Villeneuve v. R., [1996] 2 CTC 2095, 96 DTC 1165

Brulé J.T.C.C.:— This motion brought on behalf of the Appellant is made pursuant to Rules 168 and 172 of the Tax Court of Canada Rules (General Procedure) for a reconsideration of the judgment dated November 15, 1995. The grounds for the Motion are that the Reasons for Judgment and the resulting Judgment may not have reflected the intention

In support of the Motion there was filed the Affidavit of Patrice Marceau, the lawyer who represented the Appellant at the trial.

made to convert a rental building to condominiums with a corresponding change that the profit made after conversion was a capital gain while beforehand the rental income was on account of revenue.

In the Judgment issued by the Court, we find the following which was given in French:

Il ressort de la preuve que l’appelant était un promoteur immobilier expérimenté et averti. Il possédait divers immeubles de rapport et en a vendu plusieurs. Les actes de procédure montrent qu’au moment de son acquisition par l’appelant et gréce aux efforts que ce dernier a subséquemment déployés et aux capitaux qu’il y a investis, l’immeuble Chavoin était rentable pendant que l’appelant en était propriétaire, de sorte qu’on peut se demander pourquoi on aurait changé en quelque chose d’autre un placement constituant un bien en immobilisation. La seule raison semblerait être qu’on voulait se prévaloir de la possibilité de transformer en éléments de stock les 204 unités de l’immeuble Chavoin et les vendre en réalisant un bénéfice. La situation était similaire dans l’affaire Hughes v. R. (sub nom. Hughes v. R., [1984] C.T.C. 101, 84 D.T.C. 6110, of la Cour a conclu que la contribuable avait probablement acheté le bien à titre de placement, mais que, quand elle a demandé, environ six mois plus tard, l’approbation du titre de copropriété, l’augmentation antérieure à la demande était imputable au capital, le reste des bénéfices réalisés par la contribuable étant imputable au revenu. En l’espèce, la Cour ne dispose d’aucun élément de preuve, à part le montant de la disposition finale qui, selon l’appelant, est imputable au capital. Or, ce montant, après le changement de propriétaire, est donc réputé être attribuable au revenu.

The English translation of the above passage reads:

From the evidence given, it was seen that the Appellant was an experienced and knowledgeable real estate entrepreneur. He held various income properties and sold different ones. The pleadings indicate that at the time of its acquisition by the Appellant and as subsequently enhanced by his efforts and capital, Chavoin was an active profit producing property during the Appellant’s ownership, why then change form an investment that was capital property? The only reason would seem to be the opportunity to convert the 204 units of Chavoin to inventory and to sell them at a profit. A similar situation was present in the case of Hughes v. R. (sub nom. Hughes v. The Queen), [1984] C.T.C. 101, 84 D.T.C. 6110 (F.C.T.D.) wherein the Court held that probably the taxpayer purchased the property as an investment, but when the taxpayer some six months later applied for strata title approval the increase prior thereto was on capital account but the balance of the taxpayer’s profit was income. Here the Court had no evidence except the final disposition figures claimed by the Appellant to be on capital account. These figures, after the change in retention of the property, are hereby deemed to be on income account.

The problem that misled the Appellant was that in his opinion the Court had not considered the pleading in the Notice of Appeal and had not followed the Hughes case, supra, when giving Judgment.

It is easy to see this and to believe the Court had made an error in not dividing the dealing in the Chavoin property partly on income account and partly on capital. There were two factors, however, which mitigated against this interpretation. First of all a division between income and capital and the date and amount for this was only necessary if a change in intent had taken place. In the Court’s opinion it had not.

Secondly, the Hughes case, supra, can easily be distinguished from the present one. There the taxpayer purchased an apartment building with an investment intention. This disappeared when expenses exceeded the rental income. A change was necessary and the choice was either to sell or convert to strata title. The latter route was followed. It can be realized that originally there was a capital presence and was so with the conversion. After the conversion and the apartment units became condominiums, and thus inventory, the profit realized was on

income account.

In the present case, the Appellant was a recognized entrepreneur who knew his way around real estate transactions. His original involvement with Chavoin was as an investment rental property. He purchased the interests of his co-investors and then changed to condominiums. The Court does not believe his intention other than to make a quick profit was the motivation. It was an income adventure and he is tagged with this.

led the Appellant to believe there was an error in the Judgment, but in fact there was not.

The Motion is dismissed.

Motion dismissed.