Belvedere Park Development Co. Ltd. v. The Queen, 83 DTC 5214, [1983] CTC 171 (FCTD)

Dubé, J:—The central issue to be resolved in this action is whether the profit realized by the plaintiff from the sale of land in the City of Saskatoon, Saskatchewan, is income as assessed by the defendant, or capital gain as alleged by the plaintiff.

The subject property was originally purchased by Saskatoon Community Broadcasting Co Ltd (“Saskatoon”), operators of the local radio station CKOM, as a transmitter site in 1952. In 1960 the transmitter was moved further out from the City and in 1965 the radio station set its offices up on Lot E fronting on 8th Street.

Thereupon, the shareholders of Saskatoon formed two associated companies, Broadcasting Leaseholds Ltd to construct the studio, and the plaintiff company (“Belvedere”) to develop the subject property into a residential and commercial subdivision. The subject property, some 14.9 acres of land, was sold to Belvedere in 1965.

The sole witness at the trial was Bill Stovin, the manager of the radio station and the secretary-treasurer of Belvedere. His integrity was readily recognized by Crown Counsel and I also accept his evidence to be an honest and truthful recollection of the facts.

Bill Stovin was lured from Ontario to Saskatoon in 1959 by B A Hosie, the president of Saskatoon, (who became the president of Belvedere) on the understanding that he would manage the radio station, obtain share participation in Saskatoon, and be involved in other ventures of Hosie s such as “television and construction”.

The first plan for the development of the subject property, at the time lying outside the populated area of Saskatoon, was prepared in 1965. At least two other sets of development plans were prepared in the following years in an attempt to adapt the proposed development to ever-changing City street planning, and to obtain a favourable rezoning decision from the City, all without avail.

The economic situation of the Saskatoon area gradually deteriorated in the years 1969, 1970 and 1971. The potash construction boom was over, wheat was not selling well. The local radio station was runnning into deficits, year after year. The shareholders of Belvedere held onto the subject property until they decided to sell lots D and H in 1973, and lot J in 1974.

The evidence at the trial makes it plain and obvious to me that the primary intention of the shareholders of Belvedere was to develop the subject property. Most of the 36 exhibits filed by the plaintiff are plans and letters, to and from the City administration, showing honest and persistent efforts at securing favourable zoning for the subject property. All the annual meetings of directors and shareholders of Belvedere were filed. They clearly show a continued and determined effort to develop the land throughout a very difficult period.

The defendant’s main argument, and it is one of the assumptions of fact in the defence, is that the property was acquired with the alternate or secondary intention to resell at a profit.

Unfortunately, the president of Belvedere, the moving force behind the development, R A Hosie, did not testify. He was described by Bill Stovin as a very “laconic man”, now in his eighties. The minutes of all meetings, however, were prepared by Stovin. Those minutes are not couched in the terse and legalese terminology usually found in such documents. They are written in a conversational style. They appear to reflect the moods as well as the resolve of the company. The minutes, in my view, really disclose the true intentions of the company.

The minutes of the earlier years show a clear resolve to move ahead with the project. For the years 1967 and 1969 the discussions do indicate some concern, still they conclude with a resolve not to sell but to press on with the development.

Obviously, in the mind of any developer there is present somewhere the possibility that his project may not succeed: there are probably very few sure bets in the world of real estate development. The provident businessman must therefore contemplate all possibilities. But such foresight does not connote a clear intention of reselling at a profit at the first opportunity.

In my view, the plaintiff acquired the subject property with a clear intention to build thereon a residential and commerical development. Because of the prevailing economic situation and zoning and street planning difficulties, the development did not materialize. The plaintiff held on throughout an economically troubled period. After more than eight years, it sold at a gain. That gain is not income from a business or a venture in the nature of trade within the meaning of sections 8, 9(1) and 248(1) of the Income Tax Act, SC 1970-71-72, c 63, but a capital gain.

Judgment, therefore in favour of the plaintiff and costs.