Teitelbaum,
J.:—The
plaintiff,
Rivermede
Developments
Ltd.,
appeals,
by
way
of
a
trial
de
novo,
from
a
decision
of
the
Tax
Court
of
Canada
dismissing
its
appeal
from
a
reassessment
made
by
the
Minister
of
National
Revenue
for
the
1977
taxation
year
of
the
plaintiff.
In
the
reassessment,
the
Minister
determined
that
the
amount
of
$1,120,535
representing
the
proceeds
of
disposition
of
a
parcel
of
vacant
land
in
the
Township
of
Vaughan,
Ontario
owned
by
the
plaintiff
was
business
income.
The
sole
issue
on
this
appeal
is
whether
the
disposition
of
the
plaintiff's
land
constituted
a
disposition
of
capital
property
or
of
inventory.
That
is
to
say,
it
is
a
case
of
income
versus
capital
gain
in
a
real
estate
transaction
and
turns
essentially
on
the
facts
of
the
case.
There
was
an
additional
issue
to
be
determined
as
raised
by
counsel
for
plaintiff.
It
is
submitted
that
the
1977
taxation
year
for
which
the
reassessment
was
made
was
not
the
proper
year
for
taxation
of
the
gain
made
with
respect
to
the
real
estate
transaction
under
review.
Counsel
for
plaintiff
submits
the
proper
year
was
1976
as
it
was
the
year
during
which
the
amount
of
compensation
payable
to
the
plaintiff
for
the
transaction
became
ascertained.
This
last
submission
was
abandoned
by
plaintiff
at
the
time
of
argument.
The
plaintiff
called
one
witness,
a
Mr.
Jethro
Crang,
the
defendant
did
not
call
any
witnesses.
Mr.
Jethro
Crang
was
a
shareholder
and
is
the
General
Manager
of
the
plaintiff.
He
remained
a
shareholder
in
plaintiff
until
December,
1960
when
he
transferred
his
shares
to
his
wife
June.
Plaintiff
had
been
incorporated
on
January
11,
1954.
Amongst
its
objects
and
purposes,
the
plaintiff
was
permitted
to:
Subject
to
the
provisions
of
any
statute
or
regulations
passed
thereunder
in
that
behalf
for
the
time
being
in
force;
(a)
To
purchase,
lease,
construct
or
otherwise
acquire,
hold,
enjoy,
manage,
improve
and
assist
in
improving
lands,
water
lots,
wharves,
docks,
dock-yards,
slips,
warehouses,
sheds,
elevators,
offices,
hotels,
dwellings,
restaurants,
parks,
buildings
of
every
description
and
amusement
resorts
and
appliances
and
to
sell,
mortgage
or
otherwise
dispose
of
the
same;
(b)
to
acquire
land
for
building
purposes
and
to
lay
out
building
lots,
and
to
clear
and
improve
the
same
in
any
manner
and
to
construct
roads
and
ways
of
every
description,
and
to
purchase,
lease,
construct
or
otherwise
acquire,
hold
and
enjoy
and
to
manage,
as
properties
owned
or
controlled
by
the
company,
facilities
for
water
supply
or
for
the
furnishing
of
gas,
electricity,
power,
light,
heat,
drainage
or
sewerage
and
to
carry
on
any
business
incidental
to
any
of
the
aforesaid
purposes;
In
other
words,
plaintiff
was
incorporated,
for
the
purposes
of
this
case,
to
be
permitted
to
purchase
and
sell
lands
as
well
as
to
construct
and
lease
buildings
such
as
warehouses,
offices,
hotels,
dwellings
and
restaurants.
The
plaintiff's
original
shareholders
comprised
members
of
the
Crang
family
and
their
accountant.
On
March
24,
1960,
the
plaintiff's
original
shareholders
(except
for
Kirby
Crang
who
passed
away)
incorporated
another
company,
Cranspen
Developments
Ltd.
(Cranspen).
Cranspen
acquired
three
parcels
of
land,
including
the
parcel
in
question
(hereinafter
referred
to
as
the
Dufferin
Street
property)
allegedly
with
a
view
to
developing
and
leasing
them
in
order
to
generate
income.
The
Dufferin
Street
property
was
acquired
on
March
31,
1960.
In
that
this
case
mainly
turns
on
the
facts,
I
believe
it
necessary
to
relate
what
I
consider
to
be
the
relevant
and
important
testimony
of
Mr.
Jethro
Crang.
As
I
have
stated,
Mr.
Crang
was
a
shareholder
in
the
plaintiff
company
from
its
date
of
incorporation,
1954,
to
December
1960.
The
person
who
orchestrated
the
creation
of
Rivermede,
in
1954
was
Mr.
Crang's
father
although
he
was
never
a
shareholder
in
Rivermede.
According
to
the
witness,
his
father
had
Rivermede
incorporated
"because
the
family
farm
at
Weston
Road
and
Sheppard
became
too
expensive
to
farm"
and
as
a
result
and
because
what
was
occurring
near
the
“family
farm"
"Father
saw
an
opportunity
.
.
.
to
create
a
residential
subdivision
on
the
farm".
What
in
fact
happened
was
that
Rivermede
was
incorporated
and
purchased
the
“family
farm"
from
the
witness'
father
and
mother
but
did
not
have
to
pay
the
purchase
price
as
the
witness'
parents
were
prepared
to
be
"paid
out"
over
a
10-year
period
in
order
to
allow
Rivermede
"to
further
invest
moneys
in
longterm
leasehold
properties
or
businesses".
The
witness
states
that
his
father
estimated
that
a
registered
plan
of
a
residential
subdivision
would
make
the
“family
farm"
land
worth
approximately
1.4
million
to
1.5
million
dollars
on
a
sale
and
he
proposed
that
the
family,
Rivermede,
purchase
the
property
for
$1,040,000
and
since
the
purchase
price
did
not
have
to
be
paid
for
ten
years,
the
plaintiff
company
could
take
the
entire
funds
received
from
the
sale,
and
make
future
investments
“for
longterm
leasehold
properties
and
businesses”.
As
it
turned
out,
the
money
was
only
used
to
buy
more
land.
After
plaintiff
purchased
the
"family
farm",
Rivermede
had
the
property
surveyed
and
engaged
engineers
"to
plot
a
plan
of
residential
subdivision”
and
proceeded
to
have
the
plan
registered.
Plaintiff
then
sold
the
land
as
a
whole
in
1958
to
a
company
known
as
Humbermede
Developments
Ltd.
for
approximately
$1,450,000.
Plaintiff
held
the
land
from
1954
to
1958.
It
did
nothing
with
the
land
for
the
four
years
it
owned
the
land
other
than
to
have
it
surveyed
and
have
a
residential
subdivision
plan
registered.
It
did
nothing
with
the
land
because
“well,
it
was
a
residential
subdivision
and
our
experience
was
not
in
residential
buildings,
houses
at
all.
Our
experience
centred
around
commercial
and
industrial
leasehold
properties".
This
statement
appears
to
contradict
an
earlier
statement
where
the
witness
stated
that
his
father
wanted
the
plaintiff
company
to
sell
the
land
at
a
profit
and
because
the
father
did
not
have
to
be
paid
for
a
period
of
years,
plaintiff
could
use
the
money
for
other
long-term
investments.
Mr.
Crang
admits
that
plaintiff
also
did
nothing
with
the
Dufferin
Street
property
(the
property
in
issue)
before
selling
it
(page
25
of
March
31,
1993
transcript).
No
services
were
installed
before
the
sale
of
the
land
of
the
Dufferin
Street
property
and
as
Mr.
Crang
states
“No,
we
never
intended
on
installing
any
services
on
the
property".
Soon
after
the
sale
of
the
“Family
Farm"
by
Rivermede,
plaintiff
company
became
interested
in
purchasing
land
in
the
Township
of
Vaughan
because
of
the
future
prospects
of
development
in
that
area.
Plaintiff
supposedly
knew
of
a
"marshalling
yard”
to
be
established
in
the
area
of
Keele
and
Dufferin
in
the
Township
of
Vaughan.
Plaintiff's
representatives,
Mr.
Crang
and
a
Mr.
Spence,
a
shareholder
and
the
accountant
of
plaintiff
also
visited
the
Town
Hall
to
get
more
information
on
zoning
and
they
were
informed
that
the
Town
would
be
prepared
to
make
changes
to
the
existing
zoning
from
agriculture
to
industrial.
Plaintiff's
representatives
also
inspected
the
properties
at
Keele,
Lawson
and
Dufferin
"to
examine
them
in
terms
of
their
feasibility
of
development
occurring
on
them”.
The
witness
states,
as
to
what
the
plans
of
plaintiff
were,
in
the
following
terms:
A.
It
was—our
plans
were
to
develop
leasehold
properties
on
all
the
property,
and
it
would
contain
some
commercial
leasehold
properties,
as
well,
because
Keele
Street,
and
ultimately
Dufferin,
offered
that
potential.
Q.
By
"development",
do
you
mean
construction?
A.
Construction
and
building
the
buildings,
yes.
Q.
For
purposes
of
resale?
A.
No,
for
leasehold.
Leasehold
properties
and/or
perhaps
businesses.
As
will
be
seen,
this
did
not
happen.
As
nothing
was
done
with
the
land
of
the
“family
farm"
or
with
the
Keele
&
Lawson
properties,
except
to
sell
the
land,
no
development
occurred
on
the
Dufferin
Street
property.
It
was
plaintiff's
submission
that
they
would
hire
a
construction
company,
would
have
buildings
erected
and
then
would
lease
the
buildings.
"The
idea
was
to
look
for
tenants
in
the
beginning,
construct
the
buildings,
custom
construct—have
the
buildings
constructed
and
have
them
occupied
with
tenants"
while
plaintiff
retained
ownership
of
the
buildings.
Plaintiff
anticipated
developing
the
land
in
the
following
manner:
A.
The
information
that
we
obtained
from
the
municipality
was
that
the
Keele
Street
properties
and
the
Lawson
property
would
be
rezoned
industrially
and
serviced
in
the
first
stage,
then
at
some
later
stage
Dufferin
would
be
zoned
industrially,
when
services
became
available.
Q.
What
was
the
time
frame
in
your
mind
back
then?
A.
We
estimated
that
the
Keele
and
Lawson
properties
would
be
a
three
to
five-
year
span,
and
Dufferin
could
come
on
stream
anywhere
between
five
and
ten
years
further
on.
On
March
24,
1960,
the
plaintiff’s
original
shareholders,
with
the
exception
of
Kirby
Crang
who
had
been
killed
in
an
accident
incorporated
another
company,
Cranspen
Developments
(Cranspen)
to
purchase
the
Dufferin
Street
property
and
the
two
other
parcels
of
land,
Keele
Street
and
Lawson
Street
properties.
Exhibits
1-3,
-4
and
-5
of
the
Book
of
Documents
contains
a
Toronto
Real
Estate
Board
agreement
of
purchase
and
sale
for
the
three
properties.
Exhibit
1-5
refers
to
the
Dufferin
Street
property
which
indicates
the
sale
price
for
103
acres
of
land
as
being
$257,500.
On
September
20,
1962,
Cranspen
transferred
the
properties,
the
three
parcels
of
land,
to
Rivermede
(see
Exhibit
1-11).
Cranspen
did
nothing
other
than
acquiring
the
above-mentioned
three
parcels
of
land
and
then
transferring
the
land
to
Rivermede.
The
witness
states
that
the
plaintiff
commenced
the
development
of
the
properties
by
"put
in
crews
to
do
surveying
and
all
the
things
that
are
necessary
towards
doing
an
industrial
subdivision”.
Plaintiff
also
had,
with
the
vendors
of
the
land,
a
"partial
discharge
clause”.
The
reason
being,
according
to
Mr.
Crang,
is
that
upon
registration
of
the
industrial
subdivision
plan
plaintiff
would
have
to
give
to
the
municipality
approximately
25
per
cent
of
the
acreage
and
as
plaintiff
acquired
tenants
(which
it
never
did)
and
constructed
buildings
as
leasehold
properties
(which
it
never
did)
plaintiff
would
require
mortgage
financing
to
construct
the
building
(mortgage
financing
was
never
obtained).
Later
evidence
indicated
that
plaintiff
required
the
partial
discharge
clause
in
order
to
enable
it
to
sell,
with
clear
title,
lots
to
various
buyers
of
the
land
on
the
Keele
&
Lawson
properties.
At
the
time
of
the
purchase
of
the
land
in
the
Township
of
Vaughan,
the
Crang
family,
through
other
companies
owned,
according
to
Mr.
J.
Crang,
the
Crang
Plaza
Shopping
Centre,
it
owned
a
building
at
365
Weston
Road
in
Toronto
and
owned
1,800
acres
of
farmland
in
Alliston,
Ontario
(1,200
acres)
and
in
Bondhead,
Ontario
(600
acres)
as
well
as
citrus
groves
in
Florida.
The
farmland
was
farmed
by
the
family
actively
to
1972
in
Alliston
and
to
1985
in
Bondhead.
When
Cranspen
purchased
the
three
properties,
Keele,
Lawson
and
Dufferin,
in
1960,
no
services
were
installed.
According
to
Mr.
Crang,
the
Township
was
to
amend
the
zoning
to
make
the
lands
surrounding
the
marshalling
yards
zoned
industrial
and
plans
were
made
to
build
and
provide
a
sewer
and
water
system.
The
witness
states
that
after
the
purchase
of
the
three
parcels
of
land
meetings
were
held
with
the
township
to
prepare
what
was
required
to
make
application
for
rezoning
of
the
Keele
and
Lawson
properties
to
industrial.
At
the
same
time
they
initiated
the
process
of
designing
a
subdivision
and
seeking
approval
of
it.
Exhibit
1-8
indicates
that
the
Township
of
Vaughan
had
long-term
plans
to
change
the
zoning
for
the
Keele
Street
and
Lawson
Street
properties
from
agriculture
to
industrial
(see
also
Exhibit
1-10).
Eventually,
the
properties
on
Keele
and
Lawson
were
rezoned
industrial
with
some
limited
commercial
(this
in
1964).
No
rezoning
was
sought
by
the
plaintiff
for
the
Dufferin
Street
property
as
no
zoning
change
could
take
place
for
this
property
until
services
were
available.
With
regard
to
the
Keele
and
Lawson
properties,
plaintiff,
on
April
3,
1964,
requested
approval
for
a
plan
of
subdivision
(Exhibit
1-14).
The
approval
for
registration
of
the
subdivision
plan
was
obtained
on
September
4,1964
(Exhibit
1-15).
After
having
received
approval
for
the
registration
of
the
subdivision
plan,
plaintiff
called
for
tenders
for
the
construction
of
utilities,
sewer,
water,
roads,
for
the
Keele
and
Lawson
properties.
In
the
spring
of
1965
construction
started.
Plaintiff
also
started
to
look
for
tenants
as,
according
to
Mr.
Crane,
it
was
plaintiff's
intention
to
develop
leasehold
properties
on
a
progressive
basis
"as
demand
would
accrue,
to
build
leasehold
properties
for
long-term
investment,
and
we
gave
some
attention
to
the
construction
of
a
commercial
complex
on
Keele
Street".
In
early
1965,
plaintiff
began
to
look
for
tenants.
The
witness
states
that
discussions
took
place
with
Canadian
Imperial
Bank
of
Commerce
(CIBC)
and
Sun
Oil
"and
there
was
another
gas
station".
Discussion
also
allegedly
took
place
with
someone
wanting
a
restaurant,
and
for
the
establishment
of
a
post
office,
Crown
Cork
&
Seal
and
Russell
Steel.
As
an
example
of
plaintiff
looking
for
tenants,
plaintiff
has
filed
a
letter
dated
January
11,
1965
from
the
CIBC.
It
is
clear
from
this
letter
that
the
bank
was
interested
in
considering
the
establishment
of
a
new
branch
in
the
commercial
development
and
that
the
bank
was
also
interested
in
the
possibility
of
plaintiff
constructing
a
"free
standing”
building
for
rent
or
sale
to
the
bank
(Exhibit
1-16).
Plaintiff
replied
to
the
January
11,1965
letter
of
"interest"
sent
by
the
CIBC.
In
this
letter,
the
witness
States:
Canadian
Imperial
Bank
of
Commerce
25
King
St.
W.
Toronto,
Ontario
Attention:
Mr.
James
O.
Tice
Dear
Sir:
We
acknowledge
receipt
of
your
letter
dated
January
11,
1965
in
which
you
indicate
that
you
are
interested
in
establishing
a
new
branch
in
our
commercial
development
at
the
intersection
of
Keele
St.,
and
Rivermede
Road
in
Vaughan
Township.
This
shopping
complex,
which
will
consist
of
approximately
six
units,
should
adequately
serve
the
needs
of
the
surrounding
industry.
It
is
our
intention
to
start
building
early
this
summer
and
as
a
result
we
expect
to
finalize
matters
in
connection
with
this
development
within
the
next
three
months.
We
apologize
for
not
being
able
to
properly
discuss
the
development
of
our
shopping
complex
until
now,
however,
we
would
be
very
pleased
to
have
a
branch
of
your
bank
as
part
of
this
shopping
complex
and
we
will
carry
on
negotiations
with
you
towards
this
end.
Yours
very
truly,
J.
Crang
[Exhibit
1-18.]
This
letter
clearly
indicates
to
me
that
the
plaintiff
had
an
interest
in
building
a
small
shopping
complex
and
nothing
more.
In
addition
the
other
type
of
tenants
that
the
plaintiff
was
trying
to
attract,
a
restaurateur,
a
post
office
complex,
also
indicates
that
the
plaintiff
was
solely
interested
in
building
a
shopping
centre.
It
certainly
does
not
indicate
a
search
for
industrial
tenants
for
long-term
investment.
In
addition,
during
the
witness'
testimony
on
March
31,
1993,
he
stated
quite
categorically
that
he
never
discussed
a
sale
to
the
CIBC
(see
page
79
line
25,
page
80
lines
10
and
29,
page
81
line
7,
page
85
lines
1
and
5,
page
86
line
19).
Yet
at
Exhibit
1-19
under
the
date
March
11,
1965,
the
witness
wrote:
March
11/65
Mr
Tice
phoned
—
gave
info
such
as
no
other
site
for
sale
—
no
progress
on
site
on
north
side
Miller
—
3,100
north.
.
.
.
The
witness
admits
that
it
was
he
who
informed
Mr.
Tice
of
the
CIBC
that
"gave
info
such
as
no
other
site
for
sale”.
Mr.
Crang
was
not
able
to
reasonably
explain
why
he
had
continued
to
testify
that
he
never
discussed
sale
of
land
or
building
with
Mr.
Tice
yet,
he
wrote
that
on
March
11,
1965,
he
informed
Mr.
Tice
that
there
was
no
other
site
for
sale.
Mr.
Crang
states
"I'm
not
sure
what
gave
rise
to
me
making
that
note,
My
Lord.
I
really
don't
know"
(page
90,
March
31,
1993
transcript).
This
is
his
explanation.
In
1965,
plaintiff
arranged
with
Rosewood
Industrial
Developments
to
be
the
“building
arm
of
Rivermede"
for
the
shopping
complex.
Rosewood
was
incorporated
on
April
1,
1965
(Exhibit
1-20).
J.
Crang,
the
witness
of
plaintiff
was
a
partner
in
Rosewood.
Rosewood
hired
an
architect
to
draw
plans
for
the
shopping
complex.
In
the
spring
of
1965,
the
plaintiff
began
to
install
services
for
the
Keele
and
Lawson
Street
properties.
The
installation
period
was
expected
to
be
four
to
five
months
at
a
cost
of
approximately
$750,000.
As
the
services
were
being
installed,
that
is,
within
a
period
of
less
than
four
to
five
months,
the
plaintiff,
Mr.
Crang
states,
started
“to
feel
a
financial
pressure".
As
a
result
of
this
“financial
pressure"
the
plaintiff
decided
to
sell
the
Keele
and
Lawson
Street
properties.
The
witness
states
that
the
Dufferin
Street
property
was
not
for
sale
because:
A.
Dufferin
was
a
special
property,
in
our
mind,
because
from
the
beginning
we
knew
that
it
was
going
to
be
a
longer
term
than
Keele
Street.
It
was
virtually
untouched,
and
we
knew
it
was
off
in
the
future.
But,
as
well,
the
development
that
was
starting
to
occur
along
the
Keele
Street
area
was
one
that
left
some
things
to
be
desired
in
terms
of
the
kind
of
buildings
that
were
being
constructed,
so
we
were
a
little
disappointed
in
that
in
terms
of
the
freedom
that
the
municipality,
the
township
particularly,
gave
to
people
that
were
erecting
buildings
on
the
lands
that
they
owned
adjacent
to
us.
But
all
I’m
saying
here
is
that
there
was
some
concern
about
the
quality
of
development
that
occurred
on
Keele
Street,
and
we
wanted
to
keep
Dufferin
off
in
the
future
for
what
we
felt
would
be
a
quality—not
necessarily
prestigious,
but
an
aesthetically
pleasing
situation.
THE
WITNESS:
I
was
merely
making
a
comment
on
—
we
were
holding
Dufferin
for
the
future.
I
would
state
that
I
find
this
answer
totally
incomprehensible.
If
the
company
was
suffering
financially
as
the
witness
testified
as
the
reason
for
selling
the
Keele
and
Lawson
Street
properties,
I
cannot
understand
the
reason
given
for
holding
onto
the
Dufferin
Street
property.
I
believe
the
true
reason
for
selling
the
Keele
and
Lawson
Street
properties
was
that
it
was"
ripe
for
sale”.
As
with
the
father's
farm
sold
to
Humbermede,
where
a
residential
subdivision
was
registered
and
then
sold
because
it
had
a
higher
value,
so
too
with
the
Keele
and
Lawson
Street
properties
as
they
too
were
sold
after
a
subdivision
plan
was
registered
and
service
work
commenced.
It
is
a
strange
coincidence,
which
I
do
not
accept,
that
Rivermede
became
financially
troubled
soon
after
contracting
for
services.
Surely
Rivermede
could
have
foreseen
any
financial
problems
with
the
"family"
business
before
contracting
out
for
the
installation
of
services
and
the
expenditure
of
approximately
$750,000.
In
addition,
I
am
satisfied
that
the
Dufferin
Street
property
was
not
sold
as
it
was
still
zoned
"agriculture"
and
therefore
no
subdivision
plan
could
be
registered.
The
land
was
not
as
valuable
as
it
would
become
as
more
development
took
place
in
the
area.
I
do
not
accept
the
answer
of
Mr.
Crang”
Dufferin
was
a
special
property".
It
was
no
more
special
than
Keele
or
Lawson
Street
properties
other
than
Dufferin
was
not
"ripe"
for
sale.
The
Keele
Lawson
property
had
approximately
150
acres
of
industrial
land.
It
was
sold,
according
to
Mr.
Crang
within
three
or
four
years
at
an
average
price
of
$15,000
per
acre.
He
also
states
he
believes
plaintiff
could
have
received
approximately
$10,000
per
acre
for
the
Dufferin
property
after
having
paid
$2,500
per
acre
for
this
land.
Dufferin
contained
93
acres
of
land.
Yet
this
land
was
not
sold.
If
in
fact
plaintiff
was
in
financial
trouble
because
of
the
"family"
businesses
and
could
not
get
financing
from
these
“family”
businesses
because
of
their
cash
flow
shortage,
as
the
witness
testified,
I
find
it
difficult
to
accept
that
the
plaintiff
would
not
have
sold
Dufferin
at
a
profit
of
$7,500
per
acre
for
93
acres
to
help
out
the
other
family
businesses.
This
is
another
indication,
to
me,
that
there
was
no
financial
crisis
within
the
family
businesses
as
the
witness
would
have
me
believe.
Furthermore,
no
documentary
evidence
was
put
before
me
to
indicate
a
financial
crisis
or
problem.
The
property
at
Keele
and
Lawson
was
sold
and
the
profit
from
the
sale
was
reported,
for
income
tax
purposes,
as
income.
Nothing
was
done
with
regard
to
the
Dufferin
Street
property.
No
services
were
available
to
the
property
in
1969.
It
was
plaintiff’s
plan,
after
having
sold
the
Keele
&
Lawson
Street
properties,
according
to
Mr.
Crang,
to
await
the
servicing
of
the
Dufferin
Street
property
and
proceed
with
plaintiff's
plan
to
build
a
leasehold
development.
In
1973,
the
Dufferin
Street
property
and
surrounding
lands
were
designated
by
the
Government
of
Ontario
as
a
greenbelt
area
pursuant
to
regulations
passed
under
the
Parkway
Belt
Planning
&
Development
Act,
1973,
R.S.O.
1980,
c.
368.
At
this
time,
in
1973,
the
Dufferin
Street
property
was
zoned
"agriculture".
According
to
Mr.
Crang,
it
was
the
Township's
plan,
in
the
early
1970s,
it
of
course
had
to
be
before
1973,
therefore
in
1971
or
1972,
to
increase
the
industrial
zoning
in
the
area
and
to
include
the
Dufferin
Street
property.
No
evidence
of
this
was
submitted
to
me.
According
to
Mr.
Crang,
the
greenbelt
designation
restricted
the
use
of
the
property
to
agricultural
uses
which
supposedly
frustrated
Rivermede's
development
plans
for
the
property.
Thus,
after
much
discussion
and
many
meetings
between
plaintiff
and
its
legal
advisors,
plaintiff,
on
November
18,1976
offered
to
sell
the
Dufferin
Street
property
to
Her
Majesty
the
Queen
in
Right
of
Ontario
for
$1,450,000.
The
offer
was
accepted
on
February
16,
1977
and
the
transaction
closed
within
a
month
thereafter.
Mr.
Crang
gave
evidence
that
there
was
no
real
negotiation
as
to
the
price.
He
stated
that
the
province's
appraisal
determined
the
price.
I
agree
with
his
assessment
as
to
how
the
“sale”
price
was
finally
determined
but
I
am
satisfied
the
plaintiff
was
pleased
to
sell
the
land
to
the
province.
I
am
satisfied
that
the
transaction
cannot
and
should
not
be
considered
an
involuntary
disposition
as
the
evidence
indicates
some
negotiation
taking
place.
(Plaintiff
hired
its
own
appraiser
in
an
attempt
to
receive
more
money
for
the
sale
of
the
land.
It
was
the
government
of
Ontario
appraiser's
report
which
was
finally
accepted.)
On
its
1977
income
tax
return,
Rivermede
treated
the
sale
as
a
sale
of
capital
property
and
reported
an
allowable
capital
loss
of
$9,504.
The
Minister
of
National
Revenue
reassessed
the
plaintiff's
1977
taxation
year
and
treated
the
proceeds
of
sale
as
business
income.
The
witness
states
he
was
not
involved
in
the
objection
process
with
the
Department
of
National
Revenue
but
relied
"entirely
on
the
advice
of
our
accountants".
As
to
the
preparation
of
the
notice
of
objection,
Exhibit
1-63,
Mr.
Crang
states
that
this
was
done
through
his
accountant
“they
just
recommended
and
we
said
'okay'".
As
to
the
statement
of
facts
and
reasons
attached
to
the
notice
of
objection,
Mr.
Crang
states
he
does
not
particularly
recall
having
seen
it
before
it
was
sent
to
the
Minister
and
states
(transcript,
March
31,
1993,
page
165):
I
can
recall
having
some
conversations
over
the
telephone,
but
I
don't
recall
meeting
to
review
the
document.
In
its
financial
statements,
plaintiff
initially
treated
the
Dufferin
Street
property
as
land
and
then
as
land
inventory.
Exhibit
P-2-12
are
plaintiff's
financial
statements
for
September
30,
1971
in
which,
on
page
2
of
the
statement
under
"Current
Assets"
is
“land
inventory”,
which
Mr.
Crang
states
is
the
Dufferin
Street
property.
From
1960
to
1970,
the
Dufferin
Street
property
is
listed
as
"land"
(see
Exhibits
P-2-1
to
-11)
and
from
then
on
as
"land
inventory”.
The
plaintiff
also
produced,
as
Exhibit
P-3,
a
letter
dated
June
12,
1980,
addressed
to
Mr.
E.J.
Miller
of
Goodman
&
Carr,
Barristers
and
Solicitors
from
Ms.
Wynne,
an
auditor
with
Revenue
Canada.
In
the
third
paragraph
of
the
letter,
Ms.
Wynne
states:
Secondly
in
particular,
you
state
in
paragraph
4".
.
.
these
lands/Dufferin
lands/
were
at
all
times
zoned
agricultural.
.
.
."
However,
from
information
supplied
to
us,
re-zoning
permission
could
have
been
obtained
for
development
prior
to
1973
(Greenbelt
Declaration).
Indeed,
it
is
highly
doubtful
that
if
land
had
at
all
times
been
zoned
agricultural
until
a
greenbelt
area
is
declared,
that
the
increase
in
value
of
such
land
would
be
of
the
magnitude
of
the
Dufferin
property.
[Exhibit
P-3.]
Mr.
Crang
states
that
it
would
have
been
impossible
to
obtain
rezoning
of
the
Dufferin
Street
property
before
1973.
On
page
2
of
Exhibit
P-3,
second
paragraph,
Ms.
Wynne
states:
Fourthly,
in
paragraph
9
you
refer
to
the
comparisons
of
treatment
of
the
"Keele"
and
"Dufferin"
properties
by
the
corporation,
however,
the
zoning
of
the
two
properties
at
time
of
purchase
bare
no
similarity.
This
is
incorrect
according
to
Mr.
Crang
as
both
properties
were
originally,
at
time
of
purchase,
zoned
agriculture.
I
agree
with
plaintiff,
Ms.
Wynne
is
wrong.
The
evidence
indicates
that
before
1973,
there
were
no
services
to
the
Dufferin
Street
property
and
Mr.
Crang
states
no
rezoning
could
have
been
had
before
services
were
installed.
I
am
also
satisfied
that
all
three
properties,
at
time
of
purchase,
were
zoned
"agriculture".
These
two
errors
by
the
representative
of
the
Minister
do
not
affect
the
determination
as
to
whether
the
money
received
by
plaintiff
from
the
sale
of
the
Dufferin
Street
property
is
business
income
or
capital.
Mr.
Crang
states
that
it
was
his
father
who
"was
more
the
directing
mind"
of
plaintiff
than
he
was.
I
cannot
and
do
not
accept
this
statement
by
the
witness
in
that
Mr.
Crang's
father
was
never
a
shareholder
of
the
plaintiff
while
the
witness
was
the
plaintiff's
president.
The
witness
was
also
plaintiff's
general
manager.
Other
than
Mr.
Crang's
statements,
no
other
shareholder
appeared
to
corroborate
Mr.
Crang.
In
addition,
in
his
examination
for
discovery,
Mr.
Crang
stated
he
was
the
"controlling
mind".
Mr.
Crang
states
that
the
land
purchased
by
plaintiff
from
his
father,
the
land
being
at
Sheppard
and
Weston,
was
purchased
for
resale
and
with
a
registered
subdivision
"it
created
a
greater
value
for
the
property"
in
order
to
make
a
profit.
This
is
exactly
what
plaintiff
did
for
the
properties
at
Keele
and
Lawson.
Plaintiff
could
not
register
a
subdivision
plan
for
the
Dufferin
Street
property
as
it
was
zoned
"agriculture"
rather
than
industrial
and
commercial.
The
three
properties,
Keele,
Lawson
and
Dufferin,
according
to
the
witness
were
properties
in
the
Township
of
Vaughan,
were
approximately
a
mile
and
a
half
from
the
boundary
of
Metropolitan
Toronto,
were
purchased
by
a
certain
Mr.
Elliot
for
a
company
to
be
incorporated,
Cranspen,
and
that
Cranspen
purchased
the
three
properties
for
the
plaintiff
and
all
this
supposedly
because
the
wife
of
a
deceased
brother
was
a
shareholder
of
plaintiff.
The
area
of
the
three
properties,
at
the
beginning
of
the
1960s
was
"active"
as
a
result
of
the
marshalling
yards
that
were
going
to
be
installed
in
the
area
of
the
three
properties.
On
December
9,
1960,
the
original
shareholders
of
plaintiff
transferred
their
shares
to
their
spouses.
The
witness
transferred
his
shares
to
his
wife
June
Crang
who
became
president
of
plaintiff.
The
witness
remained
on
as
general
manager
and
ran
the
day-to-day
activities
of
plaintiff.
He
states
plaintiff
purchased
the
three
properties
for
development
with
leasehold
properties
over
a
period
of
five
to
ten
years
after
purchase.
Exhibit
1-63
is
plaintiff's
notice
of
objection
for
the
1977
taxation
year.
It
is
dated
January
3,
1981
and
signed
by
June
Crang
as
president
of
plaintiff.
A
statement
of
facts
and
reasons
dated
January
5,
1991
is
attached
to
the
notice
of
objection.
After
much
questioning
by
counsel
for
defendant,
the
witness
agreed
that
before
the
filing
of
Exhibit
1-63,
he
discussed
with
his
representative,
MacPherson
&
Scott,
accountants,
who
prepared
the
document
Exhibit
1-63,
the
circumstances
surrounding
the
purchase
of
the
Dufferin
Street
property
including
what
were
plaintiff's
intentions
with
regard
to
the
Dufferin
Street
property.
The
accountants
for
plaintiff
also
retained
legal
counsel
before
forwarding
to
the
Minister
of
National
Revenue
Exhibit
1-63
the
notice
of
objection
and
statement
of
facts
and
reasons.
Mr.
Crane,
after
much
prodding,
recalls
discussing
Exhibit
1-63
with
his
accountants
before
it
was
sent
to
the
Minister
of
National
Revenue.
In
the
statement
of
facts
and
reasons,
it
states:
There
were
two
properties
of
land
that
Rivermede
acquired
at
the
same
time
(1960)
—
the
93
acres
subject
to
reassessment
(known
as
the
Dufferin
Street
property)
and
the
parcel
to
the
west
known
as
the
Keele
Street
property.
Each
property
was
viewed
and
treated
as
a
separate
and
distinct
investment.
The
Keele
Street
property
was
actively
developed
and
sold
as
industrial
sites
as
soon
as
possible
after
acquisition.
This
happened
in
the
early
19605.
The
sale
of
the
Keele
Street
property
was
treated
as
income.
The
Dufferin
Street
property
on
the
other
hand
was
not
actively
developed.
It
was
viewed
and
held
as
a
passive
investment.
The
main
reason
for
holding
the
Dufferin
Street
property
was
to
preserve
family
wealth
with
a
longterm
investment
in
land.
The
reason
for
sale
was
simply
to
protect
the
original
intent
of
preserving
the
family
wealth.
Because
of
government
legislation
this
land
became
designated
as
"greenbelt".
The
value
of
the
land
thus
became
impaired
and
inflation
began
to
actually
reduce
the
family
wealth,
therefore
the
company
felt
the
best
decision
to
preserve
wealth
would
be
to
ask
for
expropriation
of
the
land
by
the
Ontario
Government.
The
company
felt
this
was
necessary
since
the
land
was
frozen
—
essentially
nothing
could
be
done
with
it,
thus
the
real
value
was
decreasing.
Rather
than
waiting
for
perhaps
a
lengthy
time
for
expropriation
by
the
Government,
it
was
decided
to
ask
them
to
expropriate.
The
proceeds
on
the
sale
were
invested
in
mortgages
and
term
deposits
—
these
are
passive
investments
consistent
with
the
nature
of
the
Dufferin
Street
property
investment
—
passive.
[Exhibit
1-63;
emphasis
added.]
This
statement
clearly
contradicts
all
of
the
testimony
of
Mr.
Crang
wherein
he
kept
repeating
that
it
was
never
the
original
intention
of
plaintiff
to
sell
any
of
the
three
properties
purchased
but
only
to
develop,
build,
leasehold
properties.
Notwithstanding
the
testimony
of
the
witness
regarding
his
wife
or
he
not
really
knowing
or
understanding
what
Exhibit
1-63
meant,
I
do
not
accept
his
testimony
as
credible
on
this
point
and
conclude
that
it
was,
as
is
stated,
plaintiff's
original
intention
to
actively
develop
and
sell
the
Keele
Street
property
"as
industrial
sites
as
soon
as
possible
after
acquisition”.
I
am
satisfied
the
same
was
plaintiff's
intention
with
regard
to
the
Dufferin
Street
property.
I
am
also
satisfied
that
this
was
plaintiff's
intention
with
all
three
properties
as
is
apparent
from
answers
of
the
witness
before
the
Tax
Court
of
Canada
and
of
his
reasons
given
before
me
as
to
why
he
answered
as
he
did.
The
testimony
makes
me
seriously
question
Mr.
Crang's
assertions
that
plaintiff
purchased
any
one
of
the
three
properties
for
long-term
investment
or
to
build
leasehold
property
other
than
a
possible
commercial
complex
(shopping
centre)
on
a
small
section
of
the
Keele
Street
property.
Q.
And
you
were
asked
the
following
questions
and
gave
the
following
answers.
I
am
reading
from
page
77,
at
approximately
line
17.
A.
Thank
you.
Yes?
Q.
When
it
bought
the
Keele
land,
Cranspen,
and
I
would
suggest
Rivermede,
had
made
arrangements
to
be
in
a
position
to
sell
parts
of
this
land
if
it
so
elected;
is
that
correct?
A.:
I
don’t
follow
you.
Q:
When
it
bought
the
Oster-Keele
land.
.
.
.
A:
When
Cranspen
bought
it.
Q:
Cranspen,
and
Rivermede
also
by
virtue
of
obtaining
the
same
kind
of
mortgage
clauses,
had
made
arrangements
to
be
in
a
position
to
sell
off
parts
of
the
land
if
it
so
elected.
A:
Yes.
Q:
It
had
been
anticipated
at
that
point
in
time
that
there
might
be
a
sale
of
lands;
was
it
not?
A:
It
was
anticipated
that
there
would
be
a
subdivision
put
on
the
property
and
that
there
would
be
a
sale
of
land
and
buildings.
Q.
That
is
the
truth;
isn't
it?
A.
I
found
his
questions
confusing.
HIS
LORDSHIP:
Did
you
say
so?
THE
WITNESS:
No,
I
did
not
say
so,
sir.
I
did
not
say
so.
HIS
LORDSHIP:
Did
you
answer?
THE
WITNESS:
I
answered;
yes,
I
did.
HIS
LORDSHIP:
And
now
you're
saying
his
questions
were
confusing?
[Pages
71
and
72,
transcript
April
1,
1993.]
The
commercial
complex
(shopping
centre)
was
a
very
small
portion
of
the
total
overall
industrial
leasehold
program".
To
summarize
plaintiff's
position,
I
believe
one
can
say
that
plaintiff
submits
that
the
Dufferin
Street
property
was
capital
property
because
it
was
acquired
for
development
in
order
to
generate
income.
Therefore,
its
disposition
did
not
generate
income
for
the
plaintiff.
When
the
Government
of
Ontario
designated
the
Dufferin
Street
property
as
part
of
a
greenbelt
area,
the
plaintiff's
plans
to
develop
it
were
frustrated.
Plaintiff
also
submits,
in
the
alternative,
that
should
the
Dufferin
Street
property
be
viewed
as
inventory,
the
greenbelt
designation
had
the
effect
of
converting
the
use
of
the
property
from
inventory
into
capital
property.
The
greenbelt
designation
constituted
an
involuntary
disposition
of
the
Dufferin
Street
property
in
plaintiff's
1973
taxation
year
for
which
the
proceeds
of
disposition
were
ascertained
in
the
plaintiff's
1976
taxation
year.
The
defendant
contends
that
the
plaintiff's
primary
business
since
its
incorporation
in
1954
has
been
the
purchase
and
sale
of
real
estate
and
land
development.
At
the
time
when
plaintiff
acquired
the
Dufferin
Street
property,
the
area
in
which
the
property
is
located
was
a
very
active
real
estate
market
with
land
being
sought
by
developers.
The
plaintiff
acquired
the
property
speculatively,
with
the
expectation
that
the
land
could
be
sold
at
a
profit.
The
plaintiff
made
no
effort
to
develop
the
land
into
an
income
producing
asset.
The
defendant
further
contends
that
the
greenbelt
designation
did
not
detrimentally
affect
the
value
of
the
Dufferin
Street
property.
The
profit
realized
by
the
plaintiff
from
the
sale
of
the
property
was
income
from
an
adventure
in
the
nature
of
trade.
Tax
Court
of
Canada
decision
The
Tax
Court
found,
at
[1985]
C.T.C.
2357,
85
D.T.C.
338,
that
the
Dufferin
Street
property
was
no
different
from
the
other
parcels
of
land
acquired
and
sold
by
Rivermede.
Rivermede
“was
always
prepared
to
sell
this
property
unless
it
was
more
advantageous
to
hold
on
to
it"
(at
page
2357
(D.T.C.
341)).
It
found
that
Rivermede
sold
each
property
it
owned.
In
cross-examination,
Mr.
Crang
acknowledged
that
Rivermede
listed
the
Dufferin
Street
property
as
inventory
in
its
financial
statements.
The
Court
concluded
that
Rivermede
was
in
the
business
of
selling
land
and
the
sale
of
the
Dufferin
Street
property
was
in
the
course
of
that
business.
Issue
At
issue,
as
I
have
previously
stated,
is
whether
the
proceeds
of
disposition
from
the
sale
of
the
Dufferin
Street
property
held
by
the
plaintiff
are
to
be
characterized
as
a
capital
gain
or
as
income
from
a
business.
The
question
is
one
of
mixed
fact
and
law
which
must
be
resolved
on
the
basis
of
the
circumstances
of
the
particular
case.
Discussion
The
distinction
between
business
income
and
capital
gain
has
given
rise
to
an
abundance
of
jurisprudence.
The
distinction
between
the
two
concepts
is
factual.
There
are
really
two
main
tests:
(1)
the
intention
of
the
taxpayer
and
(2)
his
whole
course
of
conduct
in
dealing
with
the
item
in
question.
The
courts
have
employed
several
tests
relating
to
the
issue
of
the
intention
of
the
taxpayer
which
is
the
central
question
in
determining
whether
the
transaction
is
a
business
or
non-business
activity.
The
taxpayer's
intention
both
at
the
time
of
acquisition
and
at
the
time
of
disposition
of
the
property
is
to
be
considered
because
the
taxpayer's
intention
may
have
changed
between
these
two
events.
Interpretation
Bulletin
IT-218
(now
superseded
by
newer
versions)
applies
to
the
1977
taxation
year.
It
lists
a
number
of
factors
which
the
courts
have
considered
in
determining
whether
a
profit
from
a
real
estate
transaction
is
income
or
capital.
The
factors
are
the
following,
none
of
which
taken
alone
is
conclusive:
(a)
The
period
of
ownership.
Normally,
property
held
for
only
a
short
period
of
time
will
be
considered
to
have
been
purchased
for
the
purpose
of
resale
and
the
profits
will
be
treated
as
income,
while
property
that
has
been
held
for
a
long
time
is
more
likely
to
be
considered
an
investment,
thus
giving
rise
to
a
capital
gain;
In
the
present
case,
the
period
of
ownership
is
lengthy.
Rivermede
acquired
the
property
in
September
1962
from
Cranspen
and
sold
it
to
the
Government
of
Ontario
in
1977.
Thus,
based
on
this
factor
alone,
Rivermede
does
not
appear
to
have
had
the
intent
of
making
a
quick
profit.
Nevertheless,
time
itself
is
not
a
prime
indication
of
investment
intent.
Furthermore,
the
evidence
is
such
that
plaintiff,
before
selling
its
vacant
land,
always
registered
a
subdivision
plan
relating
to
the
property.
I
believe
that
plaintiff
wanted
to
wait
before
selling
the
vacant
land
until
it
registered
such
a
plan.
The
plaintiff’s
profit
would
be
very
much
higher.
(b)
The
frequency
of
similar
transactions.
A
history
of
extensive
buying
and
selling
of
similar
properties
or
of
quick
turnovers
of
properties
may
be
taken
as
evidence
indicating
that
a
taxpayer
is
carrying
on
a
business
of
dealing
in
real
estate.
In
the
present
case,
the
evidence
discloses
similar
transactions.
The
plaintiff
first
purchased
a
property
(the
father's
farm
at
Weston
&
Sheppard)
for
the
sole
purpose
of
selling
same
at
a
profit.
Before
the
farm
was
sold,
a
residential
subdivision
plan
was
registered
in
order
to
give
the
property
a
greater
value.
Rivermede
then
used
some
of
the
funds
received
from
the
sale
of
the
Weston
&
Sheppard
property
to
purchase
the
three
properties
in
the
Township
of
Vaughan.
This
in
1962.
Plaintiff
then
arranged
to
have
the
zoning
of
two
of
the
three
properties
(Keele
&
Lawson)
changed
to
commercial-industrial,
registered
a
subdivision
plan
and
then
proceeded
to
sell
the
properties.
The
profits
earned
were
declared
by
the
plaintiff
as
income.
The
two
parcels
of
land
disposed
of
by
the
plaintiff
from
1965
were
owned
by
the
plaintiff
for
a
short
period
of
time
which
clearly
indicates
to
me
an
intention
to
make
a
quick
turnover
of
the
properties.
It
must
also
be
remembered
that
plaintiff,
in
its
statement
of
facts
and
reasons
(Exhibit
1-63)
also
said
plaintiff
sold
this
land
"as
soon
as
possible
after
acquisition".
The
evidence
submitted
by
plaintiff
of
attempts
to
obtain
tenants
is
not
convincing.
Plaintiff
only
attempted
to
obtain
tenants
for
a
shopping
centre
it
allegedly
wanted
to
build.
No
serious
attempt
was
made
before
the
sale
of
the
lots
on
Keele
&
Lawson
to
obtain
industrial
tenants.
Furthermore,
I
do
not
accept
as
convincing
evidence
the
testimony
of
Mr.
Crang
as
it
relates
to
the
financial
problems
of
plaintiff
or
of
the
family's
other
businesses.
As
I
have
stated,
no
documents
were
produced
to
show
a
financial
problem
to
corroborate
Mr.
Crang's
evidence
on
this
issue.
(c)
Improvement
and
development
work.
That
is,
when
an
organized
effort
is
made
to
put
a
property
into
a
more
marketable
condition,
such
as
laying
sewers,
buildings
roads
or
preparing
a
plan
of
subdivision,
it
indicates
a
business
of
selling
properties.
Before
Rivermede
sold
the
property
at
Weston
&
Sheppard,
it
had
registered
a
plan
of
subdivision.
When
plaintiff
acquired
the
3
parcels
of
land
in
the
Township
of
Vaughan,
the
land
was
zoned
for
agricultural
use.
During
the
early
1960s,
Rivermede
applied
for
rezoning
for
the
Keele
&
Lawson
properties
to
permit
the
construction
of
industrial
and
commercial
buildings.
It
also
registered
a
plan
of
subdivision
for
the
two
properties
which
it
actively
developed
and
sold
as
industrial
sites
soon
after
acquisition.
As
I
have
stated,
plaintiff
treated
these
sales
as
income.
Rivermede
did
not
actively
develop
the
Dufferin
Street
property
because
it
allegedly
wanted
to
hold
it
on
a
long-term
basis
as
an
investment
to
eventually
build
on
the
property.
I
am
not
convinced
that
this
is
so.
The
evidence
is
that
plaintiff
could
not
obtain
a
change
of
zoning
from
agricultural
use
to
industrial
or
commercial
because
of
the
impossibility,
at
the
time,
to
get
complete
services,
such
as
sewers.
(d)
Reasons
for
and
nature
of
sale.
That
is,
if
a
sale
of
a
property
is
the
result
of
an
active
campaign
to
sell
it
rather
than
the
result
of
something
unanticipated
at
the
time
of
purchase
(i.e.
expropriation,
sudden
need
of
money,
frustration
of
original
intentions)
the
profits
will
be
considered
business
income.
In
the
case
before
me,
there
is
no
evidence
of
an
active
campaign
to
sell
the
Dufferin
Street
property.
I
am
not
convinced
that
the
plaintiff
sold
the
Dufferin
Street
property
as
a
result
of
the
unanticipated
greenbelt
désigna-
tion
by
the
Government
of
Ontario
which
frustrated
plaintiff's
plans
of
development
for
the
land.
Other
than
the
self-serving
statements
of
Mr.
J.
Crang
before
the
Court,
there
is
not
a
shred
of
evidence
that
the
plaintiff
had
any
plans
to
develop
the
Dufferin
Street
property.
I
am
satisfied
that
the
evidence
clearly
indicates
that
it
was
plaintiff's
intention
to
eventually
wait
for
a
change
in
zoning,
register
a
subdivision
plan
and
sell
the
property
at
a
profit.
This
is
what
plaintiff
has
always
done.
(e)
The
relation
to
the
taxpayer's
ordinary
business.
That
is,
if
a
taxpayer's
regular
business
is
associated
with
dealing
in
land,
it
will
be
considered
that
a
sale
of
real
estate
is
within
his
business.
In
the
present
case,
there
is
no
other
evidence
than
that
the
ordinary
business
of
the
plaintiff
was
the
sale
of
land.
At
no
time
did
the
plaintiff
own
leasehold
property.
It
only
owned
vacant
land
and
with
all
due
respect
to
the
plaintiff's
witness,
I
cannot
accept
that
the
plaintiff
owned
the
vacant
land
as
an
investment
nor
do
I
accept
that
the
vacant
land
was
owned
by
plaintiff
to
construct
leasehold
properties
on
same.
Determining
the
intention
of
a
corporation
When
the
intention
of
a
corporation
is
to
be
determined,
IT-218
provides
that
the
surrounding
circumstances
of
the
purchase
and
sale
and
the
general
conduct
of
the
company
will
be
considered,
using
the
facts
listed
above.
Courts
frequently
impute
to
closely
held
corporations
the
same
motives
as
impel
their
controlling
shareholders.
When
the
company's
intention
is
closely
related
to
that
of
its
shareholders
and/or
directors/officers,
the
past
and
present
conduct
of
these
individuals
will
be
relevant.
As
regards
the
issue
of
the
conduct
of
plaintiff's
shareholders,
the
only
shareholder
who
appeared
as
a
witness
was
Mr.
J.
Crang.
He
testified,
with
various
contradictions,
that
he
was
not
the
"controlling
mind”
of
the
company
but
that
it
was
his
father
who
was
the
“
controlling
mind"
of
the
company.
Mr.
Crang
also
testified
that
all
decisions
were
family
decisions
and
that
it
was
the
intention
of
the
shareholders,
and
the
father,
to
develop
a
company
which
would
make
long-term
investments.
As
I
have
stated,
no
other
witness,
no
other
shareholders,
appeared
before
me
to
confirm
what
Mr.
Crang
stated.
Not
a
single
document
was
produced
to
indicate
long-term
plans
by
the
shareholders
of
plaintiff
to
have
a
long-term
investment.
Plaintiff
never
made
a
single
lease
or
an
offer
to
lease
for
any
of
the
property
after
1965
when
plaintiff
started
to
sell
land
and
yet
the
witness
kept
repeating
it
was
always
the
intention
of
plaintiff's
shareholders
to
have
a
longterm
investment
(see
pages
97
and
98
of
April
1,1993
transcript).
A
corporation's
objects
and
powers
as
set
out
in
its
charter
create
a
prima
facie
presumption
that
acts
done
within
their
ambit
must
also
be
held
to
be
within
the
commercial
intent
of
the
corporation.
This
presumption
may,
however,
be
rebutted
by
looking
at
the
corporation's
course
of
conduct
and
ascertaining,
what
it
in
fact
did
during
its
commercial
life
rather
than
what
it
intended
to
do
as
formally
stated
in
its
main
object
clauses.
The
inclusion
in
its
charter
of
a
power
to
sell
and
deal
in
real
estate
is
not
evidence
that
the
corporation
was
actually
engaged
in
the
business
of
trading
in
real
estate
with
a
view
to
resale
at
a
profit.
What
counts
is
not
what
the
company
can
do
but
what
it
actually
does
(see
Hillsdale
Shopping
Centre
Ltd.
v.
The
Queen,
[1981]
C.T.C.
322,
81
D.T.C.
5261,
at
page
327
(D.T.C.
5265)
(F.C.A.)).
The
plaintiff's
objects
and
powers
clearly
set
out
that
plaintiff
has
the
power
to
deal
in
land.
Furthermore,
I
am
satisfied
that
the
plaintiff
did
in
fact
deal
in
land.
I
can
come
to
no
other
conclusion
from
having
reviewed
the
conduct
of
plaintiff
in
all
its
dealings
involving
vacant
land.
Plaintiff’s
only
business
was
the
business
of
trading
in
vacant
land
with
a
view
to
resale
at
a
profit.
The
secondary
or
alternate
intention
doctrine
The
taxpayer
may
have
had
or
may
be
deemed
to
have
had
a
secondary
or
alternate
intention
of
reselling
the
property
at
a
profit
should
the
original
or
dominant
intention
be
frustrated.
If
the
secondary
intention
is
carried
out,
IT-218
provides
that
the
profits
usually
will
be
taxed
as
business
income.
The
defendant
submits
that
the
plaintiff
Rivermede
acquired
the
Dufferin
Street
property
with
the
intention,
either
primary
or
secondary,
of
trading
in,
dealing
in
or
otherwise
turning
it
to
account
for
a
profit.
The
secondary
intention
doctrine
was
ratified
by
the
Supreme
Court
of
Canada
in
Regal
Heights
Ltd.
v.
M.N.R.,
[1960]
S.C.R.
902,
[1960
C.T.C.
384,
60
D.T.C.
1401,
and
further
refined
by
the
Exchequer
Court
in
Racine,
Demers
and
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5098.
The
fact
alone
that
a
taxpayer
buying
a
property
as
capital
admits
that
he
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him
is
not
sufficient
to
change
a
capital
acquisition
into
an
adventure
in
the
nature
of
trade.
The
secondary
intention
to
resell
at
a
profit
does
not
merely
require
the
thought
of
resale
at
a
profit
but
must
have
an
operating
motivation
in
the
acquisition
at
the
time
of
acquisition
(see
Witten
v.
M.N.R.,
[1991]
1
C.T.C.
139,
91
D.T.C.
5041
(F.C.T.D.);
Racine,
supra).
In
summary,
I
am
satisfied
that
the
objective
evidence
of
the
plaintiff's
conduct
is
such
that
the
prospect
of
resale
was
an
operating
motivation
in
the
acquisition
of
the
property.
In
the
present
case,
the
taxpayer's
intention,
both
primary
and
secondary,
at
the
time
of
acquisition
of
the
Dufferin
Street
property
is
clear.
Even
if
the
taxpayer
normally
engages
in
trading
in
real
estate,
the
taxpayer's
status
as
developer
or
trader
in
real
estate
does
not
preclude
holding
for
investment.
One
must
look
at
the
facts
of
each
case
(see
Regina
Shoppers
Mall
Ltd.
v.
The
Queen,
[1986]
1
C.T.C.
261,
86
D.T.C.
6091
at
page
265
(D.T.C.
6094)
(F.C.T.D.);
aff'd
[1989]
2
C.T.C.
278,
89
D.T.C.
5482
(F.C.A.).
I
am
satisfied
from
all
of
the
actions
of
the
plaintiff
as
previously
stated,
plaintiff
was
dealing
in
the
sale
of
land
and
not
in
long-term
investments.
Expropriation
cases
In
the
present
case,
the
use
of
the
Dufferin
Street
property
was
limited
to
agricultural
uses
by
Ontario
Reg.
475/73.
Following
the
greenbelt
designation,
the
plaintiff
invited
the
Government
of
Ontario
to
purchase
the
Dufferin
Street
property
(see
letters
dated
June
9,
1975
and
July
21,
1975
at
Exhibits
1-42
and
43
respectively).
The
plaintiff's
offer
to
sell
to
the
Government
of
Ontario
is
located
at
Exhibit
1-54.
Generally,
profits
received
from
the
expropriation
of
land
are
taxable
when
the
taxpayer
is
engaged
in
the
business
of
dealing
in
real
estate
(see
Vaintrub
v.
M.N.R.
(1964),
35
Tax
A.B.C.
74,
64
D.T.C.
227).
However,
expropriation
of
land
being
developed
as
an
investment
produces
a
capital
receipt
(see
Ace
Holdings
Corp.
v.
M.N.R.
(1965),
37
Tax
A.B.C.
320,
65
D.T.C.
192).
Expropriation
cases
turn
on
an
involuntary
disposition
of
property
in
favour
of
the
governmental
authority.
In
the
present
case,
I
am
satisfied
the
disposition
is
not
involuntary.
The
plaintiff
invited
the
Government
to
purchase
the
Dufferin
Street
property.
Frustration
of
taxpayer's
plans
for
the
property
In
Hillsdale
Shopping
Centre,
supra,
the
taxpayer
corporation
was
controlled
by
an
individual
with
a
clear
background
as
a
trader
in
real
estate.
The
corporation
was
formed
for
the
specific
purpose
of
acquiring
one
of
a
group
of
parcels
of
land
already
owned
by
the
shareholders’
other
real
estate
corporation
and
of
developing
a
shopping
centre
on
the
site.
Eventually,
the
plans
for
the
shopping
centre
were
dropped
because
of
various
circumstances
(such
as
the
possibility
that
a
major
competitor
would
construct
a
shopping
centre
nearby)
and
the
land
was
expropriated
some
six
years
after
its
acquisition.
In
confirming
the
Trial
Division’s
decision
that
the
profit
realized
on
the
expropriation
of
the
land
was
business
income,
the
Federal
Court
of
Appeal
concluded
that,
given
the
shareholder's
history
in
dealing
with
real
estate
and
the
fact
that
the
parcel
was
part
of
a
larger
development
also
controlled
by
the
shareholders,
it
was
clear
that
the
taxpayer
corporation
intended
to
turn
the
land
to
account
if
the
primary
intention
of
constructing
the
shopping
centre
was
frustrated.
In
the
case
before
me,
the
frustration
of
the
taxpayer's
plans
was
that
it
would
not
now
be
able
to
register
a
subdivision
plan
if
and
when
the
land
had
been
rezoned.
There
were
no
plans
for
development.
There
was
no
frustration
of
any
plans.
Conclusion
I
am
satisfied
from
the
evidence
that
the
plaintiff
has
a
history
of
dealing
in
real
estate,
vacant
land,
and
at
no
time
in
its
history
did
it
make
investments
on
a
long-term
basis.
I
have
stated,
and
I
shall
repeat,
the
only
evidence
that
it
was
plaintiff's
intention
to
make
a
long-term
investment
was
the
testimony
of
plaintiff's
witness,
Mr.
J.
Crang,
the
general
manager
of
plaintiff,
which
evidence
I
do
not
accept.
Not
a
single
shareholder
of
plaintiff
(Mr.
Crang
was
a
shareholder
but
he
"sold"
his
shares
to
his
wife)
appeared
before
me
to
corroborate
what
Mr.
Crang
said
was
plaintiff's
intention
as
to
the
development
of
the
Dufferin
Street
property.
Mr.
Justice
Walsh,
in
the
case
of
Pierce
Investment
Corp.
v.
M.N.R.,
[1974]
C.T.C.
825,
74
D.T.C.
6608
at
page
831
(D.T.C.
6612)
states:
I
am
also
of
the
view,
as
has
been
expressed
in
other
cases,
that
while
the
evidence
of
the
witnesses
is
helpful
in
endeavouring
to
determine
their
intentions,
their
actual
conduct
and
the
steps
they
took
to
carry
out
these
intentions
gives
a
much
better
indication
of
what
they
actually
were.
Without
intending
to
cast
any
aspersions
on
the
credibility
of
the
witnesses
in
the
present
case
it
is
nevertheless
evident
that
in
any
case
where
a
distinction
must
be
made
between
a
transaction
which
constitutes
an
adventure
in
the
nature
of
trade
and
one
which
leads
to
a
capital
gain,
one
must
expect
the
witnesses
to
invest
that
their
intentions
were
solely
to
make
an
investment
and
that
the
idea
of
reselling
the
property
at
a
profit
had
never
occurred
to
them
even
as
a
secondary
intention
at
the
time
of
making
the
original
investment,
but
was
merely
forced
on
them
subsequently
by
some
event
beyond
their
control.
If
they
were
not
in
a
position
to
testify
to
this
effect
they
would
have
little
or
no
ground
for
appealing
against
the
assessment.
Clearly,
the
actions
of
plaintiff
company
from
the
date
of
its
incorporation
was
the
purchase
and
sale
of
land
at
a
profit.
There
is
no
merit
to
plaintiff's
claim.
Plaintiff's
claim
is
dismissed,
costs
in
favour
of
defendant.
Appeal
dismissed.
Email this Content