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Taxation — Income tax — “chief source of income” — Statutory interpretation — Stare decisis — Whether the test to determine whether or not farming is a “chief source” of income under s. 31(1) of the Income Tax Act continues to be the decision of this Court in Moldowan v. Canada, [1978] 1 S.C.R. 480 — Whether an appellate court is bound by a previous decision of that court when it is inconsistent with a prior decision of this Court — s. 31(1) Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

While earning most of his income in the taxation years 2000 and 2001 as a partner of a Toronto law firm, the Respondent, John Craig, also had income from a business comprising the buying, selling, breeding, and racing of standardbred horses, as well as from investments. The Minister disallowed the losses as deducted by Mr. Craig in the 2000 and 2001 taxation years in respect of the horse business. Relying on s. 31(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), the Minister restricted Mr. Craig’s allowable deductions from horse operation to $8,750 for each year. While it was agreed that Mr. Craig’s horse activities constitute “farming” for the purpose of s. 31, and the income from the horse business was not Mr. Craig’s “chief source of income” in the taxation years in question, the dispute was whether “a combination of farming and some other source of income” (in this case, Mr Craig’s law practice) constituted his “chief source of income” as provided for in s. 31. If those combined income sources were accepted as his “chief source of income”, as Mr. Craig maintained, the restrictions under s. 31 would not apply. However, in reassessing Mr. Craig’s income tax returns, the Minister confirmed the initial assessment that s. 31 applied, and therefore he was subject to the restrictions imposed by s. 31 on the losses that a taxpayer may deduct from farming. Mr. Craig appealed against the Minister’s reassessments.

The Tax Court of Canada allowed the taxpayer’s appeals from the Minister’s reassessments. The Federal Court of Appeal dismissed the Minister’s appeal.