Muldoon, J:—This action is by way of an appeal from certain notices of reassessment issued by the Minister of National Revenue with regard to both the 1972 and 1973 taxation years. The Minister’s grounds are that the deceased, Cleo Elmer Reilly (herinafter, Reilly), did not report any capital gain on the disposition of certain real property which he sold by way of agreement for sale with Carma Developers Ltd (hereinafter, Carma).
Counsel for each of the parties most helpfully submitted an agreed statement of facts and matters in order to limit the matters in issue and to expedite the proceedings. That agreed statement, with its exhibits identified alphabetically, was receivd and marked as Exhibit 1 at the trial. Therefore, exhibits referred to by alphabetic designation are attached to and form part of the trial’s Exhibit 1, “Agreed Statement of Facts and Matters’’. In order to appreciate the facts, one can do no better than to repreat here the contents of that agreed statement, with some judicial commentary within square brackets where it is helpful and timely to insert such commentary.
1. Cleo E Reily died at High River, Alberta on April 20, 1976 naming Iris M Reilly as his sole Executrix and Trustee for which Letters Probate were granted by the Surrogate Court of Southern Alberta Judicial District of Calgary on May 31, 1976. A court certified copy of the said Letters Probate are [sic] attached hereto and marked as Exhibit “A”.
2. Cleo E Reilly as Vendor and Carma Developers Ltd. as Purchaser agreed to sell real property legally described as the North Half of Section Fourteen, all of Section Twenty-Three, the East half of Section Twenty-Two, and a portion of the East Half of Section Fifteen and a road allowance adjoining the said East Half of Section Fifteen, all in Township Twenty-Five, Range Two, West of the Fifth Meridian in the Province of Alberta. Documentation to indicate the transaction 1s as follows:
(i) A letter from Carma Developers Ltd to Cleo E Reilly dated November 24th, 1972 the original of which is attached hereto and as Exhibit “B.
[This “letter” purports to confirm an earlier discussion between Carma & Reilly of even date, expresses the basic legal descriptions of the approximately 1,240 acres to be sold, the purchase price, the amounts and December 1st due dates of annual instalment payments, the price of $1,613 per acre and provisions regarding transfer of title and gravel rights. Signed on behalf of Carma, and personally by Reilly, this “letter” is a form of agreement for sale of the land mentioned therein.] (hereinafter the letter agreement).
(ii) A caveat registered against the title to the property by Carma Developers Ltd dated December 6th, 1972 and registered on December 8th, 1972 a certified copy being attached hereto and marked as Exhibit “C“.
(iii) An agreement dated January 19th, 1973 between Cleo E Reilly as Vendor and Carma Developers Ltd as Purchaser for an amount of $2,018,630.15 payable as follows:
“(a) The sum of Two Hundred and Fifty Thousand ($250,000.00) Dollars shall be paid on or before execution of this agreement.
(b) The balance of the purchase price being the sum of One Million Seven Hundred and Sixty-Eight Thousand Six Hundred Thirty Dollars and Fifteen
($1,768,630.15) Cents shall be payable by payment of the sums of Seventy-Five Thousand ($75,000.00) Dollars each on the 1st day of December, in each consecutive year commencing on the 1st day of December, AD 1973 and continuing yearly thereafter until the 1st day of December in the year AD 1987, or the earlier year in which the total purchase price shall have been fully paid and satisfied, and the balance, if any, of the entire balance of the total purchase price then unpaid shall become due and payable on the 1st day of December, AD 1987.
together with interest calculated from the 1st day of December, AD 1972 until the 30th day of November, AD 1975 on so much of the principal purchase price as remains from time to time unpaid at the rate of Three (3%) per cent per annum, and which shall be paid on the 1st day of December in the years AD 1973, AD 1974, and AD 1975, and thereafter with interest calculated from the 1st day of December, AD 1975 on so much of the principal purchase price as remains from time to time unpaid at the rate of Six (6%) per cent per annum and which shall be paid on the 1st days of December in each consecutive year commencing on the 1st day of December AD 1976 and continuing yearly thereafter until the earlier of the 1st day of December, AD 1987, or the date on which the total purchase price shall be fully paid and satisfied . . .”.
[Pursuant to paragraph 5(j), the agreed date for adjustment of taxes, rates, levies, assessments and such outlays is fixed at December 1st, 1972.
“The Vendor will be responsible for payment of all such outlays levied in respect of the period up to but not after the date for adjustment and the Purchaser will be responsible for all such outlays levied in respect of the period commencing on such date of adjustment”.
Pursuant to Schedule “A” a fourth parcel of land, consisting of approximately 11.55 acres, is brought into the bargain, in addition to the land contemplated by Carma and Reilly on November 24, 1972.
A signed form of Consent of Spouse, with accompanying Certificate of Acknowledgement by Spouse, is attached to and included in this agreement.] (hereinafter, the formal agreement).
The original of the said agreement is attached hereto and marked as Exhibit “D”. (iv) A caveat registered against the title of the property by Carma Developers Ltd dated January 22nd, 1973 and registered on January 23rd, 1973 a certified copy being attached hereto and marked as Exhibit “E”.
(v) Certified copies of the Certificates of Title mentioned in the said caveats the same being Certificates of Title 133P 119, 133P 117 and 133P 118, all of which are marked as Exhibit “F”.
3. In the 1972 and 1973 taxation years Cleo E. Reilly did not report any capital gains on the disposition of the property, true copies of his 1972 and 1973 T-1 Tax Returns being attached hereto and marked as Exhibits “G” and “H”.
4. By Notice of Reassessment dated August 4, 1978 the Minister of National Revenue has reassessed the taxpayer in respect of the 1973 taxation year by adding a capital gain of $457,380.00 which, after allowing for a “loss on other properties claimed’’ of $44,094.00 results in a taxable capital gain of $206,643.00.
5. The Plaintiff filed a Statement of Claim on December 5th, 1980 in response to the said Notice of Reassessment and the Defendant filed a Defence theeto on August 20th, 1981.
6. Due to the Plaintiffs allegation that the disposition herein took place in the 1972 taxation year and in order to have all the matters in issue before this Honourable Court at one time, by Notice of Reassessment dated March 19th, 1981 the Minister of National Revenue has reassessed the taxpayer in respect to the 1972 taxation year by reflecting a capital gain of $457,380.00 in that year thereby adding to the taxpayer’s 1972 income the resultant taxable capital gain of $228,690.00. It is understood that this reassessment is in the alternative to the said reassessment in respect to the 1973 taxation year.
7. The plaintiff filed a Notice of Objection on July 15th, 1981 in response to the said Notice of Reassessment which Notice of Objection initiated the action in this Honourable Court pertaining to the 1972 taxation year pursuant to S. 175(4) of the Income Tax Act, SC 1970-71-72, c 63 as amended (hereinafter called “the Act’’) and the Defendant filed a Defence thereto on August 20th, 1981.
8. Consistent with the foregoing, at the outset of the trial of the issues herein the Plaintiff and the Defendant shall make a joint application to join the actions herein.
9. The issues submitted to this Honourable Court for determination are the following:
(a) Did the disposition of the said real property take place in the 1972 or the 1973 taxation years?
(b) If the disposition took place in the 1972 taxation year, is the Notice of Reassessment pertaining to that year out of time pursuant to S. 152(4) of the Act?
10. The said trial of the issues herein shall not be in fact, or deemed to be, with respect to any other issues arising out of the said pleadings. Accordingly, if the disposition is found to have taken place in the 1973 taxation year, or if it is found to have taken place in the 1972 taxation year but the Notice of Assessment with respect thereto is not out of time, the Plaintiff shall be at liberty to enter for trial at a later date the question of quantum of gain and the availability of a reserve pursuant to S. 40( l)(a)(iii) of the Act.
During the trial it was noticed that the legal decription of the first mentioned parcel of land in the reference line of the letter agreement, Exhibit 1 “B”, is “S Sec 14-25-2-5”, whereas in Schedule “A” of the formal agreement, Exhibit 1 “D”, it is “The North Half of Section Fourteen (14) in Township Twenty-five (25), Range Two (2), West of the Fifth Meridian in the Province of Alberta . . .”. Both counsel considered this disparity to amount to nothing more than a typographical error, and both agreed that nothing turns on it. Therefore it is simply to be ignored. It appears that it is the north half of section 14-25-2-5 of which Reilly was the registered owner pursuant to Certificate of Title 133 P 119.
Issue (a) in paragraph 9 of the “Agreed Statement of Facts and Matters”, Exhibit 1, requires a judicial determination of the year, 1972 or 1973, in which a disposition of the real property occurred. In neither Exhibit 1, nor in the presentations and arguments of either counsel, was the absence of a signed consent of spouse from the letter agreement mentioned. Such a document or its absence might, or might not, have pertinent consequences in regard to the making of a disposition of real property in Alberta. However, since no evidence was led, no law was cited or invoked and no argument was presented before the Court on that matter; and since the parties by their respective counsel have framed the issues and argued them accordingly to the limitations which they themselves defined for adjudication: it follows that the matter of spousal consent is to be disregarded in construing the Income Tax Act in regard to the disposition of property in this case. It is worthwhile to note, too, that some evidence was adduced through cross-examination of the plaintiffs witness, Donald S Tetz, to the effect that the deceased never lived on the land in this case, it being “capital property”.
The letter agreement must be scrutinized most carefully because, in terms of issue (a), if it were not the instrument of the disposition of the real property in 1972, then that disposition must perforce have occurred in 1973. The letter agreement produced as Exhibit 1 “B” reveals handwritten insertions of text and obliterated deletions of text within its three full typewritten pages. In the reproduction below, the insertions are shown in italics and the deletions are represented by dots. All of those amendments to the original text were initialled by the hands of the signatories. Here is Exhibit 1 “B”, the letter agreement:
|Carma||Suite 263, 1632 14th Avenue NW|
|Developers Ltd||Calgary 42, Alberta. Tel (403) 289-1951|
|November 24, 1972|
|Mr Cleo Reilly|
|Site 8, Box 20,|
Reference: Land Purchase — S /: Sec. 14-25-2-5
E / Sec. 22-25-2-5 (less 40 acres)
Total Acreage — 1,240
Excepting throughout all mines and minerals
As per our discussion this morning we understand that you are prepared to sell to Carma Developers Ltd. the above land on the basic terms as outlined below:
1. Total purchase price — $2,000,000
2. Down payment — $250,000 to be deposited in trust with Fenerty et al until a final legal document in accordance with the terms hereof has been drawn up and signed by both parties.
3. Payment on the balance of $1,750,000 to ne as follows:
(a) $75,000 on December 1, 1973 and each December 1 thereafter until December 1, 1987 when the total outstanding balance shall be due and payable. On the first December 1, 1987 when the total outstanding balance shall be due and payable. On the first December 1 after the appropriate approving authorities have given Carma Developers Ltd approval for subdivision of any portion of the above lands, the annual payment of principal shall increase to $125,000 from $75,000.
(b) In any event, whether or not approval for subdivision is obtained, total payment of the outstanding balance shall be made on or before December 1, 1987 with annual payments on the outstanding balance not being less than $75,000.
(c) The purchaser shall have the privilege to accelerate payments at any time. (d) The purchaser shall pay the vendor 3% interest on the outstanding balance from the date of execution of the Agreement referred to in Para 2 as calculated on December 1, 1973, December 1, 1974, and December 1, 1975 in conjunction with the payments on the principe/ as described above. Thereafter the purchaser shall pay the vendor 6% interest on the outstanding balance as calculated each December 1 until the total $2,000,000 purchase price has been paid.
4. Land Takedown
(a) The purchaser shall be allowed to take title to one LSD with every annual payment of $75,000 and two LSD’s with every annual payment of $125,000.
(b) Takedown shall be in a contiguous manner.
(c) If payments on the outstanding balance are accelerated at any time, the purchaser shall be entitled to take title to lands (at the rate of $1,613/acre) paid for.
(d) The $250,000 down payment shall go toward takedown of the last lands paid for.
5. Gravel Rights
The Vendor will retain gravel excavation rights on two sites presently surveyed and being used as pits as well as a third site located on the west slope of the prominent hill on SE /4 of Section 22. Locations to be designated on final legal agreement to be drawn up as per Sec. 2 hereof. Costs of surveying related to excavation of gravel to be the vendor’s cost.
The vendor agrees to vacate and quit any gravel excavation pit if the purchaser requires such lands for development on 6 months notice thereof. The vendor also agrees to restore to the reasonable satisfaction of the Municipality of Rocky View, the City of Calgary, and Carma Developers Ltd those areas used for gravel excavation purposes at his sole expense.
6. Carma to engage Fenerty et al to prepare legal documents on behalf of the purchaser outlining the agreement in full.
7. Taxes payable by the purchaser from the date of the final agreement as outlined in para 2 hereof.
8. Purchaser to give the vendor thirty (30) days notice to vacate lands which are to be prepared for development.
9. Purchaser to have right to enter the lands for the purpose of testing, surveying, etc at the mutual convenience of the Vendor and Purchaser.
10. Costs of moving buildings and fences as development progresses shall be borne equally by the vendor (while enjoying the surface rights) and the purchaser. Any maintenance on fences or buildings shall be at the expense of the vendor so long as he 1s enjoying the surface rights.
11. It is understood that neither party has reason to believe that a commission to a third party is payable on the sale of the above lands.
12. Carma Developers Ltd understands that the vendor has applied to become a Canadian citizen and is deemed to be a Canadian resident as of the ... date of sale.
13. The purchaser recognizes that the sale of the NE “% of Sec 22-25-2-5 (less 40 acres) is subject to the deferred reserve covenant agreement registered as 1608 JL and then caveat registered as 5767 JG.
14. The vendor agrees to pay Carma Developers Ltd $10,000 annually each December 1 (starting ... April 1/73) for a lease of the surface rights of the said lands so long as he requires the lands for such purposes. It is agreed that this sum shall be reduced by $8/acre for every acre subsequently used for development purposes.
|Yours very truly|
|CARMA DEVELOPERS LTD||j agreement with the above:|
|Rudy H Janzen|
|District Manager||Signed: C E Reilly|
The statutory provisions upon which the defendant relies in relation to this first issue, (a) in paragraph 9 of Exhibit 1, are drawn from the Income Tax Act, SC 1970-71-72, c 63 as follows:
54. In this subdivision . . .
(c) ... “disposition” of any property, except as expressly otherwise provided, includes
(i) any transaction or event entitling a taxpayer to proceeds of disposition of property, ... .
(h) ... “proceeds of disposition” of property includes,
(i) the sale of price price of property that has been sold,
Counsel for the defendant argue» that the closing of a transaction is the date of disposition, that is, when the taxpayer gets the proceeds — subject to reserves for future proceeds — the taxation consequences arise. She asserts that the signing of the letter agreement on November 24, 1972, (Ex 1 “B”) was not a transaction or event which entitled Reilly to the proceeds: it was merely an interim agreement. In support of that assertion, counsel for the defendant points firstly to the difference in the sale price, from the $2,000,000 price agreed in November, 1972, to $2,018,630.15, an increase of $18,630.15, provided by the formal agreement (Ex 1 “D”) in January, 1973. This difference in price is said, on behalf of the defendant, to be fundamental.
Some other provisions appear to have been changed or elaborated when a comparison of the two documents is effected. They concern date of adjustment of taxes, Carma’s right of entry at mutual convenience or upon 15 or fewer days’ notice, gravel rights and subsequent elaboration of lease — back to Reilly for farming of the land. The defendant’s counsel urges that it was only in. January, 1973, that Carma and Reilly dealt finally with the components of this sale and it was only then that Reilly became entitled to the proceeds of the disposition. If it had been all settled in December, 1972, she asks, why did Carma lodge a further caveat against Reilly’s certificates of title in January, 1973? The answer supplied by the asker is that Carma’s legal position changed after the signing of the letter of agreement of November, 1972, and Carma had to secure itself because of that. One has but to look at the circumstances in December, 1972: Carma on its side was receiving no rent from Reilly, and had to obtain his consent to enter upon the property; Reilly had no down payment, and no right to it all during that December and until the final legal document was drawn up and signed the following January, as it happened. Reilly was then notionally paying the municipal taxes during December of 1972. The matter of a disposition is related to Reilly’s entitlement to the proceeds, and it was argued, no proceeds were to be forthcoming from Carma until later, in 1973. In summation, the defendant contended, the letter agreement (Ex 1 “B”) of November 24, 1972, did not fully deal with the subject, did not provide a definitive date for the down payment’s change of hands, and did not state a specific date for adjustments. Such omissions, it was argued, are significant in determining when the disposition was effected.
In support of the defendant’s contentions, counsel cited several cases. The first is Victory Hotels Ltd v MNR ,  CTC 614; 62 DTC 1378, a judgment of Mr Justice Noel in the Exchequer Court of Canada. The passages specially noted are:
There is no question, but that the intent of the parties was that the sale of the properties of the taxpayer be effective January 3, 1955. However, what Mr Maber, the real estate agent, was trying to do and what he did do, appears to be something quite different.
The words “disposed of” in s 20 of the Income Tax Act are of the widest meaning and should, in my opinion, be given their widest ordinary or popular meaning bearing in mind, however, that they are being used in a taxation statute, in a matter where the properties which are to be “disposed of” are the assets used to earn the very income from which, according to certain specified rates, depreciation can be charged off. Let me add that they may even be given in an appropriate context a wider meaning than their normal meaning, unless of course, the Income Tax Act itself has restricted this meaning.
It would indeed appear that the meaning of “disposition of property’’ has been somewhat restricted by the Act when a disposal of property takes place by means of a sale; in such a case there is a disposal of property as soon as a taxpayer is entitled to the sale price of the property sold.
The verb “entitled’’ according to the Shorter Oxford English Dictionary means “to give a rightful claim to something’’. The French text of the Act uses the words “ donnant droit" which of course mean to give a right to.
Was the taxpayer here entitled to the sale price of the property sold? In the present instance the agreement carried two conditions, which, if not fulfilled, would prevent the transaction from being complete: (a) a liquor licence, and (b) if there was a fire before possession.
The next case cited for the defendant on this issue of the year in which the disposition was effected is Laurentide Rendering Inc c La Reine,  CTC 400; 83 DTC 5066, a judgment of Mr Justice Décary of this Court. The passage noted in particular is:
A ce sujet, il y a la décision de la Cour de L’Exhiquier dans Victory Hotels Limited v MNR, ( CTC 614) où le juge Noel a décidé que la récupération n’était imposable que dans l’année où le contribuable avait droit au produit de disposition, à la page 628:
It cannot, therefore, be said that the taxpayer was entitled to the monies or the “proceeds of disposition’’ until January 3, 1955, or such time after that date that all the conditions of the agreement had been fulfilled.
I, therefore, find that the properties of the appellant were not disposed of in the year 1954, but only in the year 1955.
The third case cited on this issue — paragraph 9. (a) in Exhibit 1 — is D Freeborn et al v Henry G Goodman,  S.C.R. 923. The passage cited is from Mr Justice Ritchie’s reasons, in which he analysed the opinion given by Laskin, JA in the Ontario Court of Appeal on the subject of the equitable charge arising in favour of the unpaid vendor of an equitable estate.
The plaintiffs counsel also cited the Victory Hotels case, but emphasized those passages of the reasons of Noel, J which focuses upon the intent of the contracting parties. So, in addition to the first passage earlier quoted, plaintiffs counsel also pointed to the following:
The only evidence on behalf of the contention of the Minister to the effect that the intent of the parties was to have this transaction take place in 1954 is that of Mr Bryant D Richards, CA, who drew up some books and a return indicating that the assets of the taxpayer were in 1954, the property of the Valleyview Hotel Company Ltd, the purchaser, after talking to the shareholders of this company and its solicitor. This, in my opinion, cannot override the preponderance of the evidence which is to the effect that the parties intended this sale to take place in the year 1955.
The next case cited for the plaintiff is MNR v Wardean Drilling Limited,  CTC 265; 69 DTC 5194, a judgment in 1969, of Cattanach, J. That case is concerned with the acquisition of chattels (a drilling rig and its substructure), and the learned judge rightly considered and construed Sections 20 and 21 of the Alberta Sale of Goods Act, RSA 1955, c 295, in relation to the matter. The circumstances of that case, upon which Cattanach, J pronounced his interpréta- tion of the applicable law, differ so markedly from those of the issue to be determined here, that no relevance can be accorded to it in this present case.
Finally, counsel for the plaintiff referred to Scandia Plate Ltd v The Queen,  CTC 431; 83 DTC 5009, also a judgment of Cattanach, J which he rendered in 1982. The passage to which reference was made is as follows:
Accepting merely as a premise that what was reached between the parties was a verbal executory contract or a verbal preliminary contract according to my view of the law of contract, both at common law and in equity, that when there is a preliminary contract in words which is afterwards reduced into writing, or where there is an executory contract to be carried out by a deed afterwards executed, the rights of the parties are covered in the first case entirely by the writing, and in the second entirely by the deed.
That is the broad principle of law which is well known and acted upon. Where a preliminary contract of any description, whether verbal or otherwise, is intended (as was the case here) to be superseded by, and is in fact superseded by, one superior character, then the later contract — the superior contract — prevails.
No doubt the principle is correctly, stated and it turns upon the intention of the parties, so long as their intention manifests itself in effective contractual conduct.
Bearing in mind that the issue to be determined here is the year in which Reilly made a disposition of the land in question to Carma, one should canvass the jurisprudence on contracts and agreements for the sale of land and interests in land in which the circumstances are the same as, or highly similar to, those in the instant case. One must also bear in mind that the instant case involves a dispute between the successors to a contracting party and the taxing authorities: it is not a dispute between the contracting parties themselves, who appear always to have been quite ad idem in regard to their transaction.
The jurisprudence reveals that both an objective test and a subjective test are invoked to aid in determining what constitutes a disposition of property and when it occurs. Thus, it is both the documentary evidence or record of the transaction in question and the intention of the parties during that transaction, if it can be inferred from all of the evidence and if it be not inconsistent with the recorded terms of their transaction. In the instant case, the law of contracts in regard to sale of land or interests in land would appear to furnish the appropriate tests as to when Reilly made a disposition of his land in favour of Carma.
A recent authoritative judgment about the formation and definiteness of contracts (a letter agreement for a lease of restaurant premises atop a proposed building whose construction was to be financed by a stranger to the agreement, on land owned by another stranger to the agreement,) is Canada Square Corporation v V S Services Ltd, 34 OR (2d) 250, a unanimous decision of the Ontario Court of Appeal. The plaintiff successfully brought action for damages for breach of the agreement to lease the top floor of the building, the trial judge holding the letter agreement to have been enforceable. The Court of Appeal held that the letter was an enforceable agreement because, read as a whole and against the commercial background, it was possible to determine the necessary elements of a lease. Such uncertainty as remained was insufficient to justify the conclusion that the whole contract should be void. In particular, there were no essential matters that were not resolved by the letter.
That Canada Square judgment is a carefully reasoned and justifiably voluminous opus by Morden, JA in which there are several passages of relevance to the case at bar. They are:
The appellant raises several issues with respect to which, it submits, the trial judge erred in holding that the October 14, 1969, document constituted a binding contract between the parties. I shall deal with them in the order they were advanced:
1. The trial judge erred in failing to find that the purported acceptance by Moog on behalf of Canada Square was nothing more than a conditional acceptance which at best constituted a counter-proposal which was never accepted by Versafood.
In support of this ground the appellant can refer to the language immediately preceding the execution by Canada Square. This, when read by itself literally, may tend to support is position. However, it cannot be read by itself. Its context includes, at least, the whole document. This demonstrates that the parties had arrived at an agreement and the the reference to the approval of Occidental Life Insurance Company is more reasonably interpreted as representing a condition of the agreement. Its insertion below the signature of Mr Baker tends to underline that the provision was for the benefit of Canada Square, but, reading the document as a whole I do not think that it represents a counter-proposal which had not been accepted by Versafood. Further, I am satisfied that this is an issue with respect to which evidence extrinsic to the document itself may be considered. We are entitled to consider the state of the document when it was signed, (cf Stewart Eddowes et al (1874), LR 9 CP 311) It appears that Mr Baker dictated the whole of it, including the “acceptance” part, and it is quite clear that the various copies of it were signed simultaneously. The conclusion is inescapable that when the document was executed on behalf of Versafood it was assenting to the condition in the acceptance.
2. In any event, the condition was never satisfied by the approval of Occidental Life. With respect to this point it is relevant to know the position of Ocidental Life. It was one of the financiers of the proposed building. The exact terms of its relationship with Canada Square were not introduced into evidence. In inserting the condition into the agreement Mr Moog was acting on something in the back of his mind that there was something in Occidental’s commitment to Canada Square for which he needed an approval. He subsequently found out that he needed the approval by Occidental Life of the plans and specifications for the improvements before construction.
Since the approval contemplated in the agreement was, in my view, given, it is not necessary to canvass the respondent’s alternative arguments based on waiver of the condition by Canada Square (the condition being submitted to be for its benefit alone) and on acceptance of the approval by both parties after it was given.
3. The October 14, 1969, letter does not represent a concluded contract. The parties were negotiating subject to contract. Alternatively, and in any event, the terms of the document are so uncertain and impossible of performance as to be unenforceable.
There is no disagreement between the parties to this appeal on the requisite terms of a valid agreement for lease. Both rely on the following passage in Williams, Canadian Law of Landlord and Tenant, 4th ed (1973), at p 75 as follows:
To be valid, an agreement for a lease must show (1) the parties, (2) a description of the premises to be demised, (3) the commencement and (4) duration of the term,
(5) the rent, if any, and (6) all the material terms of the contract not being matters incident to the relation of landlord and tenant, including any covenants or conditions exceptions or reservations.
I shall deal later with requirement (6), which relates to material terms. It comes into play only in certain cases. It may be said now that conditions (1) to (5) are invariable requirements.
In this case the uncertainties submitted on behalf of the appellant relate to (1) the description of the premises to be demised, (2) the commencement of the the term, and
(3) certain material terms of the contract. I do not think that the arguments respecting these issues can reasonably be separated from those relating to the more general argument that the October 14, 1969, document represents nothing more than a stage in the negotiation of a contract. I say this because, it seems to me, if there is sufficient certainty with respect to all of the requisite terms of an agreement to lease then this would be a factor supporting the conclusion that the parties had passed through the negotiation stage and had made a binding contract.
In addition to the foregoing circumstances surrounding the execution of the October 14, 1969, document, there are also those following it which, in my view, may be taken into account on the broad issue of mutual intention to create a relationship. As Waddams, The Law of Contracts (1977) at p 193 shows, there had been a difference of judicial opinion as to the relevance of the parties’ conduct in interpreting a prior writing. This is an area where it seems to me it is not sensible to think that there should be an absolute rule one way or the other. Such evidence, in some cases, may be of value in shedding light on the parties’ prior intention and in other cases be useless and, possibly, misleading. I think Waddams puts the matter fairly in the following passage at p 194:
Often the subsequent conduct will not be conclusive, and it should be treated with caution, but it may be helpful in showing what meaning the parties attached to the document after its execution, and this in turn may suggest that they took the same view at the earlier date. It is suggested that caution is appropriate in drawing conclusions from subsequent conduct, for the fact that a party does not enforce his strict rights does not prove that he never had them.
Corbin on Contract (1963), vol I, at p 93 observes that “[t]he fact that [the parties] have . . . acted [by rendering some substantial performance or by taking other material action 1 reliance upon their existing expressions of agreement] is itself a circumstance bearing upon the question of completeness of their agreement”.
In this case, I have already said, the parties by their words and actions following October 14, 1969, conducted themselves in a way which showed that it was more probable than not that from that date forward they regarded their relationship as being of a binding nature rather than one of the two parties still engaged in negotiation.
Taking all of the foregoing into account I am satisfied that the trial judge was right in finding that in executing the October 14, 1969, document the parties intended to make a contract. However, this does not end the matter. Notwithstanding that the parties may have thought they were bound, if the essential terms of the alleged contract lack certainty, either because they are vague or because they are obviously incomplete, the result will not be a binding contract: 9 Hals, 4th ed, para 262; Trietel, The Law of Contract, 5th ed (1979), at p 40; Corbin on Contracts at p 394.
In this case there is no doubt that the document of October 14, 1969, as an agreement to lease, is crudely expressed and contains some very loose language. Further, a more sophisticated document would probably have covered several other matters in addition to those dealt with in it. Nonetheless, accepting that the parties intended to create a binding relationship and were represented by experienced businessmen who had full authority to represent their respective companies, a court should not be too astute to hold that there is not that degree of certainty in any of its essential terms which is the requirement of a binding contract.
Since I base my conclusion on my interpretation of the language of the document or the doctrine of election, and the common sense of the situation (in Rumble v Heggate, supra, James V C said at p 750 that the objections to the agreement in that case on the basis of uncertainty of quantity of land of its site ‘‘are mere shadows which vanish when examined by the light of common sense”) it is not necessary to make a final decision on the admissibility and probative effect of the parties’ subsequent conduct. I would mention, however, that it has been recognized that the ambiguity or uncertainty of a contractual provision may be resolved by the subsequent conduct of the parties (9 Hals 4th ed, paras 266, 269 and 270), and that in this case the evidence of what transpired after October 14, 1969, is particulary cogent. There is no evidence that the parties took any steps to “negotiate” terms respecting the space on the mezzanine floor lobby. The evidence merely disclosed that in March of 1970 Planned Food, on behalf of Versa- food, asked Cooper, the architect, for information on the location and dimension of the takeout area and it was promptly furnished by Cooper’s office with a drawing containing the necessary information — the space being 24 by 24 ft, 576 sq ft. This evidence supports the view that the parties did not regard this particular feature of the agreement as being a matter requiring negotiation.
Reference may be made to the judgment of Dickson, J for the Supreme Court in Dynamic Transport Ltd v O K Detailing Ltd, supra, at p 1082, where significance was placed on the fact that the vendor, who repudiated an agreement of purchase and sale, did not “take the position that imprecise formulation of the land description made completion impossible. Refusal to complete the transaction would appear to have been prompted by considerations other than difficulty in identifying the land agreed to be sold”. This was the case in the matter before us.
The parties, of course, are in agreement that a valid agreement for a lease must state with certainty the time from which the lease is to commence. Versafood submits that the sentence in the letter reading “The term of the lease will be for a good period of thirty years (30) from the date of substantial completion of the building, including the Versafood facilities” does not accomplish this. The trial judge held that as a matter of law that it may be provided for in an agreement that the time for commencement of a lease may be determined from an event which may happen in the future and, further, accepting this, that the terms of the October 14, 1969, document were sufficiently certain to meet the applicable test. I agree with these conclusions and, substantially, with the reasons therefor. I shall add one or two observations to what the trial judge has said.
I think that the trial judge was right to rely upon the statemet of Evershed J in Brilliant v Michaels,  1 All ER 121 at pp 127-28, which reads as follows:
My opinion, therefore, is that a contract for a lease is enforceable notwithstanding that the commencement of the term may be expressed by reference to the happening of a contingency which is at the time uncertain provided that, at the time that the contract is sought to be enforced, the event has occurred and the contingency has happened.
As a matter of principle I can think of no valid reason why, if parties choose to agree that a lease is to commence on a future specified contingency, a court should not uphold their bargain. In many cases, of course, there will be sensible and practical reasons why parties would choose to proceed in this way.
There is no suggestion in [Mitchell v Mortgage Co of Canada, 59 SCR 90, 48 DLR 420,  3 WWR 324] that had the parties been in agreement on the repairs to be done that the agreement would have been void for uncertainty because it was based on the happening of a future event. Indeed, by implication, the judgment may be regarded as holding that the future event aspect alone, was not ground for objection.
On the next point, whether the terms in this agreement were sufficiently certain to meet the applicable test, I agree with the trial judge’s implication of the term that [p 609 OR] “the substantial completion of the building including the Versafood facilities” would be determined by the project’s architect. Mr Rolls, relying upon Calvan Consolidated Oil & Gas Co Ltd v Manning,  S.C.R. 253 at pp 259-60, 17 DLR (2d) 1, submitted that the trial judge should not have imposed this term. He argued that if the matter of the time for commencement were to be arbitrated by the architect, this would be a term for which the parties would have to make express provision. In my view, the term concerning the commencement time of the lease was expressly agreed to by the parties. The implication of a relatively minor term respecting the practical application of the express term can hardly be called making a contract for the parties.
On the terms of the document it is reasonably clear that at the end of the 30-year lease (and in the absence of a renewal) the landlord could re-enter the top floor premises. Versafood may have owned the walls, the ceiling and the roof but it did not own the floor. It may well have been desirable for the parties to have agreed upon terms respecting this and, possibly, other matters in their agreement for the lease, but it is clear that the parties made no attempt to do so and I cannot say that their failure to do so resulted in the absence of any terms essential to their agreement.
It was also argued that the agreement was incomplete because, since the Toronto Transit Commission owned the land on which the building was erected, some sort of an agreement on its part to the agreement between Versafood and Canada Square was needed. Once again, while this might have been advisable, it was not essential to the settling of the rights and obligations of the parties to the letter agreement of October 14, 1969, between themselves.
Whether or not a series of documents can constitute evidence of a binding contract for the sale and purchase of land and whether, in such circumstances, the later form of agreement may be found to be a formal elaboration of a completed contract already embodied in the earlier informal document, depends upon the conclusion reached upon a reasonable construction of both documents. A western Canadian case of moderate “antiquity” is that of Harris v Darroch (1908), 8 WLR 86, from Saskatchewan, decided by Johnstone, J in 1908. The following passage appears in the report:
In view of the facts and law just stated, I am clearly of the opinion that the agent Gilliland had full authority and only to enter into the contract prepared by him and signed by the plaintiff, but that he also had authority (had he so chosen) to have signed the same, and, if such receipt and contract can be read together, there was a completed and binding contract to satisfy the Statute of Frauds, and one which could be enforced by a decree for specific performance.
I am furthermore of opinion that the receipt referred to, together with the writing signed by Harris, constituted a good and binding contract. In Shardlow v Cotterell, 20 Ch D 90, it was held following Long v Millar, 4 CPD 450, that several documents could be joined and read together so as to constitute a contract between the parties. The question then arises, did what took place . . . constitute a completed contract? I think it did, and, in this opinion, I am supported by the authority of the Master of the Rolls in Gibbins v North Eastern R W Co, 11 Beav 1 . . .
The Master of the Rolls then proceeded to say: ‘‘So far the matter is clear, for there is a distinct offer and a distinct acceptance of that offer: and there can be no doubt that, according to the law of this Court, this would constitute a valid contract, the sum of £3,000 being distinctly offered, and distinctly accepted. I do not think that this proposition has been denied: but the letter of acceptance proceeds, ‘If you approve of the enclosed, sign the same, and, on the receipt of the deposit, we will sign you a copy’. What is the meaning of this? Is it to contradict the first part of the letter? Does it mean that we accept the offer, but reject it unless you sign the enclosed memorandum? Or rather, is it not an acceptance and a proposal of a more formal mode of carrying the acceptance into execution? If the latter be the meaning, then, according to the authority produced, this would not destroy the contract. If it was a mode of carrying a contract into effect, it did not alter the existing contract, though the proposed mode was different from that which the law would direct; for, where there is a contract, the law prescribes the mode of its performance”. This decision was followed in the case of Bonne- well v Jenkins, 8 Ch D 70, at p 73. James, LJ, lays down the law in the following way: “I am clearly of opinion that the order of Mr Justice Fry ought to be affirmed. Whether there is a binding contract or not depends on the construction of two letters. It is settled law that a contract may be made by letters, and that the mere reference in them to a future formal contract will not prevent their constituting a binding bargain. There are indeed cases, such as Rossiter v Miller, where the Court may hold that the reference to the future contract is such as to show that the parties did not intend to be bound until it was signed, but such cases depend on their own special circumstances. Here there is an unconditional acceptance by the defendant of the plaintiffs offer, and the reference to the preparation of a formal contract appears to me to be immaterial’’.
Although there appears to have been no dispute between Reilly and Carma in the instant case, it is already obvious that not infrequently the tests of what constitutes a binding cotract are developed and declared in cases of conflict between the parties to the purported agreement. Such a case, at the summit of judicial declaration, was that of Calvan Consolidated Oil & Gas Company Limited v Manning,  S.C.R. 253. Here the parties in their agreement made provision for arbitration as to the terms of a possible, future operating agreement. There was a question about whether such a provision is ineffective as being merely an “agreement to agree”, but it was held that a provision that new or modified terms be settled by an arbitrator can be made enforceable. In that regard, Judson, J wrote for the court:
Even if this were not so, I would accept the view of the Court of Appeal that failure of a term such as this would not invalidate the transfer of property interests and the rest of the agreement, the terms of which had been completely settled.
The remaining two paragraphs of the agreement deal first with the preparation of a syndicate agreement and the obligation of each party to keep his permit in force until the end of the third year. There was no suggestion of difficulty on either of these two points.
My conclusion therefore is that this contract is not void for uncertainty. There is no need here to invoke the principle of a “fair” and “broad” construction of this contract as mentioned by Lord Wright in Hillas and Co Limited v Arcos Limited,  All ER 494. The parties knew what they were doing and they expressed their intentions with certainty and a complete lack of ambiguity.
Only two questions remain to be considered and these arise from the provision in the amending agreement for arbitration on the terms of the formal agreement. The questions are, first, whether this indicates an intention not to be bound until the formal agreement is executed, and, second, what terms may be incorporated in the formal agreement by the arbitrator. My opinion is that the parties were bound immediately on the execution of the informal agreement, that the acceptance was unconditional and that all that was necessary to be done by the parties or possibly by the arbitrator was to embody the precise terms, and no more, of the informal agreement. This is not a case of acceptance qualified by such expressed conditions as “subject to the preparation and approval of a formal contract”, “subject to contract” or “subject to the preparation of a formal contract, its execution by the parties and approval by their solicitors”. Here we have an unqualified acceptance with a formal contract to follow. Whether the parties intend to hold themselves bound until the execution of a formal agreement is a question of construction and I have no doubt in this case. The principle is well stated by Parker J in Hatzfeldt-Wildenburg v Alexander,  1 Ch 284; 81 LJ, Ch 194, in these terms:
It appears to be well settled by the authorities that if the documents or letters relief on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.
Whether or not it is relevant, I am fully satisfied that the parties thought they were bound until very close to the institution of this action.
Compared with the documents considered and construed in the above mentioned Calvan and Canada Square cases, the letter agreement in the instant case appears to be a veritable model of certainty and completeness. It describes the parties, the land being sold (except for the typographical error upon which nothing turns) and the total price as well as the price per acre. These matters of agreement are carried without deviation into the formal agreement. The formal agreement bears an augmented total price as well as an extra description of land. Together they do not constitute a deviation from the terms of the letter agreement, but rather an additional transaction which serves, by reference, to confirm those terms and not to invalidate them. So, also, the terms of payment remain unaltered, although elaborated in solicitor’s language, and even the down payment provision accords with that of the letter agreement. The rates of interest on the outstanding balance and the manner of transferring title to the purchaser also accord with the provisions of the letter agreement.
The letter agreement is expressed in absolute and not in conditional or qualified terms. Thus, it is apparent that Carma sought title and possession of Reilly’s land in order to subdivide and develop it. However, unlike the transaction de- scribed in the Victory Hotels case, which was conditional upon issuance of a liquor licence, the letter agreement provides by paragraph 3(b) “in any event, whether or not approval for subdivision is obtained, total payment of the outstanding balance shall be made on or before December 1, 1987 . . .’* and that provision is carried into section 2 of the formal agreement. It is also to be noted that the letter agreement’s provision for the formal agreement is, to quote Judson, J in the Calvan case, “not a case of acceptance qualified by such expressed conditions as ‘subject to the preparation and approval of a formal contract’, ‘subject to contract’ or ‘subject to the preparation of a formal contract, its execution by the parties and approval by their solicitors’. Here we have an unqualified acceptance with a formal contract to follow’’. Indeed in the letter agreement executed by Reilly and Carma, neither one nor the other purported to do aught but agree in an entirely unqualified manner. Neither one nor the other added a term, or a qualification, or a conditional acceptance or a counter-offer after offer and acceptance, concerning the formal agreement . It was incorporated into their letter agreement and the written-in provision that it was to be “in accordance with the terms hereof’ is their agreement which is attested by the signed initials of or for both parties. Whether or not it is relevant, Reilly certainly thought that he was bound by the letter agreement, according at least to the testimony of Mr Tetz.
In so far as a “disposition’’ of Reilly’s land is concerned, it is plain that he and Carma had made a complete, unambiguous and enforceable agree'ment for sale and purchase in November, 1972, according to the terms of the letter agreement. Carma lodged its caveat against Reilly’s titles, as it was entitled to do in order to secure its interest in the lands, pursuant to the Land Titles Act, RS A 1970, of Alberta, thus demonstrating its belief in the validity of the letter agreement. There is nothing to be taken against that belief or that validity from the subsequent withdrawal of that caveat, after the lodging of a new caveat upon execution of the formal agreement. Those actions are simply the conduct of prudent and tidy solicitors practising in and under the Torrens system of land titles registration.
Once the parties form their binding contractual relationship they have something — a metaphysical something, to be sure — which belongs to them and which they can augment, postpone, vary or even cancel by their agreement. So long as the parties do not reduce or abort their agreement for sale of land, it remains and they are free to merge other agreements and other provisions — such as provisions relating to gravel pits, or removal of buildings, even one saying that the document expresses all of their contract, as Reilly and Carma did
— with that disposition of land without destroying or qualifying it.
Having provided that annual payments in reduction of the outstanding balance of the sale price should be made by Carma to Reilly on December 1 in each year, starting in 1973 until that date in 1987 at the latest, they provided in section 5(i) of their formal agreement that the date for adjustment of taxes and in section 2 thereof that commencement of interest, would be December 1, 1972. It is true that the date for adjustments and commencement of interest is at variance with that which is provided in paragraphs 7 and 3(d) of the letter agreement, but it must be remembered that this was a variation of an agreement or bargain which already “belonged*’ to the parties to do with, by mutual agreement, as they pleased. It did not sterilize, invalidate or destroy their existing bargain, or even render it uncertain. Rather, it was a reasonable implication of that bargain. Such a variation within the terms of an existing contractual relationship cannot be regarded as retrospective, because the date agreed upon was subsequent to the date of November 24, 1972 on which the parties struck their bargain.
Those provisions of the formal agreement provide a strong indication of the intention of the contracting parties, which they must have jointly formulated prior to the typing up of the formal agreement, and the document itself provides a cogent inference that their joint intention was formulated in 1972. It appears that the execution of the formal agreement on January 19, 1973 was a mere accident of timing. If the typist had prepared that document in 1973, clearly the year could have been typed on its first page and the typist might even have risked typing the month, “January”. No evidence was led as to when instructions were taken for the final agreement or when it was typed. However, the document itself furnishes a solid basis of a clear inference that it was all ready for execution before the end of 1972, because the month and year were left blank, to be recorded in handwriting.
It is clear then that the land contemplated in the letter agreement was the subject of a disposition for $2,000,000 to which Reilly then became entitled according to the terms agreed, in the 1972 taxation year.
The additional land, described in the fourth parcel in Schedule “A” to the formal agreement, consists of 11.55 acres. In both the letter agreement and the formal agreement Reilly and Carma agreed upon the price of $1,613 per acre. Here, then, is the additional $18,630.15 over and above the price of $2,000,000 expressed for the lands which were contemplated in the letter agreement.
There is no direct evidence of any agreement between the parties in 1972 concerning any disposition of the parcel of 11.55 acres. However, the strong inference that they struck that bargain in 1972 remains unchallenged. Reilly made an enforceable contract with Carma in regard to this last parcel of land only upon execution of the formal agreement, in which it was included by agreement of the parties, in January, 1973. Here for the first time, in regard to this last parcel was a memorandum in writing signed by the parties in contemplation of the Statute of Frauds.
The absence of a memorandum in writing signed by the party to be charged with performance does not obviate the very existence of any contract: it merely renders any contract made by the parties unenforceable. By clear inference, Reilly and Carma made their contract for the parcel of 11.55 acres in 1972. Had there been a falling-out between them prior to January 19, 1973, their contract would have been unenforceable in regard to the last parcel. A “disposition” of property under paragraph 54(c)(i) and (h) of the Income Tax Act includes any transaction or event entitling a taxpayer to the proceeds or sale price of property which has been sold. The question arises whether entitlement to proceeds excludes moral entitlement pursuant to an unenforceable parol contract, of which there is ample evidence here, or whether the statutory language contemplates moral entitlement as well as legally enforceable entitlement. Although no question of actual enforcement between Reilly and Carma arises in this case, one must conclude that the entitlement to proceeds in the Income Tax Act means legally enforceable entitlement in order to avoid vagueness and impart certainty in the affairs of taxpayers.
Therefore, the fourth parcel of 11.55 acres described in Schedule “A” to the formal agreement was the subject of a disposition for the sale price of $18,630.15 to which Reilly became entitled, in the 1973 taxation year.
The foregoing findings dispose of the issue submitted in paragraph 9(a) of Exhibit 1, the agreed statement of facts and matters.
The issue submitted as 9(b) asks if the notice of reassessment pertaining to the disposition in the 1972 taxation year be out of time pursuant to subsection 152(4) of the Income Tax Act. The subsection provides:
152. (4) Idem. The Minister may at any time assess tax, interest or penalties under this Part or notify in writing any person by whom a return of income for a taxation year has been filed that no tax is payable for the taxation year, and may
(a) at any time, if the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act, or
(ii) has filed with the Minister a waiver in prescribed form within 4 years from the day of mailing of a notice of an original assessment or of a notification that no tax is payable for a taxation year, and
(b) within 4 years from the day referred to in subparagraph (a)(ii), in any other case,
reassess or make additional assessments, or assess tax, interest or penalties under this Part, as the circumstances require.
Counsel stated that it is the defendant’s position in this case that there was a misrepresentation, because the dispositions of land were not disclosed in Reilly’s returns, and the misrepresentation was attributable to neglect, or carelessness, or wilful default, but not to fraud. In argument, the possibility of wilful default was not emphasized and the defendant’s counsel concentrated virtually entirely on neglect or carelessness.
The statutory underpinning for this issue begins with a basic provision of the Income Tax Act which applied to the 1972 and 1973 taxation years, thus:
150. (1) A return of the income for ... each taxation year for which a tax is payable in the case of an individual shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,
(d) ... on or before April 30, in the next year, by that person or, if he is unable for any reason to file the return, by his guardian, curator, tutor, committee or other legal representative . . .
For the 1972 taxation year at least a prescribed form, Schedule 2 is shown on page 9 in Exhibit 2, as it was filled in and annexed to Reilly’s 1972 amended income tax return. Schedule 2 bears the title “Statement of Capital Dispositions’’ together with a paranthetical note: “(See Guide — items 57 to 72)”. A copy of a pamphlet “Your Guide to the 1972 Income Tax Return” (the Guide) apparently composed and published by “National Revenue, Taxation” — which is the style in which the Department of National Revenue appears to represent itself — is Exhibit 4.
The Schedule 2 form annexed to Reilly’s amended 1972 income tax return displays items under the heading: “Shares”, with sums reported, a calculation and a bottom-line result opposite the printed direction, “One-half of the above Total Capital Gain (or loss) (Enter this amount as ‘Taxable capital gains or allowable capital losses’ on page 2 of your return. If a loss, the amount to be entered must not exceed $1,000.)" No mention of the disposition of land sold to Carma appears on this Schedule 2 form or elsewhere in the returns prepared and filed for Reilly by Donald Stanley Tetz, CA. Mr Test testified that the particular schedule is, in effect, the amendment to the 1972 return.
Mr Leonard Gregory Clark Fletcher an auditor in the estate and trust section of the Calgary office of the Department of National Revenue since October, 1974, and an employee of the Department since September, 1967, also testified. The effect of his testimony indicated that the Department of National Revenue was never advised of Reilly’s disposition of the land in favour of Carma until after Reilly’s death in April, 1976. There was no mention of any oral or written reference to Carma in the Department’s file. In 1977, a clearance certificate for the deceased’s estate was requested and a departmental auditor received a copy of the will, probate and a list of assets as at the date of Reilly’s death, and she wrote to the estate’s accountant to say that she would be looking into the Carma transactions. So it was that ultimately there came about the notices of reassessment described in paragraphs 4 and 6 of Exhibit 1.
On the authority of the decisions and reasons reported in Saykaly v MNR,  CTC 702; 76 DTC 6440, and in The Queen v Columbia Enterprises Ltd,  CTC 204; 83 DTC 5247, the testimony of Mr Tetz is most important because, as was held in Howell v MNR,  CTC 2241; 81 DTC 230, and latterly in MD Glazier Ltd v MNR,  CTC 2061; 83 DTC 48, the “obtaining of professional advice in itself, and even following that advice, does not absolve a taxpayer from his own responsibility in regard to the preparation of his tax return’’.
Did the fact of not reporting any capital gain on the dispositions of his property in the 1972 and 1973 taxation years, as mentioned in paragraph 3 of Exhibit 1 amount to misrepresentation? Clearly not, unless a capital gain had actually been realized on those dispositions. Whether such gain was realized, or not, is not in issue here. However, it would appear that in agreeing to the particular formulation of that statement of the facts and matters recited in paragraph 3 of Exhibit 1 (previously recited herein) the defendant no doubt unintenionally demonstrated and adopted the very same outlook and approach which the plaintiff avers in defence against the defendant’s allegation of misrepresentation. That 1s, if there were no capital gain in relation to the dispositions of Reilly’s lands, as the plaintiff contends, then the fact of not reporting any such capital gain could never qualify as a misrepresentation of any sort at all. In a very technical sense, then, the issue is already determined against the defendant’s contention if the facts and matters stated in paragraph 3 of Exhibit 1 comprise the sole factual basis on whether or not misrepresentation can be established.
However, at the hearing of this case counsel for the defendant adopted the position that it is the fact of not reporting a capital disposition, and not merely a capital gain, which underlines the Minister’s assertion of misrepresentation. Evidence was led and argument was submitted in relation to latter fact, despite its having been excluded by the restricted formulation of the agreed statement in paragraph 3 of Exhibit 1. Indeed, this latter fact is clearly demonstrated in Exhibits 1“G” and 1“H”. Since the actual 1972 and 1973 returns which were filed are no longer in the possession of the Minister, these latters ones, photos of the taxpayer’s copies, as are those in Exhibits 2 and 3, are the forms admitted in evidence.
In order to make any determination of making “any misrepresentation that is attributable to neglect, carelessness or wilful default ... in filing the return or in supplying any information under the Act*’ it is necessary to have direct evidence of the state of mind and intention of “the taxpayer or person filing the return’’ or other evidence upon which reasonable inferences can be drawn in regard to the taxpayer’s or other person’s state of mind and intention.
Apart from the documentary evidence and the testimony of Mr Fletcher, the only direct evidence and basis for inference was the testimony of Mr Tetz. Mr Tetz testified that he has been a Chartered Accountant since 1958 and has been associated in practice with Tetz, Broadwell & Co in Calgary since 1961. His practice is conducted primarily in the field of taxation and service to small businesses. He said that he met Reilly around 1963, was engaged by Reilly, and acted for him in a professional capacity until Reilly’s death. The relationship was not solely professional but was also friendly and social. Mr Tetz was Reilly’s adviser in matters of business and investments.
Shown Exhibit 2 (identical to Exhibit 1“G”), Mr Tetz recognized it as a copy of the 1972 tax return, the “original” copy of which is in his file. The notation at the bottom of the first page “Signed and mailed original to tax ofice April 30/73” was written by him. Shown Exhibit 3 and the copies of other amended returns and schedules he, of course, acknowledged the plain fact that no capital disposition of the land sold to Carma was reported. Mr Tetz testified that the returns did not reflect the Carma transaction because there was neither a taxable gain nor a loss and so, he asserted, the transaction was not reportable. He testified also that he would have relied on Reilly to assess loss or gain, because Reilly had a good grasp of real property values. Mr Tetz said that if he were not preparing such a return he would reflect the transaction even if it were a “nil” return. He also observed that 1972 was the first year in which capital gains were taxed and had to be reported.
In coming to the decision in 1973 that Reilly’s disposition of the land sold to Carma did not need to be reported, Mr Tetz testified that among the research, courses, commentaries and other sources which he canvassed in order to advise clients on the then new Income Tax Act, he relied principally on the directions published in the 1972 Guide (Ex 4) already mentioned. Since he had access to other publications and sources, including the Act, to which professional tax advisers have reference Mr Tetz readily admitted that it is fair to say that his knowledge of the matter in issue was not limited to the Guide alone. However, “I would have made reference to this generally and specifically in regard to this question” he testified.
The items in the Guide to which Mr Tetz referred in his testimony are:
Page 1 — Schedules
(2) Statement of Capital Dispositions — If you sold some property or asset, (other than your home or car), the profit from the sale may be subject to tax. Otherwise, ignore this schedule.
Page 25 — Capital Gains — Item 57
Most people will not be affected by the new legislation concerning capital gains or losses. This is because the types of property most people own — a home and such personal effects as household goods and automobiles — will not usually be subject to capital gains provisions.
Your home will not be subject to capital gains as long as you use it only as your principal residence, and personal effects do not normally give rise to a capital gain when sold. No capital gains or losses can result from the disposition of savings bonds which are acquired and redeemed at face value.
A simple example of capital gain you would have to report would be where you have sold an asset, such as a share in a public corporation, for more than its cost to you. Similarly, a loss would be reported where you sold the asset for less than its cost to you. The general rules to follow when reporting a capital gain or loss depend upon the type of asset sold during the year, as shown on Schedule 2. There will be many exceptions to the rules outlined below for various assets. Contact your District Taxation Office if after having read this Guide you are in doubt about any transactions.
Page 26 — Other Capital Properties — Item 61
As Schedule 2 indicates, Other Capital Properties are dividend into “shares”, ‘‘real estate” and “bonds and other properties”. (Note that real estate would not include an exempt principal residence, nor a recreation property such as a summer cottage, which is owned chiefly for personal use.)
All gains and losses on these assets should be reported, regardless of amount. Losses are offset against gains to arrive at a net gain (or loss) for each type — shares, real estate, bonds and other properties respectively.
Schedule 2 — Statement of Capital Dispositions — Item 63
You calculate your taxable capital gains and allowable capital losses for the year by completing Schedule 2, enclosed with your return.
Except as previously indicated, every disposition of capital property must be reported on Schedule 2.
Page 26 — Assets acquired before 1972 — Item 67
For assets acquired before 1972, the Valuation Day value must be considered when computing capital gains and losses. Valuation Day for shares liated in the publication “Valuation Day Prices of Publicly Traded Shares” (see your District Taxation Office for a copy) was 22nd December, 1971. Valuation Day for all other assets was 3lst December, 1971. To compute a capital gain or loss on an asset acquired before 1972, three figures are required”
— the actual cost,
— the Valuation Day value,
— the Proceeds of Disposition as described above. (Note that adjustments to the cost base may change the proceeds of disposition for this purpose.)
The median of these three figures, that is, the figure which is neither the highest nor the lowest, is the base upon which the capital gain or loss is computed, subject to the election explained below. Where two or more of these three figures are the same amount, that amount will be the median. This median figure is deemed to be the adjusted cost of the asset and is the amount to be entered in column 2 of Schedule 2 provided that there are no adjustments, contact your District Taxation Office.
Thus capital gains result if the Proceeds of Disposition exceeds the greater of cost and Valuation Day value. A capital loss result if the Proceeds of Disposition is less than the lesser of cost and Valuation Day value. If the proceeds of Disposition is the median figure, no capital gain or loss results.
Cross-examined specifically in regard to Item 63, Mr Tetz said that [at the material times] he read it in light of the other items to mean that every disposition of capital property must be reported, except dispositions of house, car or transactions resulting in no capital gain or deductible loss (“as previously indicated”). It is clear, according to this testimony, that at the time Mr Tetz was of the opinion that such transactions were to be ignored and therefore were not reportable. Without here sifting every question and answer in Mr Tetz’ testimony, the salient impression it conveys is that, the Guide’s guidance induced the opinion about which he testified and that he entertained no doubt about it at that time. Indeed, he testified that he never came to the conclusion that such transactions must be reported, but that the “best wisdom” has since led him to change his practice and to report them now for information purposes. Upon both examination in chief and cross-examination, Mr Tetz, in his demeanor and forthright answers, appeared to be a credible witness.
The issue is not whether Mr Tetz, in forming his opinion at the material time was wrong, but whether his not reporting the disposition was attributable to neglect, carelessness or wilful default. Counsel for the defendant, on whom the burden of proof according to a balance of probabilities lies, submitted extracts from two dictionaries. The Shorter Oxford Dictionary — Third Edition:
Careless 1. (now arch ...). 2. Unconcerned; not solicitous, regardless; having no care of, about, to. 3. Not taking due care, negligent, thoughtless; inaccurate 1579. 4. Of things: Uncared for; artless, négligé (arch)', (now esp) done, caused, or said heedlessly.
Neglect 1. The fact of disregarding, slighting, or paying no attention to, a person, etc; the fact or conditioin of being so treated; a slight. b. Disregard of, or with respect to, something; indifference 1597. 2. Want of attention to what ought to be done; negligence. Also const of 1591 b. An omission or oversight (now rare) 1638.
Black’s Law Dictionary — Fifth Edition
Neglect. May mean to omit, fail, or forbear to do a thing that can be done, or that is required to be done, but it may also import an absence of care or attention in the doing Or omission of a given act. And it may mean a designed refusal or unwillingness to perform one’s duty. In re Perkins, 234 Mo App 716, 117 SW 2d 686, 692.
The term is used in the law of bailment as synonymous with “negligence”. But the latter word is the closer translation of the Latin “negligentia".
Failure to pay money which the party is bound to pay without demand. An omission to do or perform some work, duty, or act. Failure to perform or discharge a duty, covering positive official misdoing or official misconduct as well as negligence.
See also Excusable neglect; Negligence.
Culpable neglect. Such neglect which exists where the loss can fairly be ascribed to the party’s own carelessness, improvidence, or folly. State ex rel Fulton v Coburn, 133 Ohio St 192, 12 NE 2d 471, 477, 10 OO 249.
Willful neglect. The neglect of the husband to provide for his wife the common necessaries of life, he having the ability to do so; or it is the failure to so by reason of idleness, profligacy, or dissipation.
Counsel for the defendant referred as well to the jurisprudence which subsection 152(4) has generated. In MNR v M Taylor,  CTC 211; 61 DTC 1140, Cameron, J held that the omission of reportable information from a return constitutes a misrepresentation, and the pronouncement was followed by Dumoulin, J in MNR v Foot,  CTC 317; 64 DTC 5196. Nowadays, however, the statute does not speak only of making “any misrepresentation or ‘comitting’ any fraud in filing the return or in supplying any information” any fraud in filing the return or in supplying any information’ as it did when those cases were decided. In Saykaly v MNR,  CTC 702; 76 DTC 6440, Marceau, J found that the taxpayer in disassociating herself from fictitious transactions invented by her husband was negligent for not knowing or bothering to try to know what was going on and in attesting personal income tax returns which were presented to her by her husband, his lawyer or his accountant without looking into matters herself. The Chairman of the Tax Review Board, in Froese v MNR,  CTC ,2282; 81 DTC 240, held that the appellant, a former farmer who had operated his farm on a cash basis, was negligent in continuing to report his later income from selling land as subdivided lots instead of changing to an accrual basis; and the chairman expressed some surprise that the appellant could not or would not obtain professional advice in order to proceed with care in reporting income from a series of transactions of some complexity. In the instant case, Reilly did obtain and rely on professional advice and, of course, no fictitious transactions, or fraud, are alleged by the defendant.
Much has been written concerning the standards to be achieved by taxpayers in filing returns and providing information lest the Minister reach back into taxation years which Parliament ordained would be otherwise foreclosed against reassessment. The Taylor case might well have come to the same conclusion if it had been adjudicated in recent years, in view of the facts found therein. But the Court had to construe legislation there which raised a barrier against any misrepresentation on the taxpayer’s part and Cameron, J no doubt correctly concluded that “it would be improper, therefore, to construe that term as excluding a particular sort of misrepresentation such as an innocent misrepresentation’’. That standard then seemed so rigid as to condemn even honest mistakes. Some eleven years later, Pratte, J of this Court came to a different opinion while construing the same legislation in MNR v Bisson,  CTC 446; 72 DTC 6374, when he opined:
In my view, the fact that the legislator referred not only to “misrepresentation” but to “fraud” indicates that, by the first word, he meant innocent misrepresentation which, without being fraudulent, are still culpable in the sense that they would not have been made if the person committing them had not been negligent. I therefore conclude that a taxpayer who, without any negligence on his part, commits an error in declaring his income, does not make a misrepresentation within the meaning of s 46(4)(a)(i). When the Minister seeks to rely on this provision to proceed with a re-assessment after four years, he must therefore not only show that the taxpayer committed an error in declaring his income but also that that error is attributable to negligence on his part.
That passage seems clairvoyant in that it set the stage for the provisions of the new and current legislation expressed in subsection 152(4) of the Act. According to the interpretation of the former legislation enunciated by Mr Justice Pratte, the Minister could not reach back beyond four years to reassess when the taxpayer’s mistake was made without negligence.
That interpretation appears to be quite consonant with the provisions of subsection 152(4). So, when it is now said that the standard of care is that of a wise and prudent person, it must be understood that wisdom is not infallibility and prudence is not perfection.
In the instant case, because Mr Tetz, upon the careful and attentive reading of the Guide, which he testified and demonstrated that he performed, concluded that Reilly’s disposition of land was not reportable, then in not reporting it he made no default, and accordingly no wilful default, because he intended no such thing. It was argued on behalf of the defendant that if and when the Minister’s ambiguously worded Guide induces error on the part of a taxpayer or professional adviser, it is of no consequence in this kind of litigation because the defendant is not bound by that official Guide in any event. That argument surely misses the point of this enquiry. Here the issue is whether the error, if any, be attributable to neglect or carelessness. Mr Tetz’ demonstrated diligence and care in perusing the Guide were clearly the very antithesis of neglect and carelessness, even if his firmly held conclusions, upon which he acted in filing Reilly’s return were wrong. Therefore, the Minister is barred from making a reassessment back beyond the four-year limit.
Accordingly, the determination of the issue propounded in paragraph 9(b) of Exhibit 1, the agreed statement of facts and matters, comes to this: the disposition by Reilly of the real property described in the letter agreement and repeated as parcels one, two and three in the formal agreement, having taken place in the 1972 taxation year, the notice of reassessment pertaining to that year is out of time pursuant to subsection 152(4) of the Income Tax Act.
Success in the outcome of this action is divided, although hardly evenly. Accordingly, the plaintiff is entitled to recover from the defendant nine-tenths of the plaintiffs taxable costs of the action.