The Queen v. Randall Park Development Ltd., 78 DTC 6545, [1978] CTC 826 (FCTD)

The Associate Chief Justice:—This is an appeal under the Income Tax Act from a decision of the Tax Review Board which allowed in part an appeal from reassessments of income tax for the years 1973, 1974 and 1975. The sole issue in respect of all three years is whether profit realized by the defendant on the sale in 1973 for $400,000 of a tract of some 400 acres of unimproved land at Spryfield near Halifax, Nova Scotia, which the defendant had purchased in 1966 for $42,210, was income from the defendant’s business.

The appellant was incorporated in 1964 and its business since then has been to acquire unimproved land suitable for residential development, improve it with sewer and water services, and subdivide and sell it in building lots. Following its incorporation, the defendant acquired a parcel of some 36 acres adjoining the 26-acre parcel and proceeded in the same maner to service, subdivide and sell it as well in residential building lots. This property was acquired at about the same time as that at Spryfield, which is in question in these proceedings, and lots were still being sold from it when, in 1973, the Spryfield property was sold.

The Spryfield property was acquired for the same purpose but in this case the defendant was unable to carry it out because in 1970, when only preliminary work had been carried out for the purpose of laying out subdivisions, the area in which the property lay was annexed to the City of Halifax and thereafter, despite continuous and determined efforts in 1971, 1972 and 1973, the defendant was unable to obtain planning board approval for its projects. When therefore in mid 1973 it received an unsolicited offer of $400,000 for the property, the defendant accepted and sold it. By that time, its officers were persuaded that it would not be able to satisfy the city planners, a conclusion that appears to have been not without justification since, notwithstanding the purchaser’s plans for the property, no development has yet taken place.

The two Fairview properties and the Spryfield property are the only lands that have so far been acquired by the defendant. Save for sev- eral lots of the Fairview properties retained by the defendant, on each of which a building containing four apartments has been built, the lands have all been sold and the company’s business is now more or less inactive. The defendant had no plans to erect buildings to be retained for rental income on lots in the Spryfield property though I assume it would have done that if it had been able to obtain planning board approval for its development plans and if such a course had then been considered expedient.

On the facts, which I have sketched very briefly, I am of the opinion that the Spryfield property was, in the defendant’s hands, at all material times an asset of an inventory or trading nature and that the proceeds realized on its disposition were also of a trading nature. The property was not acquired for the purpose of establishing a manufacturing plant or to realize rental income from it. It was not a mere investment of idle funds. Its acquisition was an incident of the defendant’s trading activity. It was at no time of a capital as opposed to a trading nature. And, while the transaction in which it was disposed of was not characteristic of the defendant’s business in that it was not a disposition by sale in building lots but more comparable to a sale of inventory in bulk, there is nothing in the case which would serve to characterize the transaction as other than a disposition or realization in the course of business of a trading asset which was no longer to be used for the purpose for which it was acquired. In this, it resembles any large or small sale of raw material which, for whatever reason, has become unusable or unsuitable for use in the ordinary course of a taxpayer’s business. Even if the property had been expropriated, rather than merely effectively sterilized for the defendant’s purposes, the amount realized for it would have been of an income nature. It is none the less so where property has been sold because the defendant has been unable to proceed with its plans for development.

It was submitted that, because of the frustration of the defendant’s plans, the property had somehow lost its character as a trading or income asset and taken on the character of a capital investment. Without planning board approval for the defendant’s projects, the asset itself was perhaps of a different nature from what the defendant had expected or hoped, for but there is, in my view, no basis for holding that its character as a trading or income asset ever changed.

The case appears to me to fall precisely within the principles explained by Lord Greene, MR, in Imperial Tobacco Co, Ltd v Kelly, [1943] 2 All ER 119, and is not distinguishable in principle from the decision in Fredericton Housing Limited v The Queen, [1975] CTC 537; 75 DTC 5367.

The appeal will be allowed with costs and the re-assessments will be restored.