McArthur
J.T.C.C.:
-
These
appeals
were
heard
on
common
evidence
in
Sudbury,
Ontario
on
January
27,
1995
under
the
informal
procedure
of
this
Court.
The
point
at
issue
is
whether
the
profits
realized
by
the
appellants
on
the
sale
of
lots
must
be
considered
as
a
capital
gain
or
business
income.
According
to
the
Notices
of
Appeal,
the
Replies
to
the
Notices
of
Appeal
and
the
appellants’
testimony,
the
relevant
facts
are
as
follows:
[TRANSLATION]
-
as
legal
deed
no.
624556
filed
with
the
registry
office
on
June
22,
1988
confirms,
the
appellant
purchased
a
parcel
of
land
subdivided
into
37
lots
and
a
second
unsubdivided
parcel
of
land
(“the
Property”);
-
during
the
1988
taxation
year,
the
appellant
resold
lot
119
M-445
and
his
share
of
the
profit
realized
amounted
to
$955.00;
-
during
the
1989
taxation
year,
the
appellant
resold
lots
15
M-445,
24
M-445,
25
M-445,
26
M-445,
27
M-445,
28
M-445,
30
M-445,
31
M-445,
32
M-445,
33
M-445,
105
M-445,
106
M-445,
107
M-445,
116
M-445
and
122
M-445
and
his
share
of
the
profit
realized
amounted
to
$28,246.50;
-
during
the
1990
taxation
year,
the
appellant
resold
lots
19
M-445,
39
M-296,
56
M-296,
57
M-296,
58
M-296,
18
M-445,
54
M-296
and
55
M-296
and
his
share
of
the
profit
realized
amounted
to
$17,460.00;
-
the
appellant
had
knowledge
of
the
real
estate
market
having
previously
worked
as
a
real
estate
agent
during
the
years
preceding
the
purchase
of
the
lots;
-
the
purchase
of
the
Property
coincided
with
growth
in
real
estate
development
in
that
region;
-
at
the
time
of
the
purchase
of
the
Property,
the
appellant
recognized
the
opportunity
to
resell
the
Property
at
a
profit
and
the
existence
of
the
resale
potential
was
the
factor
that
motivated
the
purchase
of
the
Property;
-
during
the
years
in
question,
the
appellant
undertook
certain
infilling
work
in
order
to
improve
the
lots
resale
potential;
-
the
financing
of
the
purchase
of
the
Property
was
structured
so
that
the
appellant
had
only
to
pay
an
annual
interest
charge
and
when
he
sold
a
lot,
he
could
obtain
release
of
the
property
title
of
that
lot
in
exchange
for
payment
of
the
sum
of
$2,000.00;
-
the
Property
was
purchased
in
equal
shares
by
the
appellant
and
his
wife
Simone
Taillefer;
3.
The
appellant
included
(deducted)
the
following
amounts
in
computing
his
income
for
the
1988,
1989
and
1990
taxation
years:
1988
|
Taxable
capital
gains
|
$1,333.33
|
$25,315.91
|
$26.173.52
|
|
Net
business
income
|
$
0.00
|
$
000
|
20,00
|
|
Capital
gain
deduction
|
($1.333.33)
|
($25,315.9))
|
$26,173.52)
|
4.
In
reassessing
the
appellant
for
the
1988
taxation
year
on
February
20,
1992,
the
Minister
of
National
Revenue
(“the
Minister”)
added
the
amount
of
$955.00
as
net
business
income
in
computing
the
income;
5.
In
reassessing
the
appellant
for
the
1989
taxation
year
on
February
20,
1992,
the
Minister,
in
computing
the
income,
reduced
the
reported
capital
gain
by
an
amount
of
$23,982.00,
added
an
amount
of
$28,246.50
as
business
income
and
reduced
the
capital
gain
deduction
claimed
to
$1,333.33;
6.
In
reassessing
the
appellant
for
the
1990
taxation
year
on
February
20,
1992,
the
Minister,
in
computing
the
income,
reduced
the
reported
capital
gain
by
an
amount
of
$21,673.00,
added
an
amount
of
$17,460.00
as
net
business
income
and
reduced
the
capital
gain
deduction
claimed
to
$4,500.00;
...
The
appellant
added
that
he
had
intended
to
keep
these
lots
as
a
longterm
investment.
He
was
surprised
to
see
that
there
was
an
immediate
demand
for
his
lots
(earlier
than
he
thought).
His
position
according
to
his
Notice
of
Appeal
was
as
follows:
A.
The
reassessments
are
not
fair
because
they
are
based
on
the
premise
that
we
have
managed
a
business
instead
of
being
based
on
capital
gain;
B.
I
base
my
appeal
on
the
following
facts:
1.
I
consider
that
the
purchase
of
the
lots
was
a
gift
or
a
windfall.
2.
I
had
no
intention
of
starting
up
a
property-selling
business.
I
ask
that
the
informal
procedure
provided
at
sections
18.1
and
18.28
of
the
Tax
Court
of
Canada
Act
govern
this
appeal.
[Translation.]
The
Minister’s
position
in
his
Reply
was
as
follows:
14.
He
contends
that
the
profits
realized
by
the
appellant
upon
disposition
of
the
lots
situated
on
the
Property
constituted
business
income
for
the
1988,
1989
and
1990
taxation
years
and
that
the
respondent
was
justified
in
including
them
in
computing
the
appellant’s
income
pursuant
to
the
provisions
of
section
3
and
subsections
9(1)
and
248(1)
of
the
Act;
15.
He
contends
that
the
appeal
in
respect
of
the
1991
taxation
year
is
not
valid
because
a
pre-condition
for
the
filing
of
a
notice
of
appeal
was
not
met
pursuant
to
sections
165
and
169
of
the
Act.
[Translation.]
The
appellant
Mr.
Taillefer
said
among
other
things
during
his
testimony
that
he
had
been
a
real
estate
agent
in
Sudbury
during
the
years
from
1963
to
1968.
He
became
ill
in
1968-69
and
had
not
worked
since
that
time.
He
lived
with
his
wife
on
Rideau
Street
in
Sudbury.
There
was
a
mortgage
of
about
$65,000
on
the
house.
That
was
too
expensive
for
them.
They
decided
to
look
for
a
way
out
of
their
predicament;
they
found
lot
no.
119
M-445.
Mr.
Taillefer
found
the
name
of
the
owner
at
the
registry
office.
The
latter,
who
lived
in
San
Diego,
California,
notified
him
that
he
had
38
other
lots
and
another
parcel
of
land
to
sell
and
he
would
not
sell
lot
no.
119
M-445
without
selling
the
rest
of
the
lots
which
he
owned
in
that
area.
The
appellants
were
surprised
to
see
that
he
accepted
their
offer
of
$34,000
for
everything.
They
therefore
purchased
those
lots
in
equal
shares.
To
pay
the
owner
of
the
lots,
they
paid
him
$10,000
cash,
borrowed
the
balance
of
$24,000
from
the
Caisse
Populaire
as
a
mortgage
payable
upon
the
sale
of
the
lots.
They
immediately
took
steps
to
obtain
a
building
permit.
The
City
of
Sudbury
set
down
costly
requirements.
In
July
1988,
they
sold
the
lot
by
chance,
without
offering
it
to
the
public,
when
a
purchaser
gave
them
$8,000.
They
then
chose
another
lot,
no.
58
M-296
on
Highway
69,
where
they
finally
built
a
small
house
for
their
principal
residence.
By
that
time,
they
had
sold
a
number
of
lots
and
had
enough
money
to
stay
on
Rideau
Street.
Simone
found
the
new
house
too
small
and
on
a
street
with
too
much
traffic.
They
then
rented
it
for
one
year
and
subsequently
sold
it.
Analysis
The
appellants’
primary
intention
was
to
build
themselves
a
home
on
lot
no.
119
M-445
and
afterward
on
lot
no.
58
M-296.
With
respect
to
the
other
lots,
the
primary
intention
was
to
resell
them
as
soon
as
possible.
The
sales
of
the
lots
were
sales
of
assets
constituting
an
inventory
and
were
therefore
of
a
commercial
nature.
Consequently,
the
two
lots
no.
119
M-445
and
no.
58
M-296
must
be
separated
from
the
other
lots.
As
to
the
rest,
this
was
a
case
of
the
resale
of
the
lot
as
purchased
or
roughly
as
purchased.
Whether
the
sale
of
these
lots
had
been
made
immediately
or
over
10
years
would
not
have
changed
the
commercial
aspect
of
the
undertaking.
Except
for
lots
no.
119
M-445
and
no.
54
M-296,
the
appellants
became
lots
sellers
in
the
same
sense
as
a
television
seller
who
buys
30
televisions.
They
kept
two
for
their
personal
home
and
sold
the
rest
at
retail
price
to
realise
a
profit.
Judge
Lamarre-Proulx
wrote
in
Bourbeau
v.
Minister
of
National
Revenue,
[1990]
2
C.T.C.
2517,
90
D.T.C.
1951:
It
is
always
useful
to
review
the
classic
test
established
by
the
California
Copper
Syndicate
Ltd.
v.
Harris
(1904),
5
T.C.
159,
on
page
159
to
determine
whether
a
profit
from
the
sale
of
an
asset
is
a
capital
or
an
income
gain.
is
the
sum
of
gain
that
has
been
made
a
mere
enhancement
of
value
by
realizing
a
security
or
is
it
a
gain
made
in
an
operation
of
business
in
carrying
out
a
scheme
of
profit-making?
In
conclusion,
the
profit
realized
on
the
sale
of
the
two
lots
no.
119
M-445
and
no.
54
M-296
was
in
the
nature
of
a
capital
gain
because
the
appellants
had
intended
to
build
their
principal
residence
on
those
lots.
They
were
obliged
to
sell
their
two
lots
for
the
reasons
described.
It
is
clear
in
the
case
under
study
that
the
sale
of
the
other
lots
constituted
an
activity
carried
on
in
the
context
of
a
business.
The
lots
constituted
the
appellants’
inventory.
The
appellants
testified
that
they
were
not
able
to
pay
either
the
principal
or
the
interest
of
their
loan
without
reselling
these
lots.
For
these
reasons,
the
appeals
are
allowed
with
respect
to
lots
no.
119
M-445
and
no.
54
M-296,
but
dismissed
in
respect
of
the
other
lots.
The
assessment
respecting
lots
no.
119
M-445
and
no.
54
M-296
is
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
profit
realized
on
the
sale
of
lots
no.
119
M-445
and
no.
54
M-296
only
was
in
the
nature
of
a
capital
gain.
The
profit
realized
on
the
sale
of
the
other
lots
situated
on
the
property
was
in
the
nature
of
business
income.
Appeals
allowed
in
part.
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