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
I
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.
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