Teskey, T.C.C.J.:—The appellant appeals his reassessment for 1986 wherein the Minister of National Revenue (the"Minister") disallowed a reported terminal loss on a building (that had been torn down in 1986) in Peterborough, Ontario, on land municipally known as 136 Ware Street (the " property").
Issue
The only issue is whether the property was or was not acquired for the purpose of gaining or producing income.
Counsel for the respondent stated that the respondent" has never taken the position that a ” secondary intention" of the appellant is relevant in this case”. As a result of this, secondary intention was not argued by either counsel and will not be considered by me in any manner.
Facts not in dispute
The appellant made a written offer to purchase the property on November 22, 1985, which was accepted on November 29, 1985. The agreement of purchase and sale arising out of the accepted offer was completed on the December 20, 1985.
At the time, the appellant, who had lived all his life in Peterborough, was a 45-year-old lawyer, and had been practising therein for 18 years.
The property was relatively large containing a land area of approximately 22,500 square feet, upon which a 12-year-old, 4,000 square feet building was located. The building was built to accommodate three dental offices. At the time of purchase, two small offices of 800 square feet each were vacant and the third office, of approximately 1400 square feet, was under lease to a service corporation owned by Dr. Woods, a practising dentist. The Woods' lease expired on January 31, 1986. It contained a first right of refusal and a renewal clause for an additional five years.
The appellant made no inspection of the interior of the building prior to the purchase.
At the time of purchase, the property was zoned exclusively for use as dental offices. On February 14, 1986, an application to rezone the property was filed with the City of Peterborough, which was approved and passed by the City of Peterborough in June 1986.
On or about August 14, 1986, the appellant entered into a contract with a demolition firm to demolish the building on the property.
On September 15, 1986, a building permit for a 27-suite apartment building was applied for and was issued in October of that year. Construction of the apartment building was immediately commenced and completed in June of 1987.
Evidence of Paul Andrew Ridpath
Counsel for the respondent in argument said: "Mr. Ridpath is a credible witness. I didn't challenge him in any way on credibility”. [Transcript, page 151]
Mr. Ridpath, a design architect and independent witness, said:
Q. According to your notes, when was your first contact with Mr. Moldaver?
A. According to my notes, on Friday, January 31st, I had a meeting with Mr. Moldaver.
HIS HONOUR: Friday?
THE WITNESS: January 31st, 1986, your Honour, site visit at Ware Street. Prior to that, Mr. Moldaver called me to ask for the meeting some time that week.
MR. BLACK:
Q. And did Mr. Moldaver indicate to you what the purpose of the meeting was?
A. Ona a short discussion, he wanted me to look at a particular building and give some opinion on the construction of the building, what it would require for some renovations.
Q. And did Mr. Moldave indicate to you what his intentions were with respect to the building?
A. Not until I reached the building and, at that time, when I reviewed the building, there was some discussion on the possibilities of renovating the building and/or putting an addition on for professional offices.
Q. Was there any indication whatsoever on the part of Mr. Moldaver at that time that he wanted to demolish the building?
A. No, no. [Transcript, pages 97-98]
Q. As a result of your investigation, what conclusions, if any, did you make and what recommendations, if any, did you make?
A. Okay, after sitting—or meeting at the site with Mr. Moldaver, I didn't give him any conclusions or recommendations at that time. I took it upon myself to go up to City Hall to talk to Bill Paul, who is one of the City planners.
I felt at the time, without acknowledging it to Mr. Moldaver, that the building wasn't really worth very much and, in my experience, if Mr. Moldaver did want to proceed and fix the building up and put an addition on it, it's my opinion that generally in these cases it's better to tear the building down and start over again, because 80 per cent of the time it's cheaper to do so.
I did not indicate this to Mr. Moldaver at the time, but I did go up to the City Hall and meet with Will Paul, the planner, and I asked Mr. Paul to give me and set down with regards to planning, planning information, zoning information, and what he, as a planner, would look at as far as what on that site or in that location would be à propos for good planning.
Q. And what did he indicate to you?
A. He basically indicated to me that because it was a residential area, because it was a relatively nice area, they were not against professional offices whatsoever in that area. So, I left it at that. [Transcript, pages 102-103]
Q. This is now February the
A. The 3rd, Monday the 3rd, after the weekend of looking at it. And I basically indicated to Mr. Moldaver what I thought of the building and the disrepair, and that I thought he'd better start looking at alternative uses possibly to maximize the land that he has there. And I generally try and steer a client to maximize the usage of a piece of property—okay?— and basically that’s what I told him, that I think he'd better consider some alternative uses or looking at some alternative uses.
Q. Did Mr. Moldaver express any surprise at your conclusions?
A. I don’t think he was very happy about the fact that his building wasn't maybe what he thought he bought.
Q. And then, if you can proceed then from that point, please Mr. Ridpath, what was the continuing sequence of events?
A. Okay, on February the 5th . . . Mr. Moldaver indicated to me on Monday that I should maybe proceed ahead and see what alternative uses or what could be done with the building. So what I did was I made an appointment again with Mr.
Will Paul on February the 5th, 1986, a Wednesday, to again review the piece of property, and to review with him and ask him, as a town planner or city planner, what he might consider to be an alternative use that the City would feel comfortable with, that they could support.
And, at that time, there was some formal information required and I had to find out the information about the fees, what they were going to be. A request regarding. . . There was a point of a lane closure that was discussed. There was the discussion of applications for rezoning that would have to be taken care of.
Q. So, in essence then, Mr. Ridpath, steps were taken—if I can perhaps short- circuit the sequence of events a little bit—would you say it was accurate to suggest that steps were taken in pursuance of looking at alternative uses to the property at that point in time?
A. Yes.
Q. And what ultimately resulted then, as a result of the sequence of events?
A. What ultimately happened was that the City planner agreed, through discussions with me, that we could entertain—that they would entertain an apartment proposal, of which we proposed and developed some preliminary plans with a 30- unit building on this site. And, ultimately, a project was developed and built of 27 units on the site. [Transcript, pages 106-107]
. . What I was commissioned for by Mr. Moldaver was to investigate the avenue of an alternative use, which l suggested we take.
Q. So, it was upon your initiation that he suggested that the alternative uses perhaps be explored?
A. Oh, yes, yes.
Q. And my last question to you, Mr. Ridpath is did you have any indication at any point in time—and I'll say right up to and including the 31st of January, 1986 when you made that first inspection of the building with Mr. Moldaver— up until that point in time and including that date, did you have any indication whatsoever that Mr. Moldaver intended that the building would be demolished?
A. No Sir. [Transcript, page 110]
Since respondent's counsel in no way challenged this witness' credibility, I can see no reason not to accept Ridpath's sworn statement at face value. Exhibit A-7 is a series of letters between the appellant and Dr. Wood's solicitor, Frank Steffler and others. These show that up to February 26, 1986, the appellant was attempting to renew the Wood's lease as well as lease the other vacant portions of the building to dentists.
The jurisprudence in this area indicates that the Court should look at what the appellant did and not what he stated his intentions were. However, the unchallenged evidence of Ridpath and the letters in Exhibit A-7 set this case apart from the usual jurisprudence.
The respondent's position
Counsel for the respondent stated:
MS. PHILLIPS:
No, I didn't say "no intentions”, your Honour; I said“ no fined intentions”; I think there's a difference—I would submit to you there is a difference.
If I could give an example: Suppose that he was purchasing it with a multitude of intentions—one was to rent for his law offices; one was to rent out to dentists; and the other intention was to tear it down—they were all in his mind at that time, I would still say to you and submit that there was no fined intention which would bring him within Regulation 1102(1)(c) where he could show this Court that it was for the purpose of gaining or producing income because he wouldn't have satisfied his onus of showing you that he’s come within that section. And he has to do that. . . . He's saying that he felt he was prepared to complete the purchase notwithstanding the nature of the premises. And I would suggest to you that his whole course of conduct in dealing with the purchase of this building is such that he had absolutely no possibility of being able to have affixed intention of renting it or using it for himself because there are so many facts which contradict his stated in intention just take a moment, I'll go through those facts. [Transcript, pages 145-47]
These facts are:
(1) knowledgeable purchaser.
(2) no inspection of the building prior to purchase.
(3) minimal attempt to rent.
(4) the building couldn't be as bad as indicated as the tenant wanted to stay there in the building.
(5) Exhibit A-7 appears to indicate some delay on the part of the appellant.
(6) At the time of purchase, the appellant knew the building was half empty. [Transcript, pages 147-48]
The appellant did not say what respondent's counsel alleges. He said he knew the building was only 12 years old, it was only some two blocks from his existing law office that he had occupied for 17 years. In his examination inchief, the following questions and answers were given:
Q. Mr. Moldaver, you indicated then that you just had a cursory exterior, external inspection of the property prior to purchase. And perhaps the question that comes to mind is whether or not that is a prudent basis upon which an investor in any type of asset would purchase an asset for investment purposes. Did you not feel that it was necessary for you to do any additional inspection of the property at that time?
A. I agree, Mr. Black, that probably a prudent investor would have taken the time to go through the property. However, being a Peterborough resident and being knowledgeable in terms of where the business was, what the building was all about, and also because of the fact that I knew it was only approximately 12 years old, I was not concerned as to the internal physical features of the building at that time. Moreover, the vendor was very anxious to sell. I felt it was a prudent purchase regardless, and the timing was coming on to Christmas holidays and they insisted that the deal had to be closed before the end of the year for tax reasons. And so while I probably would have had time, in all fairness and honesty, to go through the building, I did not do so for the reasons that I've so stated. [Transcript, pages 22-23]
Conclusion
Considering all of the evidence herein, and particularly, the unchallenged evidence of Mr. Ridpath, the letters in Exhibit A-7 and the appellant's testimony which was given in a forthright manner, I find that the appellant's intention, at the time of purchase, was to acquire it for the purpose of gaining or producing income from it.
For these reasons, the appeal is allowed with costs, and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant's intention in respect to the demolished building, formerly located at 136 Ware Street, in the city of Peterborough, was within the provisions of Regulation 1102(1)(c) of the Income Tax Act.
Appeal allowed.