Heald, J:—This is an appeal from a judgment of the Trial Division wherein the respondent’s appeal from the decision of the Tax Review Board was allowed and the assessment for tax for the appellant’s 1972 taxation year (ending February 29, 1972) was restored.
The issue before the trial judge and in this appeal is whether the profit of $871,721.32, realized by the appellant in its 1972 taxation year from the sale of land, was income from a business carried on by the appellant or was a capital gain realized by the appellant on the sale of an investment.
The appellant corporation is a private Ontario corporation, incorporated in 1945, and empowered, by its charter, inter alia, to buy, lease and sell land, and to build and sell houses on land acquired by it. In 1956, the appellant acquired approximately 100 acres of farm lands (hereafter the Codlin farm) in the Borough of Etobicoke, Toronto, for future use in its residential house building operations. At the time of purchase, the land was undeveloped and unserviced, water and other services being approximately two miles distant. The appellant’s President and Chief Operating Officer was Edmund Peachey who had built his first house in 1930 and continued to be in the house building business at all material times thereafter. Mr Peachey gave evidence at the hearing before the Tax Review Board in 1977 but had passed away before the hearing in 1978 in the Trial Division of this Court. His evidence before the Tax Review Board was taken as read in at the hearing in the Trial Division. He said that the appellant’s method of business operation was to start with raw lands, to provide subdivision utilities therefor and then to build residential houses thereon for sale. Mr Peachey said that as far as the company was concerned, the land “was an ingredient of the house like a brick” (AB Vol 1—page 55) and was really part of the appellant’s stock in trade (AB Vol 1, pages 83 and 84). It was apparently the appellant’s practice to acquire the land for its subdivision developments ahead of time so that the purchase price would be advantageous and before the land reached speculative values. The appellant tried to choose an area that, in its judgment, was ripe for development, and then acquired it approximately two years ahead of the time when, according to its estimate, the land would be needed for the appellant’s housebuilding requirements. At the time of the Codlin farm acquisition, the appellant was building a sub division called West Dean Park. Codlin Farm was purchased for the next Subdivision. It was chosen, because in the view of Mr Peachey, it was “the natural continuance of development in Etobicoke ...’; it was: “in the natural extension of the services and annexed land available.’’ (Transcript, page 126, lines 23 to 30).
Mr Peachey said that the intention of the appellant respecting the Codlin Farm project was, in no way, different than its intention regarding the other subdivisions owned by it at that time. At the time of acquisition by the appellant, the Codlin Farm was zoned agricultural.
On February 11, 1960, the appellant along with other developers holding land in the same area as the Codlin Farm, applied to the Planning Board of the Borough of Etobicoke to have the zoning of all their lands changed from agricultural to permit the development of a residential community to be known as “Woodbine Downs”. This application was not approved, but in 1961, the Codlin Farm and the other lands in the same area were re-zoned for industrial uses, which zoning designation was approved by the Ontario Municipal Board in November, 1961. As a result, the Woodbine Downs plan died because of the change of zoning. According to Mr Peachey, it was his view that the Codlin Farm was then “sterilized”, they were having trouble selling houses in West Dean Park, economic conditions were not too good and he decided he no longer wanted “to carry on the hurly-burly of buying Subdivision lands” (AB Vol 1, page 62). He said he got interested in the hotel business at that time through friends, phased down the appellant’s house building, selling the remaining houses as fast as possible with the last house being sold on June 30, 1965. There was evidence at the trial to the effect that services came to the area of the Codlin Farm in 1970 resulting in an escalation in the value of the Codlin Farm. In 1971, the sale in question involving 40 acres of the Codlin lands resulting in the profit here under review, was made and came after an unsolicited offer. The appellant at no time advertised the land for sale nor endeavoured to find a purchaser for same. The land was sold on the basis of the first offer received therefor. After this sale, there was remaining of the Codlin farm approximately 26 acres (approximately 30 acres having been expropriated in 1963) which was not sold. Mr Peachey said that the appellant never, at any time, made a decision to sell the remainder of the Codlin Farm and re-invest the proceeds in capital assets.
The appellant submits that the learned trial judge found as a fact that the appellant had determined to hold the Codlin lands as a capital investment in 1962 and that the appellant had ceased to carry on the residential construction business in or about 1965. In the submission of the appellant, these findings of the learned trial judge are tantamount to a finding of a change of intent, which, in the submission of the appellant, was a proper finding based on the circumstances present in this case. The appellant further submits that assets originally acquired as inventory may, as a result of change of intent, become capital assets. Thus, in the submission of the appellant, the learned trial judge erred in requiring further evidence of some positive step or act implementing the new intention since, in the view of the appellant, he had already made a finding of change of intent.
That portion of the reasons for judgment of the learned trial judge which appear to be relied on for this submission are found in Volume 2 of the Ap- oeal Book at pages 230 and 231 where, after relating the change of zoning of the Codlin lands in 1961 to industrial, the learned Trial Judge said:
Peachey’s evidence is that on the zoning change to “Industrial” his plans for the use of this land were frustrated. His company had no experience in industrial construction and he did not intend to enter that field. Defendant had not been in the business of trading in lands as such. A few sales of vacant lots, in what was clearly “clean up operations” of a tract or tracts under development, and such lots not being suitable or required for house construction, did not make the defendant a dealer in lands.
Defendant’s decision following such frustration was to cease further residential construction, save completion of developments then in progress, thus gradually phasing out all such type of construction. Such phasing out was not completed until 1965, with one remaining house being sold in 1966.
Peachey’s evidence further is that having made this decision, the corporation would hold the Coglin (sic) Farm land as a capital investment for later disposal. No actual company minutes, nor record was entered or made to this effect. I accept this evidence, which is not contradicted, and confirmed by certain portions of Peachey’s examination for discovery, put in evidence by the plaintiff.
With respect, I do not agree that the total evidence establishes that the appellant’s intention changed with respect to the Codlin Farm. After Mr Peachey gave his evidence about the land being “sterilized” after being rezoned to industrial, he was asked the following questions and gave the following answers:
Question No 140. What did you plan to do with it eventually? A. We just let it stand and increase in value.
Question No 141. Until when? A. We didn’t know.
Question No 142. What did you intend to do with it? A. \Ne had no idea how long it would be.
Question No 143. But eventually you must have had some plans in connection with realizing your investment? A. No, we changed our operation. We went into the hotel business.
Question No 145. Let me ask you this then, if your intention was to hold this land for capital appreciation, how did you intend this appreciation, this capital appreciation, how did you intend to realize a capital appreciation? A. When the services came in.
Question No 146. When the services came in, what then, Mr Peachey? How would the capital appreciation be realized by the provision of services? A. Somebody might want to take it over.
Question No 147. Somebody might want to buy it? A. Yes.
Question No 148. And you might want to sell it? A. Yes.
(See Transcript, pages 132 and 133). In my view, this and other evidence clearly establishes that the land was acquired as inventory for resale, that all the appellant ever wanted to do was to sell the land and as soon as a desirable opportunity presented itself, the land was sold. The intention of the appellant, from the time of purchase to the time of sale was to sell the land. It is true, that at inception, the vehicle for the sale of land was via the house building route and that, at the time of sale, via the undeveloped land route, but the basic intention remained the same throughout.
In my view, the principles established in the case of Fredericton Housing Ltd v The Queen, [1975] CTC 537; 75 DTC 5367, apply equally to the case at bar. While there may be some factual differences in the two cases, these differences are not, in my view, significant or sufficient to render the ratio of that case inapplicable to this case. In the Fredericton case (supra), as in this case, the land in question had been acquired for the purpose of ultimately using it as raw material in the company’s operation of building and selling dwelling houses or for any other purpose that might be expedient in order to turn it to account for profit in its business. The Court held that the subject land was, at ali material times, stock-in-trade or inventory, or at all events trading assets, as opposed to capital assets of the business. The Court held further that the reason for sale was immaterial. There, as here, the company’s activities in building and selling houses were effectively at an end prior to the sale. However, in Fredericton (supra), as in this case, the company was not in the course of being wound up, it was still capable of carrying on business and it still had on hand a stock of unserviced and undeveloped land, including the subject land. The Court accordingly held that the sale of some of the land after the company’s housebuilding and house-selling activities had ceased was nevertheless a trading transaction since the trading character of the undeveloped land remaining in the company’s hands was unchanged. The learned trial judge distinguished the Fredericton case (supra) from the case at bar on the basis that, in Fredericton (supra), there was no frustration of the planned use of the land; it had actively sought a sale; and the land was held by the appellant for a comparatively short period of time. I do not consider any of these circumstances to be sufficient to effectively distinguish the Fredericton (supra) decision. The determining factors in that case are, in my view, indistinguishable from those present in this case.
The appellant was also critical of the application of the Chelsea case Les Entreprises Chelsea Limitée v MNR, [1970] CTC 598; 70 DTC 6379, to this case by the learned Trial Judge. The passage relied on from the judgment of President Jackett (as he then was) reads as follows:
In my view, where one finds such a business, as long as there continues to be land of the original inventory of the business on the ownership of the company, it is reasonable to assume that the business has not been brought to an end in the absence of some evidence that something has been done to bring the business to an end, as, for example, where the corporation takes the land out of the business and dedicates it to the creation of some structure to be used as the capital asset of another business.
It is, in my view, a proper statement of the law and the learned trial judge was right to rely on it. I agree with the learned trial judge that a clear and unequivocal positive act implementing a change of intention would be necessary to change the character of the land in question from a trading asset to a capital asset—and that on the facts here present, there was no evidence of such a positive or overt act. There was no documentary evidence to indicate that the new intention had been carried into reality, there was no dedicating of the land for another purpose. All that we have here is the expressed intention of the appellant to thenceforth hold the land as a capital asset. That is not, in my view, sufficient of itself to convert the proceeds of sale from trading proceeds to proceeds from the sale of a capital asset.
The appellant also relied on the provisions of subsection 85E(1) of the 1952 Income Tax Act (RSC 1952, c 148) which reads as follows:
85E.(1) Sale of Inventory. Where, upon or after disposing of or ceasing to carry on a business ora a part of a business, a taxpayer has sold all or any part of the proper- ty that was included in the inventory of the business, the property so sold shall, for the purposes of this Part, be deemed to have been sold by him
(a) during the last taxation year in which he carried on the business or the part of the business and
(b) in the course of carrying on the business.
The appellant’s submission in this connection reads as follows:
By reason of the learned trial judge having found the appellant ceased carrying on the residential construction business well in excess of four years prior to the assessment by the Minister, the disposition of that property, by reason of Section 85E(1) was deemed to have taken place during the last year during which the appellant carried on business. As such, the assessment by the Minister in 1973 is Statute barred, by reason of the statutory provisions with respect thereto. RSC 1952, c 148, s 46(1) and SC 1970-71-72, c 63, s 152.
On the view I take of the circumstances present in this case, it is unnecessary to determine the question of the retroactive application of subsection 85E(1) since I consider that subsection 85E(1) does not apply to this factual situation because, in my opinion, this appellant had not ceased carrying on a “business” or a part of a business” as those terms are used in subsection 85E(1). As Chief Justice Jackett stated in the Chelsea case (supra) . . where one finds such a business, as long as there continues to be land of the original inventory of the business on the ownership of the company, it is reasonable to assume that the business had not been brought to an end ...”, absent the presence of a clear and unequivocal positive act manifesting a change of intention as discussed earlier herein. Accordingly, quite apart from the question of retroactivity, the essential ingredients necessary for the application of subsection 85E(1) are not present here.
For all of the above reasons, I would dismiss the appeal with costs.