Sudden Valley Inc. v. The Queen, 76 DTC 6178, [1976] CTC 297 (FCTD), aff'd 76 DTC 6448, [1976] CTC 775 (FCA)

Addy, J:—The plaintiff, a United States company, was taxed for the years 1969 to 1972 inclusively under Part III of the Income Tax Act, RSC 1952, c 148 (hereinafter referred to as the “former Act”) and, subsequently, under Part XIII of the Income Tax Act, SC 1970-71- 72, c 63 (hereinafter referred to as the “current Act”) as a corporation situated abroad and receiving income from Canadian residents. Under the above-mentioned provisions, 15% of the income was deducted at source from amounts paid to it by Canadian residents. The income in question consisted of interest payable on the balance of the purchase price of lands purchased from the plaintiff company by Canadian residents or on lands which had been resold by original purchasers from the plaintiff to Canadian residents and on which there remained to be paid a balance of the original purchase price.

The company, which had not made any profit during the years in question, claims that it is taxable and should be taxed as a company actually doing business in Canada and, therefore, be subject to tax pursuant to paragraph 2(2)(b) of the former Act and paragraph 2(3)(b) of the current Act. It alleges that the interest payable on the outstanding balances is reasonably attributable to the business of selling land and is taxable under Part I and not Part III of the former Act and Part I and not Part XIII of the current Act.

The facts are simple and are really not disputed. The plaintiff was engaged in the business of selling land in Sudden Valley, in the State of Washington, some 60 miles south of Vancouver, BC. The land consisted of approximately 2,000 acres which the company had acquired in Sudden Valley and which it proceeded to improve, subdivide, and sell in lots as part of a large recreational home development scheme. Most of the lots sold at the outset, were sold to purchasers from the Seattle area. But, in the early spring of 1970, due to the sudden closing down of a large industry in that area and the extremely high level of unemployment resulting therefrom, the land market became so depressed as to be practically non-existent. The company therefore turned to the Vancouver market.

it leased office space in Vancouver, hired telephone operators, whose main duty was to contact various people in the Vancouver area to set up meetings consisting of dinners and other social gatherings the main purpose of which was to interest Canadians living in. the area to visit Sudden Valley and become aware of and, hopefully, interested in the many opportunities it offered as a recreational area for persons who chose to become property owners there.

To accomplish this object, it also incorporated a Canadian company and also acted through United States affiliates and subsidiary companies and, in some instances, through brokers and other contacts in the real estate field in Vancouver.

The plaintiff had no licence to sell real estate in Canada and the evidence discloses clearly that not one sale was in fact made in Canada. There was no evidence either of any legally binding offer to purchase ever having been obtained at any time in Canada. It is clear that the activity, carried on in the Vancouver area, was limited to devising and employing various ways and means to induce Canadians to visit the Sudden Valley project in the State of Washington, where they would be approached and an attempt would be made to sell them land. Offers were made and accepted and the deposits were paid there. No agent or representative in Canada had any authority to accept an offer or bind the plaintiff. The advertising campaign in Canada, which cost approximately $1,000,000, was significantly successful as approximately 70 to 75% of the lots, sold by the plaintiff to original purchasers, were purchased by Canadian residents from the Vancouver area.

The advertising did not state that there was land for sale but merely invited Canadians to visit the beauties of Sudden Valley which was so proximate to and so easily accessible from Vancouver. The individual was given a gate pass which allowed him access to visit the Sudden Valley Development.

As to payments made by Canadian residents after a lot had been purchased, these payments had to be made in United States funds and no one in Canada was authorized to accept any payment on behalf of the plaintiff except for the purpose of forwarding it on to the plaintiff in the United States.

‘In so far as the interest payments are concerned, if the plaintiff was carrying on its business of selling real estate in Canada then, in my view, the payment of interest on the balance of the purchase price of any land so sold would clearly be reasonably attributable to the carrying on of that business. The question may therefore be narrowed down to the Issue of whether the plaintiff was carrying on the business of selling real estate in Canada or whether it was carrying on a business in Canada to which the payment of such interest may be reasonably attributed.

At common law, it seems very clear that the appellant was not carrying on business in Canada, for, to exercise trade in a jurisdiction, it is not sufficient to obtain orders within that jurisdiction if the sale is eventually made outside the jurisdiction (see Grainger & Son v Gough (Surveyor of Taxes) (1896), 3 TC 462 at 465, 466 and 467). In the absence of any other evidence that a person was carrying on business in a particular jurisdiction, the place where the contracts are made is decisive (see Geigy (Canada) Ltd v Commissioner, Social Services Tax, [1969] CTC 79 at 84).

Both counsel agreed that the Canada-US Tax Convention Act, SC 1943-44, 7 & 8 Geo VI, c 21, really need not be considered in the case at bar for the Convention only applies if the plaintiff was in fact carrying on business in Canada or if it had industrial or commercial profits derived from Canadian sources. Paragraph 253(b) of the current Act does change the common law to some extent and the matter therefore turns on whether the facts of the present case fall within the provisions of that section. It reads as follows:

253. Where, in a taxation year, a non-resident person

(b) solicited orders or offered anything for sale in Canada through an agent or servant whether the contract or transaction was to be completed inside or outside Canada or partly in and partly outside Canada,

he shall be deemed, for the purposes of this Act, to have been carrying on business in Canada in the year.* [1]

In considering whether the plaintiff was ‘‘soliciting orders” in Canada, I do not agree that the words can be extended to include ‘‘a mere invitation to treat”. Soliciting orders means that orders must be sought and attempts made to obtain them within the jurisdiction and the word “offer”, in my view, must be given its ordinary meaning in contract law, that is, a binding offer which, if accepted, would create a contract between the offeror and the offeree. This becomes all the more evident when one considers that the question at common law depended specifically on the existence of a binding contract and that the section was intended to amend the former common law to the effect that the contract need not be made within the jurisdiction (see Partridge v Crittenden, [1968] 2 All ER 421 at 423 and 424). From a glance at the evidence in this case, which I have summarized above, it is abundantly clear that no offer was obtained and no attempt was made to obtain any in Canada and it is equally clear that nothing was offered for sale in Canada either through an agent or otherwise. One must therefore conclude that the real estate business of the olaintiff was not being carried on in Canada even within the extended meaning given to that term by paragraph 253(b).

The only activity carried on in Canada by the plaintiff was that of attempting to induce Canadians to visit Sudden Valley in the hope that some might eventually become interested in buying property there. There was no Canadian income from this business undertaking and the payment of interest on the agreements resulting from its United States real estate business is without a doubt much too remote from the Canadian activities.

The appeal therefore fails and the plaintiffs claim is dismissed with costs.