Rothstein J.:—This is an appeal from a decision of Garon J.T.C.C. who dismissed the plaintiff's appeal from reassessment by the Minister of National Revenue for the taxation years 1981, 1982, 1983 and 1984. The issues are whether a land development business had been commenced by George Duthie in 1981 and whether, in 1981, there had been a change in use of Duthie’s land pursuant to paragraph 45(1 )(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the ’’Act”), which would have had the effect of converting the land from a capital asset to inventory.
The plaintiff”s position is that a land development business had commenced in 1981 and that expenditures of the business incurred in 1982, 1983 and 1984 were deductible as expenses by George Duthie. Plaintiff also asserts there had been a change in use of the land from capital to inventory in 1981. In 1984 when George Duthie died, there had been a decline in value of the land in question since 1981. If the land was inventory, the decline in value may be treated as a business loss and deducted from income for tax purposes by the plaintiff in 1984 and by Duthie by way of loss carrybacks in 1981, 1982 and 1983.
Judge Garon found that Duthie had commenced the business of land development in 1981. However, he declined to treat expenditures connected with the operation of the business as expenses deductible for income tax purposes, finding that they were made on account of capital. He further found there had not been a change in use of Duthie’s land in 1981. In his view, paragraph 45(1 )(a) contemplates a physical alteration to the property or at least a physical change in the use of the property, neither of which had occurred.
The facts are extensively reviewed by Judge Garon and although the trial before me was de novo, it appears that the facts established before Judge Garon were largely the same facts established before me. Duthie and his wife moved to Invermere in the East Kootenay district of British Columbia in the 19503. Duthie’s wife acquired approximately 8.5 acres of land on which they constructed their principal residence. Duthie’s wife died in 1979 and the land (with the exception of a portion which had already been conveyed to Duthie in 1957) was conveyed to Duthie in his own right.
In 1979 and 1980 the village of Invermere was growing and the economies in British Columbia and Alberta were also growing. In early 1981, Duthie made a decision to actively consider the development of his land. Duthie and his four sons attended formal meetings at which minutes were kept and at which various ways to proceed were considered. Reports were received, decisions taken and tasks assigned.
In March 1981, Duthie retained the services of an architect to prepare a “highest and best use study" for the land. In early May, it appears Duthie and his sons were still considering whether to sell the land or develop it themselves. At a meeting on May 3, 1981, they decided to obtain a market analysis on which to base a "go, no-go" decision. A few days later, Duthie and his sons met with a project manager. Matters began to move rapidly at this point. I turn to the agreed statement of facts:
16. In or about the second week in May 1981, Dr. Duthie engaged Thomas Consultants Inc. to prepare a condominium study (the "Thomas report") in respect of the development of the property. A copy of the Thomas report is included in Exhibit 1, tab 26. In the course of their family meetings during the remainder of May 1981, various aspects of the development were discussed. The minutes of meetings of May 3 and May 18, 1991 are included at Exhibit 1, tabs 13 and 8. [sic]
17. The Thomas report was issued on June 19, 1981. The Thomas report recommended, inter alia, that Dr. Duthie pursue the development of a 120- unit condominium development on the property (the "project”). The report further recommended that Phase I, consisting of 35 units, commence immediately.
18. Dr. Duthie attached considerable importance to the Thomas report.
19. Dr. Duthie and Mr. Ian Thomas formed a personal relationship which lead Dr. Duthie to put a great deal of reliance in Mr. Thomas’ opinions.
20. In late June, 1981, at a meeting among Dr. Duthie, Mrs. Thora Duthie, two of George Duthie’s sons and representatives of LeBlond Koch Partnership, a decision was made to hire a project manager. A shortlist of project managers was prepared. The minutes of meetings are included at Exhibit 1, tab 28. By letter dated July 21, 1981, the firm of Pacer Developments Ltd. ("Pacer") submitted a proposal for project management services (Exhibit 1, tab 38) and by letter dated August 10, 1981, Pacer submitted a draft agreement for development management services (Exhibit 1, tab 43).
21. In late June 1981, at a meeting in the village of Invermere, B.C. attended by Dr. Duthie, Mrs. Thora Duthie, two of Dr. Duthie’s sons and representatives of the LeBlond partnership, it was decided that the Thomas report would be adopted and the LeBlond partnership was instructed to prepare a master plan for the property and a concept plan for the units to be constructed thereon (Exhibit 1, tab 32).
22. In mid-July 1981, a meeting was held in Calgary to review the preliminary design drawings of the project dated July 16, 1981. A decision was taken at that time to develop the project to its full potential and that the project could be built as funds allow. The minutes of the meeting are included at Exhibit 1, tab 35.
23. Pacer prepared a preliminary development concept for the Duthie Condominium Project Invermere, B.C. dated August, 1981 (Exhibit 1, tab 52) and prepared an estimate sheet dated August 5, 1981 for the project (Exhibit 1, tab 55). By letter dated August 10, 1981 and addressed to John Duthie of Duthie Developments Ltd., Pacer submitted two copies of a draft agreement for the development management services for the project and the proposed Logic Network (Exhibit 1, tabs 43 and 44).
24. A meeting was held on August 20, 1981 to review the preliminary development concept and Logic Network prepared by Pacer. The minutes are included at Exhibit 1, tab 47.
25. By letter dated August 20, 1981, George Duthie advised Vanhoutte Design Management Services Ltd. that Pacer was the successful bidder of the proposed 120-unit condominium-Invermere, B.C. (Exhibit 1, tab 46).
The August 20, 1981 meeting signalled a turning point in Duthie’s development activity. Up to this time, Duthie had been encouraged to get on with the development project. There was confidence in the economy. While Duthie had not secured financing for the project, the evidence was that this was not viewed as an impediment. However, shortly before the August 20, 1981 meeting, it began to become apparent to Ian Thomas, who had prepared the Thomas report and upon whom Duthie relied heavily, that resistance was building in the economy. Some projects that had been started were beginning to be put on hold. Thomas started to have concerns about the matter of financing.
Immediately after the August 20, 1981 meeting Thomas met with Duthie and some of his sons and expressed his concern. By letter dated August 25, 1981, he elaborated on the concern about the difficulty of obtaining financing. He recommended against Duthie entering into significant commitments with the architects and project manager until financing had been secured. He recommended various alternative forms of financing, including entering into a joint venture with another developer.
By September 3, 1981, the development project had been put on hold. For the next few months different avenues of financing were explored. However, there was no significant progress made on the project after September. By December, it was apparent that financing could not be arranged. The economy had gone into a severe recession, and the tax benefits afforded multiple unit residential buildings (MURBs), one method of financing, were to cease shortly.
Thereafter, Duthie kept the development project alive by ensuring that planning changes by the village of Invermere did not preclude development. However, there was no further progress on development. In October 1984, Duthie was killed in an airplane crash.
It appears it was Duthie’s intention that, at some point in time, a company be incorporated to carry out the development project. Duthie’s bank was instructed to open an account in the name of Duthie Developments Limited. There had been discussions about the formation of the company at some of the family meetings and alternative law firms were considered. On August 31, 1981, Thomas recommended his own lawyers in Vancouver ’’to set up the condominium corporation”. However, no lawyer was ever retained and the company was never incorporated.
Duthie had also consulted with his accountants as to, amongst other things, the way in which to deal with some tax considerations. One was the question of principal residence. On June 24, 1981, Duthie’s accountants wrote to Revenue Canada seeking an advance tax ruling that almost all of the land to be developed be considered to be Duthie’s principal residence. This would virtually eliminate any capital gains tax liability that Duthie might otherwise incur on the disposition or deemed disposition of the property for development purposes. No advance tax ruling could be obtained and nothing further seems to have been done in this regard after the project was put on hold in September 1981.
When Duthie filed his 1981 income tax return in April 1982, he claimed a 1981 business loss of $43,675.73. This was the total of the expenditures made by Duthie for architectural and project manager services, marketing consultants, property taxes, bank interest and other costs associated with the project. He did not, however, report any change in use of the land or any capital gain in respect of the land.
The Minister accepted Duthie’s business loss claim and assessed the 1981 return as filed. In his 1982 and 1983 returns, Duthie also deducted as business expenses, property taxes and bank interest and, in 1982 some accounting fees.
In the 1984 income tax return filed on behalf of the plaintiff on April 29, 1985, the estate deducted bank interest and property taxes as Duthie had in previous years. In addition, the estate claimed as a business loss, a decline in the value of the land from 1981 to 1984:
Inventory adjustment (calculated in
accordance with paragraph 9 of information Bulletin 102R
Deemed proceeds of property at
date of death at estimated
|fair market value||165,000^|
|Cost of property||1,057,412|
|Loss before notional capital gain||892,412|
|Notional taxable capital gain|
Notional proceeds, March 1/81 $ 909,600
|Adjusted cost base||(18,672 1|
|Notional capital gain||$ 890,928|
|Notional taxable capital gain||445^.464|
|Loss on inventory||948|
The estate also requested that the resulting loss be carried back in respect of Duthie’s 1981, 1982 and 1983 taxation years. Initially, on September 15, 1985, the Minister assessed the 1984 return as filed and reassessed Duthie’s 1981, 1982 and 1983 taxation years in accordance with the request for the loss carryback.
By notices of reassessment dated December 21, 1987 and September 21, 1989, the Minister reassessed Duthie’s 1981, 1982 and 1983 taxation years and the 1984 taxation year of the Duthie estate. The Minister took the position that Duthie had not commenced carrying on a development business in respect of his property and that there had been no change in the use of the land so as to convert it from a personal capital asset into an inventory asset in 1981. Accordingly there was no business loss arising from the decline in value of the property from 1981 to 1984. Indeed, the Minister took the position there was a taxable capital gain from valuation day in 1971 to 1984 as, on Duthie’s death, in his view, not all the property came within the principal residence exemption. In addition, he disallowed the business expenses deducted by Duthie in 1982 and 1983 and by the estate in 1984 as in his view, there had been no commencement of a property development business. (By December 21, 1987, reassessment of the 1981 taxation year was statute-barred with respect to the business expenses claimed for that year. However, reassessment respecting the loss carryback was still possible as the Income Tax Act allowed the Minister seven years to make such a reassessment: see paragraph 152(4)(b)), Placer Dome Inc. v. Canada,  1 C.T.C. 361, 91 D.T.C. 5115 (F.C.T.D.), and Flexi-Coil Ltd. v. Canada,  1 C.T.C. 245, 92 D.T.C. 6047
The issues are:
1. Did Duthie carry on a land development business in 1981? If so, the expenditures he and the estate incurred after the business commenced and sought to deduct were business expenses and should be allowed.
2. Was there a change in the use of Duthie’s land in 1981 so as to convert the land from a personal capital asset into an inventory asset? If so, there would be a deemed disposition of the land in 1981 at its then fair market value. Except for the fact that the 1981 taxation year was statute-barred, Duthie would be liable for capital gains tax on that portion of the land not considered to be principal residence. To the extent the value of the land declined from 1981 to 1984, when Duthie died, the loss in value would be a business loss and the Duthie estate would be entitled to deduct the loss as a business expense in 1984 and carry the loss back for application to Duthie’s 1981, 1982 and 1983 taxation years.
In my view, the two issues are inextricable. Duthie’s land was the only reason for the development business. In the circumstances of this case, if it is determined that Duthie had commenced a development business in 1981, Duthie’s personal capital asset became inventory of the business in that year. Indeed, Minister’s counsel concedes that if it 1s determined Duthie commenced a business in 1981, a strong argument could be made that there had been a change in use of the land from capital to inventory in that year. However, he says that even if the plaintiff would otherwise be able to claim a change in use of the land, it is estopped from doing so. Counsel for the defendant says that by failing to report a deemed disposition of the land for capital gains purposes in 1981 in his income tax return, Duthie represented to the Minister there was no change in use of the land in that year. The Minister relied on that representation by taking no reassessment steps in respect of the capital gain on the land. In taking no steps, he acted to his detriment and later lost his right to reassess the plaintiff for capital gains tax in 1981 because reassessment of that year had become statute- barred. Accordingly, he says the plaintiff is now estopped from claiming a change in use of the land in 1981.
Paragraph 45(1 )(a) of the Income Tax Act provides:
45(1) For the purposes of this subdivision the following rules apply:
(a) where a taxpayer,
(i) having acquired property for some other purpose, has commenced at a later time to use it for the purpose of gaining or producing income, or
he shall be deemed to have
(iii) disposed of it at that later time for proceeds equal to its fair market value at that later time, and
(iv) immediately thereafter reacquired it at a cost equal to that fair market value;
The relevant principles which I think are applicable to the case at bar are:
1. Assumptions or facts relied upon by the Minister in his assessment must be accepted unless disproved by the taxpayer. If the Minister relies on additional facts, the onus is on him to prove facts that he alleges. (See Brewster v. The Queen,  C.T.C. 107, 76 D.T.C. 6046, at 111 (D.T.C. 6049) (F.C.T.D.), and M.N.R. v. Pillsbury Holdings Ltd.,  C.T.C. 294, 64 D.T.C. 5184 at page 299 (D.T.C. 5188) (Ex. Ct.).)
2. The question in each case is what is the proper deduction to be drawn from the taxpayer’s whole course of conduct viewed in the light of all the circumstances (Cragg v. M.N.R.,  C.T.C. 322, 51 D.T.C. 34 (Ex. Ct.).
3. A clear and unequivocal positive act implementing a change of intention is necessary to change the use of the land in question under paragraph 45(1 )(a). A mere intention expressed by the taxpayer is insufficient. In Edmund Peachey Ltd. v. The Queen,  C.T.C. 51, 79 D.T.C. 5064 (F.C.A.). Heald J.A. states at page 55 (D.T.C. 5067):
I agree with the learned trial judge that a clear and unequivocal positive act implementing a change of intention would be necessary to change the character of the land in question from a trading asset to a capital asset-and that on the facts here present, there was no evidence of such a positive or overt act. There was no documentary evidence to indicate that the new intention had been carried into reality, there was no dedicating of the land for another purpose. All that we have here is the expressed intention of the appellant to thenceforth hold the land as a capital asset. That is not, in my view, sufficient of itself to convert the proceeds of sale from trading proceeds to proceeds from the sale of a capital asset.
(See also Roos v. Canada,  1 C.T.C. 2105, 94 D.T.C. 1094 at page 2111 (D.T.C. 1099) (T.C.C.).)
4. If it is demonstrated that the taxpayer at some point in time embarked upon a business using land as inventory in the business, the resulting profits are profits from a business. (See Moluch v. M.N.R.,  C.T.C. 712, 66 D.T.C. 5463, at page 716 (D.T.C. 5466) (Ex.Ct.).) It is not necessary that development be completed and all obstacles overcome. (See Marshall v. M.N.R.,  C.T.C. 2664, 83 D.T.C. 592, at page 2667 (D.T.C. 594) (T.R.B.).)
Facts to support the creation of a business and a change in use of land are:
1. There were frequent meetings held to progress the project.
2. Formal minutes were kept.
3. Consultants were engaged.
4. Business tasks were assigned to various family members and to consultants.
5. Duthie arranged to devote full time to the project for a number of months and took time off from his medical practice to do so.
6. One son, John Duthie quit his job in Edmonton to move to Invermere to work full-time on the project.
7. Over $43,000 was expended in 1981 on the land development project.
8. Accounting advice regarding the business organization and tax implications of land development had been obtained and a tax ruling sought.
9. Project managers were asked to and did submit proposals and a project manager was selected; the architect submitted a contract.
10. A logic network was prepared. Approval to proceed had been agreed to. The market study had been reviewed, and preliminary drawings prepared. The architect’s proposal and schedule had been reviewed. Finalization of condominium unit sizes and amenities was in progress.
On the basis of facts such as those indicated above, Garon J.T.C.C. was satisfied that Duthie had embarked on the business of developing the land in about June 1981. To this point, I am inclined to the same view on the facts before me. On these facts, I am also inclined to the view that there had been a change in the use of Duthie’s land from capital to inventory in 1981. However, I think it is necessary to consider the arguments of the Minister to assess whether such a conclusion can properly be inferred from these facts. In essence, the Minister’s position is that Duthie’s activities were preliminary to a business. He says they were exploratory and that there had not been sufficient progress such that it could be said a business venture had been embarked upon. Nor had a change in the use of the land from capital to inventory occurred, in the Minister’s view. The basis of the Minister’s position is:
1. Documentary evidence suggests that Duthie was still considering selling the land rather than developing it himself.
2. Duthie had made no long-term commitments. Duthie was only seeking advice and trying to determine if it would be feasible to proceed. All arrangements with consultants were short-term. Consultants were doing specific tasks assigned to them only. No long-term commitments had been entered into with the consultants.
3. Duthie was only at a very preliminary stage of the logic network.
4. Expenditures in 1981 amounted to only $43,675.73 as compared to a total project cost of some $12,000,000.
5. Duthie had made arrangements to take time off from his medical practice in 1980 before any steps regarding the development were taken.
6. Legal counsel had not been retained.
7. It was Duthie’s intention to transfer the land to a company and have the company undertake the development work. It was not his intention to carry out the development in his own name.
8. In his 1981 tax return Duthie failed to represent that there had been a change in use of the land.
I will deal with each argument in turn:
1. Duthie was still considering selling the land rather than developing it himself.
My interpretation of the documentary evidence is that up to approximately May 1981, the possibility of outright sale of the land was seriously being considered. However, as more information became available, it became apparent to Duthie that the most financially rewarding alternative would be to develop the land. This is confirmed by facts such as Duthie’s call for proposals from project managers, the selection of project manager, the submission of a contract by the architect, that John Duthie quit his job in Edmonton to move to Invermere and consideration of condominium unit sizes. These activities are not consistent with an intention to sell outright. It is true that in correspondence from Duthie’s accountant to Revenue Canada in June 1981, there is reference to outright sale. ft is not clear how the accountants would have formed this opinion, but it is obvious from other documentation that outright sale was not, by that time, Duthie’s intention.
I infer from the evidence cited thus far that the business had commenced likely by the month of June 1981, more specifically after the Thomas report was received. It was this report on which the "go, no-go" decision was to be based. In any event, according to the agreed statement of facts, a decision was taken in mid- July 1981, "to develop the project to its full potential and that the project could be built as funds allow". I have no doubt that the business had commenced by mid-July 1981, at the latest.
2. No long-term commitments.
This is factually correct. However, it is apparent that Duthie was on the verge of entering into such commitments. Proposals had been called for and submitted. The architects had submitted a draft contract. It seems clear that discussions and arrangements with consultants were those one would normally expect as a business was commencing. In this case, these arrangements were not linked to exploratory considerations, but to actual development activity. There is no suggestion in the evidence that longterm commitments were being resisted by Duthie because he was still at an
3. The logic network was at a preliminary stage.
This is also correct. However, there had been approval to proceed which, in my view, was evidence of a critical step indicating that Duthie was proceeding with the development. There had also been other steps carried out. Drawings were reviewed and condominium unit sizes were being finalized. These are all activities consistent with the existence of a development business.
4. Only $43,675.73 out of some $12,000,000 expected costs had been expended in 1981.
I do not think a minimum expenditure in absolute or relative terms is a sine qua non for the establishment of a business. The amount involved was not de minimis. In comparison to Duthie’s medical practice income in 1980 of $76,625 and in 1981 of $59,579, the sum of $43,675.73 was significant and evidences the existence of a business.
5. Arrangements to take time off were made in 1980.
Perhaps, as defendant’s counsel submits, Duthie was considering the project in 1980 and made arrangements at that time to take time off in 1981. However, the evidence is that Duthie intended to and did use the time for the development project in 1981.
6. Legal counsel had not been retained.
There was evidence of some communication with legal counsel but it seems that even by the end of August 1981 Duthie was still seeking counsel. However, I do not think the retention of counsel determines whether a business has commenced.
7. The plaintiffs intention was to transfer land to a company and to have the company undertake the development work.
I should note that neither in his reassessments nor in his statement of defence did the Minister state he was relying on an assumption that it had been Duthie’s intention to transfer the land to a company which would undertake the development work and that Duthie did not intend to retain ownership of the land and operate the development business as a proprietorship. Hence, it is not an assumption which must be disproved by the taxpayer. Rather, the Minister must prove the factual basis of this argument.
This issue has caused me the most difficulty. The documentary evidence does suggest that incorporation of a company and transfer of the land to the company may well have been Duthie’s intention. Perhaps, Duthie intended to retain the land in his own name as capital property without any change in use until the time came to transfer it to the development company which would acquire it at fair market value and hold it as inventory until the developed land was sold. If Duthie did not intend to carry on the development business himself but, rather, carry it on by way of a company, then it could not be said he was incurring expenditures as business expenses in his own right or that there had been a change in use of the land in 1981 while it was still owned by him and before it was transferred to a company.
However, there is no evidence as to exactly what type of arrangement was to be made respecting transfer of the land to the company. Was the company going to acquire the land from Duthie; if so, when was this to occur, and under what conditions? Even if I were to assume that there was to be a transfer, a reasonable assumption in my view, I have nothing before me to indicate when it would take place and under what conditions. On the other hand, there is clear evidence that development activity was taking place while the property remained in Duthie’s name. Any assumption I might make about the incorporation of a company and the transfer of land to the company would be based on speculation and not facts.
On the evidence before me, I must conclude that a business had been commenced by Duthie in his own name and that development activity was taking place while the land remained in his ownership. As I earlier indicated, in my view, the development business likely commenced in about June 1981, but certainly it was in operation by mid-July 1981. The use of the subject land changed from a capital asset to an inventory asset associated with the business at that time.
The Minister says that Duthie continued to live on the land and that there was no physical change to the land. While undoubtedly, had Duthie moved off the land and had there been a physical change, a change of use would have been clearer. However, I do not think moving off the land or physical change constitute conditions precedent to a change of use. Peachey, supra speaks of a clear and unequivocal positive act implementing a change of intention. Such words are not restricted to a physical change in the land. Here, I think that commencement of the business activity relative to the subject land constitutes such a clear and unequivocal positive act and is sufficient to evidence a change in use of the land in 1981 from capital to inventory.
8. No representation of change in use of land in the 1981 tax return.
The 1981 tax return contains two messages. From the claimed deduction of expenses of the development business, including property taxes, one message was that such a business had been formed and that the relevant land changed in use from a capital asset to inventory. From the failure to disclose a deemed disposition and capital gain, a second message was that there was no change in use of the land. Because the income tax return contains contradictory indications, I do not think it is conclusive one way or the other. According to Peachey, supra, it is necessary to look at the activities of the taxpayer to see if there is a clear and unequivocal positive act implementing a change of intention so as to change the use of the land. I have concluded on the evidence that there were such clear and unequivocal positive acts and that a development business had been undertaken and that a change in use of the subject land had occurred.
Nonetheless, the Minister says the plaintiff is estopped from asserting a change in use of the land in 1981 because of Duthie’s failure unequivocally to disclose that change of use in his 1981 tax return. The Minister concedes, however, that the 1984 tax return corrected the 1981 non-disclosure. When the Minister received the plaintiff’s 1984 tax return which was filed on April 29, 1985, he was informed of the plaintiffs position that there had been a change in use of the land in 1981. The Minister still had until June 22, 1986, some 14 months, to reassess Duthie for 1981; see paragraph 152(4)(c).
Upon this view of the matter, estoppel does not arise. The Minister was informed shortly after April 29, 1985, with the filing of the plaintiffs 1984 return, of the plaintiffs position with respect to change of use of the land in 1981. The Minister had some 14 months in which to consider the plaintiffs position and reassess for 1981 if he chose to do so. He chose not to do so. The Minister cannot now allege estoppel because he elected to act to his own detriment by not reassessing rather than by reassessing within the statutory time when he had the opportunity to do so.
Irrespective of the above conclusion respecting estoppel, however, counsel for the Minister says that had the Minister acted on the 1984 representation of a change in use of the land in 1981, he would have been forced to issue inconsistent reassessments in order to protect his position. On the one hand, as he was of the view that there had been no change in use of the land, he reassessed on the basis there had been no disposition of the land in 1981, and therefore disallowed the business loss arising from the decline in value of the land from 1981 to 1984. At the same time, in order to protect his position in respect of the alleged change of use and deemed disposition in 1981, in order to recognize the capital gain as of 1981, he would have been required to reassess as if there had been a business commenced and a change in use of land in 1981. Counsel for the Minister says that the Minister cannot, and should not, be required to issue inconsistent reassessments. He relies on Brewster, supra, in which Gibson J. states at page 111 (D.T.C. 6049):
(It seems therefore that it is fundamentally wrong in law to plead assumptions in the alternative. In like manner, it is fundamentally wrong in law for any assessors of the Minister of National Revenue to assess or reassess and not tell precisely the basis for such assessment or reassessment, but instead as certain assessors often do, namely, assess or reassess in the alternative, or merely record the basis as contrary to the Income Tax Act, on the premise that thereby they are "keeping their options open", and that they are entitled in law to do SO.)
Counsel for the plaintiff, however, points to Continental Bank of Canada et al. v. The Queen,  1 C.T.C. 2135, 94 D.T.C. 1858 (T.C.C.) in which Bowman J.T.C.C. states at page 2147 (D.T.C. 1865):
The Minister, in assessing CBL for the taxation year ending October 31, 1987 included $84,348,900 in its income as recaptured capital cost allowance on transfer of leasing assets to Central Capital Leasing Partnership.
To protect his position the Minister also assessed CB on $83,052,657 as a "trading gain on sale of Central Capital Leasing Partnership interest".
These assessments cannot, of course, both stand. They are admittedly inconsistent. The Minister has of course an obligation to protect the public revenues and it was entirely appropriate for him to proceed on alternative and contradictory bases.
I have carefully considered the arguments and the cases referred to as well as The Queen v. Violette (W.H.) Ltd.,  1 C.T.C. 12, 88 D.T.C. 6025 (F.C.T.D.). While obviously, as a general rule, the Minister should not issue contradictory assessments, there may be occasions where contradictory assessments will be necessary. This would especially be the case where, as here, their necessity can be attributed directly to the actions of the taxpayer. I think in exceptional cases such as the case at bar, the Minister is entitled to issue such assessments as he considers necessary even though they may be contradictory, in order to protect public revenues.
In the circumstances, the expenses incurred in 1982, 1983 and 1984 must be considered to be expenses incurred for purposes of earning income. With respect to the land, there were clear and unequivocal positive acts which transformed the land from a capital asset to inventory in Duthie’s name. These were not, as in Peachey, just expressed intentions. I do not think it is necessary that there be a physical change in the land or that some type of long-term commitment need be demonstrated. While undoubtedly, such evidence would more clearly support a change in use argument, it is not a condition. Here, there were sufficient acts of a positive nature as referred to in Peachey to demonstrate, on a balance of probabilities, the change of use.
I would allow the appeal with costs and direct that the Minister reassess accordingly. Counsel for the plaintiff shall prepare an order consistent with these reasons and obtain consent as to form and content from counsel for the defendant and submit the draft order to the Court for signature within 21 days of the date of these reasons. Should the parties be unable to agree as to the form of the order, or require further directions, application may be made to the Court by way of conference call.