Cattanach, J:—This appeal from a decision of the Tax Review Board respecting the assessment of the appellant to income tax by the Minister of National Revenue for the 1972 taxation year is what is known in the vernacular as a “trading case”.
The plaintiff together with his brother-in-law, Marsilio Petrucci, and the brother of the brother-in-law, Domenico Petrucci, purchased a 50-acre parcel of land in the Township of Albion, Ontario on July 31,1968 for a price of $59,880 of which $20,000 was paid in cash by the three purchasers in equal shares and the vendor took back a first mortgage for the balance of $39,880. Each purchaser took title to an undivided one-third interest in the whole.
The avowed purpose of the plaintif in purchasing the land was to construct thereon for himself and his bride, whom he married in July, 1968, a dwelling house. It was the plan that each of the families would build a residence fronting on a country road and the remaining land in the back would be devoted to a garden the produce being for personal consumption and to farming for household purposes.
The plaintiff and his co-planners employed the services of a real estate agent to find a parcel of land for their purposes of which the real estate agent was made well aware. They viewed some ten prospective sites and settled upon the parcel they purchased as most suitable.
The land was zoned agricultural. The plan to build three residences thereon was known to the real estate salesman who assured the plaintiff that one building permit would be forthcoming immediately and that there would be no problem whatsoever in obtaining the other two building permits on application.
The plaintiff was a recent immigrant. He worked industriously as a trucker. He saved his earnings. In July, 1968 he owned three modern trucks. He had established a line of credit with his bank. Financing for a home was available to him. However he was inexperienced in transactions of this kind. He placed implicit trust in what he thought was the expert knowledge of this real estate agent who, I believe, was a fellow countryman. That is why the plaintiff and his relatives engaged this real estate agent.
Relying upon this advice and assurances by a person in whom the plaintiff had complete faith and trust believing him to be knowledgeable in such matters the plaintiff and his related co-purchasers entered into an agreement for sale and purchase with the vendor the closing to be completed before July 31, 1968.
There is no doubt in my mind that the plaintiff thought he had entered into a binding legal commitment and that the visit to a lawyer was for the purpose of bringing this legal commitment to its conclusion such as the transfer of the purchase price, taking title, executing the mortgage document and such like legal formalities.
During the closing the lawyer told the plaintiff that he had bought a farm, and that one building permit only would be issued by the municipal authorities. That was the existing state of the law the lawyer told the plaintiff adding that the law could be changed and most likely would be changed. The lawyer expressed the view to the plaintiff, or at least that is what the plaintiff understood, that three building permits would be forthcoming within the next year or perhaps two years at the most.
The plaintiff was prepared to wait. He had just been married. There were no children to the union at that time. He was living in rented premises consisting of one room and a kitchen. Not very commodious to introduce a bride to. His brother-in-law had a family of three but he owned a house in the city. I do not think that the brother of the brother-in-law was married at that time.
However in December 1972, all three co-purchasers were married and each had three children.
In 1964 the wives planted an extensive garden. That was part of the plan. Substantial damage to the crop was sustained from cattle running free. So a fence was erected protecting the entire property. Successful gardening was conducted thereafter by the three wives with weekend help from their husbands.
The plaintiff was a trucker and had little free time. The brothers, Marsilio and Domenico, worked factory shifts. In Italy all three had been farmers and each was proficient in a sub-building trade. They would do much of the labour cooperatively in building the houses.
It fell to the lot of Domenico to pursue with the municipal authorities the issuance of building permits.
Incidentally the three purchasers had entered into an agreement dated June 27, 1968 (most likely drafted by the lawyer who acted for them on closing but that is merely conjecture on my part and it was not established in evidence) to apply to the municipal authorities to divide the land purchased into three parcels and to erect on each parcel a family dwelling.
Domenico attended at least ten times at the municipal offices to obtain building permits over a period of four years from July 1965. He most likely attended more often but the plaintiff could only swear to ten.
On each occasion he was refused. I had great difficulty in ascertaining the reasons for the refusals. The plaintiff said that water would not be made available. I fail to follow how that could be a reason. Water would be available from wells and septic tanks would be used for discharge from the residences. The plaintiff knew that the land was zoned agricultural. I never did learn whether an application was made for a subdivision or for severance. The plaintiff did say he consulted an architect for building plans for the residences but, with common sense, withheld having the plans drawn until after building permits were issued.
Paragraph 9 of the statement of claim alleges that:
The plaintiff then caused a plan of survey to be prepared with the intention that it could be filed as a reference plan, however, on the instructions of his then solicitor, the said reference plan was not finalized.
This pleading was denied and no satisfactory proof was forthcoming.
There were numerous deficiencies in the presentation of the case on behalf of the plaintiff.
The continual enquiries by Domenico were still abortive.
In the meantime the plaintiff’s family increased by the birth of three children. They continued to exist in the rented premises consisting of one room and a kitchen. The plaintiff’s plight was desperate. He needed a house immediately.
The same urgency was not present with the brothers Petrucci. With some difficulty the plaintiff persuaded the brothers to agree to the sale of the property.
The plaintiff’s plight was compounded in that the mortgage on the farm was being paid off and that would be too much of a burden with the additional expense when he bought a house that he urgently needed.
On securing the agreement of the brothers to the sale of the property an appraisal was obtained for the land on April 15, 1972. The value placed thereon was $104,000.
The land was listed for sale but not with the agent who sold the land to the plaintiff and his co-purchasers. The plaintiff was learning.
Only one purchaser was interested. He was a farmer who was going to run a poultry operation on the land. The price, after some bargaining, was settled at $100,000.
The property was sold on December 31, 1972 for that price.
In 1973 the plaintiff purchased a home in Mississauga, Ontario to accommodate his family.
The Minister of National Revenue (not the Minister of Revenue Canada as alleged in paragraph 14 of the statement of claim—see the Department of National Revenue Act— RSC 1970 Ch N-14) assessed the plaintiff for tax on the basis that he had received a gain of $7,301.07 from the sale of the property.
The Minister assessed the plaintiff as he did on the assumption that:
the plaintiff, at all material times, had the intention of turning to account (the) said property at the first convenient occasion.
The plaintiff contends that the purpose for which the land was acquired was to build a home on the land for his own occupancy and that his copurchasers had the same purpose in mind in accordance with their plan.
Against this there was the fact that there was a resale of that property some four years and five months after its purchase at a profit. This was not really a quick resale.
Unexplained that resale and resulting profit might give rise to an inference that the acquisition and resale was “an adventure or concern in the nature of trade’’ within the meaning of those words as used in the definition of “business’’ in subsection 248(1) of the Income Tax Act.
If at the time of the acquisition of the property it was the exclusive purpose of the plaintiff to build a home on it then the profit from the sale of the property would not be profit from a business or an adventure in the nature of trade. If that were not his exclusive purpose at that time there can, in the circumstances, be no doubt that the acquisition of the property had for its purpose, or one of its possible purposes, subsequent disposition at a profit and the resulting profit is, therefore, taxable.
The assumption of the Minister is more stringent than the proposition I have outlined. He does not assume that the plaintiff in acquiring the property had any intention other than turning it to account at the first convenient occasion.
The Minister also assumes that the plaintiff had that intention “at all material times’’.
In Warnford Court (Canada) Limited v MNR, [1964] Ex CR 944; [1964] CTC 175; 64 DTC 5103, Jackett, P (as he then was) said at 176, [5104]:
For the purpose of determining whether a transaction is a transaction in the course of a business or is a venture in the nature of trade, the time as of which the intention of the purchaser is significant is ordinarly, in my opinion, the time when the purchase agreement becomes legally binding rather than the time when legal title is acquired.
With respect to the possible inference to be drawn from the resale of the property the plaintiff has explained the resale of the property in his evidence. It was simply that he could no longer wait to obtain the building permits which he had been lead to believe would be availabe at the material time nor could he afford to do so in view of his pressing need for immediate accommodation for his family. I accept that explanation.
Intention is a subjective thing. It is a question of fact to be determined on a consideration of all the evidence of which the plaintiff’s statement at trial that his purpose in acquiring the land was to build a home for himself and family, as too would his two co-purchasers, and that the land unused for that purpose would be utilized for farming by the thred families and storage of the plaintiff’s trucking equipment is but part. Giving careful consideration to all of the evidence I am satisfied that the plaintiff acquired his share in the land for that purpose to the exclusion of any disposition at a profit.
Applying the remarks of the Chief Justice in the Warnford Court case quoted above to the facts of the present appeal, the material time at which the intention of the plaintiff is significant was when he signed an agreement of sale and purchase with the vendor. I do not propose to consider if the contract was voidable at the option of the purchasers because of a mistake as to the subject matter if, perchance, the vendor may have shared in that mistake nor if an action would lay against the real estate agent for damages in tort based upon his misrepresentation. I do not do so because I am convinced that the plaintiff believed that he had entered into a binding legal commitment. No one qualified to do so advised him to the contrary and what his remedies would be if such were the case. Bearing in mind that intention is subjective that then was the material time at which the plaintiff’s intention is significant.
The plaintiff first received an inkling of doubt that three building permits, essential to the plan, might not be immediately forthcoming was at the closing in the solicitor’s office. Then the solicitor told the plaintiff and other purchasers that they had bought a farm, one residence could be built upon the land but the plaintiff was led to believe that in a short time (not in excess of two years) the additional two building permits could be available.
Those doubts were resolved into certainty by the abortive attempts to obtain permits culminating in the abandonment of the project and the sale of the property on December 31, 1972.
During the course of cross examination counsel for the defendant skillfully elicited from the plaintiff that what he entertained was “a hope’’ that the building permits would issue rather than “an expectation”. I harbour some doubt if the plaintiff, because of his difficulty with the language, fully understood the significance of the difference in meaning between those words although counsel was scrupulously fair in explaining his questions. In any event I do not think that the change from a firm expectation to a forlorn hope is material because it did not occur until after the plaintiff entered into the purchase and sale agreement which, for the reasons I have expressed, is the material time at which the plaintiff’s intention is to be determined.
For the foregoing reasons the plaintiff has been successful in discharging the onus cast upon him to establish that the assumption of the Minister in assessing the plaintiff as he did was not warranted.
Section 177 of the Income Tax Act prescribes the manners in which the Court may dispose of an appeal.
The appeal is allowed with costs. From that disposition the consequential relief sought in the prayer for relief in the statement of claim will follow as a matter of course, that is to say the tax exacted by the Minister on the sum of $7,701.07 improperly included in the plaintiff’s income for his 1972 taxation year together with any interest with respect to delay in payment of that amount which also improperly exacted purportedly under subsection 161(1) of the Act shall be returned to the plaintiff. It is also part of that consequential relief that the plaintiff will be entitled to interest under subsection 164(4) of the Act on the amount of the overpayment of tax (which I think was $2,633.89) improperly exacted from him. The plaintiff should not be surprised if the tax collector will make certain that he will be assessed to income tax on the interest so paid to him. There is no equity in a taxing Statute.
The formal order will simply read that the appeal is allowed with costs.
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