Teskey,
T.C.J.:—The
appellant
appeals
from
a
notice
of
reassessment
dated
May
11,
1987
with
respect
to
his
1984
taxation
year.
The
issue
involved
is
the
purchase
and
redemption
of
a
Scientific
Research
Tax
Credit
(S.R.T.C.)
debenture
of
Canadian
Coal
Liquifaction
Corporation
(Canadian
Coal)
and
the
purchase
and
redemption
of
a
S.R.T.C.
promissory
note
of
Coastal
Natural
Resources
Inc.
(Coastal)
The
appellant
claims
that
the
gain
made
in
each
instance
was
a
capital
gain,
whereas
the
respondent's
position
is
that
the
gain
was
income.
The
facts
are
quite
simple
and
are
not
in
dispute.
They
are
as
follows:
(a)
In
September
1984
the
appellant
was
approached
by
a
representative
of
Price
Waterhouse
suggesting
that
he
might
be
interested
in
purchasing
a
S.R.T.C.
debenture
of
Canadian
Coal.
(b)
On
September
29,
1984
a
purchase
agreement
was
entered
into
with
Canadian
Coal
(Exhibit
R-1
)
and
he
received
his
debenture
(Exhibit
R-2).
(c)
The
appellant
paid
$100,000
for
the
said
debenture
on
the
same
date.
(d)
The
appellant
received
on
September
30,
1984
pursuant
to
the
agreement
and
debenture
the
sum
of
$59,000
and
a
tax
credit
of
$34,000.
(e)
On
December
29,
1984
a
purchase
agreement
was
entered
into
with
Coastal
(Exhibit
R-3)
to
purchase
a
S.R.T.C.
promissory
note
and
he
received
his
note
(Exhibit
R-4).
(f)
The
appellant
paid
$100,000
for
the
said
promissory
note
on
the
same
date.
(g)
The
appellant
received
on
December
31,
1984
pursuant
to
the
agreement
the
sum
of
$58,000
and
a
tax
credit
of
$34,000.
(h)
The
agreements
with
Canadian
Coal
and
Coastal
(Exhibits
R-1
and
R-3)
both
designated
pursuant
to
subsection
127.3(6)
of
the
Income
Tax
Act
(Act)
an
amount
equal
to
the
total
consideration
of
the
debt
(i.e.
$100,000).
Therefore
the
appellant
by
operation
of
the
said
subsection
127.3(6)
is
deemed
to
have
a
cost
base
of
the
S.R.T.C.
debenture
and
note
of
50
per
cent
of
the
purchase
price,
(i.e.
$50,000
for
each
the
debenture
and
the
note).
Subsection
127.3(6)
of
the
Act
reads
as
follows:
127.3
(6)
For
the
purposes
of
this
Act,
where
at
any
time
in
a
taxation
year
a
taxpayer
has
acquired
a
share,
debt
obligation
or
right
and
is
the
first
registered
holder
of
the
share
or
debt
obligation
or
the
first
person
to
have
acquired
the
right,
as
the
case
may
be,
other
than
a
broker
or
dealer
in
securities,
and
an
amount
is,
at
any
time,
designated
by
a
corporation
under
subsection
194(4),
in
respect
of
the
share,
debt
obligation
or
right,
the
following
rules
apply:
(a)
he
shall
be
deemed
to
have
acquired
the
share,
debt
obligation
or
right
at
a
cost
to
him
equal
to
the
amount
by
which
(i)
its
cost
to
him
as
otherwise
determined
exceeds
(ii)
50%
of
the
amount
so
designated
in
respect
thereof;
and
(b)
where
the
amount
determined
under
subparagraph
(a)(ii)
exceeds
the
amount
determined
under
subparagraph
(a)(i),
the
excess
shall
(i)
where
the
share,
debt
obligation
or
right,
as
the
case
may
be,
is
a
capital
property
to
him,
be
deemed
to
be
a
capital
gain
of
the
taxpayer
for
the
year
from
the
disposition
of
that
property;
and
(ii)
in
any
other
case,
be
included
in
computing
the
income
of
the
taxpayer
for
the
year,
and
the
cost
to
him
of
the
share,
debt
obligation
or
right,
as
the
case
may
be,
shall
be
deemed
to
be
nil.
(i)
The
appellant
in
his
1984
tax
return
showed
a
total
capital
gain
on
these
two
transactions
of
$17,000
and
he
used
his
two
tax
credits
totalling
$68,000.
(j)
The
appellant
did
speak
with
a
principal
of
Canadian
Coal
concerning
the
research
project
of
moving
liquified
coal
by
pipe
line
prior
to
investment
with
that
company.
He
made
no
enquiries
whatsoever
concerning
the
operation
of
Coastal.
(k)
The
appellant
admitted
that:
(i)
The
motivating
factor
of
the
transactions
was
the
$17,000
gain
over
the
adjusted
cost
base
and
$68,000
worth
of
tax
credits.
(ii)
He
knew
it
was
a
quick
flip
and
not
a
long-term
investment.
(iii)
These
two
transactions
were
entirely
different
from
his
previous
stock
trading
which
were
investments
and
all
held
for
a
minimum
of
one
year.
(iv)
The
election
known
as
1123
pursuant
to
subsection
39(4)
of
the
Act
(Exhibit
R-6)
was
not
made
until
December
16,
1986.
Subsection
39(4)
of
the
Act
reads
as
follows:
39
(4)
Except
as
provided
in
subsection
(5),
where
a
Canadian
security
has
been
disposed
of
by
a
taxpayer
in
a
taxation
year
and
the
taxpayer
so
elects
in
prescribed
form
in
his
return
of
income
under
this
Part
for
that
year,
(a)
every
Canadian
security
owned
by
him
in
that
year
or
any
subsequent
taxation
year
shall
be
deemed
to
have
been
a
capital
property
owned
by
him
in
those
years;
and
(b)
every
disposition
by
the
taxpayer
of
any
such
Canadian
security
shall
be
deemed
to
be
a
disposition
by
him
of
a
capital
property.
The
appellant's
position
is
that:
(a)
He
did
not
know
about
subsection
39(4)
and
the
filing
of
a
1123
election
and
therefore
he
should
be
able
to
file
one
late.
(b)
All
his
previous
transactions
had
been
treated
by
Revenue
Canada
as
capital
transactions.
(c)
Under
the
circumstances
it
was
not
reasonable
that
tax
be
assessed
on
an
income
basis
for
these
two
transactions.
(d)
A
dismissal
of
his
appeal
would
be
contrary
to
the
Canadian
Bill
of
Rights
as
it
would
be
a
denial
of
due
process
of
law
which
would
amount
to
forfeiture
of
property
and
would
be
contrary
to
fairness
or
justice
as
he
did
not
know
about
the
1123
election
at
the
time
and
there
is
no
provision
for
a
late
filing
of
the
said
election.
The
respondent's
position
is
that
the
$17,000
gain
over
the
adjusted
cost
base
should
be
treated
as
income
as
the
transaction
was
clearly
not
an
investment.
The
Court
was
referred
to
the
decision
of
the
Supreme
Court
of
Canada
in
M.N.R.
v.
James
N.
Sissons,
[1969]
S.C.R.
507;
[1969]
C.T.C.
184;
69
D.T.C.
5152.
There
the
Court
said
in
summary
at
page
512:
Here
the
clear
indication
of
"trade"
is
found
in
the
fact
that
the
acquisition
of
the
securities
was
a
part
of
a
profit-making
scheme.
The
purpose
of
the
operation
was
not
to
earn
income
from
the
securities
but
to
make
a
profit
on
prompt
realization.
The
operation
has
therefore
none
of
the
essential
characteristics
of
an
investment,
it
is
essentially
a
speculation.
The
respondent
also
referred
the
Court
to
the
decision
of
the
Federal
Court
of
Appeal
in
First
Investors
Corporation
Ltd.
and
Associated
Investors
of
Canada
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
285;
87
D.T.C.
5176.
The
Court
therein
sets
out
six
tests
to
determine
whether
a
gain
is
capital
or
income.
These
tests
are:
1.
The
subject
matter
of
the
realization.
2.
The
length
of
the
period
of
ownership.
3.
The
frequency
or
number
of
similar
transactions.
4.
Supplementary
work
on
or
in
connection
with
the
property
realized.
5.
The
circumstances
that
were
responsible
for
the
realization.
6.
Motive.
Dealing
with
the
appellant's
position
in
the
order
set
out
above:
(a)
the
general
rule
is
that
ignorance
of
the
law
is
not
an
excuse
and
there
is
no
provision
in
the
Income
Tax
Act
for
a
late
or
retroactive
filing
of
a
1123
election.
See
subsection
39(4),
supra,
(b)
the
appellant
admitted
that
his
S.R.T.C.
transactions
were
different
from
all
his
previous
stock
transactions
which
Revenue
Canada
had
treated
as
capital
transactions,
and
(c)
if
tax
is
clearly
payable
under
the
Act,
it
cannot
assist
an
appellant
to
argue
that
the
tax
is
unreasonable.
There
is
no
doubt
looking
at
all
the
evidence
that
there
was
a
clear
intention
to
"trade"
and
the
acquisition
of
the
S.R.T.C.
securities
was
part
of
a
profit-making
scheme.
The
purpose
of
the
transaction
was
not
to
earn
income
from
the
securities,
but
to
make
a
gain
over
the
adjusted
cost
base
on
immediate
realization
and
receive
a
large
tax
credit.
These
transactions
had
none
of
the
essential
characteristics
of
an
investment.
Although
it
is
immaterial
to
the
decision
of
this
Court,
it
is
obvious
that
at
the
time
a
representative
of
Price
Waterhouse
approached
the
appellant
in
1984,
that
Price
Waterhouse
knew
or
ought
to
have
known
the
position
of
Revenue
Canada
in
quick
flips
of
S.R.T.C.
debentures.
During
the
Tax
Foundation
1984
convention
being
the
36th
Tax
Conference,
Revenue
Canada
at
its
round
table
set
forth
their
position
in
answer
to
this
question
concerning
S.R.T.C.
investments:
Q.
Is
the
gain
to
an
inventor/purchaser
on
“quick
flip”
investments
considered
income
or
capital?
A.
By
their
nature—that
is,
an
adventure
in
the
nature
of
trade
—they
are
on
account
of
income.
Section
1
of
the
Canadian
Bill
of
Rights
reads
as
follows:
It
is
hereby
recognized
and
declared
that
in
Canada
there
have
existed
and
shall
continue
to
exist
without
discrimination
by
reason
of
race,
national
origin,
colour,
religion
or
sex,
the
following
human
rights
and
fundamental
freedoms,
namely:
(a)
the
right
of
the
individual
to
life,
liberty,
security
of
the
person
and
enjoyment
of
property,
and
the
right
not
to
be
deprived
thereof
except
by
due
process
of
law.
This
due
process
provision
has
been
given
a
very
narrow
interpretation
by
the
Supreme
Court
of
Canada
in
Curr
v.
The
Queen,
[1972]
S.C.R.
889;
26
D.L.R.
(3d)
603.
The
Court
said
at
page
889
"that
'due
process
of
law’
as
used
by
section
1(a)
is
to
be
construed
as
meaning
‘according
to
the
legal
processes
recognized
by
Parliament
and
the
Courts
of
Canada.'"
The
Tax
Court
of
Canada
is
an
independent
judicial
Court
set
up
by
Parliament
to
hear
appeals
by
taxpayers
from
assessments
made
by
Revenue
Canada.
The
unsuccessful
litigant
before
the
Tax
Court
of
Canada
has
the
right,
by
statute,
to
appeal
the
decision
to
the
Trial
Division
of
the
Federal
Court
of
Canada.
An
appeal
from
the
Trial
Division
of
the
Federal
Court
lies
to
the
Court
of
Appeal
of
that
Court
and
after
that
leave
to
appeal
to
the
Supreme
Court
of
Canada
must
be
sought.
The
trials
and
appeals
are
fair
and
public
hearings
held
by
independent
and
impartial
tribunals.
The
appeal
is
therefore
dismissed.
Appeal
dismissed.
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