The
Associate
Chief
Justice:—This
is
an
appeal
under
the
Income
Tax
Act
from
a
reassessment
of
income
tax
for
the
year
1965.
By
it
the
Minister
assessed
tax
in
respect
of
$112,500
as
the
profit
realized
by
the
plaintiff
on
the
disposition
of
certain
mining
claims
for
shares
in
a
company
and
certain
other
consideration.
It
is
now
conceded
that
the
assessment
is
in
error
in
that
a
further
amount
of
$10,000
should
be
allowed
as
an
expense
deduction.
The
issues
in
the
action
are,
first,
whether
the
proceeds
of
disposition
of
the
mining
claims
was
income
and,
if
so,
second,
whether
the
shares
received
by
the
plaintiff
in
the
transaction
were
worth
the
50¢
per
share
at
which
they
were
valued
by
the
Minister.
The
plaintiff
company
was
incorporated
in
1955
by
Harry
G
Curlett
and
his
solicitor
each
of
whom
subscribed
for
one
no
par
value
share.
Its
objects
include:
.
.
.
to
trade,
deal
in,
contract
with,
refer
to,
purchase,
lease
or
acquire
otherwise
howsoever
lands
and
products
thereof
or
interests
in
land,
mines,
quarries,
wells,
leases,
privileges,
licenses,
concessions
and
rights
of
all
kinds
covering,
relating
to
or
containing
or
believed
to
cover,
relate
to
or
contain
petroleum,
natural
and
artificial
gas,
oil,
minerals
and
mineral
substances
of
all
and
every
kind
whatsoever;
Following
its
incorporation,
the
company
made
an
unsuccessful
bid
for
an
oil
lease
in
Saskatchewan.
Some
years
later
it
might
have
become
interested
in
an
oil
lease
in
the
Leduc
area,
but
the
transfer
was
not
completed.
Those
were
all
its
activities
until
August
1964.
C
C
Curlett
then
became
the
transferee
of
the
solicitor’s
share
and
a
director
in
addition
to
his
father,
Harry
G
Curlett.
Two
days
later,
on
August
26,
1964,
the
directors
approved
the
purchase
by
Harry
G
Curlett
on
behalf
of
the
company
from
Peter
Eskow
and
five
associates
of
69
mineral
claims
situated
near
Fort
St
John,
British
Columbia.
On
the
same
occasion,
the
directors
also
ratified
the
purchase
by
Harry
G
Curlett
on
behalf
of
the
company
of
a
D7
Caterpillar
tractor
and
authorized
him
to
enter
into
employment
agreements
for
the
construe-
tion
of
a
road
to
the
company’s
property
“and
for
the
working
of
its
said
claims”.
The
purchase
price
of
the
ciaims,
as
expressed
in
the
agreement,
was
to
be
$60,000
of
which
$10,000
was
to
be
paid
to
each
of
Eskow
and
his
five
associates,
in
two
payments,
the
first,
of
$1,000,
at
the
time
making
the
agreement,
and
the
other
of
$9,000
on
November
1,
1966.
Subsequently,
Eskow
was
given,
instead,
for
his
interest
a
share
in
the
plaintiff
company.
In
the
months
that
followed,
a
tracked
vehicle
for
off-road
travel,
called
a
halflinger,
a
portable
diamond
drill
and
a
small
ore
grinder
were
purchased
and
work
was
undertaken
on
the
opening
of
an
access
road
from
mile
419
of
the
Alaska
Highway,
some
45
to
47
miles
to
the
foot
of
the
Churchill
Mountain
in
the
general
neighbourhood
of
a
vein
of
copper-bearing
rock
which
had
been
discovered
in
the
mountainside
at
the
7,500
foot
level.
Several
miles
of
such
a
road
had
already
been
opened
by
others
to
get
ground
access
to
other
mining
claims.
The
work
done
by
the
plaintiff's
employees
included
improving
this
portion
and
beginning
the
opening
of
a
passable
route
in
the
remaining
distance.
C
C
Curlett,
who
was
never
there,
described
the
road
as
a
rough
road
passable
by
a
half-ton
pick-up
or
a
four-wheel-drive
vehicle.
By
August
1965,
however,
even
after
further
work
had
been
done
by
Churchill
Copper
Corporation
Limited
in
the
summer
of
that
year,
the
road
was
not
suitable
for
passenger
cars
or
heavy
trucks
and
it
did
not
give
access
to
the
property
sufficient
for
Dr
Ridland,
a
geologist,
to
reach
and
examine
the
vein.
GC
C
Curlett
testified
that
the
plaintiff
also
got
in
touch
with
a
representative
of
a
company
which
sold
cable
equipment.
Early
in
October
1964
the
plaintiff
contacted
Nissho
(Canada)
Ltd
of
Vancouver,
respecting
the
making
of
a
purchase
agreement
for
crude
ore
to
be
produced
from
the
property.
A
letter
written
by
C
C
Curlett
on
or
about
October
5,
1964
indicates
that
there
had
been
a
telephone
conversation,
and
it
asks
for
early
confirmation
that
Nissho
would
be
prepared
to
enter
into
such
an
agreement
on
certain
terms
..
aS
we
hope
to
commence
operations
at
the
claims
this
coming
weekend,
and
must
make
arrangements
for
sale
to
your
firm,
or
otherwise,
on
a
trial
basis,
prior
to
October
15
.
.
.
The
reply,
dated
October
7,
1964,
recites:
We
are
now
pleased
to
note
that
a
new
road
from
the
Alaska
Highway
to
the
foot
of
the
property
is
now
complete,
and
mining
of
crude
ore
is
expected
to
be
commenced
on
or
about
the
10th
of
October.
A
further
letter
from
Nissho
to
H
G
Curlett,
dated
October
8,
1964,
included
the
statement:
We
were
surprised
by
the
speed
with
which
you
bought
up
the
property
outright
and
we
were
also
surprised
by
the
speed
with
which
you
built
a
new
access
road
to
the
property.
The
capital
of
the
plaintiff
company
was
$3.
Financing
for
the
downpayments
to
the
vendors
of
the
claims,
for
the
purchase
of
the
equip-
ment
referred
to
and
for
the
work
done
on
the
road
was
provided
by
a
real
estate
and
mortgage
investment
company
belonging
to
H
G
Curlett.
The
amounts
so
financed
during
the
period
from
August
25,
1964
to
December
31,
1965
were:
Mining
claims
|
$
5,000.00
|
|
Equipment
|
25,814.69
|
|
Freight
and
express
|
696.15
|
|
Geophysical
expenses
|
1,082.68
|
|
Insurance
|
333.10
|
|
Legal
and
audit
|
826.96
|
|
Office
expenses
|
23.65
|
|
Repairs,
gas
and
oil
|
1,571.77
|
|
Camp
expenses
|
5,537.00
|
|
Miscellaneous
expense
|
74.60
|
|
Groceries
for
camp
|
535.28
|
|
Travel
expenses
|
3,504.12
|
$45,000.00
|
The
purpose
of
all
this—according
to
the
testimony
of
C
C
Curlett—
was
initially,
at
least,
to
develop
and
carry
on
an
operation
of
recovering
and
removing
for
sale
crude
ore
with
a
high
copper
content.
It
was
referred
to
as
a
“high
grading"
operation,
by
which
I
understood
something
akin
to
taking
out
the
most
accessible
and
richest
of
the
ore
by
as
simple
a
removal
process
as
could
be
devised
for
it,
a
surface
operation
in
which,
after
blasting
and
loosening
the
ore,
it
could
be
lowered
by
cable
to
the
base
of
the
mountain
to
be
there
loaded
on
trucks
for
carriage
to
or
towards
its
destination.
H
G
Curlett,
it
was
said,
had
great
confidence
in
Eskow,
a
part-time
prospector
with
whom
he
had
had
an
earlier
successful
venture
in
recovering
ore
from
an
erratic
boulder,
and
Eskow
had
persuaded
him
that
the
vein
was
large
and
rich
in
copper
content.
The
property
had
not,
however,
been
explored.
No
diamond
drilling
had
been
done
on
it.
No
information
had
been
assembled
as
to
the
quantity
or
quality
of
ore
in
the
vein.
All
Eskow
had
were
some
surface
samples
which
showed
a
high
copper
content.
H
G
Curlett
has
since
died.
Eskow
was
not
called
as
a
witness.
According
to
the
testimony
of
C
C
Curlett,
by
early
October
1964,
upon
receipt
of
the
letter
from
Nissho,
it
had
become
apparent
to
H
G
Curlett
that
the
operation
would
be
too
expensive
for
him
to
finance
on
his
own
and
when
the
work
on
the
road
closed
down,
whether
because
of
winter
or
otherwise,
precisely
when
does
not
appear,
the
operation
was,
for
practical
purposes,
at
an
end.
By
April
of
1965,
before
any
further
work
was
done,
and
it
is
by
no
means
clear
that
any
was
planned,
the
plaintiff
was
engaged
in
negotiations
with
Marvin
Judd,
a
mining
promoter,
on
behalf
of
Churchill
Copper
Corporation
Limited,
which
led
to
a
deal
for
the
exploration
and
development
of
the
property
by
that
company
and
included
arrangements
which
gave
that
company
the
right
to
acquire
the
property
in
consideration
of
50%
of
its
shares
plus
certain
rights
in
regard
to
its
management
and
control.
From
that
time
toward,
no
work
was
done
by
the
plaintiff
on
the
road
or
the
claims
and
any
work
that
was
done
on
them
was
done
by
Churchill.
It
is
also
of
some
importance
to
noie
that,
whatever
may
have
been
contemplated
before,
from
that
time
forward,
it
was
not
contemplated
that
a
mine
for
the
production
of
ore
from
the
property
would
ever
be
operated
by
the
plaintiff
company.
The
negotiations
and
deal
were
described
by
C
C
Curlett
in
his
examination-in-chief,
according
to
my
notes
of
his
evidence,
as
follows:
In
April
1965
the
company
was
approached
by
Marvin
Judd
who
was
a
mining
promoter
resident
in
Vancouver
and
who
with
some
associates
owned
or
controlled
three
separate
mining
properties
in
the
same
general
area
as
the
claims
we
are
concerned
with.
One
had
been
explored
and
developed
where
they
had
a
proved
tonnage
which
in
conjunction
with
the
other
three
made
a
feasible
package
which
had
reasonable
hopes
of
attracting
financing
from
a
major
mining
corporation.
The
correspondence
we
had
had
with
the
Japanese
concern
indicated
that
to
satisfy
their
conditions
before
purchasing
we
would
have
to
expend
enough
to
show
a
large
proven
body
of
ore.
To
do
this
from
private
funds
would
involve
far
more
monies
than
we
had
originally
expected
and,
for
this
reason,
a
combining
of
our
claims
with
those
of
Judd
and
associates
seemed
a
very
attractive
proposition.
Subsequently,
we
did
enter
into
such
a
contract
originally
proposing
the
properties
be
amalgamated
and
a
new
company
be
incorporated
with
Corlite
in
bare
control
and
the
others
with
49
percent
of
the
stock.
At
that
stage
the
share
capital
was
envisaged
in
the
order
of
5
million
shares
and
Corlite
asking
for
300,000
free
shares
with
a
further
150,000
in
escrow.
I
might
add
neither
father
nor
I
were
familiar
with
security
regulations
in
the
province
of
British
Columbia.
Mr
Judd
explored
that
aspect
of
the
proposed
new
company
and
eventually
it
was
agreed
Corlite
would
accept
225,000
free
shares
plus
$45,000
as
reimbursement
for
expenditures
to
date,
and
sell
the
entire
physical
assets
of
Corlite
to
the
new
company,
Churchill.
Churchill
was
also
to
undertake
to
discharge
the
remaining
obligations
of
the
plaintiff,
totalling
another
$45,000,
to
the
prospectors.
While
the
evidence
indicates
that
the
approach
was
made
by
Judd
rather
than
by
the
plaintiff,
it
could
scarcely
have
been
surprising
that
Judd
should
do
so
since
Eskow
had
tried
unsuccessfully
to
sell
the
mining
claims
to
him
before
making
the
arrangement
with
H
G
Curlett
for
their
purchase
by
him
on
behalf
of
the
plaintiff.
Thereafter
an
agreement
was
executed
on
or
about
July
24,
1965,
under
which
the
plaintiff
agreed
to
sell
the
claims
to
Churchill
for
shares
in
a
new
company
to
be
incorporated
and
to
execute
and
deliver
a
bill
of
sale
of
the
claims
in
escrow
to
a
firm
of
solicitors
for
delivery
to
Churchill
upon
receipt
of
a
statutory
declaration
by
a
representative
of
Churchill
stating
that
by
November
30,
1966
Churchill
gave
notice
to
Corlite
of
its
intention
to
equip
the
property
for
production
and
had
paid
Corlite’s
costs
and
expenses
in
connection
with
the
claims.
Later,
by
an
agreement
dated
November
29,
1965,
the
agreement
of
July
29
was
terminated
and
a
new
deal
was
made
under
which
the
plaintiff
sold
the
claims
to
Churchill
for
225,000
paid-up
shares
of
its
capital
stock
plus
$45,000
in
respect
of
the
plaintiff’s
costs
and
expenses
in
connection
with
the
property
and
the
assumption
by
Churchill
of
the
plaintiff’s
obligations
under
the
agreement
with
the
prospectors.
The
shares
were
issued
shortly
afterwards
and
have
since
been
disposed
of
by
the
plaintiff.
The
question
that
arises
for
determination
on
the
first
issue
is
whether
the
shares
received
by
the
plaintiff
were
realized
from
an
adventure
or
concern
in
the
nature
of
trade
within
the
meaning
of
paragraph
139(1)(e)
of
the
Income
Tax
Act.
If
so,
they
were
a
receipt
of
an
income
nature
and
the
plaintiff
is
subject
to
tax
in
respect
of
their
value
at
the
time
when
the
plaintiff
became
entitled
to
them,
that
is
to
say,
November
29,
1965.
In
my
opinion,
the
shares
were
realized
from
an
adventure
or
concern
in
the
nature
of
trade.
I
do
not
believe
that
H
G
Curlett
or
the
plaintiff
ever
expected
that
the
plaintiff
would
carry
on
an
operation
of
mining
or
marketing
ore
from
the
claim.
The
most
that,
in
my
view,
can
be
said
of
the
supposed
scheme
for
a
“high
grading”
operation
is
that
the
plaintiff
might
have
undertaken
it
if
it
had
proved
feasible
to
do
so
on
a
trifling
capital
investment
and
if
some
better
way
of
realizing
an
acceptable
profit
had
not
arisen
in
the
meantime.
The
generality
of
the
plaintiff’s
purpose
in
acquiring
the
property,
to
my
mind,
becomes
apparent
from
the
situation
at
the
time
of
the
purchase
and
from
what
subsequently
transpired.
It
also
appears
from
the
evidence
given
by
C
C
Curlett
that
We
could
tie
the
property
up
with
a
payment
of
$5,000
and
then
examine
it
at
leisure.
To
examine
it
prior
to
tying
it
up
would
have
been
an
unwarranted
expense
in
my
father’s
estimation.
To
tie
the
property
up
without
examining
it
is
one
thing.
To
decide
on
a
mining
operation
without
an
examination
is
another
and
quite
a
different
decision.
When
the
claims
were
purchased,
there
were
some
45
to
47
miles
of
wilderness
in
which
there
was
no
road,
between
them
and
the
nearest
highway
over
which
ore
might
be
transported.
Apart
from
wear
and
tear
on
the
Caterpillar
tractor
and
the
halflinger,
the
amount
spent
by
the
plaintiff
toward
the
opening
of
a
road
amounted
to
less
than
$8,000.
It
seems
to
me
that
it
would
have
been
obvious
to
anyone
that
a
road
capable
of
use
for
transporting
ore
would
cost
many
times
that.
Yet,
the
Court
is
asked
to
accept
that
H
G
Curlett,
a
successful
businessman,
only
became
aware
after
the
correspondence
with
Nissho
that
the
production
of
ore
from
the
property
would
require
much
more
that
he
was
prepared
to
finance.
Further,
in
my
view,
the
conversations
and
correspondence
with
Nissho
and
what
was
represented
to
that
company
to
stimulate
its
interest
in
purchasing
ore
from
the
plaintiff
were,
on
the
part
of
the
plaintiff,
a
sham.
Nissho
was
told
that
the
plaintiff
hoped
to
commence
operations
at
the
claims
before
mid-October
1964.
It
is
probable
that
Nissho
was
also
told
verbally
at
or
about
that
time
that
an
access
road
to
the
property
had
already
been
completed.
Neither
was
fact.
There
was
no
reason
whatever
to
think
that
the
production
of
ore
would
begin
in
October
1964,
and
no
reason
to
think
that
ore
could
be
transported
from
the
claims.
Neither
H
G
Curlett
nor
C
C
Curlett
ever
saw
the
property.
Nor
had
the
property
been
systematically
explored
or
mapped.
There
had
been
no
drilling
done
on
it.
Neither
the
quantity
nor
the
quality
of
the
ore
nor
the
prospects
for
development
of
a
mine
had
been
ascertained.
C
C
Curlett
said
his
father
relied
on
Eskow,
in
whom
he
had
great
confidence.
But
it
was
all
H
G
Curlett’s
money
that
was
to
be
expended
in
purchasing
the
claims
and
in
financing
the
opening
of
an
access
road
to
the
property
and
I
find
it
impossible
to
accept
that
he
could
ever
have
believed
that
a
road
passable
only
for
light
vehicles
would
serve
for
the
transportation
of
ore
over
some
45
miles
or
that
what
he
was
prepared
to
spend
would
serve
to
bring
the
property
into
production
of
any
kind.
In
my
view,
the
property
was
acquired
for
the
purpose
of
turning
it
to
account
for
profit
by
any
means
that
might
be
considered
expedient
including
sale,
and
whether
for
cash
or
shares
or
other
consideration.
The
expenditure
on
an
access
road
and
the
other
actions
of
the
plaintiff
were
entirely
consistent
with
this
purpose
since
they
merely
improved
the
prospects
for
the
property
and
were
as
useful,
if
not
more
so,
for
generating
a
sale
as
they
were
for
setting
up
a
mining
operation.
The
property
could
not
be
brought
to
production
without
substantial
financing
either
for
the
transportation
of
crude
ore
or
the
installation
of
a
smelting
plant.
If
either
was
to
be
undertaken,
the
operation
would
have
a
better
chance
of
success
if
carried
out
in
connection
with
the
development
of
other
properties
in
the
area.
It
was
thus
a
property
in
which
the
owners
of
nearby
properties
seeking
to
assemble
enough
claims
to
support
a
viable
undertaking
would
be
interested.
And
it
was
known
to
Eskow,
and
must
have
been
known
to
the
Curletts
as
well,
that
Judd
was
interested
in
doing
that.
In
the
plaintiff’s
hands
it
was,
throughout,
a
property
from
which
there
never
was
any
reasonable
prospect
of
a
return
except
by
disposing
of
it
for
one
consideration
or
another
in
some
sort
of
deal
with
others
who
had
other
properties
to
develop
and
could
generate
enough
financing
to
get
a
mining
operation
under
way.
As
it
turned
out,
it
took
an
investment
of
$13,000,000
by
Churchill
to
bring
some
of
the
neighbouring
claims
which
were
some
15
miles
nearer
to
the
Alaska
Highway
into
production
and
no
mining
operation
was
ever
established
on
the
claims
acquired
from
the
plaintiff.
Having
regard
to
these
considerations,
I
am
of
the
opinion
that
the
Minister
properly
included
the
proceeds
of
the
disposition
of
the
mining
claims
in
the
computation
of
the
plaintiff’s
income
for
1965.
I
turn
now
to
the
issue
as
to
the
value
of
the
225,000
shares
to
which
the
plaintiff
became
entitled
on
September
29,
1965.
The
Minister
assessed
on
the
basis
of
a
value
of
50¢
per
share.
The
plaintiff’s
position
is
that
they
were
worth
much
less
and
particularly
so
having
regard
to
the
fact
that,
at
the
time,
it
was
expected
by
the
plaintiff,
and
Judd
as
well,
that
the
British
Columbia
Securities
Commission
would
require
that
they
be
held
in
escrow
while
others
who
had
taken
shares
for
cash
would
have
shares
freely
available
for
sale
when
the
company
“went
public”.
Plaintiff
had
by
the
agreement
undertaken
to
submit
to
such
“escrowing”
if
required
but
as
matters
turned
out
sufficient
financing
had
been
arranged
and
“escrowing”
of
vendor’s
shares
was
not
imposed.
If
it
had
turned
out
that
the
shares
had
to
be
placed
in
escrow,
I
should
have
thought
that
would
have
imposed
a
considerable
discount
on
their
value.
However,
at
the
material
time
it
was
at
best
a
possibility.
But
even
that
possibility
might
be
expected
to
have
had
some
effect
on
anyone
to
whom
they
might
have
been
offered
at
the
time
when
the
plaintiff
became
entitled
to
them.
As
part
of
the
total
deal
arranged
by
Mr
Judd,
of
which
the
transaction
with
the
plaintiff
was
but
a
part,
two
companies
agreed
to
buy
a
total
of
200,000
shares
for
cash
at
50¢
per
share.
As
in
each
case
the
agreement
to
do
so
was
linked
with
other
arrangements,
these,
by
themselves,
are
uncertain
indications
of
the
vatue
of
the
shares.
On
the
other
hand,
on
November
3,
1965
Mr
Judd
bought
47,500
shares
at
50¢
per
share
and
this
at
a
time
when
the
various
agreements
between
Churchill
and
the
other
companies,
including
the
plaintiff,
had
been
arranged
though
not
finalized.
On
the
whole,
I
think
the
evidence
indicates
that
500
was
the
value
at
that
time
of
shares
the
sale
of
which
was
not
restricted
and
not
subject
to
being
escrowed.
The
fact
that
Judd
proposed
that
shares
be
offered
to
the
public
at
$2,
in
my
view,
does
not
indicate
that
they
were
worth
that
at
the
material
time.
As
I
see
it,
therefore,
the
value
of
the
shares
here
in
question
at
the
material
time
should
be
taken
at
500
less
a
discount
in
respect
of
the
plaintiff's
agreement
to
permit
them
to
be
escrowed
if
required.
As
I
find
nothing
in
the
evidence
to
guide
me
in
assessing
what
such
a
discount
should
be,
it
must,
it
seems
to
ma,
be
fixed
more
or
less
arbitrarily.
On
that
basis,
I
think
it
should
not
be
less
than
5%
and
I
shall
fix
it
accordingly.
The
result
is
that
the
$112,500
which
the
Minister
added
in
respect
of
the
value
of
the
shares
in
the
computation
of
the
plaintiff's
income
should
be
reduced
by
$5,625.
The
appeal
accordingly
succeeds
in
part
and
it
will
be
allowed
and
the
reassessment
will
be
referred
back
to
the
Minister
for
reassessment
on
the
basis
that
in
computing
the
plaintiff’s
income
for
the
1965
taxation
year
the
amount
included
in
respect
of
the
value
of
shares
of
Churchill
Copper
Corporation
Limited
should
be
reduced
by
$5,625
and
a
further
amount
of
$10,000
in
respect
of
expenses
should
be
allowed
as
a
deduction
from
income.
The
plaintiff
is
entitled
to
its
costs
of
the
appeal.