the restriction applies turns on a taxpayer's whole circumstances, and it is an area where CRA has historically assessed and taxpayers have historically litigated.

The Provision

The statutory language, quoted from the Supreme Court's summary of it.

The Court records that subsection 31(1) limits deductible losses 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[2].

Read that as a business owner rather than as a lawyer and the structure is clear. There are two ways to escape the limit. Farming is your chief source of income. Or a combination of farming and something else is.

The second route is the one that matters for most Canadian farmers, because the population the provision affects is precisely those who farm and earn elsewhere.

The Court framed the question in the appeal as being under what circumstances the combination of farming and some other source of income constitutes a chief source of income, allowing a taxpayer to avoid the limitation[2].

Where the restriction does apply, the loss is not denied outright. It is capped, and the excess is generally carried forward for use against future farming income rather than lost, though it cannot shelter the other income in the year.

That is the practical distinction to hold onto. The restriction is about what the loss can be used against, not about whether the farm is a real business.

Moldowan And The Three Classes

The framework that governed for over three decades, described by the Court that later dismantled it.

In Moldowan v. The Queen, [1978] 1 SCR 480, the Court found that a predecessor to subsection 31(1) contemplated three classes of taxpayer involved in farming[2].

The first class comprises taxpayers for whom farming provides the bulk of income or the centre of work routine. Loss deductions are not limited for this class[2].

The second class comprises taxpayers who do not look to farming, or to farming and some subordinate source of income, for their livelihood, but carry on farming as a sideline business. For this class, subsection 31(1) limits loss deductions[2].

The third class comprises taxpayers who carry on some farming activities as a hobby rather than as a business, and whose losses are not deductible at all[2].

Commentary summarises the resulting standard as requiring that farming be reasonably expected to provide the main source of the taxpayer's income, or be the centre of the taxpayer's work routine[3].

The three-class structure is worth internalising because, as a later section explains, it survived the litigation. What changed was where the line between the first two classes sits, not the existence of three categories.

The Word That Went Missing

The criticism that accumulated for thirty years, and it is a criticism about statutory reading rather than about policy.

Commentary states that the Moldowan decision effectively ignored the combination test in subsection 31(1), and that it drew much criticism while standing as a precedent for over 30 years[4]. Another source records that the decision had been the subject of much criticism by academics and practitioners, focused on whether it correctly interpreted the combination question[5].

The difficulty is visible in the second class as described above, and this is our own analysis.

The statute offers relief where the chief source is a combination of farming and some other source. Moldowan's second class captures taxpayers who do not look to farming, or to farming and some subordinate source, for their livelihood.

Inserting subordination changes the provision fundamentally. A combination in ordinary usage does not require one element to be subordinate to the other; two things of comparable weight combine perfectly well.

On the Moldowan reading, the combination route only assisted a taxpayer whose non-farming income was minor. But a taxpayer whose non-farming income was minor would generally satisfy the first route anyway, since farming would then be the chief source.

So the combination test, on that reading, did almost no independent work. That is the criticism in a sentence, and it explains the eventual judicial revolt.

The Court Of Appeal Revolts

The intermediate step, which is unusual enough to be worth recording.

In Gunn v. Canada, 2006 FCA 281, the Federal Court of Appeal addressed similar facts and decided not to follow, and purported to overrule, Moldowan, considering it to have been wrongly decided[4]. Commentary describes the court as having sought to give effect to the word combination in the second classification, and declining to follow Moldowan[1].

The obvious difficulty is that the Federal Court of Appeal is not permitted to overrule binding precedent from the Supreme Court of Canada[4].

Commentary records the consequence: this created uncertainty for taxpayers, tax professionals, CRA and the Tax Court of Canada[4].

The position between 2006 and 2012 was therefore genuinely unstable, and this is our own observation about what that meant in practice.

A taxpayer in those years could not know which rule governed. The Supreme Court precedent said one thing; the appellate court that would hear an appeal from the Tax Court had said it would not follow it.

Six years of that is a long time in the life of a farm business making decisions about whether to expand, and it is the reason the Supreme Court's eventual intervention was welcomed even by those who expected to lose.

Craig: The Facts

The case, whose facts are unusually easy to recognise.

Mr Craig was a lawyer. He also had income from investments and stock options, and a farming business consisting of buying, selling, training and maintaining horses for racing[2]. Commentary describes it as buying, selling, breeding and racing standard-bred horses[3].

He deducted losses from the horse-racing business against his other income in 2000 and 2001. Based on Moldowan, the Minister reassessed and limited the deductions on the grounds that the combination of the law practice and the horse-racing business was not his chief source of income[2].

Following Gunn, the trial judge allowed the appeal, finding that the limitation in subsection 31(1) did not apply. The Federal Court of Appeal dismissed the Minister's appeal, holding that it was required to follow its prior decision in Gunn[2].

Two features of this fact pattern deserve emphasis, and this is our own analysis.

Horse racing counts as farming for these purposes, which surprises people outside the sector and matters a great deal inside it.

And Mr Craig was a professional whose non-farming income was substantial and clearly not subordinate. That is exactly the fact pattern Moldowan's second class was framed to capture, which is why the case was the right vehicle to test the reading.

What Was Actually At Stake

The amounts, which convey the practical significance better than the doctrine does.

Commentary records that Mr Craig's horse racing business incurred losses of $222,642 in 2000 and $205,655 in 2001, and that the restricted farm loss rule, when applicable, operated to restrict farm losses to a maximum of $8,750[4][6].

The following are our own calculations from those figures.

In 2000, a loss of $222,642 against a cap of $8,750 means roughly $213,892 was denied against other income, or about 96.1 percent of the loss. In 2001 the denied proportion was about 95.7 percent.

Across the two years, total losses of approximately $428,297 would have yielded $17,500 of deduction against other income, being roughly 4.1 percent of the losses claimed.

That is the shape of the restriction and it is why the provision is litigated. Where it applies, it does not trim a deduction. It removes almost all of it in the year, leaving a carryforward usable only against future farming income, which a loss-making farm by definition may not generate.

For a farmer whose off-farm employment is what funds the operation, the cap therefore determines whether the arrangement is financially viable at all.

Moldowan Cannot Stand

The decision, and the directness of its language.

On 1 August 2012 the Supreme Court released Canada v. Craig, 2012 SCC 43, dismissing the Minister's appeal[2][6].

Commentary published the same day records that Moldowan was overruled, that the unanimous decision emphatically stated that Moldowan cannot stand, and that Justice Rothstein delivered the reasons[7]. It notes the Court took an uncharacteristically short period to render judgment, just over four months after oral argument[7].

Commentary describes the outcome for farmers directly: it is no longer necessary for a taxpayer to show that farming is the predominant source of income in order to avoid the restricted farm loss rules; the taxpayer must only show that the combination of farming and some other source of income are in aggregate the chief source of income[4][6].

The Court found in favour of Mr Craig, holding that the restriction did not apply because the combination test was passed[5].

Commentary notes the institutional significance, observing that there is a delicate balance between the values of correctness and certainty when the top court considers overruling one of its own decisions, and that in the end that is what it did[1].

Thirty-four years elapsed between Moldowan and Craig, which is our own calculation and gives a sense of how entrenched the position had become.

The Rebuke Inside The Victory

A procedural holding that is easy to miss and worth understanding.

The Court held that Moldowan was a binding precedent and that the lower courts should have limited themselves to writing reasons as to why it was problematic rather than purporting to overrule it[2]. Commentary makes the same point, noting that the lower courts should have merely given reasons why they found Moldowan problematic but otherwise followed it[1].

So the Supreme Court simultaneously reached the result the lower courts had reached and told them they had no business reaching it.

That is not pedantry, and this is our own analysis of why it matters to a taxpayer.

The holding confirms that a lower court's disagreement with a Supreme Court precedent does not license departure from it. A taxpayer whose position depends on appellate criticism of a binding precedent has an argument for eventual success and not a safe filing position.

Between 2006 and 2012 that distinction was precisely the taxpayer's problem, and it is a live consideration in any area where courts have expressed doubt about a governing authority.

The practical reading is that criticism of a precedent is a reason to obtain advice about litigation risk, not a reason to file as though the precedent had gone.

The Test The Court Substituted

What replaced the predominance requirement.

Commentary describes the revised view of combination as looking at a variety of factors including capital invested, time spent, farming history and future intentions[1].

A fuller statement appears in commentary quoting the reasons: the question is whether, looking at these factors together, the taxpayer places significant emphasis on each of the farming business and the other earning activity, and if so, the combination will constitute a chief source of income and avoid the loss deduction limitation[5].

Commentary describing the outcome notes the Court held that the combination of the taxpayer's income from his law practice and farming constituted his chief source of income because of what he had invested[3].

The phrase significant emphasis on each is the operative one, and this is our own reading of what it required.

It is a test of genuine commitment to both activities rather than of their relative size. A taxpayer devoting substantial capital and time to a farm, with a real history and real forward intentions, satisfies it even where the other income dwarfs the farm's revenue.

That is a materially easier test than predominance, and it is the test that no longer governs.

Seven Months Later

The legislative response, which is the reason this article exists in the form it does.

Commentary records that a taxpayer win over CRA at the Supreme Court in 2012 drew the government's attention, with a double-edged response making its way into the 2013 federal budget. The budget document recapped the history culminating in Craig, then proposed to restore the interpretation in Moldowan. Assuming passage, for taxation years ending after 21 March 2013, a taxpayer's other sources of income must be subordinate to farming in order for farming losses to be fully deductible against income from those other sources[1].

We report that as commentary describing budget proposals. We did not verify the enacted provision against the current statutory text, and a reader should.

The interval between the judgment on 1 August 2012 and the budget date of 21 March 2013 is approximately seven and a half months, which is our own calculation.

The word restored is doing real work there. Parliament did not devise a new policy; it reinstated the reading the Supreme Court had just rejected as wrong, by writing the missing concept into the statute expressly.

That is entirely constitutional and entirely ordinary. Where a court interprets a statute in a way the legislature did not intend, the legislature amends the statute. The point for a taxpayer is not that anything improper occurred.

The point is about durability, and it is developed two sections below.

The Consolation

The other half of the double-edged response.

Commentary records that concurrently, and in recognition that the deduction limits had not changed for 25 years, the formula was to be amended to effectively double the annual deduction limit to $17,500[1].

Against the previous $8,750, that is exactly a doubling, which is our own confirmation.

Two observations follow and both are ours.

A limit unchanged for twenty-five years had been eroded substantially by inflation over that period, so the doubling restored purchasing power rather than expanding the relief in real terms.

And the increase does very little for the taxpayers the case concerned. Applying the new limit to Mr Craig's 2000 loss of $222,642 would still have denied approximately 92.1 percent of it, against 96.1 percent under the old cap.

So for a farm generating losses in the hundreds of thousands, the difference between the two caps is marginal. The doubling matters for smaller operations, where a loss in the range of tens of thousands is common and where the difference between $8,750 and $17,500 of usable deduction is real money.

That is a sensible policy division and it is worth understanding: the restriction bites hardest, proportionally, on the largest losses, which are the ones most likely to belong to taxpayers with substantial other income.

Where That Leaves A Farmer Now

The practical position, stated plainly.

On the material available to us, a taxpayer today whose chief source of income is not farming alone must show that their other sources are subordinate to farming in order to deduct farm losses without restriction[1].

That is the Moldowan standard, restored by statute rather than resting on a judicial reading.

The consequence, and this is our own analysis, is that Craig is now of limited direct assistance to a taxpayer arguing about a recent year.

Its factual holding, that a lawyer with a substantial horse operation escaped the restriction, described a legal test that no longer applies. A taxpayer citing Craig for that proposition in respect of a current year is citing a case decided under superseded language.

What remains useful is narrower and still valuable. The Court's discussion of the relevant factors, being capital invested, time spent, farming history and future intentions[1], describes the kind of evidence that bears on any question about the seriousness and scale of a farming operation, including under the restored test.

And the three-class structure it described[2] remains the map, since the restored subordination requirement operates at the boundary between the first two classes rather than replacing the classes.

A taxpayer whose position depends on the distinction should have their year identified against the effective date and the current statutory language read to their facts.

The Lesson Beyond Farming

A short section on what this sequence teaches about tax risk generally. This is our own analysis.

The ordinary intuition about tax certainty is that a Supreme Court decision settles a question. This sequence shows the limit of that intuition.

A judicial decision on the interpretation of a statute is authoritative about what the statute means. It is not authoritative about what the statute will say next year, and where the decision costs revenue and cuts against a policy the government holds, an amendment is the natural response.

The interval here was approximately seven and a half months, which is roughly the gap between a summer judgment and the next spring budget. That is worth remembering as the practical horizon.

Three implications for anyone whose planning depends on a favourable authority.

A win on statutory interpretation is durable only where the legislature is content with it. Assess whether the decision creates a fiscal cost or defeats a stated policy, because those are the ones that attract amendment.

Structures built to exploit a newly favourable interpretation should be tested against the possibility that the interpretation has a short life, particularly where the structure is difficult to unwind.

And the effective date is where the money is. An amendment applying to taxation years ending after a stated date creates a hard boundary, and a taxpayer with a year end shortly after it is in a different position from one shortly before.

The Prior Question: Business Or Hobby

A threshold issue that must be resolved before the restriction is even reached.

The third Moldowan class comprises taxpayers carrying on farming activities as a hobby rather than as a business, whose losses are not deductible at all[2].

Commentary refers to the test enunciated in Stewart v. Canada, 2002 SCC 46, described as the commercial manner test, under which the farming operation is a business if there is no personal or hobby element[7].

We report that reference as given and have not read the Stewart judgment; a taxpayer relying on it should have counsel apply it to their facts.

The ordering matters and is our own emphasis. The restricted farm loss provision only engages where there is a farming business. If the activity is a hobby, the losses are not restricted; they are unavailable.

So a taxpayer arguing about the cap has implicitly won the prior argument, and a taxpayer who loses the prior argument does not get the cap as a consolation.

That has a counterintuitive consequence for how a file should be approached. A CRA position that the restriction applies is, in one sense, an acceptance that a business exists. A taxpayer pressing hard against the restriction should be alert to whether they are inviting the more damaging characterisation.

This is particularly live for the activities that attract attention: horses, hobby livestock, vineyards, and small acreages held by people with substantial other income.

Three Tiers, Not Two

A structural point that clarifies how the whole area fits together. This section is our own analysis.

Canadian farm loss treatment operates in three tiers and a taxpayer sits in exactly one of them in a given year.

Full deductibility, where farming is the chief source or, under the restored rule, other sources are subordinate to farming. Losses offset all income.

Restricted, where a farming business exists but the taxpayer fails the first test. Losses are capped in the year, with the excess carried forward against future farming income.

Non-deductible, where the activity is a hobby rather than a business.

Most disputes concern the boundary between the first and second tiers, which is what Moldowan, Gunn, Craig and the 2013 amendment were all about.

But the boundary between the second and third is where the greater loss lies, and it receives less attention because the amounts in dispute in reported cases have tended to be larger at the upper boundary.

For a farmer with modest losses, the difference between restricted and non-deductible is the difference between a capped deduction plus a carryforward and nothing at all. That is proportionally a larger outcome than the difference between full and restricted treatment for the same taxpayer.

A small operation should therefore direct its documentary effort at establishing that a business exists, which is the threshold question, before worrying about the cap.

Living In The Middle Tier

Practical consequences for the many taxpayers who will remain restricted, offered as our own analysis.

A taxpayer who accepts that the restriction applies is not in a hopeless position, and treating restricted status as a failure leads to poor decisions.

The capped amount is still a deduction against all income each year, and the excess is generally preserved as a carryforward against future farming income rather than extinguished.

Two consequences follow for how such an operation should be managed.

The carryforward is an asset with a condition attached: it can only be used against farming income. An operation that never becomes profitable never realises it, which means the carryforward balance is a reason to take profitability seriously rather than a substitute for it.

And the year in which the operation crosses into the first tier matters enormously, because at that point accumulated restricted losses meet farming income. A taxpayer approaching that transition, whether by expanding the farm or by reducing other work, should model the timing rather than let it happen.

Records of restricted losses carried forward must be maintained over many years, across a period long enough that ownership, advisors and software will all change. In our experience that continuity is where the value most often gets lost, not in the original claim.

What The Auditor Actually Examines

The enquiry in practice, structured by the factors the authorities identify. This section is our own analysis.

Time devoted. Hours on the farm against hours in the other occupation, including seasonality. A professional practice with fixed hours and a farm operated at weekends presents differently from one where the taxpayer has reduced professional commitments.

Capital committed. Land, buildings, equipment and livestock, and whether the investment is consistent with a commercial operation of that type at that scale.

Farming history. How long, with what trajectory, and whether losses are a start-up phase or a persistent condition.

Future intentions, evidenced. Expansion plans, financing applications, agronomic or breeding programmes. Intentions asserted after an assessment carry little weight; those recorded in a business plan or a loan application carry considerably more.

Commercial manner. Whether the operation is run as a business would be: separate accounts, budgets, records, insurance, marketing, and responses to poor results.

Personal element. Whether the activity provides personal enjoyment or use, which is where horses, recreational acreages and small livestock operations attract attention.

The last factor is the one taxpayers most resent and it is a legitimate enquiry. The presence of enjoyment does not defeat a business, but it raises the question the commercial manner test exists to answer.

What Records Survive

A time record for the farm. Kept contemporaneously, even roughly. Time devoted is a named factor and is the one taxpayers can never reconstruct credibly.

A written business plan, dated, updated. It is the primary evidence of future intentions, and its existence before any dispute is what gives it weight.

Financing applications and lender correspondence. These state the operation's plans to a party with no tax motive, at the time, which makes them unusually persuasive.

Separate bank accounts and books for the farm, because commingling undermines the commercial manner argument more than any single other feature.

Evidence of responses to losses. Changes in crop, herd, pricing, or cost structure. A business responds to poor results; a hobby does not need to.

A continuous schedule of restricted losses carried forward, maintained across changes of advisor and software, with the supporting returns.

Documentation of personal use, honestly recorded and apportioned, since an unacknowledged personal element is more damaging than a disclosed one.

What To Do

Establish which tier you are in before anything else. Full, restricted or non-deductible are three different positions, and the threshold question is whether a business exists at all.

Identify your year against the effective date. The restored subordination requirement applies to taxation years ending after a stated date, so which rule governs depends on your year end.

Do not rely on Craig for a current year. It described a test that was legislatively superseded about seven and a half months after it was decided.

Keep a contemporaneous record of time spent farming. It is a named factor and it cannot be reconstructed convincingly.

Write the business plan before you need it. Future intentions are evidence only where they were recorded before the assessment.

Separate the farm's banking and books completely. Commingling is the single most damaging fact for a commercial manner argument.

Track restricted losses carried forward across decades. The value is lost in continuity failures far more often than in the original claim.

Model the year you expect to cross into full deductibility. That is when accumulated carryforwards meet farming income, and the timing is manageable.

Be careful what you argue. Pressing hard against the cap concedes that a business exists; pressing in a weak case can invite the more damaging characterisation.

The Limits Of This Analysis

Several caveats matter. This is not tax or legal advice; whether the restriction applies turns on a taxpayer's whole circumstances and this is a historically litigated area. Everything is stated as verified in August 2026 and requires confirmation. Most significantly, the legislative response is described from commentary reporting budget proposals rather than from the enacted provision; we did not verify the current statutory text, the exact wording of the restored subordination requirement, or the present deduction limit, and a reader must confirm all three. The effective date of taxation years ending after 21 March 2013 is reported from one source and should be confirmed, since a date at a year boundary is determinative. Case citations are taken from the Supreme Court's own summary and from professional commentary; we have read the Court's summary of its reasons rather than the full judgment, and we have not read Moldowan, Gunn or Stewart. The Stewart commercial manner test is reported through a single commentary reference. Loss figures for the taxpayer in Craig are reported through commentary and our percentage calculations derive from them. We have described the treatment of restricted losses as generally producing a carryforward against future farming income without verifying the current carryforward period or its conditions. The three-tier framing, the analysis of why the combination test did little independent work under the earlier reading, the observations on argument risk at the business-or-hobby boundary, the durability lesson, the audit examination factors and the records analysis are our own. This article does not address the cash method of computing farm income, inventory adjustments, the intergenerational transfer rules, the capital gains exemption on qualified farm property, AgriStability and related programmes, or GST/HST as it applies to agricultural production, several of which are substantial subjects in their own right.

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Frequently Asked Questions

What does the restricted farm loss rule actually do?

It caps how much of a farm loss can be deducted against other income in the year, with the excess generally carried forward against future farming income. It does not deny that the farm is a real business. In the Craig years the cap was $8,750, later doubled to $17,500 on the reported budget proposal.

Did the Supreme Court not decide this in the taxpayer's favour?

It did, unanimously, on 1 August 2012, holding that Moldowan cannot stand and that a taxpayer need only show the combination of farming and another source is in aggregate the chief source. Approximately seven and a half months later the 2013 budget proposed restoring the earlier position by requiring other sources to be subordinate to farming.

Can I still rely on Craig?

Not for the proposition it is famous for, in a current year. Its factual holding rested on a test that was legislatively superseded. What remains useful is its discussion of the relevant factors, being capital invested, time spent, farming history and future intentions, which bear on the seriousness of an operation under any formulation.

How much was actually at stake in the case?

Losses of $222,642 in 2000 and $205,655 in 2001 against a cap of $8,750. On our calculation that is roughly 96 percent of each year's loss denied against other income. Even at the doubled cap, about 92 percent of the 2000 loss would have been denied.

What is the bigger risk, the cap or something else?

For smaller operations, the bigger risk is the third Moldowan class: a finding that the activity is a hobby rather than a business, in which case losses are not restricted but unavailable entirely. Directing documentary effort at establishing that a business exists is more valuable than arguing about the cap.

What does this teach beyond farming?

That a favourable interpretation is durable only where the legislature is content with it. A decision that costs revenue or defeats a stated policy invites amendment, and the practical horizon here was the gap between a summer judgment and the following spring budget. Planning built on a fresh interpretation should be tested against a short life.

References

1. Insurance Portal. Restricted Farm Losses: Chief Income Source Rule Reinstated, on the Federal Court of Appeal in Gunn seeking to give effect to the word combination and declining to follow Moldowan; on the lower courts in Craig effectively purporting to overrule Moldowan and the Supreme Court's remark that they should have merely given reasons why they found it problematic; on the delicate balance between correctness and certainty when the top court considers overruling one of its own decisions; on the revised view of combination looking at capital invested, time spent, farming history and future intentions; on the 2013 budget recapping the history and proposing to restore the Moldowan interpretation so that for taxation years ending after 21 March 2013 a taxpayer's other sources of income must be subordinate to farming for farming losses to be fully deductible; and on the concurrent amendment effectively doubling the annual deduction limit to $17,500 in recognition that the limits had not changed for 25 years. Note: a trade publication describing budget proposals; we did not verify the enacted provision or the effective date against the statute. insurance-portal.ca
2. Supreme Court of Canada. Canada v. Craig, 2012 SCC 43, judgment summary, for the description of subsection 31(1) limiting deductible losses where a taxpayer's chief source of income is neither farming nor a combination of farming and some other source; for the framing of the question as under what circumstances a combination constitutes a chief source of income; for the taxpayer's income from a law practice, investments, stock options and a horse business involving buying, selling, training and maintaining horses for racing; for the Minister's reassessment based on Moldowan; for the procedural history through the trial judge and the Federal Court of Appeal following Gunn; for the holding that the appeal should be dismissed and that the lower courts should have limited themselves to writing reasons as to why Moldowan was problematic rather than purporting to overrule it; and for the three classes of taxpayer described in Moldowan v. The Queen, [1978] 1 SCR 480. Note: we worked from the Court's summary of its reasons rather than the full judgment. Canada v. Craig, 2012 SCC 43
3. Mondaq. Deductibility of Farming Losses, on the Moldowan standard requiring that farming be reasonably expected to provide the main source of income or be the centre of the taxpayer's work routine; on the taxpayer in Craig earning the majority of his income as a lawyer while operating a business buying, selling, breeding and racing standard-bred horses; and on the Court holding that the combination of income from the law practice and farming constituted the chief source of income. Note: a syndicated professional publication. mondaq.com
4. Canadian Tax Dispute Help. (2012, August 1). Good News for Farmers: Supreme Court of Canada Clarifies Proper Interpretation of Restricted Farm Loss Rules, on the taxpayer's losses of $222,642 in 2000 and $205,655 in 2001; on the restricted farm loss rule operating to restrict farm losses to a maximum of $8,750; on the two exceptions of farming being the chief source or a combination being the chief source; on Moldowan effectively ignoring the combination test, drawing much criticism and standing as precedent for over 30 years; on Gunn v. Canada, 2006 FCA 281 declining to follow and purporting to overrule Moldowan; on the Federal Court of Appeal not being permitted to overrule binding Supreme Court precedent and the resulting uncertainty; and on the effect of Craig that it is no longer necessary to show farming is the predominant source. Note: a Canadian tax practice publication. taxdisputehelp.ca
5. Moodys Private Client. Important Supreme Court of Canada Case on Farming Losses, for the quoted formulation that the question is whether, looking at the factors together, the taxpayer places significant emphasis on each of the farming business and the other earning activity, and if so the combination will constitute a chief source of income and avoid the loss deduction limitation; on the Court finding in favour of the taxpayer because the combination test was passed; on the criticism of Moldowan by academics and practitioners focused on the combination question; and on the denial of farming losses under the Moldowan interpretation having been a routine assessment position of CRA, much litigated over three decades. Note: a Canadian tax advisory publication. moodysprivateclient.com
6. Pushor Mitchell LLP. (2012, August). Good News for Farmers: Supreme Court of Canada Clarifies Proper Interpretation of Restricted Farm Loss Rules, on the release of the decision on 1 August 2012, the taxpayer's loss figures, the maximum of $8,750, and the effect that a taxpayer need only show the combination of farming and some other source of income are in aggregate the chief source of income. Note: a Canadian law firm publication. pushormitchell.com
7. Mondaq. (2012, August 2). Section 31 of the Income Tax Act: Moldowan Overruled!, on Craig being the only section 31 restricted farm loss case to reach the Supreme Court since Moldowan; on the unanimous decision emphatically stating that Moldowan cannot stand, delivered by Justice Rothstein; on the uncharacteristically short period between oral argument and judgment; on the prescription of a new analysis for determining whether farming income combined with another source constitutes a chief source of income; and on the reference to Stewart v. Canada, 2002 SCC 46 as the commercial manner test under which a farming operation is a business if there is no personal or hobby element. Note: a syndicated law firm publication; we have not read the Stewart judgment. mondaq.com

This article is provided for general informational purposes and is not tax or legal advice. The legislative response described is taken from commentary reporting budget proposals; the enacted provision, its wording, its effective date and the current deduction limit were not verified against the statute and must be confirmed. Case law is described from the Court's own summary and from professional commentary rather than from full judgments. No reader should act on this article without professional advice on their own circumstances.