Marsted Holdings Ltd. v. The Queen, 86 DTC 6200, [1986] 1 CTC 436 (FCTD)

Joyal, J.:—Prior to the date set for the trial of the foregoing actions, it was agreed that they should proceed together on the basis of common evidence.

Marsted Holdings Limited and its partner, Hyman Fisher, have been involved in real estate since 1971. The corporate plaintiff had its initial capital provided out of the estate of Max Shragie who died in 1962. The personal plaintiff had liquidated his business as a fruit dealer and being acquainted with Mr. David Segal, the Secretary-Treasurer of Marsted Holdings, had joined with him in putting up his share of capital in what turned out to be a number of real estate purchases.

Marsted Holdings Investments, bank-rolled by the Shragie estate began in August 1968, when a shopping centre in St-Vincent-de-Paul, Montreal, was purchased. This property was resold in 1973. In 1971, in their first joint venture, the plaintiffs bought the Hamburg property near Buffalo, N.Y. It was the kind of real estate investment which fell into their general acquisition policy, i.e. income-producing property yielding a stable rate of return but requiring little if any technical or office staff to administer it. The Hamburg property was leased out on a net/net basis, meaning that all the owners had to do was deposit the rent and look after mortgage payments.

Subsequently, the plaintiffs, under varying equity participation agreements, invested in other properties. In 1972, they bought the Cutter Laboratories building located on Hymus Boulevard near St. John's Road, in Montreal. The building was on a ten-year net/net lease to Cutter, the latter looking after all taxes, repairs, upkeep and insurance on the building. The lessor's sole responsibility was to pay the mortgage principal and interest.

A further real estate investment was made on March 30, 1973. The cost was $539,000. It was the Charles E. Cusson Limitée (Cusson) property on Côte de Liesse Road, in Montreal. This property did not remain in the hands of the plaintiffs for very long. On June 13, 1974, some 15 months later, it was resold for $805,000, a substantial increase in price. It is the tax treatment to be given to this profit which became the subject of litigation between the parties. In dispute was whether for tax purposes the profit should be treated as ordinary income or as a Capital gain.

The story behind this Cusson property investment is both involved and interesting. According to the evidence of the plaintiffs, this investment fell into the general investment policy of the partners, i.e. the purchase of commercial or industrial property on a long-term net/net lease. Cusson, a heavy equipment distributor, was regarded as a prime tenant for the building. Its lease with the owner, however, had only two years to run. In the fall of 1972, when the plaintiffs were informed that the property was for sale, they negotiated with Cusson for a new ten-year lease. Cusson, which had expressed an unwillingness to continue in occupancy, was nevertheless interested in staying if the usable area covered by the original lease were reduced and if some improvements were made to the building. This required of the plaintiffs that they not only find another tenant to occupy the space to be released by Cusson, but that they undertake various expenditures to satisfy both Cusson and the anticipated needs of an additional tenant. These expenditures included air-conditioning ($10,000) and partitioning ($26,000) as well as improvements to the electrical system ($7,000) and the installation of a cooler unit and washroom facilities ($9,200).

With these commitments, the plaintiffs were able to find a second tenant, Eagle Door Inc., which took on a five-year net/net lease with renewal options. The plaintiffs now had a package which would provide them with a secure and acceptable return. On March 30, 1973, for the price of $540,000, they bought the property.

The dormant and passive role, which the plaintiffs hoped to enjoy with this property was, however, of short duration. In no time, Eagle Door Inc. was behind in its rent payments. Cusson complained to the plaintiffs that Eagle Door Inc. was not paying its share of the tenants' charges under the lease. Eagle Door became insolvent and early in November 1973, its bankers put it into receivership. On or about April 5, 1974, the plaintiffs petitioned Eagle Door Inc. into bankruptcy.

According to the plaintiffs, it was required that a new tenant be found. The plaintiffs got in touch with real estate brokers. One such broker informed them that he might not have a tenant for them but that he had a buyer. The buyer, on March 29, 1974, submitted a written offer of $825,000. Before closing, he asked to be relieved of the offer, the motive being one of material non-disclosure of the building’s rental yield. Lawsuits and counter-lawsuits were threatened. Third parties got into the act. Another purchaser for the property appeared in the premises and this purchaser submitted an offer on April 18, 1974.

Finally, a deal was made. The first buyer agreed with the plaintiffs to relinquish all claims for damages or specific performances on the Cusson transaction. In exchange, he agreed to purchase the Cutter Laboratories property on Hymus Road. The profit to the plaintiffs on the resale of this Cutter property was minimal.

Not so, however, on the resale of the Cusson property. The offer to purchase dated April 18, 1974 and accepted on April 19,1974 called for a purchase price of $805,000 to be paid by a Swiss company, Société financière Florisa, S.A., to the plaintiffs. The formal transaction closed on June 13, 1974.

In 1973, the same year the Cusson property had been purchased, the plaintiffs bought a property on De La Savanne Street in Montreal. A large Rona hardware store occupied the land. It was again a net/net lease arrangement. In 1976, after refusing persistent offers to buy, the plaintiffs received one “they could not refuse.” They realized a $300,000 profit on the deal.

Their adventures in further real estate purchases continued. They bought property occupied by the Clarke Transportation Company at 7000 Pullman Street in Montreal. That property was acquired also in 1973.

In 1974, they bought a Tampa, Florida, property occupied by Montgomery Ward. A year later, they acquired another property in Tampa, this one occupied by I.T.T. Grinnell.

In the ten years between 1971 and 1981, the plaintiffs as partners participated in some 18 real estate ventures holding varying equity interests in each of them. According to the evidence Mr. David Segal, Secretary- Treasurer of the corporate plaintiff, was the guiding light throughout the history of these investments. In fact, under various guises, i.e. partnership names and corporations, Mr. Segal had been involved in real estate transactions for some time prior to the joint ventures between the corporate and the personal plaintiff, Mr. Segal had participated in the purchase of the Le Baronet building in 1964, which property was resold in 1968. And so with a property on de Marseille in Montreal purchased in 1966 and sold in parcels in 1967, 1970 and 1973. Further investments involved property in St-Vincent- de-Paul purchased in 1968 and sold in 1973 and on Westminster Street, purchased in 1970 and sold in 1973.

The issue before the Court is limited to the nature of the profit realized by the sale of the Cusson property on Côte de Liesse Road in Montreal in 1974. The plaintiffs contend that this profit should be treated as a capital gain. The grounds, advanced by their able counsel, are as follows:

1. The Cusson purchase was in keeping with partnership policy, i.e. an investment in a revenue-producing asset.

2. This policy was also geared to property enjoying long-term net/net leases, assuring the plaintiffs of good and stable return on investment without any administrative and management headache.

3. The investments were in property which already enjoyed an income stream.

4. The approach was conservative, reflecting the restriction on the original Shragie Estate funds which required that they be invested in non- speculative ventures.

5. With particular reference to the Cusson property, the improvements made thereon by the plaintiffs were to comply with tenants’ requirements, indicating a long-term intention.

6. The assertions of the plaintiffs as to their long-term investment policy are consistent with the experience of their various acquisitions over the years. The plaintiffs are still owners of property bought a dozen or more years ago. The resale of some properties over this same period of time was by reason of singular circumstances. Especially in the Cusson property deal, the plaintiffs were at risk following the loss of their second tenant Eagle Door and the opportunity to resell it could not be rejected.

In support of his arguments, Counsel relied on a number of authorities. In Hi wa ko Investments Ltd. v. The Queen, [1978] C.T.C. 378; 78 D.T.C. 6281 (F.C.A.), the issue involved the purchase in 1966 by the taxpayer of a group of high-rise apartments. In the 11 months that the apartments were held by the taxpayer, the profits proved to be less than anticipated at the time they were purchased. Responding to an unsolicited offer, the properties were resold at a substantial profit. The trial judge had ruled [see page 381 (D.T.C. 6283) of the Federal Court of Appeal decision] that:

Taking all of the evidence into account, I am not persuaded that, when the plaintiff acquired Flemingdon Park, its only intention was to hold it as an investment. Koch is an experienced, sophisticated and sagacious businessman who has operated boldly in a number of difficult business environments and with a remarkable measure of success. He was, on the evidence, the sole moving force behind the plaintiff. The proposition that, when he decided to buy Flemingdon Park, he was motivated solely by the desire for a secure, income earning investment is simply not credible. I very much doubt that, for many years at least, Koch has bought anything in the international marketplace, where he is so successful and knowledgeable, without, as an operating consideration, the thought that changing conditions, either at the situs of the acquired property or elsewhere, might dictate its disposition. In my view, taking the evidence as whole, it is most likely that the potential for capital appreciation as well as income was very much in Koch's mind when he bought Flemingdon park from its reluctant owners.

In allowing the taxpayer's appeal, Chief Justice Jackett had this to say at 382 (D.T.C. 6284):

Part A of the Statement of Defence, which is headed “Statement of Facts", alleges that, in making the assessments, the Minister of National Revenue assumed inter alia that the appellant purchased the property in question “with the intention of re-selling the same at a profit". I doubt whether such an assumption would be sufficient to support the assessments. An intention, at the time of purchase, to re-sell at a profit does not, in my view, necessarily give the purchase and a subsequent sale the character of “an adventure or concern in the nature of trade". Such an intention accompanies the purchase of “growth" stocks in the course of the modern management of pension trust funds and, I should have thought, does not necessarily stamp such a purchase with a trading character. I do not see why there cannot, similarly, be such an intention in the course of managing a family trust without there being any character of trading involved.

The Chief Justice further stated at 383 (D.T.C. 6285):

In my view, an intention at the time of acquisition of an investment to sell it in the event that it does not prove profitable does not make the subsequent sale of the investment the completion of an “adventure or concern in the nature of trade". Had the alleged assumption been that there was an expectation on the part of the purchaser, at the time of purchase, that, in the event that the investment did not prove to be profitable, it could be sold at a profit, and that such expectation was one of the factors that induced him to make the purchase, such assumption, if not disproved, might (I do not say that it would) support the assessments based on “trading” if not disproved. In my view, however, even on the most liberal interpretation of the Statement of Defence, it cannot be interpreted as alleging such an “assumption”.

The Chief Justice further said at 384 (D.T.C. 6285):

I might also add a word with reference to "secondary intention”. In my view, this term does no more than refer to a practical approach for determining certain questions that arise in connection with “trading cases” but there is no principle of law that is represented by this tag. The three principal, if not the only, sources of income are businesses, property and offices or employments (section 3). Except in very exceptional cases, a gain on the purchase and re-sale of property must have as its source a “business” within the meaning of that term as extended by section 139. Where property is bought and re-sold at a profit or loss, the question whether the profit or loss must be taken into account for tax purposes depends, therefore, generally speaking, on whether,

(a) it is a profit or loss from a “business” within the ordinary sense of that term, or

(b) it is a profit or loss from an undertaking or venture in the nature of trade.

It may be a profit or loss from a “business” in the ordinary sense of that word if the transaction falls within the scope of the business carried on. If property is acquired when there is no business even though one possibility in the mind of the purchaser is to use the property as the capital asset of a proposed business — or the purchaser has not considered how he will use it — a re-sale may be the consummation of a venture in the nature of trade. Where the subject of the purchase and re-sale is an active profit producing property, it may be more difficult to conceive of its having been acquired both as an investment in the sense of property to be held for the income arising therefrom and as a speculation in the sense of an undertaking or venture in the nature of trade. . . .

The case of H. Reicher v. The Queen, [1975] C.T.C. 659; 76 D.T.C. 6001 (F.C.A.), is another Court of Appeal judgment on which the plaintiffs rely. The factual background in this appeal is set out in the headnote as follows:

The appellant and two other persons formed a partnership in 1967 to erect and operate an office building on land previously acquired by the appellant for the purpose of housing the respective business operations of each of the partners. The building was completed in 1968 and the partners occupied their respective portions and leased the remaining space. In the meantime the appellant encountered financial difficulties and offered to sell his interest to the other partners but they were not able to purchase his share. In April 1969 the three partners sold the property to a third party and leased back the building for a term of 25 years. The Minister assessed the appellant on his share of the profit arising from the sale on the grounds that the sale was an adventure in the nature of trade.

Both the Tax Review Board and the Trial Division of this Court had found in favour of the Crown and had confirmed the assessment. On appeal, however, Chief Justice Jackett and Mr. Justice Le Dain found that the evidence fell short of establishing either a secondary intention in the appellant's venture or that it was an adventure in the nature of trade.

At 662 (D.T.C. 6003), the then Chief Justice says:

. . . I find nothing to suggest that, prior to the final decision to proceed with that project, there was any consideration given to anything other than ownership. The only possible basis, as I see it, for regarding the acquisition and sale here as a venture in the nature of trade is the speed with which the sale occurred. There was, however, an explanation for this that was unchallenged by cross-examination, or otherwise, and, in those circumstances, in my view, an early sale is not a sufficient basis for holding, as against unchallenged evidence to the contrary, that re-sale was a motivating consideration.

In his concurring reasons, Mr. Justice Le Dain said at 665 (D.T.C. 6005):

With great respect for the finding of the Tax Review Board and the learned trial judge, I am unable to conclude from the unchallenged testimony of the appellant and his partner, King, as well as from all the circumstances of the case, that at the time the appellant and his partners acquired the land in 1965 and commenced construction of the building in 1968 they had as one of their motivations for acquisition the intention to dispose of the property by sale with leaseback or otherwise for the purpose of realizing a profit thereon. I would accordingly allow the appeal.

In R.F.T. Maclsaac v. M.N.R., [1974] C.T.C. 576; 74 D.T.C. 6380 (F.C.A.), the taxpayer with two partners had purchased an apartment building which was resold two years later at a profit. The Minister of National Revenue assessed the taxpayer's share of the profit as income, the taxpayer contending that it represented a fortuitous non-taxable capital gain. The Trial Division of this Court dismissed the taxpayer's appeal mainly on the ground that the taxpayer's partners were themselves associated in real property ventures. The Court of Appeal noted, however, at 577 (D.T.C. 6380):

The transaction in question here, taken by itself, is, prima facie, the sale of a revenue-producing asset and, if that were the end of the matter, the resultant profit would not be a profit from a business.

The Court of Appeal found that the Minister’s assumption as to intention had been rebutted and that “none of the partners intended even 'secondarily' when they bought the property, to turn it to account for a profit."

Counsel for the plaintiffs also referred to Bead Realties Ltd. v. M.N.R., [1971] C.T.C. 774; 71 D.T.C. 5453, where Mr. Justice Walsh of this Court found that a profit on the sale through an unsolicited offer of raw land acquired by a taxpayer for purposes of development of industrial buildings to be leased out did not constitute an adventure in the nature of trade.

The thrust of counsel’s argument on behalf of the plaintiffs is that, throughout, the acquisitions were of income-producing properties, a factor which buttresses the plaintiffs’ stated intentions of making of these acquisitions long-term investments. Furthermore, these acquisitions all had attractive, long-term net/net leases producing nice and comfortable income streams. In essence, what counsel urged upon the Court was that the plaintiffs had a portfolio of investments which over the years had remained remarkably stable. Certain sales of some assets from time to time were no more than adjustments one would expect to see when dealing with a portfolio of common stocks, preference shares, debentures and bonds. Such fine-tuning did not, or should not, as counsel pleaded, lead to an assumption or a conclusion that the plaintiffs were involved in the business of buying and selling real estate.

In defending the Crown's assessment treating the profit on the Cusson property as income, counsel for the defendant referred at length to the issue of secondary intention. To invite a conclusion that the plaintiffs always had an intention to sell any of their properties if the price was right, counsel referred not only to the specific circumstances surrounding the purchase and subsequent sale of the Cusson property but to the history of the real estate transaction by the plaintiffs over a period of years.

Counsel for the defendant recited in detail the following elements in the Cusson affair, namely:

1. Notwithstanding assertions by the plaintiffs to the contrary, the risk attendant upon Eagle Door's demise did not provoke an urgent search for a new tenant. There was evidence that the Cusson property was listed for sale by the brokerage firm of Armand Des Rosiers Inc. at $795,000 prior to the alleged search for a new tenant. The information disclosed in that listing indicated complete information having been communicated to the broker as to location, land size, building size, cash requirements, amount of outstanding mortgage and of principal and interest repayments thereon, as well as details of the current leases with both Charles E. Cusson Limitée and Eagle Door Inc. The listing also calculated cash flow and net return on investments.

Another listing from the same broker was also referred to by counsel containing the same information but indicating an asking price of $840,000.

Counsel argued that this hard evidence ran counter to the plaintiffs’ assertion that they had instructed brokers to find them new tenants. It did not quite jibe with the statement by one of the plaintiffs’ witnesses that the offer to purchase communicated to them on behalf of a Mr. Hirshfield on March 29, 1974 and accepted on April 10, 1974 had been merely the result of a tenant search. Such action by the plaintiffs indicated that if on the strength of the leases negotiated with both Charles E. Cusson Ltée and Eagle Door Inc., the property could still provide a roughly eight to 10 per cent return on investment at a mark-up of some $300,000 over the original purchase price, the plaintiffs’ intention was to cash in and pocket the profit.

There was indeed, argued Counsel for the Crown, a similar approach to the plaintiffs’ real estate dealings with respect to other properties. The De La Savanne property purchased on April 16,1973 had been resold at a substantial profit in 1976. The Cutter Laboratories purchased on December 28, 1972 had been resold on October 18, 1974. In all, counsel calculated, some 10 properties out of a total of some 25 in the plaintiffs’ portfolio from time to time had been resold. Furthermore, Counsel reminded the Court that David Segal, the guiding hand of the corporate plaintiff, had been previously involved in a number of purchases and subsequent sales of real estate properties either in his own name or in the name of a predecessor company. This indicated that the plaintiffs’ true intention throughout was to make money out of real estate and that it mattered little if such money came from lease income or capital accretions.

In support of his case, counsel for the Crown relied on the comments of Noel, J. in P. Racine, A. Demers & F. Nolin v. M.N.R., [1965] C.T.C. 150; 65 D.T.C. 5098, who found at 159 (D.T.C. 5111):

Pour donner à une transaction qui comporte l'acquisition d’un capital le double caractère d'être aussi en même temps une initiative d'une nature commerciale, l'acquêrieur [sic] doit avoir, au moment de l'acquisition, dans sont [sic] esprit, la possibilité de revendre comme motif qui le pousse à faire cette acquisition; c'est- a-dire qu’il doit avoir dans son esprit l’idée que si certaines circonstances surviennent il a des espoirs de pouvoir la revendre à profit au lieu d’utiliser la chose acquise pour des fins de capital. D’une façon générale, une décision qu’une telle motivation existe devrait être basée sur des inférences découlant des circonstances qui entourent la transaction plutôt que d’une preuve directe de ce que l’ac- quérieur [sic] avait en tête.

Counsel for the Crown indicated further support for his secondary intention plea in Pierce Investment Corp. v. M.N.R., [1974] C.T.C. 825; 74 D.T.C. 6608, where Walsh, J. of this Court made these observations at 830 (D.T.C. 6612):

As always in cases of this type, the determination of what were the real intentions of the purchasers at the time they acquired the property and whether they had, at that time, a secondary intention in the event that their primary intention could not be carried out, is a difficult one. There is no doubt, however, that the intentions of appellant cannot be differentiated from the intentions of the Shragie brothers nor can they disassociate their own real estate experience and that of the other family real estate companies from that of appellant. As Judson J. stated in Regal Heights Ltd. v. Minister of National Revenue, [1960] S.C.R. 902 at 907; [1960] C.T.C. 384 at 390; 60 D.T.C. 1270 at 1272-3:

Throughout the existence of the appellant company, its interest and intentions were identical with those of the promoters of this scheme. One of the objects stated in the memorandum of association of the company was

“To construct and operate apartment houses, blocks, shopping centres and to otherwise carry on any business which may be conveniently carried on in a shopping centre.”

Nothing turns upon such a statement in such a document. The question to be determined is not what business or trade the company might have carried on but rather what business, if any, it did in fact engage in.

I am also of the view, as has been expressed in other cases, that while the evidence of the witnesses is helpful in endeavouring to determine their intentions, their actual conduct and the steps they took to carry out these intentions gives a much better indication of what they actually were. Without intending to cast any aspersions on the credibility of the witnesses in the present case it is nevertheless evident that in any case where a distinction must be made between a transaction which constitutes an adventure in the nature of trade and one which leads to a capital gain, one must expect the witnesses to insist that their intentions were solely to make an investment and that the idea of reselling the property at a profit had never occurred to them even as a secondary intention at the time of making the original investment, but was merely forced on them subsequently by some event beyond their control. If they were not in a position to testify to this effect they would have little or no ground for appealing against the assessment.

Perhaps the latter part of this statement by Walsh, J. overstates the case for a secondary intention and the burden on any taxpayer to disprove it. Taken literally, it would mean that the only way to discharge the onus would be for the taxpayer to prove that when he originally bought any piece of real estate, it was with the secondary intention of reselling it at a loss. Such would be unreal. What I take Walsh, J.'s observations to mean is that when you have a taxpayer who has a history of real estate operations and who might be regarded as singularly adept in that field, self-serving assertions to negate secondary intention might not be sufficient.

The thrust of the Crown's argument is therefore directed to all the circumstances surrounding the several activities of the plaintiffs not only in relation to the Cusson transaction but to prior ones and later ones as well so that the Court may conclude that the assumption of secondary intention is consistent with the facts and inconsistent with the assertions of the plaintiffs.

A review of case law to which both counsel have referred me is evidence of the difficulty facing a court in reaching a conclusion as to whether a particular profit derived from a particular sale of real property constitutes income or a capital gain. Not only is there a very thin line separating the two but additionally, on analysis of the case law, one is often left to wonder where indeed the thin line runs. The length of the Chancellor's foot might be a better guide to judicious determination but unfortunately, the Chan- cellor's foot may only be used in equity cases and everyone knows there are no equities in taxing statutes.

Perhaps what the Court should attempt initially is to restate the old principles surrounding income or gain and find perhaps more current commentary relevant to the case at bar.

In an old case, Californian Copper Syndicate v. Harris (1904), 5 T.C. 159 at 165, it was stated:

It is quite a well settled principle in dealing with questions of assessments of Income Tax, that where the owner of an ordinary investment chooses to realise it, and obtain a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of . . . the Income Tax Act . . . 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?

That statement is still, in my view, sound law but does not very much advance the determination of the case before me one way or the other. A much later case, decided in 1985, touches upon the issue in circumstances which are not only more contemporary but with a factual background which has certain similarities to the pattern of the plaintiffs’ activities disclosed in the evidence. The case is Leonard Reeves Incorporated v. M.N.R., [1985] 2 C.T.C. 2054; 85 D.T.C. 419. At 2058 (D.T.C. 421), Christie, A.C.J.T.C., in considering those things which are germane on the issue of relevant intention on the purchase of real estate investments, provided a very useful analysis. I should quote this analysis at length:

1. If the appellant is a corporation, the relevant intentions to be attributed to it are those which the natural person by whom it was managed and controlled had for it: Metropolitan Motels Corporation v. M.N.R., [1966] C.T.C. 246; 66 D.T.C. 5208 per Jackett, P. (as he then was) at 247 (D.T.C. 5209).

2. If the appellant entered into a partnership or a syndicate or some other arrangement with others for the purpose of dealing in land and played a passive role leaving it to another to be the active or dominant member, that member's intentions are attributable to the appellant: M.N.R. v. Lane, [1964] C.T.C. 81; 64 D.T.C. 5049 per Noël, J. at 91 (D.T.C. 5051) and Wiss v. M.N.R., [1972] C.T.C. 264; 72 D.T.C. 6231 per Heald, J. If the appellant is a corporation and the person by whom it is managed and controlled places it in the passive or subservient role described, the intentions to be attributed to the appellant are those of the active or dominant member.

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: Gairdner Securities Limited v. M.N.R., [1952] C.T.C. 371; 52 D.T.C. 1171 per Cameron, J. at 381 (D.T.C. 1175) and Racine et al. v. M.N.R., [1965] C.T.C. 150; 65 D.T.C. 5098 per Noël, J. at 159 (D.T.C. 5103).

4. A consideration of statements in articles of incorporation regarding the objects of the corporation or restrictions on the businesses it may carry on is not helpful. What the company did in fact is paramount: Regal Heights Ltd. v. M.N.R., [1960] C.T.C. 384; 60 D.T.C. 1270 per Judson, J. at 390 (D.T.C. 1272-3); Glacier Realties Limited v. The Queen, [1980] C.T.C. 308; 80 D.T.C. 6243 per Addy, J., at 310 (D.T.C. 6245). The same is true with respect to what may be said in a partnership agreement regarding the nature of the partnership’s business.

5. Evidence of transactions of the sale and purchase of real estate by an appellant after the years under review in an appeal is admissible: Osler Hammond & Nanton Ltd. v. M.N.R., [1963] C.T.C. 164; 63 D.T.C. 1119 per Judson, J. at 166 (D.T.C. 1120); G.W. Golden Construction Ltd. v. M.N.R., [1967] C.T.C. 111; 67 D.T.C. 5080 per Ritchie, J. at 114 (D.T.C. 5082) and Fyke v. M.N.R., [1964] C.T.C. 54; 64 D.T.C. 5032 per Cameron, J. at 56 (D.T.C. 5033). The weight to be assigned to evidence of this kind will depend on the circumstances of particular cases. Evidence of an intended sale and purchase that for some reason was not consummated is also admissible. The comment respecting assignability of weight also applies to evidence of this type.

6. The fact that real estate is not advertised for sale and that an offer which results in a sale and purchase is unsolicited is not preclusive of there having been a primary intention on the part of the appellant at the time of purchasing the property to sell it at any time he regarded it as financially favourable to do so. Lack of advertising and the fact of an unsolicited offer are simply matters to be weighed together with the other relevant evidence: Slater et al. v. M.N.R., [1966] C.T.C. 53 at 59; 66 D.T.C. 5047 at 5050.

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).

The outline by Christie A.C.J.T.C. provides a series of indicia whereby analytical tools may be honed to determine in a particular fact situation what is the intention behind capital purchases. Of course, the outline is far from exhaustive and the indicia do not all bear equal weight. Care should also be taken that they should not be applied too quickly to the case at bar. A quick reading of the Associate Chief Judge's seven principles might too easily make of them a taxpayer's seven deadly sins. Nevertheless, the principles are each grounded on respectable case law and provide considerable assistance in arriving at considered conclusions.

It seems to me that the strong evidence on the plaintiffs’ behalf is that the real estate purchases consisted exclusively of income-producing properties. This factor supports the “long-term investment purpose" alleged. Further, an analysis of the real estate holdings and of the transactions involving them indicate that many of them, if not all, were retained in their portfolio for many years, indicating that the income stream was the main if not the exclusive intention in acquiring them. This gives credence to the approach suggested by plaintiffs' counsel that a finder of fact should look upon individual real estate holdings and the disposition thereof in a manner in which dividend-paying blue chip stocks in an investment portfolio might from time to time be liquidated at a profit without that profit attracting an assessment as income.

Any inquiry into the sufficiency of assertions to rebut the Minister’s determination must begin with a finding on the objective evidence adduced. In this respect, I should find as follows:

1. The plaintiffs, through the agency of David Segal, have been involved in various joint ventures since 1971. At that time, the evidence discloses active involvement in real estate purchases and sales by David Segal in 1964 throughout 1971 and containing a history of some five acquisitions.

2. When the personal plaintiff Fisher decided to participate in joint ventures, he relied on the experience and know-how which the corporate plaintiff, through Mr. Segal, had acquired. I have no hesitation in finding that this experience and this know-how were considerable and that the plaintiffs, as joint venturers, knew the real estate market, had knowledge of values and of financing requirements and were good hunters of good real estate. Furthermore, their acquisitions were remarkably wide-spread, keeping in mind that the plaintiffs were operating out of a small office with little supporting staff. Over a period of time, commercial and industrial properties were acquired in many areas of Montreal and in several states of America.

3. The guiding hand of Mr. Segal saw the plaintiffs acquiring the Hamburg property in 1971. The Cutter Laboratories property was purchased in 1972. The Cusson property was bought in 1973 and that year also saw the acquisition of property on De La Savanne Street and the Clarke Transportation property on Pullman Street, both in Montreal. During that short period of some four years, the acquisition rate was better than one per year. Over the period 1971-81, the acquisition rate was two per year.

4. With specific reference to the Cusson property, I must find that the property had been listed for sale some time before the Hirshfeld offer of March 29, 1974 was communicated to the plaintiffs. The detailed description, not so much of the property itself but of the cash requirements, the outstanding mortgage, the calculations of the net/net lease payments and of the resulting return on investment must have come from somewhere and must have been communicated to the brokers concerned for a purpose. It is difficult to find a purpose other than to communicate to the general public that the Cusson property was for sale and for some $800,000 and by reason of the Cusson and Eagle Door leases, represented a sound investment and a good return on that investment.

5. Although the evidence is not clear as to when the Cusson property was Originally listed for sale, I must conclude that it was sometime before the insolvency of Eagle Door Inc. materialized. This is the only way in which one can explain the recital in the listing of the Eagle Door lease and of Hirshfeld's offer to buy based on that representation. I will not comment on the owners' acceptance of that offer in the face of the knowledge they had of the Eagle Door lease as of that date, but the situation does cast some cloud over the weight to be given to the plaintiffs' assertions that their intention at that time was to find a new tenant. I am not discounting that such might have been the intention. To a business group, all options are open. I nevertheless must find that there was another intention as well which intention was to realize a handsome profit which their own business acumen and talent had created.

With these findings, I conclude that the plaintiffs, in their remarkable adventure in real estate purchases, were in the business to make profits out of them. I do not wish to discount their professed intention to buy secure property investments for the long haul but the reasonable conclusion is that such was not their only intention. I must infer on all surrounding circumstances that they were prepared to sell if the price were right. Such an intention is consonant with the kind of investments which were made, with the singular field of operation in which the plaintiffs concentrated their efforts and with the experience of the real estate trades in which the plaintiffs, or their guiding hand, were involved.

Admittedly, case law in the determination of profits out of real estate transactions appears to lack consistency. The cases cited by plaintiffs’ counsel, namely Hiwako Investments Ltd. v. The Queen (supra), H. Reicher v. The Queen, (supra) as well as other cases in counsel's list of authorities appear to gloss over the doctrine of secondary intention. Indeed, it has been often admitted by the courts that the expectation that the value of real estate investments will increase over the long haul is not conclusive of a secondary intention. An analysis of some of these cases, however, suggests that they dealt with an investment which was a one-shot deal, or that the disposition was of the whole real estate portfolio or that development or other plans for use had been effectively frustrated by unanticipated and uncontrollable events. These considerations, however, do not apply to the case at bar: the Cusson transaction was but one of a series of purchases and sales, its disposition did not represent the planned liquidation of the plaintiffs' portfolio and its sale, as I have found, was not provoked by fortuitous circumstances which would have frustrated the plaintiffs’ original intention.

I now return to the Leonard Reeves case previously cited and, adopting the analysis therein set out, I must ascribe to the personal plaintiff, Hyman Fisher, the intentions of the corporate plaintiff and of its guiding hand, David Segal. The authorities for this, as cited in the judgment, are M.N.R. v. Lane, [1964] C.T.C. 81; 64 D.T.C. 5049 and Wiss v. M.N.R., [1972] C.T.C. 264; 72 D.T.C. 6231. I must further find as relevant to the determination of primary or secondary intention the guiding hand's history of activities in real estate investments as well as the evidence of transactions in real estate after the sale of the Cusson property. The authority for this may be found in G.W. Golden Construction Ltd. v. M.N.R., [1967] C.T.C. 111; 67 D.T.C. 5080, per Ritchie, J. at 114 (D.T.C. 5082). Such evidence is relevant to show a course of conduct on the part of the plaintiffs.

Finally, I conclude that the assumptions made by the Crown in its statement of defence are sufficiently articulated and pertinent to impose on the plaintiffs the burden of rebuttal. For the reasons stated, that burden has not been discharged.

I must accordingly dismiss the action with costs.

Action dismissed.