Setting a child support amount is supposed to be one of the easier areas of family law. Once a payor’s annual income is known, it is relatively easy to look at the relevant table of the child support guidelines and set the monthly amount.
The process is straight-forward when a child support payor works at a regular job with a consistent paycheque and one T4 at the end of the year.
One of the challenges in setting child support, however, can be choosing an income figure for the payor. In particular, it is difficult when the payor has a non-employment type of income. In Manitoba, farming income is one of those challenges.
And even more complicated is the situation when there are farming losses.
On Aug. 1, the Supreme Court of Canada released its decision in the case of Canada v. Craig. In that case, Mr. Craig was involved in different income-earning activities, including a farming operation. The question that the court was asked to resolve was whether farming losses can be deducted against other sources of income.
There are essentially three types of taxpayers involved in farming.
The first is the person who farms exclusively. Loss deductions are not limited for this type of taxpayer and they can claim any and all relevant losses against farming income earned.
The second type is the person who is involved with farming as a sideline business. There are some limitations on the losses that this taxpayer can deduct.
The third is the "hobby farmer." Generally speaking, "hobby farming" losses are not deductible in any amount for this taxpayer.
The Supreme Court said that when considering whether farming losses are deductible against other sources of income, the court must consider the income earned from each of the sources of income, the time spent on each of the sources of income, the taxpayer’s ordinary way of living, their farming history and their future intentions and expectations.
If all of these factors ultimately show that the taxpayer places significant emphasis on both his/her farming and non-farming sources of income, then there is no reason that such a combination should not be deemed to be "a significant source of income." What this means is that the taxpayer may be able to avoid the loss deduction limitation and claim a larger amount, thus decreasing their taxable income.
The court decided that as long as the sources of income are significant to the taxpayer, farming does not even need to be the main source of income and the sources of income do not need to be connected to one another. This is important for someone who farms but also, for example, operates a side business such as a greenhouse, backhoe service or even holds actual employment under a third party.
When considering all of the factors, the question becomes whether the taxpayer places significance on each of the income earning activities — and if so, the combination can be considered a primary source of income and avoid the loss deduction limitation.
Therefore, those farming losses may be offset against income earned from another business venture or source of income.
This becomes very important for those who farm and who also earn "off farm" income through other business activities or employment.
» Kelli Potter is a lawyer with Paterson, Patterson, Wyman and Abel, with offices in Brandon, Neepawa and Virden.
Republished from the Brandon Sun print edition October 6, 2012