Jodare Ltd. v. The Queen, 86 DTC 6054, [1986] 1 CTC 250 (FCTD)

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.