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.