McDonald v. The Queen, 83 DTC 5264, [1983] CTC 211 (FCTD), aff'd 87 DTC 5276 (FCA)

Dubé, J:—This issue to be resolved here is whether the gains made by the plaintiff from four separate land transactions constitute capital gain as alleged by him, or income as assessed by the defendant. The four parcels of land were separately purchased in the years 1973, 1974 and 1975 and disposed of in the years 1974, 1975 and 1976 at profits of $56,000, $33,350, $66,250 and $25,504 respectively.

In the first transaction the plaintiff purchased a property known as the “Gibson Farm” consisting of some 1,120 acres for Ted Kleemola, a young Manitoba Hydro worker married to his niece. The plaintiff hoped to interest Kleemola in farming and expected to turn the farm over to him at a later date. The two of them worked on the farm in the fall of 1973. As it turned out, Kleemola could not persuade his wife to leave the Town of Portage and live in the country. The plaintiff was later approached by a purchaser to whom he sold the farm in the fall of 1974.

In January of that year the plaintiff purchased four one-quarter sections of land for his son-in-law, Craig Lyall, who had his eyes on that farm but could not obtain it from the owner, Ted Wojtowicz, who disliked him. There was an oral understanding that Lyall would rent the land from the plaintiff until he became financially able to purchase it from him. In the spring of 1976 the plaintiff sold a parcel of that property to a new Hutterite colony set up in the area.

The third purchase involved one Dale McDonald, a cousin of the plaintiff, a storekeeper in the nearby Town of Gladstone, who was in the process of selling his business so as to turn to farming. In January 1975 the plaintiff acquired the “Moggey Farm”, consisting of approximately 386 acres of land adjacent to land already acquired by his cousin. McDonald, a part-time musician and admittedly not a very efficient farmer, did not do well with the “Moggey Farm”. So the plaintiff sold it to a real estate agent in the fall of 1975.

Meanwhile, Craig Lyall, the son-in-law, became interested in a farm known as the “Patterson Farm”. The plaintiff purchased it for him in April 1975. Lyall sowed it in flax to raise money to buy it from the plaintiff. His crop was a disaster. He lost money on it. In the fall of that year the plaintiff was approached by a neighbouring farmer to whom he sold the farm on February 15, 1976.

The evidence clearly reveals the plaintiff to be a competent farmer and an astute businessman who appreciates the value of farm land, who knows when to buy and when to sell. During the period in question the price of land rose rapidly in Manitoba, most specially in the bounteous grain growing area of Portage la Prairie. The plaintiff had purchased and sold other farms in the area before. He had also been engaged in a farm equipment business and a Ford dealership.

Throughout the land transactions in question the plaintiff invested little of his own money. He borrowed from his bank, with the profit from one transaction going against the loan for the next one. His three relatives made no downpayment and signed no options or written instruments with the plaintiff, or with the bank. All three — the nephew-in-law, the son-in-law and the cousin — testified at the trial and generally confirmed the plaintiff’s allegations. All three appeared to be very respectful of the plaintiff and grateful for his efforts to assist them. Yet, they were all rather vague and non-committal in their respective explanations as to how they would have managed to raise enough capital to buy the farms, or even as to the exact price they would have to pay to the plaintiff.

I accept as true and sincere the expressed intention of the plaintiff to buy these farms for the benefit of his relatives. His primary intention to come to their assistance reflects an honest effort on his part to try to help them develop the land in the same general area where he himself lives and farms. That intention is quite believable and understandable since the plaintiff has no sons and wants to see his daughters and relatives established in the surrounding district.

But, however generous the primary intention be, was there not another major motivating factor behind the acquisition of the properties, namely the possibility of reselling them at a profit? There were four quick transactions, all clothed with the same characteristics: the overt intent to assist a relative, the absence of any written document or any oral promise binding the relative, the short-term financing by the taxpayer, the lack of any apparent financial means on the part of the eventual purchaser, the preparatory cleanup and sowing of the land, the quick resell, the profit. Each one of these elements considered separately may not be determinant, but the repeated combination of the same factors in four successive transactions cannot but establish a clear secondary intention to resell at a profit.

Under the circumstances, I must hold that the gains from the sales of the properties in question were income from a business within the meaning of Subsection 248(1) of the Income Tax Act and that they were properly assessed as income of the appellant for his 1974, 1975 and 1976 taxation years respectively.

The action is dismissed with costs.