Rouleau,
J.:—These
actions
were
tried
together
on
common
evidence.
Both
plaintiffs
are
appealing
the
assessment
by
the
Minister
of
National
Revenue
for
the
1974
taxation
year.
This
matter
was
to
be
heard
by
the
Tax
Review
Board
in
1981
but
was
dismissed
for
want
of
prosecution.
The
main
issue
is
to
determine
whether
or
not
vacant
land,
held
jointly
by
both
plaintiffs
and
disposed
of
by
way
of
sale,
was
an
adventure
in
the
nature
of
trade
or
was
the
disposition
of
capital.
Commencing
in
the
late
forties,
the
Rice
family
was
well
known
in
construction
and
development
circles
in
the
Brampton
area.
Two
Rice
brothers
owned
and
operated
a
company
known
as
Rice
Construction
Company
Limited.
Some
time
during
the
early
1960s
the
brothers
Maxwell
Claude
Rice
and
Louis
Allen
Rice
departed
somewhat
from
their
field
of
endeavour
and
incorporated
a
company
called
Roseville
Farms
Limited
which
embarked
on
a
farming
operation
involving
poultry.
This
venture
ran
into
problems
and
created
considerable
financial
difficulties.
It
caused
the
brothers
to
be
more
prudent
and,
as
a
result,
they
reflected
on
devising
a
scheme
to
protect
their
existing
assets
and
the
long-term
interests
of
their
respective
families.
As
a
result,
each
brother
set
up
separate
and
distinct
corporations.
In
1965
Louis
Rice
incorporated
Fairhaven
Estates
Limited
one
of
the
plaintiffs.
He
was
the
controlling
shareholder
having
retained
the
voting
preference
shares
of
this
new
company;
his
children
were
the
beneficial
owners
of
the
common
shares.
Maxwell
Rice
incorporated
Jodare
Limited,
the
other
plaintiff,
in
which
he,
like
his
brother,
retained
the
voting
preference
shares
and
his
children
were
the
beneficial
owners
of
the
common
shares.
Fairhaven
Estates
Limited
and
Jodare
Limited
became
joint
members
with
equal
interest
in
a
partnership
which
carried
on
business
under
the
firm
name
of
Rice
Holdings
Company.
It
is
alleged
that
the
expressed
intent
was
to
hold
property
as
a
long-term
investment
for
the
beneficial
interest
of
the
children
of
both
families.
Clause
1
of
the
partnership
agreement
states
as
follows:
1.
The
parties
hereto
agree
to
enter
into
partnership
for
the
purpose
of
acquiring
investment
property
and
for
managing
and
maintaining
the
same
under
the
firm
name
and
style
of
Rice
Holdings
Company.
The
brothers
had
also
each
incorporated
one
other
company
having
the
same
shareholder
control
and
distribution
as
those
previously
described;
they
also
operated
a
partnership
called
Rice
Development
Company.
The
purpose
and
intent
of
this
latter
partnership
was
to
develop
property
as
an
ongoing
business
without
the
specific
intent
of
long-term
investment.
Clause
1
of
this
agreement
states:
The
parties
hereto
agree
to
enter
into
partnership
for
the
purpose
of
construction
and
real
estate
development
under
the
firm
and
style
of
Rice
Development
Company.
It
is
essential
that
I
outline
at
this
time
the
particularities
of
a
bylaw
that
existed
in
the
town
of
Brampton
during
the
1960s
and
early
19705.
In
order
for
house
builders
and
land
developers
to
obtain
building
permits
or
develop
residential
property
it
was
required
that
they
develop,
of
their
own
initiative,
industrial
property
in
order
to
increase
industrial
assessment
in
the
municipality.
In
other
words,
upon
developing
an
industrial
site,
depending
on
its
size,
they
would
then
be
permitted
to
develop
a
certain
amount
of
acreage
for
residential
purposes.
The
Rice
brothers
were
familiar
with
this
requirement
having
previously
constructed
some
light
industrial
buildings
in
order
to
develop
some
residential
land.
They
were
also
familiar
with
the
McCallum
property,
part
of
which
faced
Kennedy
Road
and
which
was
zoned
“light
industrial?"
In
August
1963,
at
the
time
of
acquisition
of
the
disputed
property,
the
zoning
permitted
manufacturing
as
well
as
the
construction
of
multi-residential
family
units.
Rice
Construction
Company
Limited
acquired
the
parcel
of
property
from
Margaret
Jane
McCallum
which
contained
some
10.43
acres.
Prior
to
the
acquisition
of
the
site,
they
had
been
approached
by
Cockshutt
Farm
Implement
Manufacturers
who
had
expressed
an
interest
in
an
industrial
building.
It
appears
they
were
considering
locating
on
part
of
the
McCallum
property
which
fronted
on
Kennedy
Road,
a
commercial
artery.
For
a
number
of
reasons,
most
of
which
are
not
pertinent,
the
transaction
with
Cockshutt
fell
through
primarily
because
of
difficulties
with
respect
to
obtaining
from
the
municipality
the
approval
for
an
access
from
the
Cockshutt
location
to
Kennedy
Road;
the
site
was
considered
to
be
too
close
to
a
railway
right-of-way.
The
property
purchased
from
Mrs.
McCallum
was
located
in
the
town
of
Brampton
and
was
known
for
municipal
purposes
as
13
Eastern
Avenue.
Exhibit
C
in
these
proceedings
is
a
sketch
of
the
land.
It
is
broken
down
into
three
separate
and
distinct
parcels.
I
will
now
attempt
to
briefly
describe
the
lands
acquired.
It
is
bounded
on
the
east
by
Kennedy
Road;
on
the
south
by
the
Canadian
National
Railway
lands;
on
the
west
by
Trueman
Street;
and,
on
the
north
by
Eastern
Avenue.
Exhibit
C
also
outlines
three
parcels
referred
to
as
Units
A,
B
and
C.
For
the
purposes
of
this
trial,
unit
A
does
not
appear
to
concern
the
issue.
Unit
B,
some
2.56
acres
was
the
land
which
abutted
Kennedy
Road,
the
commercial
artery.
Unit
C,
the
property
with
which
we
are
concerned,
is
contiguous
to
Unit
B
and
is
located
immediately
west
and
contains
6.97
acres.
It
appears
to
be
land
locked
if
severed
from
Unit
B.
Along
both
its
western
and
northern
boundaries
there
are
residential
building
lots
owned
by
third
parties.
There
are,
nevertheless,
two
accesses
to
Unit
C,
if
detached
from
Unit
B.
An
extension
of
a
discontinued
street
(Trueman
Street)
is
located
immediately
north
of
the
railway
lines
and
enters
at
the
soutwest
corner
of
the
property.
A
second
access
through
to
Eastern
Avenue
became
available
when
Rice
Construction
Limited
acquired
a
building
lot
abutting
Unit
C
to
the
north
which
permitted
access
onto
Eastern
Avenue.
The
parcel
could
be
described
as
being
in
the
middle
of
a
city
block.
(For
better
understanding
of
the
site,
see
Appendix
A,
plot
plan
showing
lands
in
question
which
is
from
Exhibit
A-20.)
The
lands
acquired
in
1963
from
the
McCallum
interests
were
conveyed
by
Rice
Construction
Company
Limited
in
1966;
the
larger
parcel,
Unit
C,
containing
6.79
acres
(or
6.97)
to
Rice
Holdings
Company;
and,
the
parcel
known
as
parcel
B
containing
2.56
acres
to
Rice
Development
Company.
It
is
alleged
that
the
development
problems
of
access
for
Cockshutt,
as
well
as
financial
difficulties
with
their
farm
operations,
which
were
coincidental,
convinced
the
Rice
brothers
to
institute
these
family-held
corporations.
In
1966,
the
small
parcel
designated
as
parcel
A,
which
had
limited
frontage
on
Kennedy
Road,
was
developed
by
Rice
Development
Company
and
conveyed.
All
income
or
profits
realized
were
reported
and
recorded
by
them
as
business
income.
This
transaction
occurred
at
approximately
the
same
time
as
parcels
B
and
C
were
conveyed
to
their
respective
“holding”
and
“development”
companies.
Shortly
thereafter
the
municipal
bylaw
governing
these
lands
was
amended
and
multiple-family
use
was
deleted
from
the
zoning.
Considerable
negotiation
was
then
initiated
by
the
Rice
family
along
with
the
Company
solicitor
and
the
town
of
Brampton
to
restore
the
zoning
of
the
site
permitting
a
proposed
development
with
multi-family
residences.
This
difficulty
was
not
resolved
until
1973
when
the
area
was
finally
rezoned
and
the
initial
permitted
use
was
restored.
The
negotiations
were
successfully
concluded
after
a
third
party,
namely
Campbell
Construction,
had
purchased
other
lands
abutting
the
northern
boundary
of
Unit
B.
These
third
party
lands
also
had
a
boundary
on
Kennedy
Road.
Jointly,
the
developers
acceded
to
the
wishes
of
the
municipality
and
both
donated
some
lands
to
construct
a
street
from
Kennedy
Road
into
the
centre
of
the
block
or
to
the
area
designated
as
parcel
C.
This
was
the
major
obstacle
which
first
caused
the
amendment
to
the
zoning.
The
municipality
was
not
anxious
to
have
a
major
development
on
this
property
without
additional
access.
Traffic
would
have
been
adversely
affected
on
Trueman
Street
and
Eastern
Avenue,
the
easterly
and
northerly
boundaries
of
the
property.
Evidence
was
led
indicating
that
as
early
as
June
of
1965
a
proposed
site
plan
for
development
prepared
by
consulting
engineers
on
behalf
of
the
Rice
family
had
been
submitted
to
municipal
authorities.
It
indicated
multiple-family
dwellings
on
parcel
C.
Further
site
plans
were
submitted
in
1970,
September
1971,
July
1972,
and
September
1972.
These
indicated
at
various
intervals
a
town
house
development
on
Unit
C
as
well
as
an
apartment
building;
apartment
buildings
separate
and
distinct
located
on
Units
B
and
C.
Finally,
after
having
viewed
all
of
the
site
plans
and
creating
additional
access
to
Kennedy
Road
in
1973,
the
proposed
development
was
approved
and
the
necessary
amendments
to
the
zoning
bylaw
were
adopted.
Following
the
years
of
negotiation
and
the
preparation
of
various
site
plans
and,
after
having
obtained
the
required
approvals
in
1973,
a
meeting
of
the
interested
family
members
along
with
their
accountant
and
solicitor
was
convened.
Mr.
Louis
Rice
prepared
and
submitted
a
pro
forma
statement
outlining
calculations
of
present
day
costs
for
developing
Units
B
and
C
(Exhibit
A-11).
It
was
concluded
that
based
on
the
then
current
mortgage
rates
and
prevailing
rents
in
the
Brampton
area,
it
was
not
feasible
to
develop
the
site.
Some
seven
years
had
elapsed
since
the
acquisition
by
these
plaintiffs;
costs
had
increased,
mortgage
rates
were
on
the
rise,
high
vacancy
was
prevalent
in
the
area;
generally,
in
the
Brampton
area,
rentals
were
in
fact
insufficient
to
sustain
the
required
cash
flow
to
meet
expenses.
As
a
matter
of
fact,
the
evidence
of
the
companies’
auditors,
whose
offices
were
in
Toronto,
suggested
that
the
rental
income
required
to
adequately
finance
the
project
would
be
just
as
high
if
not
higher
than
the
prevailing
rates
for
similar
accommodation
in
the
City
of
Toronto.
The
proposed
development
was
left
dormant
until
an
offer
to
purchase
all
of
the
lands
was
submitted
and
accepted
in
April
of
1974.
That
part
of
the
revenue
for
the
sale
received
by
the
plaintiffs
was
declared
as
capital;
the
remainder
of
the
money,
that
amount
apportioned
and
received
by
the
other
partnership,
Rice
Development
Company,
was
declared
as
business
income.
There
is
no
evidence
that
between
1963
and
1966
when
the
lands
were
owned
by
Rice
Construction
Company
Limited,
or
between
1966
and
1974,
when
held
by
Rice
Holdings
Company
and
Rice
Development
Company,
that
the
property
had
been
offered
for
sale.
The
only
evidence
at
trial
of
any
negotiations
concerning
this
property
was
by
way
of
a
letter
in
March
1974
when
Rice
Development
Company
replied
to
enquiries
from
a
prospective
purchaser
in
which
they
confirm
that
they
are
willing
to
sell
(Exhibit
F);
and
the
apparent
unsolicited
offer
of
purchase
and
sale
of
April
1974
which
resulted
in
the
disposition
of
the
asset.
Submissions
by
the
Plaintiffs
In
order
for
the
plaintiffs
to
be
successful
in
this
trial,
it
must
be
ascertained
whether
the
evidence
adduced
rebuts
the
Minister's
presumptions
which
are
pleaded
in
subparagraphs
(o),
(p)
and
(q)
of
paragraph
4
of
the
statement
of
defence
which
are
the
following:
(o)
at
the
moment
of
the
purchase
of
the
Subject
Property,
the
Plaintiff
had
in
its
mind
the
possibility
of
reselling
as
an
operating
motivation
for
its
acquisition;
(p)
at
all
times
material
to
this
appeal
the
Plaintiff
was
an
active
and
experienced
trader
in
real
estate
and
had
actively
carried
on
the
business
of
buying
and
selling
real
property
for
a
profit;
(q)
at
all
times
material
to
this
appeal
and
particular
at
the
time
of
the
purchase
of
the
Subject
Property,
the
Plaintiff
had
the
intention
of
dealing
in,
trading
in,
or
otherwise
turning
the
Subject
Property
to
account
for
a
profit.
It
is
submitted
that
the
evidence
would
indicate
that
the
plaintiffs
owned
a
considerable
amount
of
real
estate,
quite
apart
from
the
subject
property,
that
was
acquired
as
investment
property
and
is
still
held
as
such
as
of
this
day;
should
I
affirmatively
determine
that
to
be
the
case,
I
should
then
look
to
the
intent
of
the
plaintiffs;
what
was
in
their
minds
when
purchasing
this
land
concerning
the
possibility
of
reselling
it
after
acquisition
or
was
it
to
be
retained
for
investment
purposes?
Was
it
intended
to
be
a
long-term
investment
or
was
their
motivation
to
turn
the
property
to
account?
Plaintiffs
submit
that
from
the
evidence
of
Mr.
Louis
Rice
it
is
admitted
that
they
were
experienced
and
knowledgeable
real
estate
entrepreneurs
and
for
years
their
companies
had
bought
and
sold
real
estate
and
paid
tax
accordingly.
But
the
Court
is
not
precluded
from
finding
that
some
of
their
companies,
in
which
a
capital
asset
was
directed,
were
for
the
purpose
of
longterm
investment.
I
am
referred
to
Elgin
Cooper
Realties
Ltd.
v.
M.N.R.,
[1979]
C.T.C.
426;
69
D.T.C.
5276
(Ex.
Ct.),
at
428
(D.T.C.
5277);
the
judgment
of
Mr.
Justice
Walsh
in
Bead
Realties
Ltd.
v.
M.N.R.,
[1971]
C.T.C.
774
at
786,
71
D.T.C.
5453
at
5460;
Mr.
Justice
Cullen’s
decision
in
Woodbine
Developments
Ltd.
v.
The
Queen,
[1984]
C.T.C.
616
at
622;
84
D.T.C.
6556
at
6562;
as
well
as
my
dictum
in
Gerald
Armstrong
v.
The
Queen,
[1985]
2
C.T.C.
179
at
184-85;
85
D.T.C.
5396
at
5399.
Counsel
further
argues
that
there
are
reasonable
and
creditable
explanations
for
the
sale
of
Unit
C
which
negate
the
notion
that
it
was
acquired
with
the
motivation
of
turning
the
property
to
account.
That
the
conduct
of
the
plaintiffs
was
entirely
consistent
with
the
intention
of
long-term
investment.
He
cites
Lord
Wilberforce
in
Simmons
v.
C.I.R.,
[1980]
2
All
E.
R.
798
(H.L.),
in
which
he
states
at
800:
..
situations
are
open
to
review”;
and
at
802
went
on
and
held
that:
“..
.
Frustration
of
a
plan
for
investment,
which
compels
realisation
even
if
foreseen
as
a
possibility,
surely
cannot
give
rise
to
an
intention
to
trade”.
Counsel
then
refers
to
the
reasons
for
judgment
in
Armstrong
(supra)
at
184-85
(D.T.C.
5399).
Counsel
concludes
that
it
is
consistent
and
believable
that
the
intention
formed
at
the
outset,
that
is
the
acquisition
of
the
subject
property
in
1966
by
the
plaintiffs
and
the
gain
realized,
was
on
account
of
capital
only.
Submissions
by
the
Crown
The
Crown
submits
that
there
is
but
one
question
to
be
determined.
Is
the
gain
realized
in
the
sale
of
the
property,
described
as
Unit
C,
a
capital
gain
or
an
income
gain?
Was
it
an
adventure
in
the
nature
of
trade?
I
am
referred
to
the
test
as
set
out
by
Mr.
Justice
Cattanach
in
Kit-Win
Holdings
(1973)
Limited
v.
The
Queen,
[1981]
C.T.C.
43;
81
D.T.C.
5030.
Mr.
Justice
Cattanach
wrote
at
49-56
(D.T.C.
5034):
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
T.C.
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?”
He
further
expanded
on
the
test
with
emphasis
on
the
intentions
of
the
purchaser
at
the
time
that
it
acquired
the
subject
land.
Cattanach,
J.
wrote
at
53-54
(D.T.C.
5037-38):
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.
It
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
purposes,
the
subsequent
disposition
of
the
land
in
whole
or
in
part
at
a
profit
and
in
that
event
the
resultant
profits
are
therefore
taxable.
Counsel
continues
that
at
the
moment
of
the
purchase
of
the
subject
property,
“the
plaintiff
had
in
its
mind
the
possibility
of
reselling
as
an
operating
motivation
for
its
acquisition”.
He
raises
the
question
of
secondary
intention
and
directs
the
Court
to
Mr.
Justice
Noël
in
Racine,
Demers
and
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150
at
159;
65
D.T.C.
5098
at
5103:
In
examining
this
question
whether
the
appellants
had,
at
the
time
of
the
purchase,
what
has
sometimes
been
called
a
“secondary
intention”
of
reselling
the
commercial
enterprise
if
circumstances
made
that
desirable,
it
is
important
to
consider
what
this
idea
involves.
It
is
not,
in
fact,
sufficient
to
find
merely
that
if
a
purchaser
had
stopped
to
think
at
the
moment
of
the
purchase,
he
would
be
obliged
to
admit
that
if
at
the
conclusion
of
the
purchase
an
attractive
offer
were
made
to
him
he
would
resell
it,
for
every
person
buying
a
house
for
his
family,
a
painting
for
his
house,
machinery
for
his
business
or
a
building
for
his
factory
would
be
obliged
to
admit,
if
this
person
were
honest
and
if
the
transaction
were
not
based
exclusively
on
a
sentimental
attachment,
that
if
he
were
offered
a
sufficiently
high
price
a
moment
after
the
purchase,
he
would
resell.
Thus,
it
appears
that
the
fact
alone
that
a
person
buying
a
property
with
the
aim
of
using
it
as
capital
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him,
is
not
sufficient
to
change
an
acquisition
of
capital
into
an
adventure
in
the
nature
of
trade.
In
fact,
this
is
not
what
must
be
understood
by
a
“secondary
intention”
if
one
wants
to
utilize
this
term.
To
give
to
a
transaction
which
involves
the
acquisition
of
capital
the
double
character
of
also
being
at
the
same
time
an
adventure
in
the
nature
of
trade,
the
purchaser
must
have
in
his
mind,
at
the
moment
of
the
purchase,
the
possibility
of
reselling
as
an
operating
motivation
for
the
acquisition;
that
is
to
say
that
he
must
have
had
in
mind
that
upon
a
certain
type
of
circumstances
arising
he
had
hopes
of
being
able
to
resell
it
at
a
profit
instead
of
using
the
thing
purchased
for
purposes
of
capital.
Generally
speaking,
a
decision
that
such
a
motivation
exists
will
have
to
be
based
on
inferences
flowing
from
circumstances
surrounding
the
transaction
rather
than
on
direct
evidence
of
what
the
purchaser
had
in
mind.
Finally
it
is
submitted
that
these
matters
have
been
succinctly
summarized
in
Leonard
Reeves
Incorporated
v.
M.N.R.,
[1985]
2
C.T.C.
2054;
85
D.T.C.
419
where
Christie,
A.C.J.T.C.
has
determined
the
following
tests
at
2058
(D.T.C.
422):
3.
The
direct
evidence
of
a
person
who
has
an
interest
in
the
outcome
of
an
appeal
regarding
the
intention
behind
a
transaction
or
series
of
transactions
is
not
determinative
of
the
existence
of
the
stated
intention.
Generally
speaking
the
intention
is
to
be
ascertained
from
the
entire
course
of
conduct
and
relevant
circumstances
and
the
inferences
flowing
therefrom
..
.
7.
If
an
individual
who
is
an
appellant
has
a
history
of
trading
in
real
estate
or
if
the
appellant
is
a
corporation
that
is
controlled
by
such
a
person,
this
is
a
relevant
consideration
which
points
away
from
the
purchase
in
issue
being
made
with
the
primary
intention
of
securing
an
income-producing
asset:
Vaughan
Construction
Company
Ltd.
v.
M.N.R.,
[1970]
C.T.C.
350;
70
D.T.C.
6268
per
Laskin,
J.
(as
he
then
was)
at
353
(D.T.C.
6270)
and
Slater
at
60
(D.T.C.
5051).
Conclusions
The
question
to
be
determined
is
whether
or
not
the
plaintiffs
were
in
fact
engaged
in
the
buying
and
selling
of
real
estate
or
did
they
intend
long-term
investment.
Cases
of
this
type
all
depend
on
their
particular
facts.
To
summarize
the
leading
tests
which
were
emphasized
by
the
Crown
and
can
be
found
in
the
Leonard
Reeves
Inc.
v.
M.N.R.
case
(supra):
the
evidence
of
an
interested
party
is
not
necessarily
determinative
of
a
stated
intention,
but
the
intention
must
be
ascertained
from
the
entire
course
of
conduct
and
relevant
circumstances;
an
individual
who
has
a
history
in
trading
in
real
estate
and
controls
a
corporation
dealing
in
real
estate
is
relevant
consideration
in
determining
the
primary
intention.
Mr.
Louis
Rice
did
testify
as
to
a
stated
intention
when
setting
up
Rice
Holdings
Company.
He
and
his
brother
were
knowledgeable
real
estate
entrepreneurs;
for
years
their
various
companies
bought
and
sold
real
estate
and
declared
the
profits
as
business
income.
In
light
of
the
tests
is
it
possible
to
convert
this
transaction
from
income
to
capital?
The
corroborative
and
uncontradicted
testimony
of
the
solicitor
and
the
company
auditor
relates
to
the
prevailing
financial
problems
and
the
failure
of
the
Cockshutt
transaction
to
materialize.
These
incidents
came
about
at
approximately
the
same
time
as
a
decision
was
taken
to
incorporate
the
new
structure
and
convey
the
property
—
Unit
B
to
the
development
company,
which
reported
the
earnings
as
business
income,
and
Unit
C
to
the
holding
company,
which
reported
the
sale
as
capital.
Can
a
Court
be
satisfied
that
experienced
real
estate
developers
who
convey
property,
such
as
in
this
case,
to
newly
incorporated
bodies
alter
the
nature
and
intent
which
originally
attached
to
the
acquisition?
When
Rice
Construction
Company
Limited
first
acquired
the
lands
in
1963,
I
presume
it
was
for
the
purpose
of
development
and
resale
to
Cockshutt
Farm
Implement
Manufacturers.
This
intended
purpose
was
frustrated,
not
by
any
act
of
Rice
Construction
or
the
prospective
purchaser,
but
by
the
municipal
authorities
who
refused
the
permit
for
an
access
onto
a
busy
commercial
artery.
What
then
does
the
evidence
and
the
sequence
of
events
reveal?
Overtly,
a
conveyance
to
an
expressly
created
holding
company
with
a
specific
clause
in
a
partnership
agreement
to
hold
investment
property;
a
series
of
four
or
five
proposed
site
plans
are
prepared
and
submitted
for
approval
by
the
municipality,
no
doubt
at
considerable
expense;
the
property
was
held
for
some
eight
to
nine
years.
After
acquiring
parcel
C
from
Rice
Construction
Company
Limited,
at
no
time
did
they
actively
attempt
to
dispose
of
it
by
sale.
The
plaintiffs,
though
controlled
by
Rice
brothers,
had
no
history
of
dealing
in
real
estate
as
a
going
concern.
In
Regal
Heights
Ltd.
v.
M.N.R.,
[1960]
C.T.C.
384;
60
D.T.C.
1270,
one
of
the
leading
authorities
in
the
jurisprudence
of
capital
versus
income,
it
was
specifically
determined
that
if
the
intention
of
the
taxpayer
is
frustrated,
its
conduct
must
show
that
the
initial
acquisition
was
not
speculative
in
nature.
In
that
particular
case,
the
facts
revealed
that
though
a
shopping
centre
development
could
not
be
proceeded
with,
which
had
been
the
expressed
intent
at
the
time
of
purchase,
the
Courts
found
that
the
conduct
and
the
intervening
acts
were
not
sufficient
to
change
the
nature
of
the
acquisition
and
could
only
be
indicative
of
speculation.
In
one
of
the
leading
cases
in
the
Federal
Court
of
Appeal,
that
of
Edmund
Peachey
Ltd.
v.
The
Queen,
[1979]
C.T.C.
51;
79
D.T.C.
5064,
it
was
determined
that
the
basic
intent
from
the
time
of
purchase
to
the
time
of
sale
was
to
sell
the
land
via
the
housebuilding
route
or
by
the
undeveloped-land
route.
The
Court
of
Appeal
found
that
the
character
of
the
land
did
not
change
from
income
to
capital
asset
because
the
plaintiffs
had
not
satisfied
them
that
the
character
of
the
land
had
changed
from
inventory
to
capital,
even
with
the
cessation
of
house
building.
In
the
headnotes
it
is
stated
as
follows:
The
Court
found
only
an
expressed
intention
of
the
taxpayer
to
hold
the
land
as
a
Capital
asset,
no
documentary
evidence
that
such
intention
had
been
carried
into
reality,
and
no
dedication
of
the
land
for
another
purpose
—
in
essence,
nothing
sufficient
to
convert
the
profit
from
income
to
capital
gain.
In
the
Peachey
case
(supra)
Heald,
J.
wrote
at
55
(D.T.C.
5067):
.
.
.
I
agree
with
the
learned
trial
judge
that
a
clear
and
unequivocal
positive
act
implementing
a
change
of
intention
would
be
necessary
to
change
the
character
of
the
land
in
question
from
a
trading
asset
to
a
capital
asset
—
and
that
on
the
facts
here
present,
there
was
no
evidence
of
such
a
positive
or
overt
act.
There
was
no
documentary
evidence
to
indicate
that
the
new
intention
had
been
carried
into
reality,
there
was
no
dedicating
of
the
land
for
another
purpose
.
.
.
The
evidence
of
the
family
solicitor
as
well
as
the
accountant,
which
I
accept,
establish
their
long
association
with
Rice
Construction
Company
Limited.
They
confirm
that
in
1965
it
was
the
intent
of
Rice
brothers
to
devise
some
means
whereby
they
could
protect
their
assets
for
themselves
and
for
the
future
of
their
respective
families;
that
they
intended
a
venture
corporation
as
well
as
a
long-term
development
holding
company
for
the
children.
They
testified
that
they
met
at
what
was
referred
to
as
monthly
meetings
which
occurred
three
or
four
times
a
year;
each
time
the
issue
of
the
approval
of
site
plans
by
the
municipality
and
the
development
of
the
site
was
discussed.
Both
the
solicitor
and
the
accountant
corroborated
Mr.
Louis
Rice's
testimony
that
in
1973
the
calculation
and
the
preparation
of
the
pro
forma
statement
clearly
indicated
that
it
was
not,
at
that
time,
economically
feasible
to
develop
the
lands.
There
was
no
evidence
as
to
what
they
intended
to
do
with
the
lands
following
the
1973
meeting,
but
the
accountant
did
state
that
there
was
not
at
that
meeting,
nor
at
any
previous
meetings,
any
discussion
concerning
a
sale
of
the
property.
It
is
quite
clear,
on
the
other
hand,
that
there
is
no
evidence
to
support
the
contention
that
they
were
attempting
to
dispose
of
these
lands
at
any
time
prior
to
that
date,
nor
were
they
vigorously
seeking
to
dispose
of
the
asset.
The
only
evidence
was
a
letter
of
reply
to
a
prospective
purchaser
in
March
1974
which
suggested
an
asking
price
for
the
property
and
the
unsolicited
offer
received
in
1974
which
culminated
in
the
sale.
Mr.
Louis
Rice
testified
that,
up
to
the
present
day,
Rice
Holdings
Company
holds
property
from
which
it
derives
income;
that
the
only
other
transaction
since
its
inception
to
the
date
of
the
trial,
November
1985,
was
the
purchase
of
three
town
houses
in
Mississauga
which
were
sold
some
four
years
after
acquisition.
This
came
about
at
the
insistence
of
a
real
estate
agent
who
kept
producing
offers
every
three
or
four
months
always
in
increasing
amounts.
Eventually
the
money
offered
was
considerably
greater
than
what
they
had
ever
expected
to
realize
and
the
investment
of
these
moneys
would
provide
a
greater
return
than
the
rental
revenue
they
were
generating.
Though
there
was
no
evidence
on
this
point,
I
gather
that
the
authorities
treated
this
sale
as
capital
which
certainly
appears
to
concur
with
the
principles
as
stated
in
Woodbine
Developments
Limited
v.
The
Queen,
(supra)
where
the
Court
had
been
satisfied
that
at
the
time
of
the
purchase
the
intention
of
investment
prevailed
but
that
exceptional
circumstances
can
justify
the
resale
of
property
and
its
treatment
as
capital.
On
the
evidence,
I
am
satisfied
that
the
lands
at
the
moment
of
purchase
by
Rice
Construction
Company
Limited
were
acquired
for
development
or
resale;
this
was
the
operating
motive,
but
this
was
frustrated
and
a
change
of
character
came
about.
Though
alleged
by
the
defendant,
there
is
no
evidence
whatsoever
that
the
plaintiff
companies,
though
controlled
by
the
senior
Rice
brothers,
were
ever
actively
engaged
in
the
business
of
buying
and
selling
real
property
for
a
profit.
I
admit
that
there
is
a
very
heavy
onus
and
burden
on
land
developers
to
satisfy
the
Court
that
there
can
be
a
change
of
intention
when
disposing
of
land
which
is
their
stock
in
trade;
one
must
view
with
some
suspicion
the
evidence
of
parties
endeavouring
to
establish
that
they
were
indeed
interested
in
long-term
investment.
But
to
suggest
that
land
developers
could
never
intend
long-term
holdings
would
be
inequitable.
It
is
readily
accepted
in
the
business
world
that
one
of
the
preferred
long-term
investments
for
holding
companies
is
real
estate.
Would
it
then
be
just
to
suggest
that
members
of
the
public
at
large
or
all
other
classes
of
investors
could
successfully
set
up
real
estate
holdings
companies
but
that
land
developers
generally
could
not
avail
themselves
of
this
type
of
investment?
I
think
not.
As
was
stated
in
the
Peachey
case
(supra),
there
must
be
clear
and
unequivocal
acts
to
implement
a
change
of
intention
in
order
to
change
the
character
of
the
lands
in
question
from
a
trading
asset
to
a
capital
asset.
I
am
satisfied
that
there
have
been
such
unequivocal
acts.
The
development
intended
for
Cockshutt
Farm
Implement
Manufacturers
was
frustrated
because
of
the
municipality;
at
no
time
between
1966
and
1974,
when
the
lands
in
question
were
held
by
the
plaintiffs,
had
they
ever
attempted
to
deal
with
this
property
by
way
of
sale,
nor
was
there
any
indication
that
the
plaintiffs
intended
to
turn
the
property
to
account.
To
the
contrary
the
evidence
overwhelmingly
supports
the
notion
of
multi-residential
development
for
a
long-term
hold.
There
is
ample
evidence
of
such
positive
and
overt
acts.
It
is
the
uncontroverted
testimony
of
the
solicitor
and
the
auditor
that
this
was
the
sole
purpose
of
incorporating
the
plaintiff
companies.
There
is
also
the
peripheral
fact
of
the
financial
difficulties
encountered
with
the
poultry
operation.
The
Crown
suggested
in
argument
that
the
municipal
bylaws
and
the
amendments
altering
the
zoning
support
its
contention
that
no
one
could
reasonably
expect
to
pursue
a
development
of
the
type
contemplated.
I
do
not
accept
this
allegation.
The
Rice
brothers
were
well
known
by
the
municipal
authorities
and
the
town
planner
and
were
quite
familiar
with
the
process.
Mr.
Louis
Rice
testified
that
this
company
had
an
excellent
reputation
with
the
authorities;
that
in
this
particular
case,
not
only
were
city
councillors
sympathetic
to
them,
but
they
also
had
the
sympathy
of
all
the
residential
neighbourhood
and
the
town
planner
since
they
felt
that
this
area
should
not
be
zoned
“light
industrial”
being
located
in
a
primarily
residential
neighbourhood.
He
was
satisfied
that
he
would
have
no
problem
eventually
getting
the
area
rezoned,
which
result
he
did
eventually
achieve.
The
evidence
of
the
solicitor
for
Rice
brothers
confirms
that
these
developers
had
extremely
good
relations
with
both
the
town
planner
and
the
municipal
authorities;
that
on
many
previous
occasions
similar
problems
of
rezoning
had
been
encountered
but
usually
resolved.
The
Crown's
main
allegations
are
that
the
plaintiffs
had
in
mind
the
possibility
of
reselling
as
an
operating
motivation
at
the
time
of
acquisition;
that
the
plaintiffs
were
active
and
experienced
traders
in
real
estate;
and
at
the
time
of
acquisition
of
the
property
the
plaintiffs’
intention
was
to
turn
it
to
account
for
a
profit.
As
Mr.
Justice
Noël
stated
in
Racine,
Demers
and
Nolin
v.
M.N.R.,
(supra),
I
paraphrase,
to
give
an
acquisition
the
double
character,
that
of
being
a
capital
asset
and
an
adventure
in
the
nature
of
trade,
at
the
time
of
purchase,
the
possibility
of
reselling
must
have
been
the
motivation
for
the
acquisition;
and
the
motivation
is
based
on
inferences
flowing
from
the
circumstances
surrounding
the
transaction.
Though
Rice
Construction
Company
Limited
may
have
intended
development,
the
plaintiff
companies
clearly
did
not.
The
surrounding
circumstances
cannot
support
such
a
finding.
For
all
of
the
above
reasons
I
find
for
the
plaintiffs
and
order
the
Minister
of
National
Revenue
to
vacate
the
reassessment
dated
August
30,
1977
with
respect
to
both
plaintiffs’
1974
taxation
year.
Costs
to
the
plaintiffs.
Appeal
allowed.