Cattanach,
J:—This
is
an
appeal
by
the
plaintiff
from
an
assessment
to
income
tax
made
by
the
Minister
of
National
Revenue
for
the
plaintiff’s
1976
taxation
year.
That
assessment
arose
from
the
gain
on
the
sale
of
a
parcel
of
land
of
approximately
123
acres
in
1976
for
$980,600
by
a
syndicate
in
which
the
plaintiff
was
a
member
holding
a
12.5%
interest.
The
property
had
been
purchased
by
the
syndicate
in
1968
for
the
sum
of
$184,500.
Thus
the
gross
gain
was
$796,100.
While
that
was
the
gross,
the
net
gain
was
$684,450,
the
difference
of
$111,650
being
made
up
of
three
items,
(1)
interest
expenses
until
December
31,1971
and
carrying
charges
until
the
date
of
sale,
$29,261,
(2)
interest
expenses
from
January
1,
1972
until
the
date
of
sale,
$30,270,
and
(3)
selling
expenses,
$52,119.
There
is
no
dispute
between
the
parties
as
to
the
foregoing
sums.
Thus,
the
net
income
to
the
syndicate
was
$684,450
and
accordingly
the
net
income
to
the
plaintiff
was
$85,556.25
as
its
share
of
the
net
income
to
the
syndicate
on
the
sale
of
the
land
in
1976.
The
Minister,
in
assessing
the
plaintiff
as
he
did,
included
that
amount
in
the
plaintiff’s
taxable
income
as
being
income
from
its
business
as
such
or
within
the
extended
meaning
of
the
word
“business”
as
defined
in
section
248
of
the
Income
Tax
Act
(identical
with
the
definition
in
former
section
139)
to
include
“an
adventure
or
concern
in
the
nature
of
trade”
so
as
to
fall
within
section
3,
paragraph
(a),
and
so
taxable
in
either
event.
In
contradiction
the
contention
of
the
plaintiff
is
that
in
joining
the
syndicate
it
did
so
to
participate
in
the
development
of
the
land
as
an
industrial
park
and
to
realize
rental
income
therefrom.
Simply
put
the
rival
contentions
are,
by
the
plaintiff,
that
the
land
is
a
capital
asset
and,
on
behalf
of
Her
Majesty,
that
the
land
is
stock
in
trade
or
inventory.
Thus
the
matter
has
all
the
attributes
of
what
has
become
known
colloquially
as
a
“trading
case”.
As
the
pleadings
initially
read
there
was
a
further
issue
predicated
upon
the
resolution
of
the
first
issue
as
described
above.
Should
the
land
be
found
to
be
a
capital
asset
then
the
gain
on
its
sale
would
be
a
capital
gain
and
by
virtue
of
the
introduction
of
income
tax
on
capital
gains
in
1971,
that
gain
would
be
taxable
as
such.
There
was
a
dispute
between
the
parties
in
the
pleadings
as
initially
drafted
as
to
the
amount
of
the
capital
gain
(if
so
found
to
be)
subject
to
tax.
The
property
was
owned
prior
to
December
31,1971
known
as
“valuation
day”.
To
avoid
the
iniquity
of
a
vendor
of
property
being
subjected
to
tax
on
the
amount
of
capital
gain
that
accrued
on
property
prior
to
valuation
day
and
disposed
of
after
that
day,
provisions
of
a
transitory
nature
were
made
in
the
Statute.
To
accomplish
this
the
Statute
provides
that
the
capital
gain
Shall
be
computed
upon
the
basis
of
the
fair
market
value
as
at
December
31,
1971
and
subject
to
statutory
adjustments.
Thus
the
amount
of
the
capital
gain
would
be
computed
on
the
difference
between
the
fair
market
value
as
at
December
31,
1971
and
the
sale
price
on
the
sale
subsequent
to
that
date
and
not
upon
the
difference
between
the
purchase
price
prior
to
December
31,
1971
and
the
sale
price
subsequent
to
that
date
subject
to
some
other
statutory
adjustments.
Clearly
the
advantage
to
the
taxpayer
is
to
establish
the
highest
possible
figure
to
be
the
fair
market
value
as
at
December
31,1971
thus
resulting
in
a
lesser
capital
gain
and
consequent
lesser
income
tax.
Conversely
it
is
to
the
advantage
of
the
tax
collector
to
establish
the
lowest
possible
figure
to
be
the
fair
market
value
on
December
31,
1971
thus
resulting
in
a
greater
capital
gain
and
consequent
greater
income
tax.
Illustrative
thereof
in
the
pleadings
as
they
initially
read,
the
plaintiff
alleged
that
the
taxable
capital
gain
to
it,
if
it
were
found
to
be
a
capital
gain,
would
be
$10,144.44
whereas
it
is
alleged
by
the
defendant
in
Her
statement
of
defence
in
answer
to
this
allegation
by
the
plaintiff,
that
the
capital
gain
to
the
plaintiff
would
have
been
$60,526.38.
The
difference
between
a
capital
gain
of
$10,144.44
as
alleged
by
the
plaintiff
and
the
gain
of
$60,526.38
as
alleged
by
the
defendant
is
accounted
for
by
the
different
fair
market
values
assumed
by
the
contending
parties
to
have
prevailed
at
December
31,
1971
which
fair
market
value
would
be
required
to
be
proven
in
a
similar
manner
as
in
an
expropriation
matter.
However
this
dispute
would
not
arise
if
it
were
found
that
the
gain
realized
by
the
plaintiff
in
the
amount
of
$85,556.25
(or
thereabouts)
as
its
share
from
participation
in
the
syndicate
was
from
its
business
as
such
or
from
an
adventure
or
concern
in
the
nature
of
trade
as
contended
by
the
defendant.
That
appears
to
be
the
basis
of
the
undated
notice
of
assessment
indicated
as
having
been
mailed
to
the
plaintiff
on
June
26,1978,
possibly
accompanied
by
an
explanation
of
the
departures
made
from
the
plaintiff’s
computation
in
its
income
tax
return
for
the
taxation
year
in
question
as
supplemented
by
many
mathematical
exercises
not
done
in
the
departmental
material
that
are
confirmatory
of
this
being
the
basis
of
the
assessment.
Further
it
is
accepted
to
be
such
by
the
plaintiff
and
is,
of
course,
disputed
by
it.
Therefore
whether
the
question
of
the
amount
of
the
capital
gain
to
be
taxed
will
arise
is
dependant
upon
it
first
being
determined
that
the
amount
which
the
Minister
added
to
the
plaintiff’s
income
was
not
income
from
the
plaintiff’s
business
per
se
or
within
the
extended
definition
of
that
word.
An
appeal
is
an
appeal
from
the
assessment
made
by
the
Minister.
That
assessment
was
that
the
amount
of
$85,556.25
was
added
to
the
plaintiff’s
taxable
income
by
the
Minister
as
income
from
its
business.
Accordingly
when
verbal
motion
was
made
at
trial
to
amend
the
pleadings
by
deleting
the
references
therein
to
a
possible
issue
as
to
the
amount
of
a
possible
taxable
capital
gain
I
readily
acceded
thereto
for
the
reason
indicated
and,
in
my
view,
it
was
proper
for
counsel
to
have
so
moved.
The
obvious
relief
to
be
sought,
and
as
the
prayer
for
relief
was
amended
to
seek
in
the
event
that
the
amount
assessed
as
income
by
the
Minister
is
found
to
be
a
capital
gain,
would
be
the
disposition
of
the
appeal
contemplated
in
section
177
of
the
Act,
that
is,
by
referring
the
assessment
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
gain
in
question
was
a
capital
gain.
The
issue
on
the
assessment
as
made
is
whether
the
amount
added
to
the
plaintiff’s
taxable
income
was
income
from
a
business
or
was
it
a
capital
gain.
If
it
is
income
from
a
business
that
may
conclude
the
matter.
The
assessment
is
then
correctly
made.
If
it
is
determined
that
the
amount
included
by
the
Minister
in
the
plaintiff’s
income
was
a
capital
gain
then
the
proper
course
would
be
to
allow
the
appeal
and
refer
the
matter
back
to
the
Minister
for
reassessment
on
that
basis
which
the
Minister
had
not
done
previously
and
accordingly
no
such
amount
is
under
appeal.
These
are
the
reasons
for
which
I
agreed
with
the
propriety
of
the
motion
made
and
for
which
it
was
granted.
Thus
the
sole
issue
to
be
now
resolved
is
whether
the
amount
added
to
the
plaintiff’s
taxable
income
was
income
from
its
business
and
may
be
taxed
as
such
or
was
it
a
capital
gain.
If
the
latter
should
be
found
to
be
the
case
then
the
obligation
is
on
the
Minister
to
assess
the
amount
of
the
gain
so
taxable
as
is
reflected
in
the
relief
sought
in
the
amended
pleadings.
There
has
been
no
dispute
between
the
parties
as
to
the
basic
facts
giving
rise
to
the
assessment
by
the
Minister
and
this
appeal
therefrom.
The
dispute
is
as
to
the
proper
inferences
to
be
drawn
from
those
facts.
The
plaintiff
is
a
joint
stock
company
incorporated
pursuant
to
the
laws
of
the
Province
of
Ontario
and
came
into
being
as
a
result
of
amalgamation
with
two
other
companies,
North
Bay
Drive-In
Theatre
Limited
and
Dufferin
Drive-In
Theatre
Limited.
The
objects
of
the
resultant
amalgamated
company
are
as
wide
as
to
encompass
any
business
whatsoever
with
respect
to
dealing
in
any
property
real,
and
personal,
moveable
and
immoveable
and
assets
generally.
Abraham
Isaac
Rosenberg,
is
the
president
of
and
major
shareholder
in
the
company.
A
joint
stock
company
being
an
artificial
person,
can
only
express
its
intentions
through
natural
persons,
that
is
to
say
its
officer
and
board
of
directors.
There
is
no
question
whatsoever
that
Mr
Rosenberg
was
the
dominant
officer
of
the
plaintiff
company
and
that
the
interests
and
intentions
of
the
company
were
identical
with
those
of
Mr
Rosenberg.
It
was
contended
on
behalf
of
the
Minister
that
the
gain
realized
by
the
plaintiff
was
income
from
its
business.
In
Anderson
Logging
Co
v
The
King,
[1925]
SCR
45;
[1917-27]
CTC
198;
52
DTC
1209,
Duff,
J
(as
he
then
was)
said:
The
sole
raison
d’etre
of
a
public
company
is
to
have
a
business
and
to
carry
it
on.
If
the
transaction
in
question
belongs
to
a
class
of
profit-making
operations
contemplated
by
the
memorandum
of
association,
prima
facie,
at
all
events,
the
profit
derived
from
the
business
of
the
company.
The
transaction
here
in
question
falls
within
the
objects
and
purposes
for
which
the
plaintiff
company
was
incorporated.
However
what
Duff,
J
said
in
the
quoted
passage
was
“‘prima
facie,
at
all
events”
the
profit
from
a
transaction
within
the
objects
of
incorporation
is
a
profit
from
the
business
of
the
company.
But
this
is
a
presumption
and
as
such
may
be
rebutted.
The
question
to
be
determined
is
in
what
business
did
the
company
actually
engage.
Locke,
J
speaking
for
the
Supreme
Court
in
Sutton
Lumber
and
Trading
Co
Ltd
v
MNR,
[1953]
2
SCR
77;
[1953]
CTC
237;
53
DTC
1158,
said:
The
question
to
be
decided
is
not
as
to
what
business
or
trade
the
company
might
have
carried
on
under
its
memorandum,
but
rather
what
was
in
truth
the
business
it
did
engage
in.
To
determine
this,
it
is
necessary
to
examine
the
facts
with
care.
Thus
the
fact
that
a
transaction
falls
within
the
objects
which
a
company
is
authorized
by
its
incorporating
instruments
to
carry
on
is
not
conclusive
of
the
business
carried
on
by
the
company
but
rather
the
business
of
a
company
is
that
in
which
it
engaged
in
in
actuality
and
this
is
to
be
determined
from
the
facts.
In
the
absence
of
contrary
facts
the
presumption
implicit
in
the
remarks
of
Duff,
CJ
would
prevail.
Mr
Rosenberg
had
been
active
in
many
aspects
of
real
property
and
related
matters
for
many
years.
I
formed
the
impression
that
these
activities
were
the
source
of
his
livelihood
and
I
was
provided
with
a
history
of
his
conduct
in
this
field
over
a
period
of
twenty-eight
years,
that
is
from
1944
to
1972
(the
taxation
year
in
question).
Evidence
was
also
adduced
as
to
subsequent
transactions
in
which
Mr
Rosenberg
engaged
through
corporate
entities
of
which
he
was
the
controlling
officer
and
shareholder.
In
1944
Mr
Rosenberg
bought
vacant
land
in
Kitchener,
Ontario
(which
I
believe
to
have
been
his
home
base)
upon
which
he
built
an
office
building.
This
property
was
sold
in
1972
some
28
years
after
its
acquisition
at
a
gain.
The
building
had
become
run
down
over
the
years
and
was
losing
money.
This
might
well
have
been
through
the
instrumentality
of
a
corporate
entity
(other
than
the
plaintiff)
which
Mr
Rosenberg
controlled.
In
1948
Mr
Rosenberg
acquired
a
building
at
10
Scott
Street
in
Kitchener.
It
is
my
recollection
of
the
evidence
that
Mr
Rosenberg
carried
on
an
auto
parts
business
at
that
site.
The
auto
parts
business
was
discontinued,
the
building
was
converted
into
a
warehouse
and
was
sold
in
1973
at
a
gain.
In
1955
Mr
Rosenberg,
in
partnership,
bought
a
vacant
building
at
255
Argyle
Ave
in
Ottawa,
Ontario.
I
believe
that
building
is
still
owned
by
him,
through
an
entity
known
as
Existing
Enterprises
Ltd
and
has
been
occupied
by
tenants.
In
1959
Mr
Rosenberg,
through
a
corporate
entity,
bought
property
in
Guelph,
Ontario
on
which
a
shopping
centre
was
constructed
and
operated.
Mr
Rosenberg
bought
out
the
other
shareholder
in
the
company.
It
is
my
understanding
that
this
property
had
first
been
used
as
a
drive-in
theatre
(in
conjunction
with
Mr
Campbell)
which
was
closed
down.
The
property
was
then
transferred
to
Primary
Developments
Limited
and
operated
as
a
shopping
centre
by
that
corporation
of
which
Mr
Rosenberg
was
the
controller.
In
1960
the
first
mention
is
made
of
the
plaintiff
herein
or
perhaps
more
accurately
one
of
the
progenitors
of
the
plaintiff
herein
which
resulted
from
amalgamation.
In
any
event
a
corporation
featuring
the
words
“Kit-Win”
in
its
corporate
name
bought
two
buildings
in
Windsor,
Ontario
in
1960.
One
was
an
office
building
built
in
1954
and
was
operated
as
such
by
the
plaintiff.
It
was
next
to
a
United
Church
which
wished
to
build
a
senior
citizens’
home.
This
was
in
1977.
The
building
had
become
run
down
and
naturally
the
plaintiff,
through
Mr
Rosenberg,
was
amenable
to
the
solicitations
from
the
United
Church.
This
building
was
sold.
The
second
building
is
two
storeys.
The
ground
floor
was
and
still
is
occupied
by
Woolworth’s
retail
store
and
the
second
floor
by
offices.
This
property
is
still
owned
by
the
plaintiff.
In
1961
Mr
Rosenberg
personally
bought
a
parcel
of
land
on
Belmont
Street
in
Kitchener,
Ontario.
He
planned
to
build
town
houses.
However
he
abandoned
that
project
because
of
the
proximity
of
the
land
to
railroad
tracks,
zoning
and
other
difficulties.
He
contemplated
turning
it
to
use
for
factories,
or
a
small
shopping
centre
but
there
was
no
interest
exhibited
in
space
in
such
projects.
He
therefore
sold
the
land
and
realized
a
gain.
In
1965
he
bought
five
acres
of
land
in
Kitchener
“to
be
developed”;
by
which
expansion
I
understood
that
buildings
would
be
erected
thereon
to
suit
the
needs
of
prospective
tenants.
The
land
was
subdivided.
One
building
was
built
to
the
specifications
of
a
tenant
and
leased
to
that
tenant
with
an
option
to
buy.
There
were
two
other
buildings
constructed
and
leased.
Mr
Rosenberg,
no
doubt
through
a
corporate
entity,
bought
an
apartment
building
at
807
Frederick
Street
in
Kitchener,
Ontario
which
was
sold
some
ten
years
later.
Again
in
1970
Mr
Rosenberg
through
the
instrumentality
of
Primary
Developments
Ltd
became
involved
in
land
assembly
in
the
downtown
core
of
Kitchener,
Ontario.
This
was
a
most
ambitious
project,
far
beyond
the
resources
available
to
Mr
Rosenberg
and
accordingly
the
land
assembled
was
sold
to
the
actual
developer
possessed
of
abundant
resources.
The
result
was
Kitchener
Square,
by
which
the
downtown
core
was
revamped
and
renewed.
It
is
now
described
as
a
showplace.
In
1973
Mr
Rosenberg
attended
an
auction
sale
of
a
vacant
industrial
building
in
North
Bay,
Ontario.
He
concluded
that
the
building
was
in
fair
condition,
could
be
acquired
at
a
low
cost,
and
could
be
leased.
He
joined
with
a
rival
bidder
and
together
they
bought
the
building.
Mr
Rosenberg
sold
his
interest
to
his
co-bidder
forthwith.
It
was
a
good
deal
for
him.
Mr
Rosenberg’s
business
activities
did
not
come
to
an
abrupt
end
in
1972.
In
1976
he
acquired
premises
in
Kitchener,
Ontario
which
were
leased
to
a
dealer
in
well
known
and
widely
advertised
automobile
tires.
In
1977
he
acquired
still
further
premises
in
Kitchener
which
are
rented
to
an
automobile
dealership.
These
acquisitions
were
made
through
the
instrumentality
of
Existing
Enterprises
Limited.
In
1978
he
acquired
premises
in
Waterloo,
Ontario,
this
time
through
Primary
Developments
Limited
of
which
he
is
the
sole
beneficial
shareholder
and
is
the
controlling
force,
which
premises
are
also
leased
to
an
automobile
dealership.
In
1979
Mr
Rosenberg
acquired
still
further
premises,
again
by
Existing
Enterprises
Limited,
for
use
as
the
site
of
a
business
of
manufacturing
miniwarehouses
for
which
Mr
Rosenberg
foresaw
a
demand.
This
history
was
made
available
to
me
on
behalf
of
the
plaintiff
as
illustrative
of
the
circumstance
that
Mr
Rosenberg
carries
on
the
business
of
a
landlord
and
on
behalf
of
the
Minister
that
the
common
theme
in
Mr
Rosenberg’s
real
estate
transactions
was
that
properties
were
purchased
with
minimal
prior
investigation
and
planning
which
was
done
after
the
purchase.
If
the
property
could
be
utilized
to
generate
rental
income
well
and
good
but
if
not
and
it
was
sold,
then
the
suggestion
was
that
the
latter
possibility
was
present
to
his
mind
at
the
time
of
acquisition.
It
seems
to
be
that
the
history
so
recited
is
susceptible
of
either
of
the
contentions
so
advanced.
In
my
view
the
test
for
resolving
the
distinction
between
profits
that
are
Subject
to
income
tax
as
income
from
a
trade
and
those
which
are
not
was
best
stated
in
Californian
Copper
Syndicate
(Limited
and
Reduced)
v
Harris
(1904),
5
TC
159
(and
still
remains
the
best
expression
of
that
test)
by
the
Lord
Justice
Clerk
when
he
said
at
166:
It
is
quite
a
well
settled
principle
in
dealing
with
questions
of
assessment
of
income
tax,
that
where
the
owner
of
an
ordinary
investment
chooses
to
realise
it,
and
obtains
a
greater
price
for
it
than
he
originally
acquired
it
at,
the
enhanced
price
is
not
profit
in
the
sense
of
Schedule
D
of
the
Income
Tax
Act
of
1842
assessable
to
Income
Tax.
But,
it
is
equally
well
established
that
enhanced
values
obtained
from
realisation
or
conversion
of
securities
may
be
so
assessable,
where
what
is
done
is
not
merely
a
realisation
or
change
of
investment,
but
an
act
done
in
what
is
truly
the
carrying
on,
or
carrying
out
of
a
business.
The
simplest
case
is
that
of
a
person
or
association
of
persons
buying
and
selling
lands
or
securities
speculatively,
in
order
to
make
gain,
dealing
in
such
investments
as
a
business,
and
thereby
seeking
to
make
profits.
There
are
many
companies
which
in
their
very
inception
are
formed
for
such
a
purpose,
and
in
these
cases
it
is
not
doubtful
that,
where
they
make
a
gain
by
a
realisation,
the
gain
they
make
is
liable
to
be
assessed
for
Income
Tax.
What
is
the
line
which
separates
the
two
classes
of
cases
may
be
difficult
to
define,
and
each
case
must
be
considered
according
to
its
facts;
the
question
to
be
determined
being—Is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realising
a
security,
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making?
I
cannot
conclusively
conclude
from
the
history
of
Mr
Rosenberg’s
numerous
transactions
in
real
property
that
he
is
a
trader
therein,
speculative
or
otherwise
and
even
if
it
were
possible
to
so
conclude
such
a
conclusion
would
not
preclude
a
trader
from
acquiring
a
capital
asset
and
holding
that
asset
as
such.
As
the
Lord
Justice
Clerk
pointed
out
each
transaction
must
be
considered
according
to
its
particular
facts.
The
transaction
which
gave
rise
to
the
disputed
assessment
herein
was
participation
by
the
plaintiff
in
the
syndicate
(which
is
identified
as
the
Trafalgar
syndicate)
which
realized
a
gain
on
the
sale
of
real
estate
purchased
by
it
and
it
is
the
facts
of
this
transaction
upon
which
the
taxability
of
the
gain
realized
must
be
considered
and
determined.
There
is
no
question
whatsoever
and
it
has
been
generally
accepted
that
the
initiator
and
promoter
of,
and
motivating
force
behind
the
syndicate,
its
formation
and
its
concept,
was
Gerald
Alfred
Campbell.
Mr
Rosenberg
testified
that
when
he
was
approached
by
Mr
Campbell
to
participate
in
the
syndicate
it
was
represented
to
him
by
Mr
Campbell
that
the
land
on
which
he
held
an
option
to
purchase
was
available
for
a
reasonable
purchase
price,
that
it
was
being
operated
as
a
farm
by
the
owner
but
was
zoned
as
industrial,
that
it
was
readily
accessible
to
Highway
401,
within
15
miles
from
the
boundaries
of
Metropolitan
Toronto
and
less
from
the
Toronto
International
Airport,
that
there
was
ready
access
to
property
by
major
roads
and
from
the
property
to
a
railway
line
and
siding
capable
of
serving
the
property
but
that
there
was
no
access
to
municipal
services.
This
lack
would
restrict
immediate
prospective
users
to
those
requiring
large
storage
areas.
Mr
Campbell
foresaw
and
represented
to
Mr
Rosenberg
that
the
site
was
ideal
for
development
as
an
industrial
park
some
ten
years
hence.
This
was
not
the
first
business
association
that
Mr
Rosenberg
had
had
with
Mr
Campbell.
From
1949
to
1955
Mr
Campbell
was
engaged
in
the
business
of
building
and
operating
drive-in
motion
pictures
theatres
and
in
that
space
of
time
built
twenty-five
such
theatres.
Mr
Rosenberg
was
associated
with
Mr
Campbel
in
the
first
five
theatres
built.
Each
of
these
five
theatres
was
built
by
a
separately
incorporated
company.
It
was
Mr
Campbell’s
practice
to
search
out
desirable
locations
which
he
acquired
and
constructed
theatres
thereon.
Some
of
these
theatres
he
leased
to
exhibitors
and
others
he
operated
himself.
For
those
theatres
leased
Mr
Campbell
obtained
a
management
fee.
In
some
instances
the
theatres
were
constructed
on
the
instructions
of
the
lessee.
Mr
Campbell
was
possessed
of
permits
from
the
Province
of
Ontario
to
build
such
theatres.
In
the
course
of
his
attempts
to
construct
a
drive-in
theatre
in
Kitchener
on
a
site
selected
by
him
Mr
Campbell
encountered
difficulties
with
the
municipal
authorities.
He
therefore
sought
and
obtained
the
advice
and
assistance
of
Mr
Rosenberg
to
resolve
these
difficulties.
He
did
so
because
of
Mr
Rosenberg’s
experience
and
reputation
in
the
area.
The
difficulties
were
resolved.
It
was
from
this
initial
association
that
a
mutual
respect
developed
between
Mr
Campbell
and
Mr
Rosenberg
which
led
to
Mr
Rosenberg’s
participation
with
Mr
Campbell
in
the
first
five
theatres
built
by
Mr
Campbell
and
ultimately
to
Mr
Rosenberg’s
participation
in
the
syndicate
transaction
which
gives
rise
to
this
appeal.
It
was
Mr
Campbell’s
method
to
dispose
of
the
theatre
first
built
and
operating
successfully,
to
supply
capital
for
the
construction
of
further
theatres.
In
the
first
year
he
built
two
theatres,
then
five
more,
then
eight
more,
until
he
had
built
twenty-five.
Of
the
five
theatres
in
which
he
was
associated
with
Mr.
Rosenberg,
four
were
leased
to
the
Odeon
distribution
chain.
Two
were
sold
to
Odeon
before
1960
and
the
other
two
were
sold
to
Odeon
in
1975.
The
operation
of
the
remaining
theatre,
located
in
Guelph,
was
abandoned.
Mr
Rosenberg
acquired
the
property
from
Mr
Campbell
which
he
transferred
to
Primary
Developments
Limited
and
on
which
a
shopping
centre
was
constructed
and
operated.
Prior
mention
has
been
made
of
this
transaction.
It
will
be
recalled
that
the
plaintiff
resulted
from
an
amalgamation
with
North
Bay
Drive-In
Theatre
Limited
and
Dufferin
Theatre
Limited,
the
businesses
of
which
two
companies
were
sold
to
Odeon
in
1960.
I
would
assume
that
the
proceeds
of
these
sales
became
liquid
assets
in
the
hands
of
the
plaintiff
and
as
such
available
for
further
use.
My
recollection
of
Mr
Rosenberg’s
testimony
was
to
the
effect
that
funds
were
available
in
the
plaintiff
and
that
is
why
the
plaintiff
became
the
participant
in
the
Trafalgar
syndicate.
Mr
Campbell
stopped
building
drive-in
theatres
in
1956
after
which
he
built
houses
on
speculation
under
the
National
Housing
programme.
This
he
did
with
a
number
of
partners.
In
1962
he
devoted
his
energies
to
industrial
building
as
a
contractor.
He
then
became
a
licensed
real
estate
broker
and
acted
as
such
on
behalf
of
clients
in
1967
and
1968.
It
was
in
this
capacity
that
he
became
aware
of
the
property
which
was
purchased
by
the
Trafalgar
syndicate.
As
previously
recited
Mr
Campbell
considered
this
to
be
a
most
desirable
property
because
of
its
location,
zoning
and
above
all
because
it
was
inexpensive.
The
price
was
$1,500
an
acre
for
the
total
price
of
$184,500.
Mr
Campbell
promptly
obtained
an
option
to
buy
the
property
and
forthwith
set
about
setting
up
a
syndicate
to
become
the
purchaser.
Mr
Campbell
as
a
broker
had
been
successful
in
buying
about
eight
properties
on
behalf
of
clients
but
had
not,
in
those
years,
1967
to
1968,
acted
on
his
own
behalf.
In
this
instance
he
did.
The
option
was
taken
by
Pro
Realty
Limited
of
which
Mr
Campbell
was
the
sole
shareholder.
The
participants
in
the
syndicate
and
member
signatories
to
the
syndicate
agreement
were
seven
in
number
and
were
all
persons
with
whom
Mr
Campbell
had
previous
dealings,
the
majority
in
the
theatre
business
(but
not
all)
and
all
of
which
persons
had
money
available
and
were
not
adverse
to
turning
a
buck.
Pro
Realty
Limited,
which
held
the
option,
was
a
party
to
the
syndicate
agreement
in
which
provision
was
made
for
this
company
to
be
the
manager
of
the
syndicate
and
to
be
remunerated
as
such,
that
is
to
be
reimbursed
for
expenses
incurred
and
commissions
on
transactions.
The
agreement
makes
specific
provision
for
a
commission
on
sales
but
no
specific
provision
is
made
for
a
commission
on
fees
upon
the
negotiation
of
leases.
All
participants
in
the
syndicate
were
joint
stock
companies
and
I
expect,
that
as
was
the
case
with
Mr
Rosenberg,
the
other
companies
were
under
the
sole
control
of
individuals
with
whom
Mr
Campbell
had
previous
dealings.
Astral
Construction
Company
Limited,
of
which
Mr
Campbell
was
the
controlling
shareholder,
was
a
member.
The
agreement
of
sale
negotiated
with
the
vendors
was
advantageous
to
the
syndicate.
As
previously
indicated,
the
purchase
price
was
$1,500
an
acre
for
a
total
of
$184,500
adjusted
upwards
to
$184,696.65
as
the
result
of
a
survey
of
the
acreage.
The
down
payment
was
$80,000
with
a
mortgage
back
to
the
vendor
for
the
difference
of
$104,696.65
with
interest
at
the
rate
of
7%
per
annum
payable
quarterly.
There
were
no
instalments
of
principal
payable
for
the
first
five
years.
It
is
my
understanding
that
the
vendor
who
had
operated
the
land
as
a
farm
was
permitted
to
remain
on
the
farm
to
continue
farming
operations
and
to
occupy
the
dwelling
and
farm
buildings
in
excess
of
one
year
which
period
was
specifically
mentioned
in
the
agreement
for
sale,
the
rent
being
the
payment
of
the
realty
taxes.
The
sale
was
closed
on
September
18,
1968.
The
unit
price
in
the
syndicate
was
$10,000.
The
down
payment
was
$80,000.
Accordingly
there
were
eight
units
taken
up.
One
of
the
seven
signators
to
the
syndicate
agreement
may
have
taken
two
units
or
Pro
Realty
Limited
may
also
have
become
a
member
as
was
contemplated
as
a
possibility
in
the
agreement
for
sale.
I
take
it
that
no
minicipal
realty
taxes
were
paid
so
long
as
the
vendor
remained
on
the
farm
and
that
the
only
further
expenditure
the
unit
holders
would
be
responsible
for
would
be
their
respective
share
of
the
annual
interest
over
the
first
five
years
which
I
would
roughly
compute
to
be
about
$900
and
any
management
expenses
incurred
by
Mr
Campbell,
or
more
accurately
Pro
Realty
Limited,
which
were
negligible.
Mr
Campbell
represented
to
the
prospective
participants
in
the
syndicate
and
Mr
Rosenberg
so
confirmed
the
representations
made
to
him
that
the
land
had
great
potential
as
an
industrial
park
some
ten
years
in
the
future.
He
testified
that
he
envisioned
the
building
of
an
industrial
park,
that
is
to
say
that
buildings
would
be
erected
or
subsequently
changed
to
suit
the
needs
of
tenants,
most
likely
by
Astral
Construction
Company
Limited
owned
by
Mr
Campbell,
and
income
would
be
generated
by
the
rents
therefrom.
Mr
Rosenberg
made
no
mention
of
any
other
possibility.
Mr
Rosenberg
left
the
management
of
the
project
to
Mr
Campbell
in
whom
he
had
absolute
confidence.
Other
than
to
put
up
$10,000
initially
and
to
pay
his
annual
assessments
for
interest
and
expenses,
such
as
legal
fees,
that
was
the
extent
of
his
participation
in
the
project.
He
did
not
participate
in
management
or
negotiations
other
than
to
ratify
the
major
decision
to
sell.
Mr
Rosenberg
was
content
to
leave
that
to
Mr
Campbell
and
I
believe
the
other
participants
did
likewise
but
there
was
no
direct
evidence
to
that
effect.
As
I
said
at
the
outset
the
intention
of
the
plaintiff
was
that
of
Mr
Rosenberg
and
I
would
now
add
that
the
intention
of
Mr
Rosenberg
was
that
of
Mr
Campbell.
Mr
Campbell
was
the
dominant
member
and
the
director
of
the
syndicate’s
activities.
Mr
Rosenberg
gave
a
free
hand
to
Mr
Campbell
to
handle
the
business
of
the
syndicate
as
he
thought
best.
Thus
Mr
Rosenberg
was
the
passive
or
subservient
member
to
Mr
Campbell
and
it
cannot
be
said,
therefore,
that
his
position
differs
from
that
of
Mr
Campbell.
If
the
transaction
were
to
be
held
to
be
a
business
transaction
by
Mr
Campbell
it
would
also
be
a
business
transaction
by
the
plaintiff
and
the
income
therefrom
would
be
taxable
and
the
converse
would
be
equally
so.
Mr
Campbell
was
the
innovator
of
the
purchase.
It
was
his
concept.
It
was
he
who
decided
to
whom
invitations
should
be
extended
to
participate.
I
do
not
think
that
Mr
Rosenberg
can
be
heard
to
say
that
he
supplied
funds
to
purchase
an
interest
in
the
property
but
that
his
purpose
differed
from
that
of
the
initiator
of
the
project
with
whom
he
had
joined.
I
have
no
direct
evidence
as
to
the
other
participants
but
I
assume
they
did
likewise.
Mr
Campbell
accepted
the
responsibility
for
the
conduct
of
the
whole
project
from
its
inception
to
its
demise.
It
was
his
brain
child.
He
was
the
dominant
participant
and
the
others
were
passive.
No
doubt
Mr
Campbell
may
have
had
more
to
gain
than
the
others.
If
the
land
purchased
should
have
matured
into
an
industrial
park
as
was
envisioned
then
Pro
Realty
Limited
(owned
by
Mr
Campbell)
would
receive
management
fees
and
like
commissions
and
Astral
Construction
Company
Limited
would
also
enjoy
increased
construction
business.
That
is
as
it
should
be.
He
was
the
father
of
the
project
and
it
follows
that
a
greater
reward
should
follow
upon
his
initiative.
Mr
Rosenberg
accepted
this
as
proper
and
it
would
seem
that
the
other
participants
also
did.
Mr
Campbell
discharged
the
responsibility
that
he
accepted
on
behalf
of
the
other
participants
by
keeping
them
constantly
informed
by
written
reports
as
to
the
progress
and
status
of
the
project.
It
is
for
these
reasons
that
I
have
said
that
the
intention
of
the
plaintiff
coincides
with
that
of
Mr
Campbell.
If
it
was
the
exclusive
intention
of
Mr
Campbell
(and
so
that
of
Mr
Rosenberg
and
the
plaintiff)
at
the
time
of
the
acquisition
of
the
land
to
build
and
operate
an
industrial
park
thereon
profit
from
the
voluntary
sale
of
the
land
to
the
Ontario
Hydro
Commission
(or
for
that
matter
if
the
land
had
been
expropriated
as
was
a
possibility)
would
not
be
profit
from
a
business
or
an
adventure
in
the
nature
of
trade
and
so
not
taxable
as
income.
This
does
not
dispose
of
the
possible
question
as
to
a
tax
on
a
capital
gain.
If
this
was
not
plaintiff’s
exclusive
intention
at
the
time
of
acquisition
there
can
be
no
doubt
that
the
acquisition
of
the
land
had
for
its
purpose,
or
one
of
its
possible
purpose,
the
subsequent
disposition
of
the
land
in
whole
or
in
part
at
a
profit
and
in
that
event
the
resultant
profits
are
therefore
taxable.
The
plaintiff
contended
that
there
were
no
allegations
pleaded
in
the
statement
of
defence
that
cast
an
onus
on
the
plaintiff
which
it
is
obliged
to
discharge.
Lord
Cairns
has
said
in
Partington
v
Attorney
General
(1869),
LR
4
HL
100
the
principle
in
the
interpretation
a
taxing
statute
is
that
if
the
person
sought
to
be
taxed
falls
within
the
letter
of
the
law
he
must
be
taxed
but
on
the
other
hand,
the
Crown
seeking
to
recover
the
tax
must
bring
the
subject
within
the
letter
of
the
law
otherwise
the
subject
goes
free.
Thus
the
obligation
is
on
the
Crown
to
plead
those
facts
which
bring
the
taxpayer
sought
to
be
made
liable
precisely
within
the
Statute.
That
having
been
done
Duff,
J
has
said
in
Anderson
Logging
Company
v
The
King
(supra)
that
the
onus
is
on
the
taxpayer
to
show:
(1)
that
the
assessment
“ought
not
to
have
been
made”
by
establishing
facts
that
(a)
show
that
the
assessment
was
not
authorized
by
statute
or
(b)
create
a
state
of
doubt
in
either
event
it
follows
that
the
liability
of
the
taxpayer
must
be
negatived.
Thus
the
obligation
is
on
the
Minister
to
plead
facts
which
bring
the
assessment
within
the
four
corners
of
the
taxing
provision.
The
Minister
then
rests
on
the
assessment.
The
onus
of
proving
the
assessment
to
be
erroneous
in
fact
is
on
the
taxpayer
(see
Thorson,
P
in
MNR
v
Simpsons
Ltd,
[1953]
Ex
CR
93;
[1953]
CTC
203;
53
DTC
1127).
In
Johnston
v
MNR,
[1948]
SCR
486;
[1948]
CTC
195;
3
DTC
1182
Rand,
J
took
the
view
that
the
proceeding
was
“an
appeal
from
taxation”.
Since
taxation
was
on
the
basis
of
“certain
facts”
and
“certain
provisions”
of
law
the
appellant
taxpayer
must
be
taken
to
be
challenging
either
these
facts
or
the
application
of
the
law.
He
said
at
489
[202,
1183]:
Notwithstanding
that
it
is
spoken
of
in
section
63(2)
as
an
action
ready
for
trial
or
hearing,
the
proceeding
is
an
appeal
from
the
taxation;
and
since
the
taxation
is
on
the
basis
of
certain
facts
and
certain
provisions
of
law
either
those
facts
or
the
application
of
the
law
is
challenged.
Every
such
fact
found
or
assumed
by
the
assessor
or
the
Minister
must
then
be
accepted
as
it
was
dealt
with
by
these
persons
unless
questioned
by
the
appellant.
If
the
taxpayer
here
intended
to
contest
the
fact
that
he
supported
his
wife
within
the
meaning
of
the
Rules
mentioned
he
should
have
raised
that
issue
in
his
pleading,
and
the
burden
would
have
rested
on
him
as
on
any
appellant
to
show
that
the
conclusion
below
was
not
warranted.
For
that
purpose
he
might
bring
evidence
before
the
Court
notwithstanding
that
it
had
not
been
placed
before
the
assessor
or
the
Minister,
but
the
onus
was
his
to
demolish
the
basic
fact
on
which
the
taxation
rested.
This
opinion
has
been
interpreted
and
relied
upon
as
authority
for
the
proposition
that
a
taxpayer
has
the
onus
of
proof
with
respect
only
to
the
findings
or
assumptions
made
by
the
Minister
or
his
assessors
on
his
behalf
at
the
time
that
the
assessment
was
made.
The
Minister’s
assessment
is
based
upon
the
assumptions
made
by
him
and
the
effective
manner
by
which
the
taxpayer
can
establish
error
in
the
assessment
made
upon
him
is
“to
demolish
the
basic
fact
upon
which’’
the
assessment
was
made.
If
he
shows
that
the
facts
assessed
by
the
Minister
did
not
exist
and
even
if
they
did
exist
those
facts
do
not
bring
the
taxpayer
within
the
operation
of
the
taxing
provision
relied
upon
then
the
assessment
must
fail.
Mr
Justice
Rand
also
made
it
clear
at
page
490
that
there
is
a
duty
to
have
fully
disclosed
to
the
taxpayer
the
precise
findings
of
fact
and
rulings
of
law
which
have
given
rise
to
the
controversy.
That
is
one
of
the
few
remaining
rights
accorded
to
the
taxpayer
in
the
legislation
the
preponderance
of
which
imposes
obligations.
In
MNR
v
Pillsbury
Holdings
Limited,
[1965]
1
Ex
CR
678;
[1964]
CTC
294;
64
DTC
5184,
in
which
the
Minister
specifically
set
forth
the
assumptions
on
which
the
assessments
appealed
from
were
based,
this
was
said
at
686
[302,
5188]:
The
relevance
of
this
pleading
appears
from
the
decision
of
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
per
Rand
J,
delivering
the
judgment
of
the
majority,
at
p
489:
Every
such
fact
found
or
assumed
by
the
assessor
or
the
Minister
must
then
be
accepted
as
it
was
dealt
with
by
these
persons
unless
questioned
by
the
appellant.
This
is
an
acceptance
of
the
principle
laid
down
by
Rand,
J
in
the
Johnston
case
(supra)
that
the
onus
is
upon
the
taxpayer
only
with
respect
to
the
findings
or
assumptions
made
by
the
Minister
or
his
assessors
on
his
behalf.
The
position
taken
by
the
Minister
was
that
the
waiver
of
interest
payable
upon
two
loans
by
the
borrower
who
happens
to
be
the
majority
shareholder
of
the
two
lenders
in
the
conferring
of
a
benefit
or
advantage
within
paragraph
8(1)(c)
of
the
Income
Tax
Act,
1952
RSC,
c
148.
The
view
was
expressed
by
the
Court
on
page
687
[302,
5188]:
.
.
.
the
mere
fact
of
waiver,
even
if
legally
effective
to
cancel
the
debt,
is
not
sufficient
of
itself
to
bring
the
transaction
within
paragraph
(c).
To
come
within
that
paragraph,
it
must
be
an
arrangement
or
device
whereby
a
corporation
confers
a
benefit
or
advantage
on
a
shareholder
qua
shareholder.
The
Minister
does
not
allege
that
he
assumed,
in
making
the
assessments,
that
the
waiver
was
an
arrangement
or
device
adopted
by
the
corporation
to
confer
a
benefit
or
advantage
on
the
respondent
as
a
shareholder.
There
was
no
onus
on
the
respondent
to
disprove
that
fact,
which
is
essential
to
its
being
taxable,
unless
the
Minister
assumed
that
fact
when
assessing.
It
may
be
that
the
Minister’s
appeal
should
be
dismissed
on
that
ground.
However
the
appeals
were
dismissed
on
other
grounds.
There
were
two
rounds
of
waivers.
In
the
second
they
were
expressed
to
be
settlements
negotiated
by
a
borrower
with
the
lender
by
which
a
large
amount
of
principal
was
made
in
consideration
of
interest
being
cancelled.
This
was
a
quite
ordinary
type
of
transaction
between
a
debtor
and
creditor
and
there
was
no
allegation
by
the
Minister
that
it
was
a
mere
subterfuge
whereby
the
lender
corporation
in
conferring
a
benefit
on
the
borrower
qua
shareholder.
In
the
absence
of
any
issue
having
been
made
by
the
Minister
on
that
question
of
fact
it
could
not
be
so
found.
With
respect
to
the
first
round
of
waivers
the
transactions
were
not
attacked
either
in
the
notice
of
appeal
or
at
trial
as
being
a
device
or
arrangement
for
conferring
a
benefit
on
the
respondent
qua
shareholder
and
in
the
absence
of
such
attack
being
made
the
assessment
could
not
stand.
Bluntly
put
the
Minister
failed
to
make
a
critical
assumption
of
fact
or
establish
a
fact
essential
to
bring
the
transactions
within
the
operation
of
the
taxing
section
of
the
Act.
The
quotation
from
page
686
[302,
5188]
continued
to
outline
the
manner
in
which
a
taxpayer
could
meet
the
Minister’s
assumptions
of
fact
pleaded
by
him
as
follows:
The
respondent
could
have
met
the
Minister’s
pleading
that,
in
assessing
the
respondent,
he
assumed
the
facts
set
out
in
paragraph
6
of
the
Notice
of
Appeal
by:
(a)
challenging
the
Minister’s
allegation
that
he
did
assume
those
facts,
(b)
assuming
the
onus
of
showing
that
one
or
more
of
the
assumptions
was
wrong,
or
(c)
contending
that,
even
if
the
assumptions
were
justified,
they
do
not
themselves
support
the
assessment.
(The
Minister
could,
of
course,
as
an
alternative
to
relying
on
the
facts
he
found
or
assumed
in
assessing
the
respondent,
have
alleged
by
his
Notice
of
Appeal
further
or
other
facts
that
would
support
or
help
in
supporting
the
assessment.
If
he
had
alleged
such
further
or
other
facts,
the
onus
would
presumably
have
been
on
him
to
establish
them.
In
any
event
the
Minister
did
not
choose
such
alternative
in
this
case
and
relied
on
the
facts
that
he
had
assumed
at
the
time
of
the
assessment.)
The
respondent
did
not
challenge
that
the
assumptions
made
by
the
Minister
were
made
by
him
nor
that
those
assumptions
were
wrong.
What
the
respondent
did
was
to
put
evidence
before
the
Court
to
show
exactly
what
the
facts
were
and
contended
that
these
facts
did
not
support
the
assessments.
A
taxpayer
is
entitled
to
know
the
findings
and
assumptions
upon
which
the
Minister,
or
his
assessors
based
the
assessment
when
it
was
made.
When
assumptions
are
pleaded
or
otherwise
determined
as
in
Tobias
v
The
Queen,
[1978]
CTC
113;
78
DTC
6028,
then
the
onus
is
on
the
taxpayer
as
Rand,
J
has
said
“to
demolish”
the
exact
assumptions
made
by
the
Minister
at
the
time
of
assessment
and
no
more.
If
the
Minister
has
failed
to
allege
as
a
fact
an
essential
ingredient
to
the
validity
of
the
assessment
under
the
applicable
statutory
provision
there
is
no
onus
on
the
taxpayer
to
disprove
that
fact
for
the
assumptions
which
were
made
do
not
of
themselves
support
the
assessment.
This
was
the
contention
made
by
counsel
for
the
plaintiff.
He
contended
that,
even
if
the
assumptions
pleaded
as
having
been
relied
upon
by
the
Minister
in
assessing
the
plaintiff
as
he
did
were
justified,
they
do
not
of
themselves
support
the
assessment.
In
so
contending
the
plaintiff
invoked
the
language
to
that
effect
from
Pillsbury
Holdings
Limited
(supra)
and
he
relied
heavily
upon
the
decision
of
Jackett,
CJ
in
Hiwako
Investments
Limited
v
The
Queen,
[1978]
CTC
378;
78
DTC
6281.
The
issue
there
was
whether
a
profit
made
by
the
appellant
on
the
purchase
and
sale
of
a
property
consisting
of
some
eight
separate
residential
apartments
was
a
profit
from
a
business
within
the
meaning
of
business
as
defined
to
include
“an
adventure
or
concern
in
the
nature
of
trade”.
The
question
arose
as
to
whether,
on
the
pleadings,
there
was
an
onus
on
the
taxpayer,
that
was
not
discharged,
to
establish
that
he
was
not
motivated
in
making
the
purchase
by
an
intention
to
use
the
property
in
an
adventure
or
concern
in
the
nature
of
trade.
Jackett,
CJ
said
at
382
[6284]:
Such
an
onus
would
have
to
arise
from
the
fact
that
the
assessments
were
based
on
an
assumption
of
facts
that
would
support
such
a
conclusion.
He
referred
in
a
footnote
to
MNR
v
Pillsbury
Holdings
Limited
(supra).
The
only
relevant
assumption
of
fact
in
this
respect
made
by
the
Minister
is
paragraph
11(d)
in
Part
A
of
the
statement
of
defence
which
reads:
11.(d)
the
Plaintiff
purchased
the
said
Flemingdon
Park
on
or
about
the
30th
day
of
June,
1966,
with
the
intention
of
re-selling
the
same
at
a
profit.
Jacket,
CJ
said
of
this
pleading:
Part
A
of
the
statement
of
defence,
which
is
headed
“Statement
of
Facts”,
alleges
that,
in
making
the
assessments,
the
Minister
of
National
Revenue
assumed
inter
alia
that
the
appellant
purchased
the
property
in
question
“with
the
intention
of
reselling
the
same
at
a
profit”.
I
doubt
whether
such
an
assumption
would
be
sufficient
to
support
the
assessments.
An
intention,
at
the
time
of
purchase,
to
re-sell
at
a
profit
does
not
in
my
view,
necessarily
give
the
purchased
a
subsequent
sale
the
character
of
“an
adventure
or
concern
in
the
nature
of
trade”.
Such
an
intention
accompanies
the
purchase
of
“growth”
stocks
in
the
course
of
the
modern
management
of
pension
trust
funds
and,
I
should
have
thought,
does
not
necessarily
stamp
such
a
purchase
with
a
trading
character.
I
do
not
see
why
there
cannot,
similarly,
be
such
an
intention
in
the
course
of
managing
a
family
trust
without
there
being
any
character
of
trading
involved.
With
respect
to
Part
B
of
the
statement
of
defence
the
Chief
Justice
expressed
reservations
as
to
whether
the
allegations
in
Part
A
could
be
properly
read
in
conjunction
with
Part
B
so
as
to
constitute
an
alternative
assumption.
He
said:
However,
it
may
be,
although
I
doubt
it,
that
it
is
at
least
arguable
that
the
allegation
in
the
statement
of
defence
of
the
assumption
of
the
Minister
of
National
Revenue
should
be
read
with
certain
allegations
in
Part
B
of
the
Statement
of
Defence,
which
is
entitled
“STATUTORY
PROVISIONS
UPON
WHICH
DEFENDANT
RELIES
AND
THE
REASONS
WHICH
HE
INTENDS
TO
SUBMIT”,
viz;
13.
The
Deputy
Attorney
General
of
Canada
states
that
the
Plaintiff
purchased
the
said
Flemingdon
Park
property
speculatively
and
for
the
purpose
of
trading
and
turning
the
same
to
account
at
a
profit
and
the
Plaintiff’s
conduct
amounted
to
the
carrying
on
of
a
business
in
real
property.
15.
In
the
alternative
the
Deputy
Attorney
General
of
Canada
states
that
if
the
Plaintiff
purchased
the
said
property
with
the
intention
of
retaining
it
as
investment
property,
the
Plaintiff
also
had
the
alternative
intention
of
selling
and
turning
the
same
to
account
at
a
profit
in
the
event
that
the
primary
intention
did
not
prove
profitable
so
that
in
selling
the
said
property
the
Plaintiff
realized
its
alternative
intention
of
deriving
profit
from
the
said
property
and
thus
the
said
profit
was
properly
included
in
the
Plaintiff’s
income
as
profit
from
a
business
within
the
meaning
of
paragraph
139(1)(e)
of
the
Income
Tax
Act.
So
read,
it
might
be
argued
that
the
statement
of
defence
alleges,
in
the
alternative,
that
the
assessments
were
based
on
the
assumption
(a)
that
the
appellant
purchased
the
property
in
question
“speculatively
and
for
the
purpose
of
trading
and
turning
the
same
to
account
at
the
profit”,
or
(b)
if
the
appellant
purchased
the
property
with
the
intention
of
retaining
it
as
investment
property,
the
appellant
also
had
the
alternative
intention
of
selling
and
turning
the
same
to
account
at
a
profit
in
the
event
that
the
primary
intention
did
not
prove
profitable.
He
then
dealt
with
the
allegations
in
Part
B
on
the
basis
that
they
might
be
“assumptions”
and
said:
With
reference
to
the
alternative
plea
in
the
statement
of
defence,
if
it
may
be
considered
as
an
allegation
of
an
“assumption”,
I
do
not
think
that
it
can
be
taken
as
a
plea
that
the
Minister
assumed
in
making
the
assessments,
that
a
motivating
reason
for
the
purchase
of
the
property
was
an
expectation
that
it
would
be
sold
for
a
profit
(in
the
event
that
it
did
not
prove
to
be
a
satisfactory
profit
producing
property)
of
such
a
nature
as
to
stamp
a
subsequent
sale
as
a
trading
transaction.
In
my
view,
an
intention
at
the
time
of
acquisition
of
an
investment
to
sell
it
in
the
event
that
it
does
not
prove
profitable
does
not
make
the
subsequent
sale
of
the
investment
the
completion
of
an
“adventure
or
concern
in
the
nature
of
trade”.
Had
the
alleged
assumption
been
that
there
was
an
expectation
on
the
part
of
the
purchaser,
at
the
time
of
purchase,
that,
in
the
event
that
the
investment
did
not
prove
to
be
profitable,
it
could
be
sold
at
a
profit,
and
that
such
expectation
was
one
of
the
factors
that
induced
him
to
make
the
purchase,
such
assumption,
if
not
disproved,
might
(I
do
not
say
that
it
would)
support
the
assessments
based
on
“trading”
if
not
disproved.
In
my
view,
however,
even
on
the
most
liberal
interpretation
of
the
statement
of
defence,
it
cannot
be
interpreted
as
alleging
such
an
“assumption”.
In
my
view,
therefore,
there
was
no
assumption
that
was
not
disproved
by
the
evidence
that
would
support
the
assessments.
In
Part
B
in
the
present
statement
of
defence
being
entitled
“The
Statutory
Provisions
on
which
the
Minister
relies
and
the
reasons
intended
to
be
submitted”
paragraphs
7
and
8
are
to
the
identical
effect
as
paragraphs
13
and
15
in
the
statement
of
defence
in
the
Hiwako
case
which
appear
in
the
extract
of
the
remarks
of
the
Chief
Justice
quoted
above.
There
are
minor
differences
in
language
to
compensate
for
the
different
respective
circumstances
applicable
but
the
allegations
made
in
Part
B
of
the
present
statement
of
defence
are
subject
to
like
reservations
as
were
expressed
by
Jackett,
CJ.
The
assumptions
which
are
pleaded
as
having
been
made
by
the
Minister
as
the
basis
of
assessing
the
plaintiff
as
he
did
are
much
more
extensive
than
and
differ
substantially
from
the
assumption
in
the
Hiwako
case.
In
the
present
pleadings
they
are
set
forth
in
paragraph
5
and
run
through
subparagraphs
(a)
to
(m).
The
assumption
made
in
paragraph
5(f)
reads:
In
making
the
assessment
in
respect
of
the
1976
taxation
year
of
the
plaintiff,
the
Minister
of
National
Revenue
acted,
inter
alia,
upon
the
following
assumptions:
(f)
that
the
said
syndicate
was
formed
expressly
for
the
purpose
of
the
purchase
of
the
said
land
and
building
and
the
realization
of
a
profit
on
the
sale
of
the
said
land
and
building
at
the
earliest
possible
opportunity.
Paragraph
5(f)
cannot
be
read
in
isolation.
In
paragraph
5(a)
the
Minister
alleges
that
he
assumed
all
the
facts
admitted
in
the
pleadings
and
they
are
many.
It
is
admitted
that
the
Minister
included
the
plaintiff’s
gain
as
“regular
business
income”,
and
that
the
syndicate
was
promoted
and
managed
by
J
A
Campbell.
For
reasons
I
have
expressed
the
intention
of
the
plaintiff
is
that
of
Mr
Rosenberg
and
that
of
Mr
Rosenberg
is
that
of
Mr
Campbell.
The
syndicate
has
the
attributes
of
and
is
analogous
to
a
partnership.
The
existence
of
a
partnership
implies
the
existence
of
a
business.
The
business
for
which
the
syndicate
was
“formed”
is
assumed
to
have
been
“expressly”
for
the
purchase
and
sale
of
the
property
in
question
at
the
earliest
possible
opportunity.
Thus
the
business
was
this
one
isolated
transaction
for
which
the
syndicate
was
formed.
If
this
is
so
and
that
was
the
“exclusive”
purpose
of
the
syndicate
in
acquiring
this
particular
property
which
follows
from
the
use
of
the
word
“expressly”
in
the
sense
that
there
was
no
other
purpose,
then
the
profit
is
from
its
“business”
within
the
usual
meaning
of
that
term.
If
this
were
the
“exclusive”
purpose
of
the
syndicate
and
the
plaintiff
has
participated
therein
then
the
plaintiff’s
gain
in
the
sale
of
the
property
is
taxable
as
income
in
the
hands
of
the
plaintiff.
However
I
am
not
satisfied
that
this
was
the
exclusive
purpose
of
the
syndicate.
Mr
Campbell
entertained
high
hopes
that
the
land
might
be
developed
into
an
industrial
park
because
of
its
location
in
zoning
proximity
to
Metropolitan
Toronto,
access
to
major
highways,
and
air
and
rail
transportation.
He
acknowledged
that
there
was
no
access
to
municipal
services
which
would
limit
the
prospective
users
to
those
requiring
large
storage
areas.
That
could
be
a
stop-gap
against
the
eventual
development
of
an
industrial
park
some
years
hence.
But
all
the
land
was
inexpensive
and
entailed
no
outlay
of
significance
to
hold
it
for
a
considerable
time.
In
my
view
this
project
is
closely
parallel
to
the
transaction
in
Regal
Heights
Limited
v
MNR,
[1960]
SCR
902;
[1960]
CTC
384;
60
DTC
1270.
There
the
efforts
were
promotional.
They
were
even
more
so
here.
There
was
no
evidence
in
either
the
Regal
Heights
case
or
here
that
any
prospective
tenants
exhibited
any
interest.
In
each
instance
what
may
be
called
the
primary
aim
was
based
upon
pious
hopes
and
as
such
was
speculative.
If
that
speculative
venture
failed
in
the
property
was
a
valuable
property
as
was
proven
in
each
instance
from
the
proceeds
of
the
sales
made.
In
such
an
instance
the
transaction
would
be
stamped
with
the
character
of
trade.
However
as
the
Chief
Justice
has
pointed
out
in
the
Hiwako
case
an
intention
to
re-sell
at
the
time
of
purchase
does
not
necessarily
give
the
purchase
and
subsequent
sale
the
character
of
“an
adventure
or
concern
in
the
nature
of
trade”.
The
leading
case
in
Leeming
v
Jones,
[1930]
AC
415,
when
the
appellant
was
a
member
of
a
syndicate
which
acquired
an
interest
in
a
rubber
estate
with
the
view
to
resale
at
a
profit.
There
was
unanimity
in
all
the
courts
up
to
the
House
of
Lords
and
the
emphasis
was
laid
by
each
on
the
fact
that
the
profit
was
by
way
of
accretion
to
capital
and
was
not
a
profit
of
a
revenue
or
income
nature,
even
though
the
appellant
set
out
to
make
it.
Leeming
v
Jones
(supra)
is
more
paralleled
to
the
Hiwako
case
than
it
is
to
the
present
appeal.
There
the
subject
purchase
and
resale
was
an
active
profit
producing
property.
Jackett,
CJ
said
in
the
Hiwako
case:
.
.
.
it
may
be
difficult
to
conceive
of
its
having
been
acquired
both
in
the
sense
of
property
to
be
held
for
the
income
arising
therefrom
and
as
a
speculation
in
the
sense
of
an
undertaking
or
venture
in
the
nature
of
trade.
In
so
remarking
the
Chief
Justice
anticipated
the
decision
of
the
majority
of
the
House
of
Lords
in
Simpsons
v
IRC,
[1980]
2
All
ER
778.
However
the
property
purchased
in
this
appeal
differs
from
the
eight
separate
residential
apartments
generating
income
rental
purchased
in
the
Hiwako
case.
Here
the
property
purchased
was
farm
land
and
operated
as
such
by
the
vendor.
They
syndicate
had
no
intention
of
utilizing
the
property
for
farming
purposes.
The
property
was
leased
to
the
vendor
on
the
vendor’s
assumption
of
the
realty
taxes.
The
land
produced
no
income
other
than
sufficient
discharge
taxes—so
neligible
as
to
be
disregarded.
In
order
for
a
purchase
of
property
and
subsequent
sale
thereof
to
be
an
adventure
in
the
nature
of
trade
the
purchaser
must
have
had
present
in
his
mind,
at
the
time
of
acquisition,
the
possiblitiy
of
resale
and
that
possibility
must
have
been
a
motivating
factor
which
induced
the
purchase
to
be
made.
At
this
point
my
concern
is
whether
this
critical
assumption
has
been
pleaded
as
having
been
made
by
the
Minister.
Paragraph
5(k)
of
the
statement
of
defence
reads:
(k)
in
the
alternative,
that
if
the
said
syndicate
did
intend
to
develop
the
said
land
for
any
purpose,
it
was
always
willing
to
sell
the
said
land
and
building
provided
a
reasonable
profit
would
be
realized
on
the
said
sale;
I
see
nothing
reprehensible
in
the
use
of
the
phrase
“in
the
alternative’’
as
contemplated
by
Gibson,
J
in
Brewster
v
The
Queen,
[1976]
CTC
107;
76
DTC
6046.
It
is
an
attempt
to
bring
the
assessment
into
the
extended
definition
of
“business”
to
include
an
adventure
in
the
nature
of
trade
if
the
prior
assumption
that
the
transaction
was
business
in
the
ordinary
sense
should
fail
and
then
to
bring
transaction
within
the
principle
of
Regal
Heights
Limited
v
MNR
(supra).
Paragraph
5(k)
alleges
that
the
plaintiff
“was
always
willing
to
sell
the
land
and
building
provided
a
reasonable
profit
could
be
realized”.
In
my
view
a
willingness
held
at
all
times
to
sell
a
property,
whether
a
capital
assesset
or
an
investment,
is
not
sufficient
to
make
a
subsequent
sale
a
trading
transaction.
I
should
think
it
to
be
self-evident
that
the
owners
of
a
property
would
be
willing
to
sell
it
if
a
reasonable
profit
could
be
realized.
As
I
read
this
assumption
it
is
no
more
than
a
statement
that
the
plaintiff
as
the
owner
of
a
capital
asset
had
the
ever-present
willingness
to
sell
that
asset
if
the
price
was
right
and
that,
in
my
view,
does
not
stamp
a
transaction
so
consumated
with
the
characteristics
of
trading.
As
previously
mentioned
if
it
was
the
exclusive
purpose
of
the
syndicate
at
the
time
of
acquisition
of
the
property
to
utilize
the
land
for
an
industrial
park
then
the
profit
from
the
sale
of
the
property
would
not
be
profit
from
a
business
or
adventure
in
the
nature
of
trade
and
so
not
taxable
as
income.
The
assumption
of
the
Minister
recited
in
paragraph
5(k)
of
the
statement
of
defence
accepts
the
syndicate
(and
so
the
plaintiff)
as
being
within
the
above
concept
as
the
basis
of
an
alternate
assumption.
However
if,
at
that
time
of
acquisition,
it
was
not
the
exclusive
purpose
of
the
syndicate
to
use
the
property
as
an
industrial
park
and
the
syndicate
also
had
in
mind
the
possible
subsequent
disposition
of
the
property
at
a
profit,
at
that
time,
then
the
profit
realized
from
the
sale
would
be
income
from
an
adventure
in
the
nature
of
trade
and
taxable
as
such.
In
my
view
the
assumption
made
by
the
Minister
in
the
language
of
paragraph
5(k)
is
not
a
sufficiently
precise
allegation
of
facts
to
bring
the
matter
within
the
latter
case.
Thus
these
critical
facts
that
the
syndicate
had,
at
the
time
of
acquisition,
the
intention
of
a
possible
disposition
of
the
property
at
a
profit
and
that
possibility
was
a
motivating
factor
which
induced
the
purchase,
are
not
alleged
in
paragraph
5(k)
as
being
assumed
by
the
Minister.
That
being
so
there
was
no
onus
upon
the
plaintiff
to
disprove
assumptions
not
made
by
the
Minister
from
which
it
follows
that
paragraph
5(k)
is
not
an
assumption
of
facts
that
would
support
the
assessment.
It
is
for
this
reason
that
the
appeal
is
allowed
and
the
assessment
is
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
gain
in
question
was
a
capital
gain.
The
plaintiff
shall
be
entitled
to
its
taxable
costs.