Addy,
J:—The
Minister
of
National
Revenue
disallowed
the
plaintiff’s
refundable
dividend
tax
credit
on
hand
for
the
taxation
year
1973
which
was
claimed
at
$94,366.90
allowing
only
the
sum
of
$250.99.
The
plaintiff
appeals
against
this
determination.
In
1973,
it
had
paid
a
taxable
dividend
of
$100,000
which
would
entitle
it
to
claim
a
refund
of
one-third
of
the
dividend
or
$33,333.
There
was
also
an
appeal
against
the
similar
reduction
of
claimed
refundable
tax
dividend
on
hand
for
the
years
1972
and
1974,
but,
as
no
dividend
was
paid
during
those
years,
the
plaintiff
agreed
with
the
defendant’s
submission
at
trial
that
the
appeal
should
be
quashed
for
those
years
on
the
grounds
that
there
is
no
basis
under
the
Act
for
an
appeal
unless
such
a
refund
entitlement
exists.
As
to
1973,
there
is
no
dispute
as
to
the
method
of
determining
the
amount
of
refund
or
as
to
the
amount
itself,
but
only
as
to
whether
or
not
the
amount
which
the
plaintiff
claims
to
have
correctly
determined
as
“Canadian
investment
income”
falls
within
the
meaning
of
that
expression
as
provided
for
in
paragraph
129(4)(a)
of
the
Act.
This
enactment
at
the
time
in
issue
read
as
follows:
(4)
In
subsection
(3),
(a)
“Canadian
investment
income”
of
a
corporation
for
a
taxation
year
means
the
amount,
if
any,
by
which
the
aggregate
of
(i)
the
amount,
if
any,
by
which
the
aggregate
of
such
of
the
corporation’s
taxable
capital
gains
for
the
year
from
dispositions
of
property
as
may
reasonably
be
considered
to
be
income
from
sources
in
Canada
exceeds
the
aggregate
of
such
of
the
corporation’s
allowable
capital
losses
for
the
year
from
dispositions
of
property
as
may
reasonably
be
considered
to
be
losses
from
sources
in
Canada,
(ii)
all
amounts
each
of
which
is
the
corporation’s
income
for
the
year
(other
than
exempt
income
or
any
dividend
the
amount
of
which
was
deductible
under
section
112
from
its
income
for
the
year)
from
a
source
in
Canada
that
is
a
property,
determined,
for
greater
certainty,
after
deducting
all
outlays
and
expenses
deductible
in
computing
the
corporation’s
income
for
the
year
to
the
extent
that
they
may
reasonably
be
regarded
as
having
been
made
or
incurred
for
the
purpose
of
earning
the
income
from
that
property,
(iii)
all
amounts
each
of
which
is
the
corporation’s
income
for
the
year
(other
than
exempt
income)
from
a
source
in
Canada
that
is
a
business
other
than
an
active
business,
determined,
for
greater
certainty,
after
deducting
all
outlays
and
expenses
deductible
in
computing
the
corporation’s
income
for
the
year
to
the
extent
that
they
may
reasonably
be
regarded
as
having
been
made
or
incurred
for
the
purpose
of
earning
the
income
from
that
business,
exceeds
the
aggregate
of
amounts
each
of
which
is
a
loss
of
the
corporation
for
the
year
from
a
source
in
Canada
that
is
a
property
or
business
other
than
an
active
business;
and
The
plaintiff
submits
that
the
income
derived
from
the
sale
of
two
of
its
properties,
from
the
sale
of
some
sand
and
also
interest
income
in
1973
all
constitute
“Canadian
investment
income”
as
defined
in
section
129.
It
submits
also
that,
with
respect
to
the
two
sales
of
lands,
the
gains
therefrom
during
that
year
were
either
capital
gain
from
dispositions
of
property,
alternatively,
“income
from
a
source
in
Canada”
that
is,
a
business
other
than
an
“active
business”.
It
submits
further
that,
in
either
case,
the
income
must
be
included
as
part
of
Canadian
investment
income
pursuant
to
subparagraphs
129(4)(a)(i)
or
(iii)
respectively.
As
to
the
sale
of
sand
and
the
interest
income
from
other
sources
which
comprise
term
deposits
and
agreements
for
sale,
it
submits
that
they
constitute
Canadian
investment
income
pursuant
to
subparagraph
129(4)(a)(ii),
as
income
from
a
source
in
Canada
that
is
property
or,
alternatively,
under
subparagraph
129(4)(a)(iii)
from
a
source
in
Canada,
that
is,
a
business
other
than
an
active
business.
The
plaintiff
corporation
is
privately
held
and
was
incorporated
in
the
Province
of
Alberta
in
1959.
The
objects
of
the
plaintiff
include
all
aspects
of
a
hotel
business
and
other
businesses.
One
of
the
objects
authorizes
the
company
to
“purchase,
lease
or
otherwise
acquire,
sell
or
otherwise
dispose
of
any
lands
necessary
or
convenient
for
the
purposes
of
the
Company”.
There
is,
however,
no
specific
provision
authorizing
the
company
to
carry
on
the
real
estate
business
nor
to
engage
in
the
servicing,
subdivision
or
development
of
real
estate.
Shortly
after
its
incorporation
the
plaintiff
acquired
a
site
and
built
a
hotel
on
it
in
the
City
of
Edmonton.
The
Hotel
was
expanded
thereafter
by
the
addition
of
100
rooms,
a
banquet
room
and
other
facilities.
The
hotel,
known
as
the
“Riviera
Hotel”,
was
located
at
a
prime
intersection
south
of
the
City
of
Edmonton
and
en
route
to
and
from
the
International
Airport.
It
developed
into
a
very
successful
operation
requiring
about
130
to
140
full-time
employees
in
the
1973
taxation
year
and
offered
all
of
the
services
normally
associated
with
a
large
hotel
such
as
dining
room,
cocktail
lounge,
beer
parlour,
conference
facilities
and
the
like.
Some
services,
namely
the
lounge
and
restaurant
service,
were
provided
by
an
associated
corporation,
Michael’s
Fine
Foods
Ltd,
which
was
eventually
merged
with
the
plaintiff.
Fifty
per
cent
of
the
issued
shares
of
the
plaintiff
are
owned
by
Mr
and
Mrs
Larry
Superstein,
both
residents
of
the
United
States,
and
fifty
per
cent
are
owned
by
Max
Superstein,
resident
of
Canada.
The
day-to-day
affairs
of
the
plaintiff
and
financial
matters
concerning
the
Company
were
attended
to
by
a
manager
and
the
shareholders
did
not
take
an
active
role
in
the
day-to-day
operations
of
the
Company.
The
following
is
a
summary
of
the
properties
acquired
and
sold
by
the
plaintiff
since
its
incorporation
to
date
of
trial:
|
Description
|
|
Date
|
Date
|
|
Item
|
of
property
|
Location
|
acquired
|
disposed
|
Acreage
|
1.
Dykes
Property*
|
Edmonton
|
1.1961
|
1.1967
|
20
acres
|
|
(6
acres)
|
to
Stewart
Green
a
|
|
land
developer
|
|
2.1964-67
|
2.1971
|
9
acres
|
|
(30
acres)
to
the
City
of
Edmonton
|
|
(due
to
replot)
|
|
3.1969
|
3.1973
|
9.3
acres
|
|
(2
acres)
|
to
Canadian
Tire
Corp.
|
2.
Inglewood
property
|
Calgary
|
1962
|
1973
|
7
acres
|
3.
Lot
6
lock
92
|
Edmonton
|
1963
|
1979
|
1
acre
|
4.
Mullback
property
|
South
Edmonton
|
1965
|
1974
|
73
acres
|
5.
Henderson
property
Outside
Edmonton
|
1966
|
1979
|
159
acres
|
6.
Battleford
property
|
Outside
Edmonton
|
1969
|
1981
|
160
acres
|
7.
Progressive
prop.
|
Outside
Edmonton
|
1969
|
1981
|
157
acres
|
8.
Union
Holdings
|
Outside
Edmonton
|
1969
|
still
|
quarter
|
|
held
|
section
|
9.
137th
&
127th
Streets
|
|
1971
|
|
685
acres
|
10.
|
|
(50%
interest)
|
1971
|
|
13.78
acres
|
11.
Houghton
property
|
Edmonton
|
1972
|
1974
|
3
acres
|
12.
St
Albert
Property
|
St
Albert
Trail
|
1973
|
still
|
49
acres
|
|
(outside
Edmonton)
|
|
held
|
|
This
appeal,
in
so
far
as
the
gains
realized
from
1973
sales
of
property
are
concerned,
relates
to
the
sale
of
some
9.2
acres
of
the
Dykes
property
to
Canadian
Tire
Corporation
and
to
the
sale
of
the
Inglewood
property
(refer
to
items
1
and
2
above).
There
was
evidence
to
the
effect
that
the
original
six
acres
of
the
Dykes
property
purchased
in
1961
(item
1)
and
the
Inglewood
property
purchased
in
1962
(item
2),
were
acquired
as
potential
hotel
sites.
No
planning,
however,
was
carried
out
and
no
steps
whatsoever
were
taken
to
develop
them
as
such.
There
appears
to
have
been
at
the
time
of
purchase
a
collateral
intention
regarding
the
possible
future
use
of
those
lands
for
hotel
purposes.
It
appears
that
the
only
work
done
in
conjunction
with
the
Dykes
property
(item
1
above),
from
which
the
Canadian
Tire
parcel
was
taken,
was
the
partitioning
of
the
20
acres
sold
to
Green
in
1967
and
the
replotting
by
the
City
of
Edmonton
of
some
9
acres
for
a
sale
to
it
in
1971.
The
evidence
also
establishes
that
all
the
plaintiff
did
was
to
execute
the
required
documents
for
the
replot,
the
work
having
been
carried
out
at
the
City’s
expense.
The
Canadian
Tire
parcel
was
never
offered
for
sale:
its
disposition
resulted
from
an
unsolicited
offer.
The
Inglewood
property
(item
2
above)
was
required
by
the
City
of
Edmonton
for
highway
expansion
and
was
purchased
by
the
City
for
that
purpose.
Had
it
not
been
sold,
the
City
would,
in
all
probability,
have
expropriated
it.
Turning
now
to
the
other
parcels
of
land,
the
Mullback
property
(item
4
above),
some
nine
years
after
its
acquisition,
was
subdivided
and
serviced
prior
to
sale
by
the
plaintiff,
except
for
two
five-acre
commercial
sites
which
were
retained
from
the
subdivision
for
development
as
a
shopping
centre
and
one
of
which
sites
was
in
fact
thereafter
sold.
The
lands,
though
subdivided,
were
sold
in
one
transaction.
I
attach
no
significance,
as
I
was
invited
to
do
by
counsel
for
the
plaintiff,
to
the
fact
that
the
actual
work
of
subdividing
and
servicing
was
not
done
by
the
employees
of
the
plaintiff
but
by
other
parties
hired
by
it
for
that
purpose.
(See
ESG
Holdings
Ltd
v
Her
Majesty
The
Queen
[1976]
CTC
295;
76
DTC
6158.
The
remaining
properties
which
have
been
disposed
of,
were
sold
in
their
Original
state
without
having
been
subdivided
or
improved.
Except
for
the
Henderson
farm,
the
plaintiff
merely
paid
the
annual
municipal
taxes
and
the
amounts
due
from
time
to
time
on
the
unpaid
balances
of
purchase
price.
They
were
never
listed
with
agents
nor
advertised
for
sale.
As
to
the
Henderson
farm,
it
was
rented
by
the
plaintiff
and
soil
was
also
sold
from
lands
owned
by
the
plaintiff.
The
Henderson
property
apparently
comprised
large
quantities
of
commercially
valuable
lands.
With
regard
to
the
sale
of
lands,
the
plaintiff
claims
that
the
profit
realized
is
either
a
capital
gain
(subparagraph
129(4)(a)(i)
supra)
or
income
from
a
non-active
business
(subparagraph
129(4)(a)(Hi)
supra).
The
defendant,
on
the
other
hand,
contends
that
it
is
income
and
not
a
capital
gain
and,
further,
that
it
is
income
from
an
“active
business”
referred
to
in
the
last-
mentioned
subsection
and
is,
therefore,
not
to
be
considered
as
investment
income
under
paragraph
129(4)(a).
The
first
question
to
be
decided
is
whether
the
gain
from
the
sale
of
lands
is
capital
gain
or
income
from
a
business,
whether
it
be
active
or
non-active.
The
following
facts
are
pertinent:
the
number
of
parcels
purchased,
the
number
of
sales,
the
fact
that
the
taxpayer
reported
in
its
1972,
1973
and
1974
income
tax
returns
that
it
had
no
capital
gains
and
that
no
amended
return
was
ever
filed,
the
fact
that
the
lands
were
described
therein
as
part
of
an
inventory
of
lands,
and
also
the
fact
that
in
the
letters
patent
the
objects
of
the
company
included
the
purchase,
rental
and
sale
of
lands.
None
of
these
factors
are
conclusive
in
themselves
but
they
all
negate
the
probability
of
a
finding
that
the
profits
realized
were
in
the
nature
of
a
capital
gain.
I
attach
particular
weight
in
the
present
case
to
the
fact
that
a
contrary
finding
would
contradict
the
specific
declarations
in
the
above-mentioned
tax
returns
to
the
effect
there
were
no
capital
gains
realized
during
those
years.
It
is
true,
as
stated
by
my
brother
Walsh,
J
in
MRT
Investments
Limited
et
al
v
Her
Majesty
The
Queen,
[1975]
CTC
354;
75
DTC
5224,
that
what
really
must
be
considered
is
the
true
nature
of
the
activities
and
not
merely
the
particular
designation
which
the
taxpayer
chooses
to
attach
to
them.
However,
where,
as
in
the
present
case,
the
taxpayer,
by
attaching
a
particular
designation,
is
in
effect
making
a
declaration
against
his
interest
and
where
it
is
most
probably
not
a
mere
slip
or
inadvertent
error
but
rather
a
statement
made
with
full
knowledge
of
the
facts
and
prepared
by
a
business
or
accounting
expert,
there
exists
at
least
an
obligation
on
the
taxpayer
to
explain
how
they
occurred
and
why
effect
should
not
be
given
to
the
statements
contained
in
the
tax
returns
and
the
financial
statements
forming
part
thereof.
This
is
particularly
pertinent
in
the
case
at
Bar
as
the
above
statements
and
others
in
these
returns
to
which
I
shall
refer
later
relate
to
the
two
main
issues
which
must
be
decided
and
as
the
only
witness
called
on
behalf
of
the
plaintiff
was
the
president
of
a
firm
of
financial
management
consultants
which
had
been
employed
in
that
capacity
by
the
plaintiff
company
for
some
twelve
years
(ie
since
1969).
Previous
to
that,
the
same
person
had
been
employed
by
the
firm
of
auditors
who
were
acting
for
the
plaintiff.
The
witness
stated
that
the
1971,
1972
and
1973
returns
were
signed
by
one
of
the
owners
of
the
company
and
that
the
1974
and
1975
returns
were
signed
by
himself
on
behalf
of
the
plaintiff.
Substantially
the
same
statements
regarding
the
nature
of
the
entries
and
of
the
business
were
contained
in
all
of
the
reports
and
the
witness,
under
cross-examination,
conceded
that
it
was
only
recently
that
he
had
come
to
the
conclusion
that
the
description
of
the
nature
of
the
company’s
business
was
inaccurate,
notwithstanding
his
expertise
in
financial
and
business
matters.
With
regard
to
the
buying,
leasing
and
selling
of
lands
being
included
in
the
objects
of
the
company,
it
is
of
some
importance
to
note
the
principle
that,
where
the
type
of
activity
engaged
in
is
that
contemplated
in
the
letters
patent
of
either
a
public
or
a
private
company,
although
not
conclusive
evidence,
this
might
well
constitute
prima
facie
evidence
that,
or
at
least,
an
indication
that
the
profit
derived
from
the
activity
is
from
the
ordinary
business
of
the
company
(see
Anderson
Logging
Co.
v
The
King,
[1917-27]
CTC
198;
52
DTC
1209,
and
The
Queen
&
Metcalfe
Carpark
Ltd
v
MNR,
[1973]
CTC
810.
I
find
no
difficulty
in
coming
to
the
conclusion
on
the
above
evidence
that
the
profit
was
not
a
capital
gain
but
resulted
from
a
source
that
was
a
business
which
might
be
either
active
or
inactive.
The
latter
point
now
remains
to
be
determined.
Although
active
business
income
is
now
defined,
there
was
no
statutory
definition
of
the
expression
in
1973.
One
must
therefore
look
at
the
decided
cases.
The
leading
cases
are
the
following:
MRT
Investments
Limited
et
al
v
Her
Majesty
The
Queen,
supra;
the
appeal
of
this
last-mentioned
case
cited
as
Her
Majesty
The
Queen
v
Rockmore
Investments
Ltd,
[1976]
CTC
291;
76
DTC
1324;
Her
Majesty
The
Queen
v
Cadboro
Bay
Holdings
Ltd,
[1977]
CTC
186;
77
DTC
5115;
and
King
George
Hotels
Ltd
v
Her
Majesty
The
Queen,
[1981]
CTC
490;
81
DTC
5362,
which
was
an
appeal
from
the
Tax
Review
Board
decision
reported
in
[1979]
CTC
2794.
In
the
Morbane
case,
relying
on
the
reaffirmation
by
the
Court
of
Appeal
in
the
King
George
Hotels
case,
supra,
of
the
principles
previously
laid
down
by
it
in
the
Rockmore
case,
I
concluded
that
the
statement
in
the
Cadboro
case
to
the
effect
that
any
business
activity
whatsoever
of
a
private
corporation
in
Canada
would
constitute
an
“active
business”
is
not
to
be
applied
as
a
general
principle.
The
Court
of
Appeal
has,
on
these
two
occasions,
refused
to
lay
down
any
general
rule
or
legal
standard
as
to
what
might
constitute
the
required
elements
of
an
active
business
and
has
held
that
each
case
must
be
considered
on
its
particular
facts
and
that
the
trial
judge
must
examine
all
of
the
circumstances
pertaining
to
the
extent
of
the
activity
existing
at
the
relevant
time.
In
considering
the
summary
of
land
purchases
and
sales,
supra,
in
addition
to
the
numbers,
dates
and
nature
of
the
transactions
as
well
as
the
other
real
estate
activities
already
commented
upon,
the
following
observations
are
worthy
of
note:
the
Canadian
Tire
property
(item
1),
or
at
least
part
of
it,
was
held
for
approximately
twelve
years
before
being
disposed
of
and
the
Inglewood
property
was
held
for
some
eleven
years.
Up
until
1973,
lands
were
being
acquired.
Thereafter,
there
were
no
acquisitions
but
the
majority
of
the
lands
were
disposed
of.
The
Dykes
property
was
acquired
in
three
separate
parcels
at
different
times
and
was
resold
on
three
separate
occasions
in
three
different
parcels.
There
is
no
doubt
that,
by
far,
the
bulk
of
the
time
was
spent
by
the
owners
and
their
employees
in
carrying
on
the
hotel
business,
and
comparatively
speaking,
little
time
was
spent
in
dealing
with
real
estate.
The
witness
called
by
the
plaintiff
estimated
approximately
two
weeks
per
year
for
one
man
and
that
not
more
than
two
employees
or
officers
of
the
plaintiff
spent
any
time
or
effort
in
administering
or
dealing
with
the
properties.
There
was,
however,
no
direct
evidence
or
any
satisfactory
evidence
for
that
matter
as
to
the
actual
amount
of
time
spent
by
the
local
owner
in
administering
the
lands
during
1973.
In
the
final
analysis,
it
appears
that
only
approximately
2%
of
the
administrative
time
and
effort
of
the
plaintiff’s
officers
and
employees
was
required
for
that
purpose.
The
comparison
between
the
two
undertakings
of
the
plaintiff
is,
however,
of
no
great
significance,
having
regard
to
the
small
amount
of
time
one
would
normally
spend
in
operating
a
business
of
buying
and
selling
large
tracts
of
raw
land,
even
if
that
business
were
a
very
active
one,
as
compared
to
the
time
and
effort
required
to
carry
Out
an
undertaking
as
labour-intensive
as
a
hotel
business.
There
was
no
separate
office
nor
apparently
any
separate
administrative
installation
for
the
land
purchases
and
sales
portions
of
the
plaintiff’s
business.
Although
there
is
evidence
that
none
of
the
properties
were
sold
through
an
agent,
or
listed
for
sale,
we
find
in
the
1973
tax
return
an
expense
listed
as
$35,812
for
commissions
paid.
The
witness
offered
an
explanation
that
this
might
well
be
a
finder’s
fee
paid
to
the
nephew
of
the
owner
but
no
firm
evidence
was
produced.
The
statements
and
declarations
found
in
the
income
tax
returns
are
also
relevant
to
the
issue
of
whether
the
business
was
an
active
one.
Furthermore,
as
I
have
previously
commented,
because
of
the
probability
that
they
were
not
made
inadvertently
but
only
made
following
due
consideration
and
professional
advice
and
constitute
statements
against
interest,
they
are
of
particular
importance
in
the
case
at
Bar.
On
examining
the
income
tax
returns
of
the
plaintiff,
we
find
that
for
the
years
1971,
1972
and
1973
the
returns
were
signed
by
one
Max
Superstein,
the
Canadian
owner
of
a
50%
interest
in
the
plaintiff
Company
and
the
nature
of
the
plaintiff’s
business
during
those
years
was
described
therein
as
“hotel
and
real
estate”.
The
1974
and
1975
returns
were
signed
by
the
financial
and
business
consultant
for
the
plaintiff
who
testified
at
trial.
In
its
1974
return
the
same
description
was
used
as
for
the
previous
years
and
in
its
1975
return,
the
business
was
described
as
“hotel
and
servicing
land
for
resale”.
The
lands
in
the
returns
of
1973
and
1974
were
described
as
forming
part
of
an
“inventory
of
land”.
This,
of
course,
is
evidence
which
might
tend
to
establish
that
the
taxpayer
considered
that
it
was
holding
the
lands
listed
in
its
inventory
for
the
express
purpose
of
resale
at
all
times.
In
1973,
the
inventory
amounted
to
some
$1,244,000
and
that
inventory,
together
with
the
amounts
due
under
agreement
for
sales
accounts,
amounted
to
approximately
one-half
of
the
total
assets
of
the
company.
Both
in
1973
and
1974
the
revenue
from
other
sources
(the
main
one
being
land
sales)
exceeded
the
revenue
from
the
hotel
business.
Although
1973
is
the
only
year
under
appeal
and
the
Court
must
determine
whether
the
sales
of
land
were
part
of
an
active
business
carried
on
by
the
taxpayer
during
that
year,
sales
and
other
activities
subsequent
thereto
are
nevertheless
relevant
in
determining
the
overall
intent
of
the
taxpayer
with
regard
to
its
land
holdings.
On
the
whole
of
the
evidence,
I
conclude
that
the
income
derived
from
the
sale
of
lands
in
1973
was
from
an
active
business
source
within
the
meaning
of
those
words
as
used
in
subparagraph
129(4)(a)(iii).
Since
the
income
does
not
otherwise
qualify
as
Canadian
investment
income
under
paragraph
129(4)(a),
the
amount
must
be
taxable
as
ordinary
income.
As
to
the
sale
of
soil,
the
income
for
that
activity
was
$1,853
in
1972
and
$2,500
in
1973.
The
sales
increased
dramatically
and
by
1977
and
1978
the
income
had
reached
$200,000
net.
I
find
no
difficulty
in
characterizing
the
$2,500
net
received
from
sale
of
soil
for
the
Henderson
property
as
revenue
from
an
active
business
in
1973.
The
plaintiff
has
also
failed
to
establish
that
the
interest
income
for
1973
was
not
intrinsically
linked
to
an
active
business.
I
cannot
see
how,
under
the
circumstances
of
this
case,
either
of
these
last
two
sources
could
qualify
under
subparagraph
129(4)(a)(ii)
as
income
from
a
source
that
is
property.
This
has
not
been
established.
For
the
above
reasons
the
action
will
be
dismissed
with
costs.