Christie,
A.C.T.C.C.J.:—
The
year
under
review
is
1984.
The
issue
is
whether
the
profit
realized
by
the
appellant
on
the
disposition
of
shares
of
General
American
Technologies
Inc.
is
business
income
or
a
capital
gain.
In
response
to
an
offering
memorandum
dated
November
30,
1983,
issued
by
Connor,
Clark
&
Company
Ltd.
of
Toronto,
the
appellant
shortly
thereafter
purchased
66,000
shares
for
$1.50
each
or
a
total
of
$99,000.
The
memorandum
states:
NEW
ISSUE
GENERAL
AMERICAN
PROPERTIES
INC.
$9,900,000
Retractable,
Convertible,
Participating,
Non-Voting
First
Special
Shares,
Series
I
(the"Series
I
Shares”)
PRICE:
$99,000
per
Minimum
Subscription
(66,000
Series
I
Shares)
|
Net
Proceeds
|
|
Price
to
|
|
of
the
Sale
to
|
|
Public
|
Agents
Fee
|
the
Corporation
|
Per
Series
I
Share
|
$1.50
|
$0.12
|
$1.38
|
Per
minimum
subscription
|
|
(66,000
series
I
shares)
|
$99,000
|
$7,920
|
$91,080
|
Included
in
what
follows
are
these
statements:
There
is
currently
and
will
be
no
market
for
these
securities.
Accordingly,
the
price
for
this
offering
has
been
determined
by
negotiation
between
the
corporation
and
Connor,
Clark
&
Co.
the
“
managing
agent").
Subject
to
the
limitations
set
forth
under
the
heading
"Canadian
Income
Tax
Consequences",
in
the
opinion
of
the
counsel
and
the
auditors
for
the
corporation
and
the
counsel
for
the
managing
agent,
if
the
proposed
legislation
,
which
is
contained
in
a
notice
of
a
ways
and
means
motion
to
amend
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
becomes
law
in
substantially
the
same
form
as
the
aforesaid
proposed
legislation,
persons
who
subscribe
for
series
I
shares
shall
be
able
to
deduct
a
scientific
research
tax
credit
equal
to
approximately
one-half
of
the
amount
of
their
subscriptions.
The
series
I
shares,
at
the
option
of
the
holder,
in
the
period
from
October
18,
1984,
to
November
17,
1984,
are:
(a)
retractable
at
a
retraction
price
of
$0.90
per
series
I
shares,
if
the
proposed
legislation,
which
is
contained
in
a
notice
of
ways
and
means
motion
to
amend
the
Act
tabled
November
25,
1983,
in
the
House
of
Commons
(the"amending
legislation”),
becomes
law
on
or
before
October
17,
1984,
in
substantially
the
same
form
as
the
amending
legislation;
or
(b)
exchangeable
for
$0.90
and
one-half
a
non-voting
class
A
special
share
(a
“class
A
share")
per
series
I
share,
if
the
amending
legislation
has
not
become
law
by
October
17,
1984,
in
substantially
the
same
form
as
the
amending
legislation.
An
irrevocable
standby
letter
of
credit
has
been
arranged
with
a
Canadian
chartered
bank
to
support
the
cash
payments
included
in
the
above
retraction
privilege
and
exchange
privilege.
Payment
of
the
retraction
price
or
payment
of
the
cash
portion
of
the
exchange
proceeds
and
the
issue
of
class
A
shares
will
be
made
on
December
17,
1984.
The
series
I
shares,
at
the
option
of
the
holder,
from
October
18,
1984,
are
convertible
into
class
A
shares:
(a)
on
the
basis
of
one
class
A
share
for
each
series
I
share
if
the
proposed
legislation
becomes
law
on
or
before
October
17,
1984,
in
substantially
the
same
form
as
the
amending
legislation;
or
(b)
on
the
basis
of
one
and
one-half
class
A
shares
for
each
series
I
share,
if
the
proposed
legislation
has
not
become
law
by
October
17,
1984,
in
substantially
the
same
form
as
the
amending
legislation.
The
foregoing
is
followed
by
34
pages
that
review
what
is
being
offered
with
considerable
particularity
under
headings
such
as
"Canadian
Income
Tax
Consequences",
"Risk
Factors",
Legal
Opinions”
and
"Tax
Calculations".
Some
of
what
has
already
been
said
in
these
reasons
is
repeated
in
the
34
pages.
The
document
entitled
"Tax
Calculations”
reads:
Number
of
series
I
shares
|
66,000
|
132,000
|
198,000
|
Subscription
price
|
$99,000
|
$198,000
|
$297,000
|
Scientific
research
tax
credit
|
50,200
|
100,400
|
150,600
|
After
tax
cost
|
$48,800
|
$
97,600
|
$146,400
|
Retraction
amount
|
$59,400
|
$118,800
|
$178,200
|
Capital
gain
on
after
tax
cost
|
$10,600
|
$21,200
|
$31,800
|
Assumptions
|
|
1.
The
Income
Tax
Act
(Canada)
is
amended
to
conform
with
the
amending
legislation.
2.
A
subscriber
will
retract
on
December
17,
1984.
3.
A
subscriber
is
an
individual.
In
the
period
October
18,
1984
to
November
17,
1984,
the
appellant
exercised
his
right
to
have
the
66,000
shares
redeemed
at
the
redemption
price
of
90¢
per
share.
He
was
paid
accordingly.
Evidence
was
led
with
a
view
to
establishing
that
the
convertibility
of
the
series
I
shares
into
class
A
shares
was
the
operating
motivation
in
the
acquisition
of
the
shares.
This
offered
potential
for
long
term
investment.
Mr.
Herbert
G.
Lebane,
C.A.,
financial
adviser
to
the
appellant
was
asked
whether,
in
the
absence
of
convertibility,
he
would
have
advised
the
appellant
to
acquire
the
shares.
He
replied:
“Absolutely
not.”
The
evidence
of
the
appellant
was
to
the
same
effect.
Nevertheless
I
am
not
convinced
about
this.
To
my
mind
the
operating
intention
from
the
beginning
was
to
do
precisely
what
was
in
fact
done.
The
appellant
would
invest
$99,000
in
series
I
shares.
These
would
be
redeemed
during
the
specified
redemption
period
at
90¢
per
share
and
the
appellant
would
be
satisfied
with
the
economic
benefit
in
excess
of
$99,000
accruing
to
him
from
the
redemption
price
taken
in
combination
with
the
resulting
scientific
research
tax
credit.
This
lacks
the
earmarks
of
an
investment.
Rather
it
embodies
the
attributes
of
an
adventure
in
the
nature
of
trade
which
is
included
in
the
definition
of
business
in
subsection
248(1)
of
the
Act.
In
M.N.R.
v.
Sissons,
[1969]
S.C.R.
507,
[1969]
C.T.C.
184,
69
D.T.C.
5152,
the
respondent
acquired
debentures
from
two
related
companies
on
the
verge
of
bankruptcy
for
a
small
fraction
of
their
face
value.
Some
of
the
debentures
were
redeemed
and
the
respondent
realized
a
profit
of
$87,000.
It
was
held
on
appeal
to
the
Supreme
Court
of
Canada
that
the
profit
was
realized
in
an
adventure
in
the
nature
of
trade
and
was
therefore
taxable
as
income
from
a
business.
Pigeon,
J.,
who
delivered
the
judgment
of
the
Court,
said
at
page
512
(C.T.C.
188,
D.T.C.
5154):
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.
In
the
course
of
argument
on
January
14,
1993,
counsel
for
the
appellant
cited
Loewen
v.
M.N.R.,
[1990]
1
C.T.C.
2133,
90
D.T.C.
1009
(T.C.C.).
This
decision
was
reversed
three
weeks
later
by
the
Federal
Court-Trial
Division:
The
Queen
v.
Loewen,
[1993]
1
C.T.C.
212,
93
D.T.C.
5109.
The
appeal
is
dismissed.
Appeal
dismissed.