Sardo v. The Queen, 88 DTC 6464, [1988] 2 CTC 290 (FCTD)

Collier, J.: —This is an appeal from a decision of the Tax Court of Canada. That Court, (Christie, A.C.J.T.C.), dismissed the plaintiff's appeal against the assessment, by the Minister of National Revenue, of his 1980 income tax. The Minister had included, in income, the profit. from Mr. Len Sardo's interest in a piece of property in the Stoney Creek area in Ontario. The plaintiff contended there, as he did here, the profit was a capital gain.

The plaintiff now is retired. He had been in a grocery business, with three of his brothers, for many years in Hamilton. In 1959, one of his brothers, Sam, became involved with others in the purchase of some farm property. There were actually two pieces of property, one of approximately 25 acres, and the other, approximately 13. The properties were operated as one farm. The 25-acre portion was bought first for approximately $50,000. The other portion was bought a few months later.

The purchasing group was nine members. The leader, and person who "ran" the operation, was Milton Hewak, a real estate agent.

The plaintiff was approached by his brother, Sam, to take a one-tenth interest. Sam was unable to finance a one-ninth interest. The suggestion was the plaintiff should, in effect, advance the money. The further suggestion was that Sam would probably later buy back the plaintiff’s interest.

The plaintiff, initially, did not know that persons, other than his brother, were involved. But he knew that fact soon after, and at all material times. Milton Hewak advised all persons with an interest, of their share of annual taxes, and other matters, as they arose.

At some stage, at the suggestion and direction of Milton Hewak, steps were to be taken to try and subdivide the total acreage and develop it. That scheme foundered, because the City or Town of Stoney Creek designated 3 /2 acres of the 25-acre portion as a school site. The designated portion was practically in the centre of the 25-acre piece.

The 13-acre piece was, however, sold to a contractor who later subdivided and developed it. That was in 1973. The plaintiff received a one-tenth share in the net proceeds of that transaction. He treated it as a capital gain. That treatment was accepted by Revenue Canada.

Milton Hewak died in 1976. But plans for development, by the group, continued.

Subsequently, the Town of Stoney Creek dedicated 7'/2 acres of the remaining parcel for park purposes. The plaintiff said pressure was exerted on the group to sell that 7'/2 acre portion to the Town, with a threat of expropriation. It was sold in 1980 to the Town. It is the profit from that transaction that is in issue here. The Minister of National Revenue, in respect of the 1980 transaction, denied the plaintiff's assertion his profit was a capital gain. The Minister classed it as income in nature.

I shall complete the facts. In 1983, the remaining 13'/2 acres of the 25 acres were subdivided, and sold to a contractor.

As I understand it, a similar assessment was issued by the Minister in respect of the 1983 sale of the 13 /2 acres. The plaintiff has filed a notice of objection. The appeal was, at one time, on the list for hearing in the Tax Court, but for some reason, was taken from the list.

The plaintiff has acted for himself in all these matters: that is, in dealings with Revenue Canada, in the Tax Court, and in this Court. At this hearing, he was obviously surprised the 1983 assessment was not being heard, along with the appeal from the 1980 assessment reflected in the decision of the Tax Court.

The plaintiff is, as I view him, obviously a sincere and concerned person. But he is understandably unfamiliar and inexperienced with the tax assessment procedures, and the appeal procedures. I was, because of the way in which he launched his appeal in respect of the 1983 assessment, unable to assist him in having all appeals heard at the same time.

The plaintiff argued he never entered into this transaction as a trader or dealer in land; he never had any intention to turn his interest in the farm land into a profit account whenever the opportunity might arise. He pointed to the capital gain treatment given by Revenue Canada to the 1973 transaction involving the 13 acres.

He testified he had had discussions with Revenue Canada people as to the tax treatment of the profits made by the other nine participants in the 1980 transaction. He said he got the impression not all participants had been assessed on a pure income basis, as he was.

That may be.

Even if true, it is not evidence which I can consider, in deciding the plaintiff's case. I can understand his bewilderment and frustration, if in- deed, there was different treatment in some instances. The particular facts, may, for all I know, have been different.

The Tax Court, in my opinion, on the facts and law, came to the correct conclusion. I come to the same conclusion. The plaintiff's gain on the 1980 sale was on the income side, and not on the capital side.

In this case, the active or dominant person was Milton Hewak. He was in the business. In respect of the 25-acre parcel, subdivision zoning was obtained, subject to the dedication of the portions for school and park uses.

The law, in the circumstances here, was, in my view, accurately stated by Associate Chief Justice Christie of the Tax Court, in the reasons he gave in this case (pages 5-6):

The onus is on the appellants to show that the reassessments are in error. Where the onus lies has been settled by numerous authorities binding on this Court. It is sufficient to refer to two judgments of the Supreme Court of Canada in this regard: Anderson Logging Company v. The King, [1925] S.C.R. 45 and Johnston v. M.N.R., 3 D.T.C. 1182.

If, at the time of the acquisition of the property, the motivating intention of the appellants, or the motivating intention attributable to them by law, was to retain the property for the purpose of selling it at a profit at an opportune time, the profit realized on the sale would not be a capital gain but business income and taxable as such.

In Leonard Reeves Incorporated v. M.N.R., 85 D.T.C. 419, a number of propositions or guidelines are stated at pages 421 and 422. These are relevant for ascertaining relevant intentions regarding “trading cases" like those now before me. For present purposes, it is sufficient to repeat this from Leonard Reeves Incorporated:

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, 64 D.T.C. 5049 per Noël, J. at 5051 and Wiss v. M.N.R., 72 D.T.C. 6231 per Heald, J. at pages 6231-2.

From the foregoing it can be said that if a person other than the appellants was dominant and authoritative regarding the intention motivating the acquisition of the property, that intention is attributable to the appellants even though their intentions may not have been in harmony. Also, in determining the intention of the dominant and authoritative person, his history of trading in real estate is germane to the determination of his relevant intention: Vaughan Construction Company Limited v. M.N.R., 70 D.T.C. 6268 at 6270 and Slater et al. v. M.N.R., 66 D.T.C. 5047 at 5050.

On the facts, I have, as well, come to the same result as the Tax Court. I agree with the conclusions there reached.

The profit realized by the plaintiff in 1980 is taxable as income.

The appeal is dismissed, with costs.

Appeal dismissed.