Bowman
J.T.C.C.:—This
appeal,
from
an
assessment
for
the
appellant's
1989
taxation
year,
puts
in
issue
the
question
whether
any
portion
of
the
amount
received
by
the
appellant
from
TransCanada
PipeLines
Ltd.
("TCP"),
ostensibly
as
the
sale
price
of
a
farm
owned
by
him
and
his
wife,
represents
compensation
for
loss
of
income.
It
was
agreed
that
the
appeal
of
his
wife,
Janice
Spies,
would
abide
the
result
of
this
appeal.
In
1984,
the
appellant
and
his
wife
purchased
jointly
a
320-acre
farm
near
Dryden,
Ontario.
They
carried
on
the
business
of
raising
and
selling
exotic
livestock
such
as
buffalo,
fallow
deer,
barbary
sheep,
llamas,
yaks,
tigers
and
cougars.
They
conceived
the
idea
of
opening
the
farm
to
the
public
for
an
admission
fee
and
earning
additional
income
from
displaying
the
animals
and
from
operating
a
restaurant
and
gift
shop.
To
this
end
between
1984
and
1988
they
constructed
pens
and
cages
for
displaying
the
animals,
a
restaurant,
washrooms
and
a
parking
lot,
as
well
as
fencing
to
keep
certain
of
the
animals
separated
to
prevent
cross-breeding
or
to
prevent
some
of
the
animals,
such
as
tigers
or
cougars,
from
injuring
or
killing
the
others.
They
intended
to
open
the
"Northern
Wildlife
Safari"
business
in
the
spring
of
1989.
TCP
had
an
easement
across
the
Spies’
farm
which
permitted
it
to
run
gas
pipelines
under
the
surface
of
the
property.
Under
the
terms
of
the
easement
it
had
the
right
to
lay
additional
pipelines
and
in
December
1988
it
informed
the
Spies
that
it
intended
to
lay
an
additional
pipeline
under
the
surface
of
their
land
and
that
it
proposed
to
do
the
work
necessary
for
this
purpose
in
the
spring
and
summer
of
1989.
The
installation
of
the
third
pipeline
would
have
disrupted
the
proposed
safari
park
business
and
would
have
delayed
the
projected
opening
in
the
spring
of
1989.
Since
the
Spies
were
entitled
to
damages
resulting
from
the
installation
of
the
pipeline
they
retained
Mr.
Douglas
Hannah,
a
chartered
accountant
of
BDO
Dunwoody
Ward
Mallette,
to
prepare
a
study
of
the
cost
to
the
Spies
of
the
business
interruption.
A
detailed
report,
paid
for
by
TCP,
was
prepared
and
submitted
by
the
Spies
to
TCP.
It
concluded,
somewhat
optimistically,
that
the
business
interruption
would
result
in
a
loss
of
revenue
for
1989
of
$201,700,
together
with
additional
out
of
pocket
costs
of
$10,000
for
a
total
claim
of
$211,700.
Shortly
thereafter,
on
March
28,
1989,
Mr.
Spies,
together
with
his
accountant
Mr.
Hannah,
met
with
Mr.
Walter
Watt,
the
right-of-way
supervisor
of
TCP
and
another
official
of
TCP,
Mr.
Hamelin.
The
meeting
lasted
about
two
hours
and
alternatives
to
paying
Mr.
and
Mrs.
Spies
compensation
for
business
interruption
were
discussed.
One
alternative
was
that
TCP
simply
buy
the
farm
outright.
The
feasibility
of
this
alternative
was
suggested
by
Mr.
Hannah
who
pointed
out
that,
with
the
number
of
visitors
who
would
be
coming
to
the
park,
heavier
gauge
steel
on
the
new
and
existing
pipelines
would
be
required
for
safety
reasons.
That
the
regulations
made
under
the
National
Energy
Board
Act
would
have
required
heavier
steel
is
not
disputed
and
Mr.
Hamelin
and
Mr.
Watt
both
recognized
that
it
would
be
much
more
expensive
to
replace
the
existing
pipelines
than
simply
to
buy
the
farm.
On
March
31,
1989
Mr.
Spies
called
Mr.
Watt
and,
rightly
or
wrongly,
had
the
impression
that
Mr.
Watt
had
agreed
that
TCP
would
buy
the
farm
for
$1,000,000.
Mr.
Spies
stated
in
his
letter
to
Mr.
Watt
of
April
12,
1989
that
he
had
asked
for
an
additional
$200,000
"for
compensation
to
assist
in
the
relocation
of
the
stock
and
the
lost
revenue".
He
stated
in
his
evidence
that
Mr.
Watt
was
not
particularly
encouraging
about
this
latter
request.
In
any
event,
and
notwithstanding
Mr.
Spies’
belief
that
he
had
a
firm
deal
with
Mr.
Watt,
TCP
was
not
at
that
point
prepared
to
buy
the
farm
and
on
April
18,
1989
Mr.
Watt
wrote
to
Mr.
Spies
stating
that
he
never
offered
to
buy
the
farm
and
that
TCP
was
not
prepared
to
do
so,
but
that
it
would
continue
to
endeavour
to
negotiate
appropriate
compensation.
On
April
20,
1989
Mr.
Hamelin
met
with
Mr.
Spies.
In
his
memo
to
Mr.
Watt
he
reported
that
he
had
offered
Mr.
Spies
$100,000
for
loss
of
revenue
for
1989
and
$200,000
for
relocation
of
animal
pens
for
the
duration
of
the
construction
and
then
reinstallation
to
the
original
location.
He
stated
that
Mr.
Spies
rejected
the
offer
and
asked
for
$550,000
for
fence
removal
and
replacement,
$12,000
for
one
summer's
feed
of
hay
and
$200,000
for
three
years’
loss
of
revenue.
Mr.
Spies
stated
that
this
memo
was
not
an
accurate
reflection
of
the
discussion.
On
April
27,
1989
Mr.
McClenaghan,
Manager,
Thunder
Bay
Region,
TCP,
met
Mr.
Spies
at
the
Journey's
End
Motel
in
Kenora
and
gave
him
a
draft
letter
stating
that
TCP
was
prepared
to
enter
into
an
agreement
“in
the
form
attached"
(no
form
was
in
fact
attached),
containing
the
following
additional
stipulation,
inter
alia:
1
The
purchase
price
of
$900,000
is
to
include
payment
for
lands
referenced
above,
for
buildings
or
structures
shown
circled
in
red
on
the
attached
plan,
and
for
losses
of
every
kind
and
character
whatsoever
associated
with
the
real
estate
transaction,
with
potential
business
interruption,
or
with
pipeline
construction.
You
will
undertake
to
remove
all
other
buildings,
structures
or
property
from
the
pipeline
right-of-way
by
the
closing
date
of
1989-06-30,
or
such
other
date
as
may
be
mutually
agreed
prior
to
closing.
On
April
28,
1989
Mr.
Spies,
acting
on
advice
from
his
accountant,
signed
the
letter
back
having
amended
the
price
to
$912,500.
In
due
course
he
received
a
draft
land
acquisition
agreement
which
he
rejected
as
it
would
have
permitted
TCP
to
walk
away
from
the
deal.
An
amended
agreement
was
signed
on
May
24,
1989.
The
agreement
contained
the
following
recitals
and
covenants:
WHEREAS
the
owner
is
the
registered
owner
of
an
estate
in
fee
simple
in
the
lands
hereinafter
referred
to,
which
lands
are
required
by
the
company
for
certain
works
to
be
used
in
connection
with
its
pipeline;
AND
WHEREAS
the
company
will
be
constructing
certain
facilities
to
be
used
in
connection
with
or
incidental
to
its
pipeline
and
for
this
purpose
requires
title
in
fee
simple,
free
and
clear
of
all
liens,
claims,
charges
or
encumbrances
to
the
lands
of
the
owner
described
in,
or
as
shown
on
the
sketch
attached
as,
Appendix
"A"
hereto
and
forming
a
part
hereof
(the
"lands");
AND
WHEREAS
the
owner
has
agreed
to
sell
the
lands
to
the
company
and
the
company
has
agreed
to
purchase
the
lands
from
the
owner
upon
the
terms
and
conditions
hereinafter
set
forth;
NOW
THEREFORE
this
agreement
witnesseth
that
in
consideration
of
these
presents,
and
in
consideration
of
the
payment
or
payments
made
or
to
be
made
to
the
owner
by
the
company
in
accordance
with
the
provisions
of
this
agreement,
the
owner
agrees
to
sell
to
the
company
and
the
company
agrees
to
purchase
from
the
owner
the
lands
upon
the
terms
and
subject
to
the
conditions
hereinafter
set
forth
in
respect
of
which
the
owner
and
the
company
respectively
covenant
and
agree
as
follows:
1.
The
owner
acknowledges
receipt
of
the
sum
of
$200,000
from
the
company
as
a
non-refundable
deposit
paid
on
account
of
the
purchase
price
for
the
lands
which
is
payable
pursuant
to
paragraph
3
of
this
agreement.
2.
This
agreement
shall
be
completed
on
the
June
29,
1989
unless
otherwise
agreed
to
in
writing
by
the
parties
hereto.
3.
On
closing
the
company
shall
pay
to
the
owner
or
such
other
person
as
may
be
entitled
thereto
and
as
directed
by
the
owner
the
lump
sum
in
cash
or
by
cheque
of
lawful
money
of
Canada
of
$912,500
per
the
whole
of
the
lands
(the
sufficiency
of
which
is
hereby
acknowledged
by
the
owner),
less
the
amount
of
the
deposit
referred
to
in
paragraph
1
of
this
agreement.
12.
Subject
to
the
provisions
of
paragraph
10,
the
company
shall
compensate
the
owner
for
all
damages
suffered
by
the
owner
as
a
result
of
the
operations
of
the
company
The
transaction
closed
and
a
deed
was
registered
in
which
the
affidavit
under
the
Land
Transfer
Tax
Act
stated
that
the
total
value
of
the
land,
building,
fixtures
and
goodwill
was
$912,500.
The
reporting
letter
from
TCP’s
lawyers
stated
that
the
purchase
price
for
the
property,
in
accordance
with
the
agreement,
was
$912,500,
and
this
price
was
reflected
in
the
statement
of
adjustments.
In
addition
to
the
$912,500
which
the
Spies
received
for
the
farm,
Mr.
Spies
received
$5,660
in
respect
of
the
loss
of
his
hay
crop
and
the
loss
of
a
portion
of
his
pasture.
He
signed
a
release
in
which
he
stated
that
in
consideration
of
such
payment
he
released
TCP
and
the
pipeline
construction
company.
.
."from
all
claims,
demands,
actions,
and
causes
of
action.
.
.in
respect
of
any
damage
to
persons
or
property
arising
out
of
any
matter
or
thing
done
or
omitted
by
TransCanada
Pipelines
Ltd.
.
.or.
.
.
contractors.
.
.
."
The
respondent
contends
that
of
the
$912,500,
$202,500
was
paid
to
Mr.
and
Mrs.
Spies
as
compensation
for
lost
revenue.
In
support
of
this
contention
it
relies
upon
a
number
of
matters,
as
follows:
A.
The
fact
that,
before
it
was
decided
that
rather
than
buy
the
farm
TCP
would
pay
compensation
to
Mr.
Spies
for
the
interruption
of
his
business,
Mr.
Spies
in
these
negotiations
submitted
the
Dunwoody
report
claiming
lost
profits
for
one
year
of
$201,700.
B.
Mr.
Hamelin
in
his
memorandum
of
April
24,
1989
to
Mr.
Watt
stated
that
Mr.
Spies
"demands"
included
$200,000
for
three
years'
loss
of
revenue.
C.
The
fact
that
in
the
letter
agreement
quoted
above
in
reference
was
made
to
“potential
business
interruption".
D.
Mr.
Watt,
in
a
memorandum
to
Mr.
Lamont
of
TCP
instructing
him
to
draft
a
land
acquisition
agreement,
stated
that
"Our
appraisal
of
the
property
to
be
acquired
is
$710,000,
the
remainder
of
our
$912,500
offer
being
for
damages".
As
to
this
memorandum,
Mr.
Watt
agreed
that
when
the
memo
was
drafted
he
was
no
longer
involved
in
the
negotiations
and
his
statement
was
based
upon
his
understanding
of
what
other
unspecified
officials
of
TCP
may
have
told
him.
Mr.
Spies
stated
that
he
would
not
have
sold
the
property
for
$710,000.
In
fact
a
real
estate
agent
did
provide
TCP
on
March
13,
1989
with
a
two
page
"letter
of
opinion"
(not
an
appraisal)
that
the
replacement
cost
value
of
the
property
was
$710,000.
The
letter
is
not
evidence
of
the
value
of
the
property.
It
is
evidence
that
TCP
received
such
a
letter
and
evidently
used
it
as
the
basis
of
a
statement
of
value
in
a
notice
filed
under
section
87
of
the
National
Energy
Board
Act.
Mr.
Spies
was
not
involved
in
the
preparation
of
any
of
these
documents.
They
do
not
bind
him
and
I
do
not
regard
them
as
having
any
evidentiary
value
that
is
relevant
to
the
issue
to
be
decided
here.
This
case
is,
I
think,
a
clear
one.
The
negotiations
between
TCP
and
Mr.
Spies
relating
to
the
type
of
compensation
he
might
receive
if
they
constructed
the
pipeline
the
lands
did
not
come
to
fruition.
What
that
compensation
might
have
been,
or
what
its
components
might
have
been—loss
of
potential
profits,
cost
of
relocating,
new
fencing
and
cages
and
other
heads
of
damage—is
purely
conjectural.
No
meeting
of
the
minds
was
ever
reached
and
a
fundamentally
different
agreement
was
struck.
The
farm,
admittedly
a
capital
asset,
was
to
be
sold
for
$912,500.
It
may
well
be—indeed
I
should
be
surprised
if
it
were
not
so—that
Mr.
Spies,
in
agreeing
to
a
price
of
$912,500,
had
in
mind
the
profits
that
he
might
otherwise
have
made
had
he
not
sold
the
farm.
In
determining
the
selling
price
of
any
income
producing
asset
the
revenue
that
the
vendor
will
lose
by
being
deprived
of
the
asset
is
a
factor
that
would
normally
be
taken
into
account.
Such
considerations
lie
at
the
root
of
all
business
valuations
and
are
subsumed
in
the
capital
amount
negotiated
as
the
price.
The
fact
that
TCP,
for
its
own
internal
purposes
to
which
Mr.
Spies
was
not
a
party,
chose
to
treat
as
a
deduction
from
the
capital
amount
paid
the
amount
of
an
opinion
of
value
that
it
received,
is
no
justification
for
taxing
the
Spies
on
the
difference.
The
parties
made
no
allocation
of
the
purchase
price
simply
because
there
was
none
to
be
made.
The
entire
receipt
in
the
Spies’
hands
was
the
consideration
for
the
sale
of
a
capital
asset,
their
farm.
Their
proceeds
of
disposition
of
the
farm
were
the
sale
price
within
the
meaning
of
subparagraph
54(h)(i)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
While
the
Minister
may
not
necessarily
be
bound
by
unreasonable
allocations
made
by
the
parties
there
must
be
some
evidentiary
basis
for
his
allocating
a
portion
of
the
selling
price
to
some
other
element.
Here
there
is
none.
The
substance
of
the
transactions
does
not
in
any
way
differ
from
the
legal
reality
that
underlies
it.
There
is
a
world
of
difference
between
being
compensated
for
a
loss
of
profits
in
an
ongoing
business
(see
London
and
Thames
Haven
Oil
Wharves
Ltd.
v.
Attwooll,
[1967]
2
All
E.R.
124
at
page
134;
The
Queen
v.
Mohawk
Oil
Co.
Ltd.,
[1992]
1
C.T.C.
195,
92
D.T.C.
6135)
and
being
paid
the
consideration
for
the
sale
of
a
capital
asset
where
the
price
may
take
into
account
the
income
producing
potential
of
the
property.
The
appeal
is
allowed,
with
costs,
and
the
assessment
referred
back
to
the
Minister
of
National
Revenue
to
reassess
on
the
basis
that
the
entire
$912,500
received
on
the
sale
of
the
farm
represents
the
purchase
price
of
the
farm,
and
no
portion
represents
taxable
income
of
the
appellant
as
compensation
for
lost
profits.
Appeal
allowed.
James
R.
Chorney
and
Judith
Anne
Chorney
v.
Her
Majesty
The
Queen
[Indexed
as:
Chorney
(J.R.)
v.
Canada]
Tax
Court
of
Canada
(O'Connor
J.T.C.C.),
September
13,
1994
(Court
File
Nos.
94-1146/7).
Income
tax—Federal—Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)—248(1)
"business"-
Whether
profit
on
sale
of
real
property
was
income
or
capital
gain.
On
November
21,
1985,
the
appellants,
as
joint
tenants,
purchased
from
an
estate
two
contiguous
parcels
of
land,
each
containing
80
acres
and
known
as
the
"North
half"
and
the
“South
half”.
The
price
for
each
parcel
was
$105,000.
The
parcels
were
located
just
outside
the
city
limits
of
Edmonton.
The
South
half
was
vacant
farmland
with
grade
one
soil,
excellent
for
grain
crops.
A
small
cottage
was
located
on
the
South
half.
In
1984,
the
appellants
were
residing
together
on
a
160
acre
property
in
Wildwood,
Alberta
("the
Wildwood
property").
On
the
Wildwood
property,
the
appellants
grew
crops
and
raised
llamas
and
quarter-horses.
The
Wildwood
property
was
sold
in
August
1989.
On
November
1,
1989,
the
appellants
conveyed
the
South
naif
to
a
corporation
controlled
by
the
male
appellant
(“the
company”).
This
was,
in
effect,
an
exchange
rather
than
a
sale
and
the
appellants
received
in
exchange
a
95
acre
parcel
of
the
company.
It
was
agreed
that
the
proceeds
of
disposition
of
the
South
half
was
equivalent
to
$160,000
thus
producing
a
total
profit
on
the
sale
of
$55,000.
The
issue
was
whether
the
$55,000
profit
realized
on
the
sale
of
the
South
half
was
income,
as
the
Minister
contended,
or
a
capital
gain,
as
the
appellants
contended.
At
trial,
the
male
appellant
testified
as
follows:
he
acquired
the
North
half
and
the
South
half
because
he
eventually
wished
to
use
one
of
those
parcels
as
the
site
of
a
future
residence
for
his
wife
and
himself;
both
parcels
had
been
acquired
because
the
vendor,
being
an
estate,
insisted
on
selling
the
two
parcels
together;
both
appellants
desired
to
establish
their
residence
closer
to
Edmonton,
the
Wildwood
property
being
one
and
one-
half
hours'
drive
from
Edmonton
and
the
South
half
and
North
half
being
45
minutes
away;
in
1989,
the
appellants
changed
their
minds
and
decided
that
for
their
residence
the
preferred
the
95
acres
of
the
company
and
thus,
in
1989,
the
exchange
described
above
too
place;
although
80
acres
could
be
considered
large
for
a
residential
property,
the
appellants
intended
to
use
the
excess
land
for
grain
crops
to
aid
in
feeding
the
quarter-horses
and
llamas
as
was
done
on
the
Wildwood
property;
and
finally
that
the
appellants
and
a
contractor
“walked”
over
the
South
half
on
two
occasions
to
determine
the
best
location
for
the
residence.
HELD:
Although
no
plans
were
drawn
for
a
house
on
the
South
half,
the
appellants
intended
to
use
the
South
half
for
a
residence.
In
addition,
the
South
half
had
been
“walked”
over
by
the
contractor
to
determine
the
best
location
for
the
residence.
Furthermore,
the
evidence
was
not
sufficient
to
bring
into
play
the
secondary
intention
doctrine.
In
the
result,
it
was
concluded
that
the
appellants,
in
acquiring
and
disposing
of
the
South
half
were
not
engaged
in
a
speculative
activity
and
were
not
engaged
in
an
adventure
or
concern
in
the
nature
of
trade.
Appeals
allowed.
The
appellant
appeared
on
his
own
behalf.
Jehad
Haymour
for
the
respondent.
Cases
referred
to:
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189,
56
D.T.C.
1125;
Ravida
v.
M.N.R.,
[1977]
C.T.C.
2598,
78
D.T.C.
1030;
Happy
Valley
Farms
Ltd.
v.
Her
Majesty
the
Queen,
[1986]
2
C.T.C.
259,
86
D.T.C.
6421;
Racine
et
al.
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5098.
O’Connor
J.T.C.C.:—These
appeals
were
heard
on
common
evidence,
pursuant
to
the
informal
procedure
of
this
Court,
in
Edmonton,
Alberta
on
August
30,
1994
and
relate
to
the
appellants’
1989
taxation
year.
Issue
The
only
issue
in
these
appeals
is
whether
the
appellants’
total
profit
of
$55,000
($27,500
for
each
appellant),
realized
on
a
disposition
of
real
estate
in
1989
was
on
capital
or
income
account.
Facts
On
or
about
November
21,
1985
the
appellants,
as
joint
tenants,
purchased
from
the
estate
of
John
P.
Loh
in
two
contiguous
parcels
of
land,
each
containing
80
acres
and
known
as
the
north
half
of
the
north
east
quarter
25-51-26-W4
(the
"north
half")
and
the
south
half
of
the
north
east
quarter
25-51-26-W4
(the
"south
half”).
The
price
for
each
parcel
was
$105,000.
The
parcels
were
located
just
outside
the
city
limits
of
Edmonton.
The
south
half
was
vacant
farmland
with
grade
one
soil,
excellent
for
grain
crops.
A
small
cottage
was
located
on
the
south
half.
In
1984
the
appellants
were
residing
together
on
a
160-acre
property
in
Wildwood,
Alberta
(the
“Wildwood
property")
and
they
also
owned
another
property
not
far
from
the
Wildwood
property.
On
the
Wildwood
property
they
grew
crops,
mainly
hay,
and
raised
llamas
and
quarter-horses.
This
Wildwood
property
was
sold
in
August
of
1989.
On
or
about
November
1,
1989
the
appellants
conveyed
the
south
half
to
J.
Chorney
Consulting
Ltd.
(the
"corporation").
This
Corporation
was
controlled
by
the
appellant,
James
R.
Chorney.
This
was,
in
effect,
an
exchange
rather
than
a
sale
and
the
appellants
received
in
exchange
a
95-acre
parcel
of
the
corporation.
There
was
agreement
between
all
parties
that
the
proceeds
of
the
disposition
of
the
south
half
was
equivalent
to
$160,000,
that
the
adjusted
cost
base
of
the
south
half
was
$105,000
thus
producing
a
gain
or
profit
of
$55,000.
None
of
the
transactions
with
respect
to
the
north
half
or
the
Wildwood
property
are
in
issue
here.
The
only
issue
relates
to
the
$55,000
gain
realized
in
1989
on
the
disposition
of
the
south
half.
Mr.
Chorney
testified
that
1.
he
acquired
the
north
half
and
the
south
half
because
he
eventually
wished
to
use
one
of
those
parcels
as
the
site
of
a
future
residence
for
his
wife
and
himself;
2.
that
both
parcels
had
to
be
acquired
because
the
vendor,
being
an
estate,
insisted
on
selling
the
two
parcels
together;
3.
that
both
appellants
desired
to
establish
their
residence
closer
to
Edmonton.
The
Wildwood
property
was
approximately
a
one
and
one-half
hours'
drive
from
Edmonton
and
the
south
half
and
north
half
were
approximately
45
minutes
from
the
centre
of
Edmonton;
4.
that
the
appellants,
in
1989,
changed
their
minds
and
decided
that
for
their
residence
they
preferred
the
95
acres
of
the
corporation
and
thus,
in
1989
the
exchange
described
above
of
the
south
half
for
the
corporation's
95
acres
took
place;
5.
since
the
appellants
only
required
one
of
the
two
80-acre
parcels,
they
listed
the
north
half
in
1986
and
sold
it
to
the
corporation
on
December
14,
1986;
6.
there
was
some
discussion
as
to
when
the
south
half
was
listed.
Although
counsel
for
respondent
was
able
to
produce
a
copy
of
the
sales
advertisements
for
the
north
half
which
were
placed
in
1986
and
again
in
1989,
nothing
was
produced
for
the
south
half
except
the
listing
in
1989.
On
this
point
the
Court
reviewed
the
transcript
of
the
questions
of
counsel
for
the
respondent
and
the
answers
of
Mr.
Chorney.
It
reads
as
follows:
MR.
HAYMOUR:
Q.
And
would
you
also
say
that
although
only
the
north
half
is
listed
here,
was
the
south
half
ever
listed
for
sale
as
well?
A.
Yes.
Q.
Okay,
and
it
would
have
been
listed
in
‘86
through
‘89
as
well?
A.
I'm
not
positive
of
that.
I’m
not
positive,
but
it
would
have
been
listed
some
time
in
there,
yeah.
MR.
HAYMOUR:
Q.
Mr.
Chorney,
in
1986
the
north
half
was
listed,
in
April
of
1986.
I
believe
we
showed
you
a
copy
of
a
document
listing
the
north
half
of
the
property
for
sale.
A.
Yeah.
Q.
Was
the
south
half
of
the
property
listed
for
sale
in
19862
A.
I
really
don't
know,
if
it
was
listed.
I
really
don't
know.
7.
although
80
acres
can
be
considered
large
for
a
residential
property,
the
testimony
was
that
the
appellants
intended
to
use
the
excess
land
for
grain
crops
to
aid
in
feeding
the
quarter-horses
and
llamas
as
was
done
on
the
Wildwood
property.
Testimony
was
also
given
by
one
Jerry
Hutton,
a
contractor.
He
testified
that
he
and
one
or
both
of
the
Chorneys
"walked"
the
south
half
on
two
occasions
to
determine
the
best
location
for
the
residence.
Mr.
Chorney's
evidence
was
to
the
same
effect.
Position
of
the
appellants
Appellants
submit
that
the
acquisition
of
the
south
half
was
not
for
speculative
purposes.
Their
main
purpose
was
to
acquire
land
for
a
future
home
closer
to
Edmonton.
Position
of
the
respondent
Respondent
submits
that
the
gain
is
on
income
account
because
the
appellants
were
engaged
in
an
adventure
or
concern
in
the
nature
of
trade.
He
refers
to
the
listings
for
the
north
half
and
the
description
therein
referring
to
the
proximity
of
that
property
to
Edmonton
and
to
the
West
Edmonton
Mall.
The
submission
was
that
there
was
speculation
at
least
with
respect
to
the
north
half
and
presumably
also
with
respect
to
the
south
half.
Counsel
quoted
the
definition
of
business
in
subsection
248(1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
which
reads:
"business"
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatever
and,
except
for
the
purposes
of
paragraph
18(2)(c),
section
54.2
and
paragraph
110.6(14)(f),
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment;
Respondent
further
submits
that
even
if
the
primary
motivation
was
not
one
of
speculation,
it
was
certainly
a
secondary
intention
of
the
appellants.
Analysis
On
the
aspect
of
an
adventure
or
concern
in
the
nature
of
trade,
counsel
for
the
respondent
referred
to
the
decision
of
the
Exchequer
Court
in
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189,
56
D.T.C.
1125.
In
that
case,
the
general
manager
of
a
Canadian
subsidiary
of
a
U.S.
company,
after
the
parent
company
refused
his
recommendation
to
import
foreign
lead
(because
of
a
domestic
shortage),
decided
himself
to
take
a
risk
and
personally
bought
1,500
tons
of
lead
which
he
later
sold
to
the
Canadian
company
at
a
substantial
profit.
This
profit
was
taxed
as
arising
from
an
adventure
in
the
nature
of
trade
even
though
there
was
only
one
transaction
and
the
Court
agreed.
The
comparison
of
the
facts
in
the
Taylor
case
to
those
in
the
present
case
is
tentative
at
best.
In
Taylor,
the
Court
was
dealing
with
a
commodity,
the
price
of
which
fluctuated
wildly
over
short
periods
of
time.
The
experienced
general
manager
decided
to
take
a
risk
and
it
paid
off.
There
was
no
question
of
using
the
lead
for
some
other
purpose.
In
the
present
case,
the
testimony
is
that
the
land
was
acquired
principally
for
purposes
of
a
future
residence.
Counsel
for
respondent
also
referred
to
the
decision
of
the
Tax
Review
Board
in
Ravida
v.
M.N.R.,
[1977]
C.T.C.
2598,
78
D.T.C.
1030.
The
Ravida
decision
is
distinguishable
from
the
present
case
on
the
principal
ground
that
the
taxpayer
in
Ravida
was
a
real
estate
trader
and
the
purchase
and
sale
of
the
subject
land
took
place
almost
simultaneously.
Counsel
also
referred
to
Happy
Valley
Farms
Ltd.
v.
Her
Majesty
the
Queen,
[1986]
2
C.T.C.
259,
86
D.T.C.
6421.
The
headnote
in
that
decision,
in
part,
reads
as
follows:
Since
the
primary
business
of
the
taxpayer
was
the
development
of
real
estate
for
resale
and
the
taxpayer
had
made
17
similar
transactions
between
1968
and
1976,
it
appeared
that
the
sale
of
land
was
business
income.
Further,
the
lack
of
evidence
of
the
taxpayer's
farming
activity
and
the
virtually
non-existent
likelihood
that
the
land
would
produce
income
without
being
sold
indicated
that
the
land
was
acquired
with
the
intention
that
it
would
be
disposed
of
at
the
best
opportunity.
The
profit
on
the
sale
was
therefore
properly
assessed
as
business
income.
The
Happy
Valley
Farms
decision
in
the
Court’s
opinion
is
also
distinguishable
from
the
facts
in
the
present
case.
The
only
other
real
estate
transactions
of
the
appellants
or
the
corporation
were
the
acquisition
and
subsequent
sale
of
the
Wildwood
property,
which
was
their
residence,
and
the
acquisition
and
sale
of
the
north
half.
This
would
certainly
not
seem
to
be
sufficient
real
estate
activity
to
have
the
appellants
considered
as
traders
experienced
in
real
estate.
On
the
aspect
of
secondary
intention,
counsel
for
the
respondent
referred
to
Racine
et
al.
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5098.
At
page
157
(D.T.C.
5103)
and
following,
the
Court
analyzed
the
doctrine
of
secondary
intention
in
the
following
manner:
In
examining
this
question
whether
the
appellants
had,
at
the
time
of
the
purchase,
what
has
sometimes
been
called
a
“secondary
intention”
of
reselling
the
commercial
enterprise
if
circumstances
made
that
desirable,
it
is
important
to
consider
what
this
idea
involves.
It
is
not,
in
fact,
sufficient
to
find
merely
that
if
a
purchaser
had
stopped
to
think
at
the
moment
of
the
purchase,
he
would
be
obliged
to
admit
that
if
at
the
conclusion
of
the
purchase
an
attractive
offer
were
made
to
him
he
would
resell
it,
for
every
person
buying
a
house
for
his
family,
a
painting
for
his
house,
machinery
for
his
business
or
a
building
for
his
factory
would
be
obliged
to
admit,
if
this
person
were
honest
and
if
the
transaction
were
not
based
exclusively
on
a
sentimental
attachment,
that
if
he
were
offered
a
sufficiently
high
price
a
moment
after
the
purchase,
he
would
resell.
Thus,
it
appears
that
the
fact
alone
that
a
person
buying
a
property
with
the
aim
of
using
it
as
capital
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him,
is
not
sufficient
to
change
an
acquisition
of
capital
into
an
adventure
in
the
nature
of
trade.
In
fact,
this
is
not
what
must
be
understood
by
a
“secondary
intention”
if
one
wants
to
utilize
this
term.
To
give
to
a
transaction
which
involves
the
acquisition
of
capital
the
double
character
of
also
being
at
the
same
time
an
adventure
in
the
nature
of
trade,
the
purchaser
must
have
in
his
mind,
at
the
moment
of
the
purchase,
the
possibility
of
reselling
as
an
operating
motivation
for
the
acquisition;
that
is
to
say
that
he
must
have
had
in
mind
that
upon
a
Certain
type
of
circumstances
arising
he
had
hopes
of
being
able
to
resell
it
at
a
profit
instead
of
using
the
thing
purchased
for
purposes
of
capital.
Generally
speaking,
a
decision
that
such
a
motivation
exists
will
have
to
be
based
on
inferences
flowing
from
circumstances
surrounding
the
transaction
rather
than
on
direct
evidence
of
what
the
purchaser
had
in
mind.
When
a
man
purchases
a
large
expanse
of
land
for
the
avowed
purpose
of
building
on
it,
for
example,
a
shopping
centre
and
of
renting
stores
to
yield
an
income
from
rent,
but
at
the
moment
of
the
purchase
he
does
not
make
any
arrangement
at
all
to
obtain
the
permanent
financing
of
a
considerable
amount
of
money
that
he
must
invest
or
which
will
be
required
for
the
purposes
of
his
project,
or
any
arrangement
at
all
to
obtain
tenants,
and
he
has
not
obtained
any
information
at
all
concerning
the
question
of
learning
if
the
site
in
question
possesses
the
characteristics
necessary
and
adequate
for
such
a
project,
or
when
this
plot
of
land
is
situated
in
a
sector
which
is
adjacent
to
another
sector
which
is
growing
and
which
is
in
full
expansion
on
the
periphery
and
where
the
value
of
these
lands
has
already
begun
to
rise
or
where
the
purchaser
possesses
experience
in
the
realm
of
real
estate
which
allows
him
to
anticipate
the
changes
which
may
arise
in
real
estate
values,
there
arises
an
almost
irresistible
inference
that
this
man
had
the
idea
when
he
made
the
purchase
that
if
he
did
not
succeed
in
making
the
necessary
arrangements
to
establish
a
shopping
centre,
he
would
indubitably
be
able
to
resell
this
land
at
a
profit.
On
the
basis
of
all
of
the
testimony
and
the
documentation
produced,
the
Court
is
of
the
opinion
that
the
appellants,
in
acquiring
and
disposing
of
the
south
half
were
not
engaged
in
a
speculative
activity—were
not
engaged
in
an
adventure
or
concern
in
the
nature
of
trade.
Further,
although
some
of
the
elements
discussed
in
the
Racine
case
were
present,
principally
that
the
south
half
was
close
to
Edmonton
where
values
were
likely
to
rise,
many
of
the
other
elements
were
not,
principally
all
of
the
comments
relative
to
the
taxpayer
doing
nothing
to
plan
for
a
shopping
centre,
his
alleged
reason
for
acquiring
the
land.
In
the
present
case,
although
no
plans
were
drawn
for
a
house
on
the
south
half,
the
appellants
intended
to
use
the
south
half
for
a
residence
and
it
had
been
"walked"
over
by
the
contractor
to
determine
the
best
location
for
their
residence.
On
balance,
the
Court
has
not
found
the
evidence
sufficient
to
bring
into
play
the
secondary
intention
doctrine.
Consequently,
the
appeals
are
allowed,
with
costs,
and
the
matter
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
accordingly.
Appeals
allowed.
Email this Content