O&M Investments Ltd. v. The Queen, 90 DTC 6150, [1990] 1 CTC 16 (FCTD)

Jerome, A.C.J.: —I'm not going to call on you, Mrs. Goldstein.

I'm sorry, gentlemen, I can't allow the appeal.

My understanding of the law and the facts here is this: The overwhelming evidence is that this plaintiff O & M Investments Corporation is a professional trader in real estate. I don't think that's contested. Mr. Weltzien personally is a professional trader in real estate. Any other conclusion would be unsupportable. As a result, I have to turn my mind to the expectations of the real world, the usual experience in the world as a professional real estate trader. Now, for some, it is a world of all purchases and no sales. Usually, that kind of activity is reserved to the major developers, the large rental constructors, that part of the industry. They either put up their own buildings or acquire others to operate them as revenue properties. For all intents and purposes they never sell.

At the other extreme, there are the house builders who are careful not to build for inventory, only for custom orders. Also, highly successful because they only hold enough land to bank for future projects each spring or selling season, and they do not build to add to their housing stock or inventory. They build only when they have sold all of a certain area or a few model homes or whatever. The result is they have no inventory.

So that at both extremes you have those who have all inventory and no sales and those who have all sales and no inventory. But, by far, the experience in the real world of real estate of professionals is the mix of both. The evidence discloses that this was the actual experience of this plaintiff—this corporation, this investment corporation O & M—and the owner of that corporation Mr. Weltzien personally. As would be expected, there were many acquisitions but certainly many sales as well.

Let us assume for the moment, as was argued by counsel, that in the initial intention, Mr. Weltzien, or his company, made all their acquisitions for revenue. All their acquisitions were with the intention of reorganizing at least the financing and, in some cases, the physical properties by reconstruction, by renovation. So that either the financial structure or the physical structure was altered, and the properties were intended to produce revenue. Many of them did, and many of them still do. I acknowledge, as well, that Mr. Weltzien or his company held for very long term many, many properties and, in fact, still holds some of them. But the fact is—the uncontroverted fact is that many were sold. Several of the properties were sold, perhaps for different reasons. Sometimes the property that was acquired became less attractive than it had been originally contemplated at the time of acquisition. Whether that was due to tougher zoning laws or building restrictions, health conditions, inspections or whatever, I’m sure that many were sold because better possibilities arose. Indeed Mr. Weltzien said so. Some of his properties were sold to raise cash for bigger and better acquisitions. In at least one case, an employee—a property manager—who later moved to the United States, was in difficulty. The initial motivation in Mr. Weltzien getting into that purchase was to help out an employee. In due course, that property was sold as well. And, I note, at a profit.

So, this transaction was certainly not the rule; not necessarily the rule of Mr. Weltzien's experience or his corporation, but neither was it the exception.

There were several acquisitions and several sales. Probably more acquisitions than sales, but, certainly, a good number of sales.

This taxpayer has the chance, of course, as in the cases argued by Mr. Fowlis —some cases that I have decided as well—cases where professional real estate traders have acquired a piece of property—somewhat out of the mainstream of their business activity, a country property—and kept it in the family with the intention of using it as a retirement home or something of that nature, and, later, changed circumstances have caused them to sell.

But notwithstanding the fact that those people were professional traders, there can always be one different purchase which requires special consideration. I have accepted that conclusion as did Mr. Justice Collier and Mr. Justice Walsh in some of these cases which were so well presented here, that the acquisitions were initially for a different purpose. This taxpayer O & M Investments Ltd. and Mr. Weltzien have the chance, of course, to persuade me of that. That's their responsibility. The plaintiff, as a professional trader, has the onus of establishing that although a professional real estate trader in which all of his transactions formed a part of his general real estate enterprise—that is, to say, a part of the intention to earn income in the real estate business—that this transaction should be isolated and that it should be found by me to have been acquired, as Mr. Fowlis argued, to have been acquired with a different intention. That is, to say, that the sale was not one of several which had the intention of producing a profit from trading in the real estate business but, rather, that this one was acquired with investment purposes in mind and was to be kept for the long term for that purpose. And that, therefore, the sale was uncontemplated at the time of the acquisition and that because of its difference being acquired for a different purpose, the sale was a sale on account of capital instead of income.

I'm afraid, however, that the evidence persuades me otherwise. In fairness to the plaintiff and to Mr. Weltzien personally, probably all of his initial acquisitions were acquired with the same intention —long-term revenue, change them, get them filled with tenants, and make money from them. None of them was acquired with the intention of selling, but several were sold, and this is one of them. And it's not sufficiently different from the others to make any distinction in my opinion. It forms a part of the overall professional real estate trading enterprise that Mr. Weltzien and his company - the plaintiff company — were engaged in. Accordingly, I cannot conclude that the Minister was wrong in considering this not to be a capital transaction but to be a trading transaction.

Accordingly, the action by way of appeal is dismissed with costs.

Are there any questions or comments, gentlemen? If not we'll adjourn. from the Bench. The action is dismissed. A brief written reasons will be filed if counsel requests.