Walsh,
J:—This
is
an
appeal
against
the
assessment
by
plaintiff
for
taxes
in
its
1974
taxation
year
resulting
from
the
sale
of
property
purchased
in
1968
in
what
was
then
the
Municipality
of
Lucerne
in
the
Province
of
Quebec
for
$150,000
and
the
sale
of
the
same
property
in
1973
for
a
price
of
$1,306,776.30,
which
profit
the
Minister
assessed
as
income
from
a
business
and
plaintiff
claims
should
be
treated
as
capital
gain.
William
Morse
Lawson
who
together
with
his
wife
controls
the
plaintiff
entered
into
a
promise
of
sale
agreement
with
Thomas
Graham
Mayburry
the
owner
at
the
time
of
the
property,
consisting
of
some
300
acres
with
three
houses
and
a
substantial
barn
thereon
on
July
19,
1968
for
a
price
of
$150,000,
payable
in
the
amount
of
$2,000
at
the
signing
of
the
agreement,
$46,000,
subject
to
adjustment,
upon
signature
of
the
deed
of
sale
and
$102,000
within
15
years
from
the
date
of
the
deed
of
sale
with
interest
at
6%
per
annum
payable
semi-
annually.
The
terms
of
the
agreement
were
very
favourable
to
the
purchaser,
both
with
respect
to
the
price
paid
and
the
conditions,
the
rate
of
interest
of
6%
being
2%
or
3%
less
than
the
current
rate
at
the
time,
as
Mr
Lawson
testified.
The
purchaser
also
had
the
right
to
pay
any
part
of
the
balance
at
any
time
without
notice
or
penalty.
There
was
also
a
clause
that
the
purchaser
would
be
relieved
of
the
vendor’s
privilege
on
any
1-acre
parcel
of
land
upon
payment
of
the
sum
of
$500
to
be
applied
in
reduction
of
the
principal,
and
a
clause
that
the
purchaser
could
arrange
for
a
subdivision
plan
to
be
prepared
for
approval
by
the
competent
authority
but
that
this
should
not
be
done
until
the
proposed
subdivision
had
been
approved
by
the
vendor
which
approval
however
would
not
be
required
when
the
balance
of
price
had
been
reduced
below
$50,000.
The
agreement
also
foresaw
incorporation
of
a
company
by
the
purchaser
“in
which
he
shall
retain
a
controlling
interest’’
and
that
the
agreement
could
be
assigned
to
it
and
that
the
company
would
undertake
to
be
personally
bound
to
the
vendor
for
the
performance
of
the
purchaser’s
obligation,
and
subject
to
this
the
purchaser
would
then
be
relieved
from
personal
liability
for
the
balance
of
the
purchase
price.
One
unusual
clause
was
inserted
for
the
benefit
of
the
vendor
which
provided
that
he
could
retain
and
occupy
a
portion
of
the
land
and
farm
buildings
not
under
lease,
until
April
30,
1971,
subject
to
six
months’
notice
to
vacate,
and
that
the
vendor
would
pay
the
municipal
and
school
taxes
on
the
entire
property
until
termination
of
his
rights
of
occupation.
He
could
also
on
six
months’
notice
surrender
his
rights
of
occupation.
Thereafter
he
would
not
be
responsible
for
these
taxes.
His
obligation
for
taxes
was
also
to
the
extent
of
the
assessment
and
rate
in
effect
on
January
1,
1968,
and
if
they
were
increased
thereafter
then
the
purchaser
would
pay
such
increase.
Dr
Lawson
testified
as
to
the
background
of
this
deal.
He
and
his
parents
had
always
lived
in
Lucerne
in
the
area
of
the
property,
which
he
knew
well,
and
had
in
fact
played
on
it
as
a
boy
with
the
son
of
Mr
Mayburry,
who
was
a
good
friend
of
his.
He
had
of
course
known
Mr
Mayburry
for
many
years
and
was
very
attached
to
the
property.
He
was
engaged
to
be
married
at
the
time
and
his
fiancée
also
thought
it
would
be
nice
to
eventually
live
on
a
farm.
She
particularly
admired
an
old
house
on
the
property
nearly
150
years
old,
as
she
is
interested
in
old
buildings
and
collects
antiques.
He
was
a
university
student
at
the
time
and
after
their
marriage
he
and
his
wife
lived
in
Kitchener
where
he
was
at
the
university
for
4
years
studying
and
doing
part-
time
teaching.
They
then
moved
to
Toronto
where
he
completed
his
work
on
his
doctorate
in
economics
so
were
away
from
Ottawa
for
nearly
7
years
rather
than
the
3
years
which
he
had
planned.
He
is
now
professor
at
Carleton
University.
Captain
Mayburry
the
owner
of
the
property
was
elderly
and
seriously
ill
with
emphysema.
He
did
not
live
on
the
property
but
lived
nearby
and
he
stabled
horses
in
the
barn
on
a
commercial
basis
as
he
had
been
doing
for
many
years,
which
apparently
he
wished
to
continue
doing
as
long
as
possible.
Two
of
the
houses
on
the
property
were
rented
for
rentals
below
the
market
rate
to
friends
or
former
employees,
and
Mr
Lawson
testified
that
he
undertook
not
to
disturb
this
arrangement.
On
this
basis,
and
largely
because
of
their
friendship
the
property
which
was
in
a
rural
farming
area
at
the
time,
and
in
fact
still
is,
was
sold
to
him
for
$150,000,
being
two-thirds
of
the
municipal
evaluation,
this
being
the
price
suggested
by
Captain
Mayburry.
Lawson
testified
that
he
had
not
required
insertion
of
the
subdivision
clause
nor
the
provision
for
releasing
1-acre
parcels
on
payment
of
$500
on
account
of
capital.
These
clauses
were
however
in
a
draft
agreement
which
had
been
submitted
to
Captain
Mayburry
by
a
notary
acting
for
Lawson,
SO
while
it
may
be,
as
he
testified,
that
he
did
not
himself
think
of
or
require
these
clauses,
his
legal
representative
did,
and
they
were
of
course
beneficial
in
the
event
that
he
would
wish
to
subdivide
and
sell
the
property
in
small
parcels,
even
though
he
had
no
intention
of
doing
so
at
the
time
of
purchase.
Philippe
Foran,
QC
who
acted
for
Captain
Mayburry
and
prepared
the
promise
of
sale
agreement
testified
that
he
has
practised
law
and
lived
in
the
area
for
many
years.
He
corroborated
that
in
1968
property
in
the
vicinity
was
largely
devoted
to
farming.
He
had
prepared
several
wills
for
Captain
Mayburry
who
was
well
to
do
and
was
conscious
of
the
succession
duty
dangers
of
holding
a
large
tract
of
land
the
valuation
of
which
might
be
debatable.
He
stated
that
to
his
personal
knowledge
there
was
very
little
market
for
property
in
the
area
at
the
time.
He
himself
owned
135
acres
near
the
subject
property
and
had
been
trying
from
1950
to
sell
it
but
only
received
a
suitable
offer
in
1971.
He
stated
that
the
partial
release
of
security
clause
for
1-
acre
parcels
is
a
common
clause
usually
found
in
deeds
of
sale
and
that
the
clause
requiring
approval
by
his
client
of
the
subdivision
was
to
protect
him
against
what
might
be
a
poor
subdivision
plan
which
would
diminish
the
value
of
the
property
in
the
event
that
it
should
revert
to
the
vendor
in
the
event
of
default
by
the
purchaser.
While
he
conceded
that
such
clauses
make
a
property
more
attractive
to
potential
developers
he
stated
that
these
clauses
were
not
something
put
in
specifically
to
accommodate
the
purchaser.
He
also
prepared
the
deed
of
sale
from
Captain
Mayburry
to
Dr
Lawson
on
October
28,
1968.
Dr
Lawson
was
still
a
student
at
the
time
and
did
not
have
sufficient
money
to
make
the
down-payment
himself.
He
was
able
to
interest
a
number
of
relatives
and
friends
of
his
family
however
in
putting
up
varying
sums
of
money
and
concluded
that
the
best
way
to
accomplish
this
was
through
a
joint
stock
company,
so
even
while
he
was
negotiating
with
Captain
Mayburry
he
contemplated
the
incorporation
of
plaintiff.
Delays
were
encountered
and
letters
patent
were
only
obtained
on
June
30,
1969.
Meanwhile
as
indicated,
he
had
completed
the
purchase
from
Captain
Mayburry
on
October
28,
1968.
The
parties
who
were
going
to
invest
in
shares
of
the
company
paid
in
their
sums
in
advance
to
a
trust
account
which
he
kept
until
the
company
was
incorporated
and
the
shares
could
be
issued.
It
was
not
until
May
4,
1970
that
he
sold
the
property
to
the
company
the
price
being
indi-
cated
as
“for
good
and
valid
consideration’’
in
addition
to
which
the
$102,000
balance
was
personally
assumed
by
the
company.
It
was
also
declared
in
the
deed
that
the
transferor
had
acted
in
the
deed
of
sale
from
Captain
Mayburry
as
trustee
for
the
transferees
and
relieved
him
of
any
further
responsibility
arising
from
it.
The
shareholders
of
the
company
and
the
percentages
of
common
stock
held
by
them
are
as
follows:
William
M
Lawson
48%
Christopher
Brand,
described
as
being
a
friend
8.7%
Clare
Kroeger
whose
husband
is
a
builder;
they
are
friends
of
William
M
Lawson’s
father
8.7%
William
J
Lawson,
the
father,
a
Brigadier
General,
lawyer
and
former
JAG
8.7%
Simon
S
Reisman
a
friend
of
William
M
Lawson’s
father,
and
a
former
Deputy
Minister
of
Trade
and
Commerce
|
8.7%
|
Rose
Ludman,
mother
of
Clare
Kroeger
|
4.35%
|
Heather
Lawson
wife
of
William
M
Lawson
|
2.4%
|
(which
together
with
his
48%
gave
them
control)
|
|
John
Bull
an
investment
dealer
and
old
friend
|
3.3%
|
John
H
Lawson
brother
of
William
M
Lawson
|
1.4%
|
F
Juliette
Lawson
wife
of
John
H
Lawson
|
1.4%
|
Janet
Platz
sister
of
William
M
Lawson
|
1.4%
|
Brian
Crammond
a
friend
and
stockbroker
in
Toronto
|
2.8%
|
Initially
Douglas
H
Fullerton
had
undertaken
to
be
a
shareholder
but
when
he
was
appointed
Chairman
of
the
National
Capital
Commission
he
felt
it
would
be
inappropriate
so
his
shares
were-allotted
to
another.
William
Lawson
in
testifying
explained
that
he
and
his
wife
in
order
to
gain
control
had
not
had
to
put
up
50%
of
the
$48,000
down-payment
involved
for
the
property,
as
the
other
shareholders
were
required
to
take
out
preferred
shares
of
$100
par
value
in
proportion
to
their
purchases
of
the
$1
par
value
common
shares,
but
he
was
permitted
to
subscribe
to
sufficient
common
shares
to
give
him
the
control,
as
the
vendor
Captain
Mayburry
had
insisted,
without
purchasing
a
proportionate
number
of
preferred
shares.
The
number
of
preferred
shares
held
by
the
various
shareholders
does
not
concern
us
here,
but
William
M
Lawson
put
up
a
total
of
$8,775
for
275
common
and
85
preferred
shares
and
his
wife
put
up
$1,814
for
14
common
and
18
preferred
shares.
While
William
M
Lawson
could
not
be
described
as
a
speculator
or
dealer
in
real
estate
in
1968
nor
for
that
matter
at
the
time
of
the
sale
in
1973,
being
at
the
time
of
the
purchase
a
graduate
student
and
now
a
professor,
neither
can
he
be
considered
as
having
no
knowledge
in
the
field.
He
himself
testified
he
had
from
early
days
saved
his
money
and
invested
it
in
opportunities
he
heard
about.
In
1963
he
had
participated
with
his
father
and
the
Kroegers
to
the
extent
of
a
minority
interest
of
10%
in
a
real
estate
deal
carried
out
by
a
company
Richelieu
Properties
Inc
which
had
owned
two
properties
one
of
which
was
subdivided
into
ten
lots
and
sold.
In
1966
Mr
Kroeger
told
him
about
an
opportunity
to
buy
a
1
/2-acre
property
on
McConnell
Road
and
he
invested
$1,800
for
a
one-half
interest
in
it.
He
had
known
Mr
Kroeger
since
he
was
10
years
old.
In
both
cases
he
was
merely
an
investor,
the
deal
with
the
subject
property
being
the
first
time
he
had
acted
as
a
principal.
Certainly
his
other
business
associates
in
this
deal
included
a
number
of
highly
experienced
businessmen
and
investors.
His
father,
Clare
Kroeger,
and
Simon
Reisman
had
in
1968
participated
in
various
real
estate
transactions
involving
buying
and
selling
property.
Recently
William
M
Lawson,
together
with
his
wife,
has
acquired
a
15%
interest
in
Montmorency
Ferme
a
property
2
miles
west
of
Aylmer,
but
this
has
little
relevancy
to
his
intentions
in
1968,
or
more
precisely
the
intentions
of
plaintiff
company
which
he
controlled,
after
it
acquired
the
property
from
him
on
May
4,
1970.
He
insisted
that
he
had
intended
to
hold
the
property
as
a
hedge
against
inflation
and
said
that
in
his
view,
provided
an
asset
is
going
up
in
value,
it
does
not
have
to
be
realized
to
constitute
such
a
hedge.
He
was
well
aware
at
the
time
of
the
purchase
that
the
income
from
rental
of
the
two
houses
on
it
would
be
insufficient
to
cover
expenses
so
that
additional
moneys
would
have
to
be
furnished
by
the
company
in
the
initial
years
and
at
least
as
long
as
Captain
Mayburry
was
operating
the
stable
operation
on
the
property
which
he
said
could
be
profitable.
Forty
horses
were
boarded
and
at
the
time
Captain
Mayburry
was
doing
this
at
a
very
low
rate
whereas
nowadays
operators
of
stables
in
the
area
are
charging
$120
a
month
which
would
yield
a
profit
of
$30
to
$40
a
month
or
some
$1,200
a
month
on
this
operation.
He
said
that
if
he
were
living
on
the
property
he
could
hire
a
helper
and
supervise
this.
He
would
in
this
event
expect
to
draw
some
salary
or
compensation
himself
from
the
company.
Although
he
was
forced
to
be
away
from
Ottawa
while
completing
his
graduate
studies
he
was
confident
that
he
could
obtain
a
teaching
position
here
and
hence
..live
in
the
area,
which
is
what
eventually
happened.
The
property
was
zoned
as
agricultural
at
the
time
and
as
he
never
contemplated
any
development
of
it
no
attempts
were
made
to
have
the
zoning
changed.
The
property
was
never
offered
for
sale.
It
was
eventually
sold
as
a
result
of
an
unsolicited
offer,
several
reasons
motivating
him
to
accept
it.
His
return
to
Ottawa
had
been
delayed
longer
than
he
had
expected
and
he
did
not
want
to
impose
on
his
associates
for
the
administration
and
collecting
of
rents
and
so
forth.
The
municipal
value
of
the
property
had
been
increased
to
a
half
million
dollars
and
the
taxes
had
gone
up
astronomically
from
about
$1,800
to
$8,000
and
there
was
some
indication
that
they
might
reach
$20,000.
This
made
the
holding
of
the
property
a
burden.
The
financial
statements
for
the
company
show
that
for
the
year
ending
May
31,
1970,
the
income
was
only
$3,851.53
consisting
of
$2,375
rental
and
$1,476.53
from
sale
of
timber.
Expenses
were
$10,041.29
of
which
$9,180
was
for
mortgage
interest,
leaving
a
net
loss
of
$6,189.76
which
was
capitalized.
Similarly
for
the
year
ending
May
31,
1971,
the
net
loss
was
$6,111,
for
the
year
ending
May
31,
1972,
$6,761.67,
and
for
the
year
ending
May
31,
1973,
$5,692.
Comparatively
little
had
been
spent
on
the
maintenance
of
the
properties
during
the
period
except
for
some
$3,000
for
repairs.
Mrs
Lawson
who
testified
stated
that
she
was
working
in
Montreal
prior
to
her
marriage
and
had
a
little
money
of
her
own
which
she
invested
in
the
property
on
her
future
husband’s
advice.
She
was
not
even
thinking
of
the
sale
of
the
property
as
she
would
have
liked
to
have
lived
on
it
and
had
some
idea
that
she
could
perhaps
open
a
restaurant
in
the
old
house
and
also
sell
antiques
there,
as
she
has
some
knowledge
of
dealings
in
antiques.
Her
sister-in-law
was
interested
in
the
potential
restaurant
and
there
was
even
some
discussion
of
turning
the
barn
into
a
discotheque.
Her
father
had
been
involved
in
real
estate
but
she
herself
had
never
bought
any
shares
in
any
real
estate
company.
While
one
can
fully
sympathize
with
the
lifestyle
she
and
her
husband
desired
to
create
for
themselves,
her
proposal
for
developing
businesses
on
the
property
seems
to
be
somewhat
unrealistic
as
they
would
require
the
investment
of
considerable
additional
capital.
While
Mr
and
Mrs
Lawson
might
well
have
a
right
to
create
a
rural
lifestyle
for
themselves,
renovating
and
living
in
the
large
house
and
possibly
deriving
sufficient
revenue
from
the
stable
and
the
rental
of
the
other
houses,
and
even
perhaps
from
some
small
business
enterprise
they
might
carry
on
on
the
property
so
as
to
cover
their
expenses
and
yield
some
modest
income,
I
am
satisfied
that
the
other
investors,
however
friendly
and
well
disposed
they
may
have
been
towards
William
M
Lawson
and
his
wife
did
not
put
their
money
into
the
property
with
a
view
to
enabling
him
to
acquire
this
lifestyle,
when
he
could
not
afford
to
buy
the
property
himself,
nor
for
their
minority
share
in
whatever
small
income
the
operation
of
their
property
might
yield.
While
he
had
legal
control
of
the
company
I
am
satisfied
that
his
relations
with
his
associates
were
such
that
he
would
not
have
wished
to
exercise
it
ruthlessly
for
his
own
personal
advantage
and
to
their
financial
detriment.
In
short
the
only.
way
in
which
the
investment
could
be
profitable
or
would
have
in
any
way
been
interesting
to
the
other
investors
was
because
of
the
opportunity
of
making
a
substantial
profit
therefrom
resulting
from
the
very
favourable
terms
on
which
the
property
was
purchased,
and
relying
on
the
passage
of
time
until,
as
a
result
of
eventual
development
in
the
area,
however
Slow
it
might
be,
the
property
would
increase
in
value,
when
they
could
turn
their
investment
to
account
as
was
eventually
done.
A
letter
from
a
real
estate
agent
Lucien
Pitre
who
also
testified,
although
not
as
an
expert
witness,
was
produced
dated
May
5,
1977,
indicating
that
as
a
result
of
a
study
of
comparable
sales
between
1961
and
1963
of
which
he
had
knowledge,
the
prices
varied
between
$751
and
$906
an
acre
and
that
between
the
time
of
those
transactions
and
the
date
subject
property
was
acquired
the
land
prices
had
increased
substantially.
Even
the
municipal
assessment
for
the
property
was
at
$786
an
acre.
Therefore
the
price
of
$500
an
acre
was
far
below
the
market
value.
In
1972
Zellers
Limited
took
a
120-day
option
to
buy
a
portion
of
the
property
consisting
of
some
23
acres
at
$6,500
an
acre
but
the
option
was
not
taken
up.
If
this
had
gone
through
the
entire
balance
of
the
capital
owing
could
have
been
repaid
leaving
plaintiff
with
some
2/0
acres
free
and
clear
of
any
indebtedness.
Certain
letters
were
admitted
by
agreement
into
the
record,
one
from
Brigadier
General
W
J
Lawson
who
stated
that
he
acted
as
proxy
for
his
son
William
M
Lawson
during
the
period
the
latter
was
in
Waterloo
and
Toronto
between
1968
and
1975—lie
indicates
that
during
the
five
years
the
property
was
held
none
of
the
parties
involved
contemplated
nor
sought
a
change
in
zoning
and
that
the
property
was
employed
for
agricultural
purposes
and
taxed
on
that
basis.
When
the
municipality
attempted
to
apply
a
higher
non-agricultural
tax
steps
were
taken
to
have
this
revised.
No
change
in
status
or
usage
of
the
land
was
sought
as
it
was
a
long-term
investment.
A
letter
from
Immeubles
Michel
Realties
Inc
states
that
they
acted
solely
as
agent
for
the
eventual
purchasers
Costain
Estates
Limited
and
at
no
time
did
any
of
the
investors
in
Program
Properties
Limited
indicate
that
the
lands
or
premises
were
for
sale.
A
letter
from
James
J
Duff
the
company’s
auditor
dated
August
4,
1976
states
that
at
the
time
he
prepared
the
initial
financial
statements
of
Program
Properties
Limited
he
assumed
“without
instruction’’
that
the
land
owned
by
the
company
was
for
resale
and
only
in
1973
did
he
realize
that
it
was
not
for
sale
but
rather
to
be
held
as
a
long-term
investment.
This
presumably
is
to
explain
the
entry
on
the
balance
sheet
as
of
May
31,
1970,
showing
“land
for
sale—cost
$150,000.00”.
As
a
result
of
the
sale
of
the
property
to
Costain
(Quebec)
Ltée—Costain
Quebec
Limited
on
September
24,
1973
for
$1,306,776.30
of
which
$200,000
was
paid
in
cash
a
dividend
was
paid
on
November
19,
1973
of
$50
a
share
on
the
common
shares.
On:
March
25,
1974
a
further
dividend
of
$49
a
share
was
paid
on
the
common
shares
and
on
June
18,
1974
a
dividend
of
$39
per
share
was
paid
on
the
common
shares,
on
December
1,
1974
a
dividend
of
$40
per
share
was
paid
on
the
common
shares
and
$7
per
share
on
the
preferred
shares
and
on
May
31,
1976
a
dividend
of
$22
per
share
was
paid
on
the
common
shares
and
a
7%
dividend
for
two
years
from
June
1,
1974
to
May
31,
1976
on
the
preferred
shares.
On
October
16,
1973
a
cumulative
dividend
of
$28
per
share
had
been
paid
on
the
preferred
shares.
The
shareholders
have
thus
all
been
able
to
realize
substantial
profit
on
their
investment
which
will
continue
until
the
balance
of
$1,160,776.30
becomes
payable
on
September
1,
1984
with
interest
meanwhile
at
the
rate
of
9%
per
annum
payable
semi-annually
commencing
March
1,
1974.
The
intent
of
this
closely
held
company
can
only
be
determined
by
examining
the
intent
of
the
shareholders
of
it
and
in
particular
the
principal
and
controlling
shareholder.
The
intent
must
be
determined
as
of
the
date
of
purchase
(Warnford
Court
(Canada)
Ltd
v
MNR,
[1964]
CTC
173;
64
DTC
5103).
As
Cattanach
J
stated
in
MNR
v
Lawee,*[1972]
CTC
359
at
370;
72
DTC
6342
at
6350:
Declarations
of
intention
by
persons
assessed
to
income
tax
will
not
secure
immunity
therefrom.
A
professed
intention
cannot
be
considered
as
determining
what
it
is
that
the
concrete
acts
amount
to.
It
is
only
part
of
the
evidence.
Statements
made
as
to
what
the
respondents’
intention
was
at
the
time
of
acquisition
of
the
land
must
be
considered
along
with
all
the
objective
facts.
Similar
statements
have
been
made
in
innumerable
other
tax
cases.
I
do
not
believe
on
the
evidence
before
me
that
this
is
even
a
case
where
the
doctrine
of
secondary
intention
need
be
invoked.
Plaintiff’s
principals
never
had
any
serious
intention
of
developing
the
property
nor
did
they
realistically
anticipate
obtaining
any
substantial
income
from
the
use
of
same
during
the
period
of
its
ownership
by
the
company.
There
was
no
question
of
frustrated
intention
therefore,
resulting
from
an
expropriation,
change
in
municipal
by-law,
inability
of
the
principals
to
continue
to
manage
the
property
or
otherwise
such
as
was
found
in
the
cases
of
Clemow
Realty
Ltd
v
The
Queen,
[1976]
CTC
129;
76
DTC
6094;
R
v
Stanfold
Investment
Corporation,
[1974]
CTC
19;
74
DTC
6035;
Bead
Realties
Ltd
v
MNR,
[1971]
CTC
774;
71
DTC
5453;
or
Point
Pleasant
Investments
Limited
v
MNR,
[1968]
Tax
ABC
1227;
69
DTC
23,
all
of
which
were
discussed
in
the
Clemow
Realty
case
(supra).
While
there
was
some
evidence
that
taxes
were
going
up
rapidly
as
the
value
of
the
property
increased
and
hence
it
was
becoming
more
and
more
costly
to
hold
it,
this
did
not
amount
to
the
frustration
of
the
investors’
original
intention
with
respect
to
the
property,
nor
oblige
them
to
sell
when
they
did,
as
the
company
could
no
doubt
have
obtained
by
borrowing
or
as
a
result
of
further
investments
by
the
shareholders
whatever
additional
funds
were
required
to
enable
it
to
continue
to
hold
the
property.
On
the
contrary
the
rising
municipal
evaluation
and
consequent
increase
in
taxes
was
a
confirmation
of
what
was
undoubtedly
realized
at
the
time
the
purchase
was
made
that
the
property
would
almost
certainly
go
up
in
value,
and
when
the
sale
was
made
in
1973
this
was
done
because
it
seemed
a
propitious
time
to
sell,
taking
various
negative
indications
as
to
future
developments
into
account.
I
do
not
consider
it
to
be
a
secondary
intention
therefore
but
rather
the
primary
intention
of
the
parties
at
the
time
the
property
was
acquired
that
at
some
future
propitious
time
either
the
whole
property
or
at
least
substantial
parts
of
it
would
be
sold
at
a
profit.
The
ready
acceptance
by
plaintiff
of
what
appeared
io
be
a
good
offer
by
Zellers
Limited
for
an
option
on
a
relatively
small
portion
of
it
merely
tends
to
confirm
this.
The
real
question
is
not
however
whether
the
property
was
purchased
with
the
intent
of
eventually
reselling
it
at
a
profit,
as
I
believe
it
was,
but
whether
such
profit
results
from
the
realization
of
an
investment
or
from
an
adventure
in
the
nature
of
trade,
and
it
is
this
question
which
gives
some
difficulty.
In
the
case
of
Irrigation
Industries
Limited
v
MNR,
[1962]
SCR
346;
[1962]
CTC
215;
62
DTC
1131,
the
company
had
purchased
shares
in
another
company,
this
purchase
not
being
part
of
the
business
ordinarily
carried
on
by
the
company
which
was
not
a
dealer
in
securities
and
made
a
substantial
profit
on
their
resale.
In
rendering
the
majority
judgment
of
the
Court
Martland,
J
stated
at
page
351
[219,
1133]:
.
.
.
In
my
opinion,
a
person
who
puts
money
into
a
business
enterprise
by
the
purchase
of
the
shares
of
a
company
on
an
isolated
occasion,
and
not
as
a
part
of
his
regular
business,
cannot
be
said
to
have
engaged
in
an
adventure
in
the
nature
of
trade
merely
because
the
purchase
was
speculative
in
that,
at
that
time,
he
did
not
intend
to
hold
the
shares
indefinitely,
but
intended,
if
possible,
to
sell
them
at
a
profit
as
soon
as
he
reasonably
could.
The
learned
Justice
makes
reference
at
page
356
[224,
1135]
to
a
statement
of
principle
by
Lord
Buckmaster
in
Leeming
v
Jones,
[1930]
AC
415
at
420,
in
which
it
is
stated:
.
.
.
an
accretion
to
capital
does
not
become
income
merely
because
the
original
capital
was
invested
in
the
hope
and
expectation
that
it
would
rise
in
value;
if
it
does
so
rise,
its
realization
does
not
make
it
income.
This
was
carried
further
and
applied
to
land
by
Kearney,
J
in
the
case
of
MNR
v
Valclair
Investment
Company
Limited,
[1964]
CTC
22;
64
DTC
5014,
and
the
companion
case
MNR
v
Cosmos
Inc,
[1964]
CTC
34;
64
DTC
5020,
in
which
the
learned
Justice
compared
the
purchase
of
land
for
future
sale
for
profit
to
the
purchase
of
growth
stocks
paying
no
dividend,
saying
that
the
holding
of
it
was
not
an
undertaking
or
adventure
in
the
nature
of
trade,
and
finding
that
the
speculation
and
risk
was
negligible
as
land
was
capable
of
producing
an
annual
income
even
though
the
land
in
question
was
not
being
used
productively.
At
page
31
[5019]
he
stated:
In
the
present
instance
the
purchaser
anticipated
that
it.
would
be
some
years
before
development
would
take
place
in
the
locality
of
the
property
and
its
financial
position
was
such
that
it
could
easily
afford
to
bide
its
time.
The
purchase
of
land
is
one
of
the
oldest
types
of
long-term
investment,
and,
since
diversification
of
investments
was
one
of
the
Company’s
main
objects
insofar
as
the
facts
are
concerned;
in
my
opinion
practically
the
only
risk
that
it
ran
was
the
duration
of
such
waiting
period.
I
am
of
the
opinion
that
the
elements
of
speculation
and
risk
were
negligible
in
the
transaction
in
issue
and
did
not
amount
to
nor
can
it
be
regarded
as
an
undertaking
or
an
adventure
in
the
nature
of
trade
within
the
meaning
of
the
Act.
At
page
29
[5018]
he
stated:
Shares
sometimes
called
growth
stocks
which,
at
the
date
of
their
purchase,
are
not
on
a
dividend-paying
basis,
often
form
part
of
an
investment
company’s
portfolio
and
are
considered,
for
tax
purposes,
as
investments,
since
they
are
susceptible
not
only
of
capital
growth
but
also
of
producing
income.
I
think
the
same
can
be
said
of
the
purchase
of
the
instant
property.
Counsel
for
the
appellant
contended
that
because
the
taxpayer
was
concerned
with
the
gain
to
be
derived
from
the
long-term
prospect
of
selling
the
property
rather
than
the
meagre
return
which
it
yielded,
the
money
expended
in
acquiring
it
was
not
an
investment.
I
do
not
think
that
the
amount
of
return
is
important;
it
may
vary
with
the
circumstances.
Thus,
a
vacant
property
in
the
centre
of
the
city,
when
used
for
automobile
parking
space,
sometimes
commands
high
rentals.
True,
the
return
was
a
very
modest
sum;
nevertheless,
I
think
the:
farmland
in
issue
falls
well
within
the
definition
previously
described.
Further
reference
might
also
be
made
to
the
case
of
Lawee
(supra)
in
which
Cattanach,
J
found
that
two
wives
who
had
acquired
farmland
adjacent
to
properties
acquired
by
their
husbands
and
being
subdivided
by
them
although
the
subdivision
plan
was
not
approved,
and
who
had
given
a
2-year
option
to
a
developer
who
was
building
on
adjacent
land,
which
option
was
not
exercised,
were
not
taxable
as
an
adventure
in
the
nature
of
trade
when
3
years
later,
or
9
years
after
they
had
purchased
the
property,
they
sold
the
land
to
a
development
company
controlled
by
their
children
for
a
substantial
profit.
Cattanach,
J
stated
at
page
367
[6348]:
In
Commissioners
of
Inland
Revenue
v
Fraser
(1940-42),
24
TC
498,
the
whisky
case,
the
Lord
President
(Normand)
said
that
it
is
generally
more
easy
to
find
that
a
single
transaction
amounts
to
an
adventure
in
the
nature
of
trade
when
entered
into
by
a
person
in
the
line
of
that
person’s
ordinary
trade
than
one
outside
that
line
of
trade.
From
this
he
went
on
to
indicate
that
two
factors
were
important,
(1)
the
person
concerned
and
(2)
the
subject
matter
of
the
transaction
in
determining
whether
a
transaction
is
an
adventure
in
the
nature
of
trade.
The
Lord
President
continued
at
page
502
to
say:
“.
.
.
The
individual
who
enters
into
a
purchase
of
an
article
or
commodity
may
have
in
view
the
resale
of
it
at
a
profit,
and
yet
it
may
be
that
that
is
not
the
only
purpose
for
which
he
purchased
the
article
or
the
commodity,
nor
the
only
purpose
to
which
he
might
turn
it
if
favourable
r.
opportunity
of
sale
does
not
occur.
In
some
of
the
cases
the
purchase
of
a
picture
has
been
given
as
an
illustration.
An
amateur
may
purchase
a
picture
with
a
view
to
its
resale
at
a
profit,
and
yet
he
may
recognise
at
the
time
or
afterwards
that
the
possession
of
the
picture
will
give
him
aesthetic
enjoyment
if
he
is
unable
ultimately,
or
at
his
chosen
time,
to
realise
it
at
a
profit.
A
man
may
purchase
land
with
a
view
to
realising
it
at
a
profit,
but
it
also
may
yield
him
an
income
while
he
continues
to
hold
it.
If
he
continues
to
hold
it,
there
may
be
also
a
certain
pride
of
possession.
But
the
purchaser
of
a
large
quantity
of
a
commodity
like
whisky,
greatly
in
excess
of
what
could
be
used
by
himself,
his
family
and
friends,
a
commodity.
which
yields
no
pride
of
possession,
which
cannot
be
turned
to
account
except,
by
a
process
of
realisation,
I
can
scarcely
consider
to
be
other
than
an
adventurer
in
a
transaction
in
the
nature
of
a
trade;
.
.
From
the
initial
language
of
the
extract
above
quoted,
it
is
readily
apparent
the
fact
that
a
person
intends
from
the
first
to
make
a
profit
does
not
determine
the
question
whether
a
particular
transaction
is
an
adventure
in
the
nature
of
trade
rather
than
an
investment.
It
is
inherent
in
every
investment
that
the
subject
matter
thereof
will
be
sold
and
it
is
characteristic
of
a
“good”
investment
that
the
subject
matter
will
be
sold
at
an
enhanced
value.
At
page
368
[6349]
he
states:
The
principle
in
Leeming
v
Jones
(1928-31),
15
TC
333,
was
summed
up
by
Lawrence,
LJ
who
said
at
page
354:
‘.
.
.
It
seems
to
me
that
in
the
case
of
an
isolated
transaction
of
purchase
and
resale
of
property
there
is
really
no
middle
course
open.
It
is
either
an
adventure
in
the
nature
of
trade,
or
else
it
is
simply
a
case
of
sale
and
resale
of
property
.
.
.”
I
would
add
parenthetically
that
it
is
either
an
adventure
or
concern
in
the
nature
of
trade
or
an
investment
and
if
it
is
the
latter
then
any
profit
realized
is
not
taxable
income
but
a
capital
gain.
The
foregoing
statement
of
Lord
Justice
Lawrence
received
the
specific
approval
of
Lord
Buckmaster
on
appeal
to
the
House
of
Lords.
In
concluding
that
this
was
not
an
adventure
in
the
nature
of
trade
however
he
points
out
at
page
372
[6352]
that
the
sale
of
the
land
in
question
was
respondents’
only
sale,
that
they
had
not
put
all
their
money
into
real
estate
but
only
a
small
portion
thereof
with
the
balance
in
securities,
that
they
had
other
resources
available,
and
that
the
purchase
price
of
the
properties
had
been
paid
by
them
in
cash
or
mostly
in
cash
with
the
balance
payable
at
an
early
date
which
is
not
the
conduct
of
a
speculator.
I
believe
that
for
these
reasons
the
Lawee
case
can
perhaps
be
distinguished
on
its
facts
from
the
present,
and
the
same
applies
to
the
Irrigation
Industries
case
where
the
company
was
formed
to
carry
on
an
entirely
different
business,
the
purchase
and
sale
of
shares
of
another
company
being
merely
an
isolated
transaction
outside
the
course
of
its
regular
business.
The
same
applies
to
some
extent
to
the
Valclair
Investment
and
Cosmos
cases
in
that
the
transaction
in
real
estate
was
an
isolated
one
outside
the
company’s
regular
business
and
in
fact
the
only
such
transaction
into
which
it
had
entered
in
its
20
years
in
business.
The
Clemow
Realty
case
(Supra)
was
decided
in
favour
of
the
taxpayer,
but
this
was
done
on
the
basis
that
the
intention
of
the
company
when
it
purchased
the
property
was
development
of
it
and
that
it
had
no
secondary
intention
of
selling.
When
the
primary
intention
was
frustrated
as
the
result
of
rezoning
which
made
the
remaining
land
too
shallow
and
irregular
in
shape
to
erect
the
type
of
buildings
the
company
desired
the
company
was
forced
to
sell
the
property
and
the
profit
was
found
to
be
capital
gain.
In
the
present
case
the
plaintiff
had
no
other
business
than
the
ownership
of
the
subject
property
and
it
was
in
fact
incorporated
in
order
to
acquire
such
ownership.
The
sale,
while
it
was
an
isolated
transaction,
was
not
outside
the
normal
course
of
the
company’s
business,
but
in
fact
involved
the
disposal
of
the
company’s
only
asset.
Although
the
sale
was
unsolicited,
the
company
was
not
obliged
to
sell
at
that
time
although
it
was
propitious
to
do
so
in
view
of
developments.
The
facts
therefore
closely
resemble
those
in
the
case
of
Birmount
Holdings
Ltd
v
The
Queen,
[1977]
CTC
34;
77
DTC
5031,
in
which
Sweet,
DJ
clearly
did
not
believe
the
evidence
of
the
principal
witness
as
to
his
intention
at
the
time
of
purchase.
The
Lawee
case
(supra)
was
discussed
and
also
the
case
of
Tara
Exploration
&
Development
Company
Limited
v
MNR,
[1970]
CTC
557;
70
DTC
6370.
Sweet,
DJ
distinguished
same
on
the
basis
that
that
company
had
made
a
profit
by
acquiring
and
later
selling
shares
in
another
company,
using
funds
which
had
been
raised
for
the
purpose
of
exploring
for
minerals
in
Southern
Ireland
but
which
work
had
not
yet
started.
As
in
the
Irrigation
Industries
Limited
case
therefore
the
acquisition
and
sale
of
these
shares
was
not
a
normal
part
of
the
company’s
business.
The
learned
Deputy
Justice
states
at
page
46
[5039]:
Here,
the
situation
is
quite
different.
This
is
not
a
situation
where
the
realty
was
acquired
with
funds
awaiting
use
in
connection
with
some
other
business
of
the
company.
Here,
the
plaintiff
had
no
business
other
than
business
associated
with
the
realty.
Neither
is
it
the
case
of
a
company,
having
surplus
funds
acquired
in
the
conduct
of
its
business,
seeking
an
investment
for
those
funds
in
a
field
other
than
that
in
which
the
company
usually
operated.
Here,
the
evidence
does
not
disclose
any
asset
of
the
plaintiff
except
the
realty
out
of
which
the
assessment
arose
and
possibly
some
increment
from
it.
The
funds
with
which
the
realty
was
acquired
were
not
generated
by
the
business
of
the
plaintiff.
They
were
supplied
by
Mr
Mentzelopoulos
and
were
so
supplied
only
for
the
purchase
of
the
realty.
and
again:
In
my
opinion,
it
is
not
open
to
a
person
to
have
a
corporation
controlled
by
him
acquire
only
one
parcel
of
land,
and
no
other
asset,
have
that
corporation
perform
no
function
other
than
something
associated
with
that
land,
and
then,
that
land
having
been
sold
by
the
corporation
in
one
piece,
claim
that
the
corporation
having
had
only
one
purchase
and
sale,
is
entitled
to
a
tax
advantage
merely
because
there
was
a
single
transaction.
I
do
not
think
that
the
cases
wherein
a
single
transaction
has
been
held
not
to
be
carrying
on
business
are
necessarily
in
conflict
with
that
view.
The
learned
judge
also
distinguished
the
Irrigation
Industries
and
Valclair
Investment
cases
as
I
have
done.
I
therefore
conclude
that
plaintiff
in
the
purchase
and
sale
of
the
subject
property
was
engaged
in
a
business
venture
in
connection
therewith
and
that
gains
resulting
from
the
sale
are
not
capital
gains
but
income
from
business
and
that
the
appeal
against
the
assessment
by
the
Minister
of
the
profits
made
as
a
result
of
this
must
therefore
be
dismissed
with
costs.