Le
Dain,
J
(concurred
in
by
Urie,
J
and
MacKay,
DJ):—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
dismissing
an
appeal
from
a
reassessment
by
the
respondent
in
respect
of
the
1968
taxation
year
whereby
a
loss
claimed
as
a
deduction
from
income
by
the
partnership
consisting
of
the
appellant
and
Erwin
Taylor
was
dis-
allowed
and
tax
of
$12,359.09,
with
interest
of
$483.37,
was
levied
against
the
appellant.
The
partnership
between
Chaffey
and
Taylor
is
one
that
has
been
engaged
for
a
number
of
years
in
a
variety
of
real
estate
activity.
It
has
conducted
some
of
its
activity
directly
but
much
of
it
through
participation
in
various
corporations.
Some
of
these
corporations
have
been
engaged
in
the
lending
of
money
on
mortgages,
others
have
been
engaged
in
holding
and
developing
various
properties.
Chaffey
and
Taylor
have
not
held
themselves
out
to
the
public
as
lenders
of
money
but
have
made
advances
as
shareholders
to
the
various
companies
in
which
they
have
been
interested.
From
time
to
time
they
have
sold
their
interest
in
companies
or
properties
at
a
profit.
The
reasons
for
judgment
of
the
learned
trial
judge
contain
a
detailed
summary
of
the
various
real
estate
projects
of
the
partnership
which
it
is
not
necessary
to
reproduce
here.
It
is
fair
to
say,
I
think,
that
they
reveal
a
pattern
of
acquiring
interests
through
direct
ownership
or
shareholding
with
a
view
to
selling
them
at
a
profit.
...
The
particular
transaction
in
issue
in
the
present
appeal
involved
Canadia
Niagara
Falls
Limited
(hereinafter
referred
to
as
“Canadia”),
which
was
formed
by
Chaffey
and
Taylor
and
some
others
to
operate
a
tourist
attraction
business
on
a
40-acre
parcel
of
land
in
which
the.
partners
were
also
interested.
Chaffey
and
Taylor
were
shareholders
in
Canadia
and
made
loans
to
it
to
enable
it
to
meet
its
expenses.
The
tourist
attraction
business
proved
to
be
unsuccessful
and
the
partners
sold
one-half
of
their
shares
in
Canadia
and
one-half
of
Canadia’s
indebtedness
to
the
partnership
to
another
company.
The
partnership
suffered
a
loss
on
the
sale
of
the
indebtedness
which
it
claimed
as
a
deduction
from
its
income
in
the
1968
taxation
year.
On
the
appeal
against
the
reassessment
the
appellant
contended
that
the
advances
made
to
Canadia
were
made
in
the
course
of
an
adventure
in
the
nature
of
trade
and
the
loss
was
therefore
deductible
from
the
partnership’s
income,
and
alternatively
that
it
was
deductible
as
a
bad
debt
under
the
provisions
of
paragraph
11
(1)(f)
of
the
Income
Tax
Act.
The
Trial
Division
held
that
the
advances
were
not
part
of
an
adventure
in
the
nature
of
trade,
but
rather
part
of
an
investment
in
a
business
to
be
operated
for
income,
and
that
the
advances
were
not
loans
made
in
the
ordinary
course
of
business
by
a
taxpayer
part
of
whose
ordinary
business
was
the
lending
of
money
so
as
to
bring
it
within
the
terms
of
paragraph
11
(1)(f).
The
appellant
emphasized
the
overall
character
of
the
partnership
business
as
one
in
which
interests
were
taken
in
real
estate
for
the
purpose
of
selling
them
at
a
profit,
and
it
laid
stress
on
the
role
that
was
‘to
be
played
by
the
Canadia
tourist
attraction
in
promoting
the
development
of
the
40-acre
parcel
of
land.
The
Trial
Division
found
“that
the
business
of
the
Taylor-Chaffey
partnership
included
the
acquiring
of
land
or
interests
in
land
to
be
developed
or
sold
or
otherwise
turned
to
advantage,
and
that
in
the
course
of
that
business
the
partnership
acquired
part
ownership
of
the
40
acres
as
a
speculative
venture
of
a
trading
character
in
which
the
land
would
be
developed
or
sold
or
otherwise
turned
to
advantage”,
but
that
the
“Taylor-Chaffey
partnership
joined
with
the
other
owners
of
the
land
and
with
a
non-owner,
Compton-Smith,
to
form
Canadia
as
a
separate
venture
with
an
intention
to
construct
a
long-term
tourist
attraction
and
operate
it
for
the
purpose
of
deriving
income
from
its
operation,
and
it
was
operated
with
that
intention
and
for
that
purpose
until
hope
for
its
profitability
was
lost
after
much
money
had
been
invested
in
it
and
it
became
apparent
that
its
operation
was
not
living
up
to
the
original
expectations
for
it”
The
reasoning
that
led
the
learned
trial
judge
to
this
conclusion
is
contained
in
the
following
passage
from
his
reasons
for
judgment
[Chaffey
v
MNR,
[1974]
CTC
598
at
609]:
It
appears
to
me
that
Taylor
and
Chaffey
were
at
the
start
very
confident
that
the
operation
of
such
an
attraction
in
Niagara
Falls
modelled
on
the
concept
of
the
Madurodam
tourist
attraction
in
Holland
would
be
successful
in
its
own
right,
and
although
they
also
thought
the
tourist
attraction
would
enhance
the
value
of
the
land
and
attract
development
for
the
portion
of
the
land
not
required
by
Canadia,
that,
in
my
opinion,
was
to
be
an
indirect
side
effect
of
the
operation
of
the
attraction,
and
the
governing
and
dominant
motive
for
the
formation
of
Canadia
and
the
establishment
of
the
tourist
attraction
was
the
belief
that
it
had
a
particularly
attractive
earning
potential
on
a
long-term
basis.
Taylor
said
that
even
as
at
the
first
of
February
1968,
when
he
and
Chaffey
sold
/2
of
their
interest
to
Fermo
Holdings,
with
the
resulting
claimed
loss,
they
had
not
given
up
hope
that
Canadia
could
carry
on
its
business
successfully,
but
they
just
could
not
continue
to
carry
the
heavy
expenditures
that
were
demanded
at
that
time.
The
advances
made
by
the
Taylor-Chaffey
partnership
to
Canadia
were,
in
my
opinion,
loans
to
provide
it
with
working
capital
and
were
outlays
of
a
capital
nature,
the
loss
of
which
was
a
capital
loss
to
the
partnership
and
to
the
partners,
the
deduction
of
which
is
prohibited
by
paragraph
12(1
)(b)
of
the
Income
Tax
Act.
The
case
made
on
behalf
of
the
appellants
for
a
contrary
conclusion
that
Canadia
and
its
tourist
attraction
was
an
adventure
in
the
nature
of
trade,
a
part
of
the
promotion
and
development
of
the
land
for
resale
at
a
profit,
that
Taylor
and
Chaffey
intended
to
sell
their
interest
in
Canadia
when
its
tourist
attraction
became
profitable,
and
that
their
advances
to
Canada
were
outlays
incurred
in
such
an
adventure
in
trade
and
therefore
the
loss
claimed
by
them
is
deductible,
impressed
me
favourably
at
times
in
my
consideration
of
the
appeals,
and
some
of
the
evidence
tends
to
support
a
conclusion
to
that
effect,
but
on
the
whole
I
finally
came
to
the
conclusion
as
above
stated.
As
the
learned
trial
judge
acknowledged,
the
question
whether
Canadia
should
be
considered
to
be
an
adventure
in
the
nature
of
trade
or
a
long-term
operation
for
the
purpose
of
earning
income
is
not
free
from
uncertainty,
but
it
cannot
be
said
in
my
opinion
that
there
was
no
evidence
to
support
the
conclusion
at
which
the
Trial
Division
arrived
on
a
balance
of
probability.
The
following
passages
from
the
transcript
of
the
testimony
of
Chaffey
and
Taylor
reflect
what
is
pertinent
to
the
question
of
fact
that
was
before
the
Trial
Division:
Chaffey
at
p
154:
Q.
And
what
was
the
purpose
intended
at
the
time
the
lands
were
acquired?
What
did
you
intend
to
do
with
it?
A.
To
develop
the
land
and—to
develop
the
land
and
we
had
a—we
were
going
to
lease
part
of
these
lands
to
the
attraction
that
we
called
Canadia.
Chaffey
at
p
155:
Q.
And
what
was
the
purpose
for
the
incorporation
of
Canadia
originally?
A.
To
put
a
tourist
attraction
together
and
lease
the
land,
the
lands
that
we
had
purchased
in
Niagara
Falls.
Chaffey
at
p
156:
Q.
What
was
the
reason
for
the
long-term
lease?
A.
Well,
Canadia
as
an
attraction
had
to
have
a
lease—had
to.
have
a
lease
or
it
would
have
no
value,
the
company
itself.
If
it
had
a
short-term
lease
it
wouldn’t
be
a
viable
company
and—for
Canadia
to
be
a
company
that
was
marketable
you
had
to
have—they
had
to
have
a
lease.
Chaffey
at
p
157:
Q.
.
.
.
What
was
the
intention
of
the
owners
with
respect
to
the
balance
of
the
lands?
A.
In
anticipation
of
Canadia
increasing
the
traffic
and
improving
the
value
of
the
land
in
that
area
is
the
why
we
purchased
more
land
than
we
needed
to
do
so
that
we
could
make
use
of
the
Canadia’s
attraction
in
the
way
of—and
taking
advantage
of
the
way
the
land
would
improve
in
value
and
be
more
marketable
because
of
the
increase
in
the
traffic
in
the
area
and
the—because
we
felt
that
Canadia
was
going
to
be
an
asset
to
that
area
and
improve
the
surrounding
lands.
Q.
In
what
way
would
that
improve
the
surrounding
lands
by
having
more
traffic?
A.
Well,
the
more
exposure
that
the
land
would
get
from
the
travelling
public
and
from
the
people
in
the
area,
the
more
valuable
it
would
be.
There
would
be
more
traffic
in
the
area
and
this
would
bring
up
the
value
of
the
lands.
Chaffey
at
p
167:
Q.
Now,
could
you
explain
to
me
the
circumstances
surrounding
the
transaction
under
which
you
and
Mr
Taylor
disposed
of
the
property
to
Fermo
Holdings
Limited?
A.
Taylor
and
Chaffey
felt
they
couldn’t
pay
the
assessments
and
the
moneys
that
Canadia
was
taking
to
operate.
We
couldn’t
afford
to
put
the
money
into
Canadia
with
approximately
20
odd
percent
that
we
owned
at
that
time
of
Canadia.
Chaffey
at
pp
169-70:
A.
.
.
.
and
to
make
the
area
and
location
viable
and
try
and
keep
the—
make
the
property
pay
for
itself
until
it
was
ready
to
mature
and,
put
on
the
market
and
develop,
the
tourist
attraction
appeared
to
be
able
to
carry—
should
have
been
able
to
carry
the
land,
but
it
just
wasn’t
a
good
tourist
attraction.
Q.
Would
the
tourist
attraction
be
economically
attractive
even
after
the
land
had
come
to
fruition,
uses
had
developed?
In
other
words,
would
the
tourist
attraction
have
continued
if
it
had
been
profitable?
A.
Well,
that
was
the
purpose
of
the
lease
and
the
twelve
years
in
the
lease,
to
be
in
a
position
that
we
could
move
to
have—to
sell
the
Canadia
property
and
be
able
to
make
use
of
the
land
to
its
highest
and
best
use.
Q.
In
other
words,
Canadia
could
sell
its
business
enterprise
and
had
a
long-term
lease
to
support
itself?
A.
Yes,
that
is
the
twelve
years
or
we
could
organize
a
move
for
it
too
at
that
time.
Q.
Because
you
are
really
the
landlord
and
tenant,
is
that
what
you
are
saying?
A.
Yes.
Chaffey
at
p
220:
Q.
Am
I
right
in
assuming
that
so
long
as
Canadia
Niagara
Falls
Limited
was
lessee
of
this
land
from
Zacko
Holdings
Limited.
.
.
.
That
Canadia
did
not
have
any
plans
for
the
lands
which
were
under
lease
to
it
other
than
the
erection
and
operation
of
tourist
attractions?
A.
We,
the
shareholders
of
the
land
and
Canadia,
treated
it
as
one
venture.
Q.
But
this
was
after
Smith’s
shares
were
acquired,
was
that
so?
A.
We
pretty
well
treated
it
as
one
venture
all
the
way
through.
Taylor
at
p
235:
Q.
Now,
if
Canadia
had
earned
substantial
profits
what
would
you—what
did
you
intend
to
do
with
the
company,
or
your
interest
in
the
company?
A.
We
would
retain
our
interest
in
the
company
unless
we
could
find
a
willing
buyer
that
could
make
use
of
it.
We
still
have
the
income
from
our
lease.
Q.
Well,
am
I
correct
then
that
this
provision
in
the
lease
would
provide
that
you
would
still
share
in
the
profitability
of
the
Canadia
tourist
attraction
even
after
you
had
disposed
of
your
shares
in
the
company?
A.
That’s
right.
Taylor
at
p
252:
Q.
Why
would
you
include
a
percentage
rent
in
the
lease
when
the
persons
paying
the
rent
are
in
effect
the
same
as
the
persons
who
were
receiving
the
rent?
A.
Well,
the
object
is
that
we
would
hope
to
dispose
of
this
operation
and
we
would
enjoy
some
of
the
benefits
after
it
was
disposed
of
by
the
percentage
rents.
Taylor
at
p
253:
Q.
Did
you
have
any
discussions
with
anyone
at
any
time
concerning
the
disposition
by
the
Taylor-Chaffey
partnership
of
their
shares
and
their
financial
interests
in
Canadia?
A.
To
sell
our
interest?
Q.
Yes.
A.
No,
I
don’t
recall
it,
with
the
exception
when
Canadia
would
appear
not
to
be
profitable
we
asked
the
Fermo
group
to
take
part
of
our
position.
Taylor
at
p
261
:
Q.
All
right.
But
I
think
you
said
that
subsequent
to
1968
or
commencing
in
1968
there
were
attempts
to
sell
or
at
least
you
were
interested
in
selling
the
shares
in
Canadia?
A.
Mr
Chambers,
we
are
interested
in
selling
anything
that
would
make
a
profit
and
that
was—
..
.
.
A.
.
.
.
If
we
had
some
profit
on
it
we
would
certainly
sell
it.
It
may
well
be
that
one
could
reasonably
come
to
a
different
conclusion
on
this
evidence
from
that
which
was
reached
by
the
learned
trial
judge,
but
in
my
respectful
opinion
it
cannot
be
said
that
he
was
clearly
wrong
in
coming
to
the
conclusion
that
he
did,
and
there
is
accordingly
no
basis
for
interfering
with
his
findings.
The
second
issue
in
this
appeal
is
whether
the
advances
made
by
the
partnership
to
Canadia
were
in
the
ordinary
course
of
the
business
of
the
partnership
and
whether
part
of
the
ordinary
business
of
the
partnership
was
the
lending
of
money.
The
conclusion
of
the
learned
trial
judge
on
this
issue
was
as
follows:
As
to
the
alternative
contention
of
the
appellants
that
the
lending
of
money
was
part
of
the
ordinary
business
of
their
partnership
and
that
the
advances
in
question
to
Canadia
were
loans
made
in
the
ordinary
course
of
such
business,
within
the
meaning
of
paragraph
111(1(e)
or
(f)
of
the
Income
Tax
Act,
I
think
that
the
evidence
does
not
establish
that
such
was
the
case
in
the
years
1964
to
1968.
The
evidence
shows
that
certain
companies
in
which.
Taylor
and
Chaffey
were
officers
and
shareholders
carried
on
a
large
mortgage
business
under
their
corporate
powers
and
that
Taylor
and
Chaffey
provided
shareholders’
advances
to
them
for
that
purpose,
that
they
also
provided
shareholders’
advances
to
other
companies
and
their
share
of
advances
as
participating
purchasers
of
real
estate
or
other
assets,
but
I
do
not
think
that
the
making
of
such
advances
proves
that
the
lending
of
money
was
part
of
their
ordinary
business,
or
that
the
evidence
as
a
whole
proves
that
it
was.
I
agree
with
this
conclusion.
In
my
opinion
shareholders’
advances
do
not
constitute
the
business
of
lending
money;
they
are
simply
a
particular
form
by
which
capital
is
put
into
a
company.
The
loans
made
by
the
partnership
did
not
have
as
their
principal
object
the
accommodation
of
persons
in
return
for
income
in
the
form
of
interest;
they
were
merely
a
device
for
the
financing
of
projects
through
which
profit
was
to
be
made
by
other
means.
For
these
reasons
I
would
dismiss
the
appeal
with
costs.
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