SCC Overrules Itself And Revisits Farming Loss Deductions Limit

On the 1st of August, 2012, the Supreme Court of Canada ("SCC") delivered its decision in the case of Canada v Craig¹ in which it revisited the interpretation of section 31 of the Income Tax Act ² ("ITA"). The question to be decided by the SCC was 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 farming loss deduction limit of section 31.

Where farming is a source of income for a taxpayer, section 31 of the ITA may apply to limit the amount of loss from farming that can be deducted from the taxpayer's other income. Section 31(1)(a) provides that, where a taxpayer's chief source of income is neither farming nor a combination of farming and some other source of income, the taxpayer's deductible farm loss is limited to $8,750 annually.