Jacques Anctil v. Her Majesty the Queen, [1994] 1 CTC 2004, 93 DTC 1525

Tremblay, J.T.C.C.:—This appeal was heard on April 6, 1993, at Québec, Quebec.

1. The point at issue

According to the notice of appeal and the reply to the notice of appeal, the point at issue is whether the profit realized by the appellant on the sale of a piece of land is a capital gain or income from a business.

According to the appellant, the land was purchased for $45,000 on March 19, 1987, on condition, inter alia, that financing for 80 per cent of the cost of the project, the construction of a 25-unit apartment building on the land, be obtained.

Since he was unable to obtain the necessary financing alone, he considered investing in another, smaller commercial construction project in partnership with the company Construction R. & V. Boucher Inc. In November 1987, that company informed the appellant that it wished to carry out its condominium construction project alone. The appellant then sold his land, on December 9, 1987, and received the proceeds of the sale, $140,000, in September 1988. The resulting profit, according to the appellant, was a capital gain.

According to the respondent, on the other hand, the appellant acquired the land on November 30, 1987 and sold it on December 9, 1987, on suspensive condition, for $140,000. The suspensive condition having been met, the sale was completed on September 14, 1988.

2. The burden of proof

2.01 The appellant has the burden of establishing that the respondent's assessment is incorrect. This burden of proof derives from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v. M.N.R.,

[1948] S.C.R. 486, [1948] C.T.C. 195, 3 D.T.C. 1182.

2.02 In this case, the facts assumed by the respondent are described in subparagraphs (a) to (n) of paragraph 5 of the reply to the notice of appeal. They read as follows:

5. In reassessing the appellant for his 1988 taxation year, the Minister of National Revenue assumed the following facts, inter alia:

(a) On March 19, 1987, the appellant signed a contract of sale on suspensive condition in order to acquire a vacant piece of land situated in the city of Rivière-du- Loup, the said sale being subject to the following two conditions being met:

— the construction of a 25-unit apartment building (to be sold as condominiums) had to be permitted under the provisions of the relevant municipal and provincial statutes and by-laws;

— that the appellant be able to obtain financing for at least 80 per cent of his construction project [Exhibit A-1]; [admitted]

(b) the contract of March 19, 1987 provided that the transfer of ownership of the land would be delayed until the two conditions set out above were met; [denied as written]

(c) the contract also provided that the conditions had to be met by September 30, 1987, at the latest; [admitted]

(d) finally, the contract provided that in the event that the conditions could not be met by September 30, 1987, at the latest, the vendor would continue to own the said land as if the contract had never existed; [admitted]

(e) on September 30, 1987, one of the conditions set out in the contract of March 19, 1987, that is, the condition relating to obtaining financing, had not been met; [admitted]

(f) during the fall of 1987 the appellant had discussions with a general contractor in the city of Rivière-du-Loup, who had expressed interest in acquiring the vacant land and in carrying out the 25-condominium building construction project himself; [denied as written]

(g) on November 30, 1987, even though the appellant knew that he could not himself carry out his construction project, he nonetheless acquired the vacant land in Rivière-du-Loup, at a cost of $45,000; [denied]

(h) on December 9, 1987, ten days after the acquisition [denied], the appellant signed a contract of sale on suspensive condition with the general contractor referred to above for the sale of the vacant land and his residential development project on the land [admitted] (including soil test, plans and permits to build condominiums, as of November 23, 1987); [denied]

(i) that contract provided that the transfer of ownership of the land would be delayed until the following condition was met: firm offers to purchase being obtained for 60 per cent of the 25 condominiums to be built on the land; [admitted]

(j) the sale was finally carried out by contract dated September 14, 1988, at the

price of $140,000; [admitted that the contract was signed on that date]

(k) since 1986, the appellant has acquired three other pieces of land with development potential; [admitted]

(l) the appellant has not established that he acquired the vacant land in Rivière- du-Loup as a long-term investment; [denied]

(m) on the contrary, the appellant acquired the said land with the intention of reselling quickly at a profit or, at least, the possibility of reselling the land at a profit was one of the main factors which prompted the appellant to purchase it; [denied]

(n) the profit realized from the sale of the land acquired by the appellant was income from a project in which there was a risk or from a venture in the nature of business. [denied]

[Translation.]

3. The facts

3.01 In 1987-1988, the appellant was a masonry contractor. He worked on subcontracts for construction contractors. He had no experience in residential development (transcript, pages 7-8).

3.02 At the beginning of August 1987, he looked at the possibility of building a 25-unit apartment building on boulevard Thériault in Rivière-du-Loup. However, the land in question was 25 feet lower than the level of the street, which caused him some problems. Accordingly, on March 19, 1987, he decided to purchase the land, which was owned by Raymond Landry, at a cost of $45,000 (Exhibit A-1), but on the suspensive conditions described above in paragraph 2.02(5)(a). This land measured about 30,000 square feet and was situated across from the Rivière-du-Loup hospital (transcript, pages 11-12).

3.03 After obtaining a report on the condition of the soil from the firm Gogemat Inc. (Exhibit A-2: statement of account dated May 11, 1987), the appellant had the architects Casgrain and Pelletier prepare a preliminary sketch showing, inter alia, a sample plan of the five floors for luxury apartments and two floors of parking, in order to be able to obtain a price from a contractor (Exhibit A-3). The plan was, however, changed to 29 apartments on the advice of a builder:". . .it would be cheaper per unit" (transcript, page 16). In fact, it was a six-floor building with five apartments per floor, one of which was transformed into a common room (transcript, page 22).

3.04 The appellant testified as follows as to the reasons what prompted him to acquire the land:

Q. Could you tell the Court what the reasons were that prompted you to purchase this piece of land from Mr. Landry?

A. It was because I wanted to construct an apartment building to provide me with a pension fund. And I thought that the place to talk about it was with the people in the city, who were up to date on things in the city. They were always saying: "Well, try to get land close to the hospital, to rent to the hospital staff".

Q. This is a potential area for tenants?

A. Yes, because, what I was mainly after, I wanted the hospital staff, I thought. . .I want to make more luxurious units because there are doctors who come to Rivière-du-Loup sometimes just for one year or two years, things like that, so I was offering a more luxurious unit for them. That was why, that was the style it was done in. (Transcript, pages 14-15)

Q. And you decided to go into apartments, apartment buildings, for what reason again?

A. To provide me with a pension plan. (Transcript, page 17)

[Translation.]

The appellant pointed out that this was his first experience with apartment buildings (Transcript, page 17). He also stated that these were very luxurious apartments, so that they could be rented, because he is not a real estate promoter (Transcript, pages 24-25).

3.05 After obtaining the appropriate zoning by-law (Exhibit A-4), he handed everything over to Paul Martin Inc., a firm of contractors, to get an assessment of the cost of the project. That assessment came to $2,900,000, or $100,000 per unit. The appellant was expecting a cost of $60,000 to $65,000 each, or about $1,500,000 (transcript, pages 33-36). He was planning to rent the apartments for $600 to $700 per month (cross-examination, page 120).

3.06 In order to permit construction, the municipal zoning by-law was changed from Rb (ordinary residential) to Rd (high-density residential) (Exhibit A-4). This change took place in May or June 1987, when the entire area was rezoned (Transcript, page 29).

3.07 The Caisse populaire consulted by the appellant for a loan rejected the financing project in June 1987, stating that at that price he would have to charge rents that were too high per unit for the city of Rivière-du-Loup, and, for that reason, the project would not be viable. He would have had to rent the units for $1,500 per month. He would be unable to repay the debt (Transcript, page 39).

On March 14, 1990, at the appellant's request, the Caisse populaire de Rivière-du-Loup confirmed that in June 1987 it had refused financing of $2,930,000 "concerning the construction of a building composed of twenty- nine condos in Rivière-du-Loup" (Exhibit A-6). Other financial institutions were approached by the appellant's notary: the Fiducie Desjardins, General Trust, The Laurentian, L'Industrielle, the Fédération des Caisses populaires Desjardins. According to a letter from Gesco Conseils dated June 30, 1987 (Exhibit A-7), all the replies were negative.

3.08 Given these facts, the appellant decided to seek a partnership with a general contractor in Rivière-du-Loup, Hervé Boucher, a man with experience in construction. He met with him in June or July 1987, explained his project to him and showed him his plans. The appellant believed he could convince him to enter into a partnership with him by building at a lower price and later, buy back Mr. Boucher's interest (Transcript, page 46). However, Mr. Boucher told him that he would think about it: he had first to consider the possibility of another development for which the project was already being studied. That project was also located close to the hospital (Transcript, pages 45-46). The appellant believes that it was "in September or thereabouts” that Mr. Boucher informed him that he was interested in the project but that he wanted to build on his own without a partner (Transcript, page 47). He later said that this was in the fall. He does not remember very well whether it was before the end of September or later.

3.09 It seems clear, however, that Mr. Boucher did not make the offer to purchase the land at the same time as when he told him that he preferred to build on his own, without a partner. On cross-examination, the appellant testified as follows:

Q. You told us earlier that this happened in the fall, that Construction R. & V. Boucher had told you that it did not want to enter into a partnership and it wanted to do the project alone?

A. That's right.

Q. And at that time, it was at that time that they made you an offer to purchase?

A. No, they made the offer in November, because it was settled. . .

Q. November?

A. November, and. . .

Q. Is it correct, Mr. Anctil, that you were not the owner of the land at that time?

A. Yes, I was.

JUDGE TREMBLAY:

Q. At what time?

A. In November.

MARIE-ANDRÉE LEGAULT:

Q. You say that your condition in the contract of September was not met, but you were nonetheless the owner of the land, is that what you are saying?

A. That is what I am saying. Because Mr. Landry, if I had not made an agreement with him for the land, he could have sold the land directly to Mr. Boucher or to anyone else. I had made an agreement with him. (Transcript, pages 134-135)

[Translation.]

3.10 However, the appellant clearly remembers going to see Mr. Landry to tell him that he was buying the land even though the condition as to financing had not been met. He does not remember the date, but he contends that it was before September 30, 1987, the date set out in the contract as terminating the two suspensive conditions. In his testimony on this point, he stated the following:

Q. O.K. And you did that before September 30?

A. Yes, yes, before the end, because he could have sold the land to someone else, and I wanted to keep it, the land. (Transcript, page 50)

Q. In fact, you actually entered into a contract at that time?

A. The contract was still good, I mean, we had an agreement. I got a release, and I paid Mr. Landry in two instalments.

Q. When did you pay?

A. I got the release on November 30. (Transcript, page 50)

[Translation.]

No document to prove the two payments was filed, except the release.

3.11 The school tax account for this piece of land, for $26.35, covering the period from July 1,1987 to June 30, 1988 (Exhibit A-5), was paid on October 30, 1987, by the appellant, Jacques Anctil (Transcript, page 31).

3.12 A release by notarial deed dated November 30, 1987 (Exhibit A-8), stipulates that Raymond Landry acknowledges having received from the appellant full payment of the sum of $45,000 in respect of the contract of March 19, 1987. A general and final release was given for what was owing and a discharge was also given for all privileges.

3.13 In addition, also on November 30, 1987, by notarial deed (Exhibit 1-2), Raymond Landry and the appellant agreed that the sale of March 19, 1987 “is now final with retroactive effect to September 30, 1987”.

After that contract (Exhibit 1-2) was entered, the appellant testified as follows:

Q. If you were the owner, Mr. Anctil, why was this contract needed, do you think?

A. To make it final.

Q. Well. ..

A. To have the final payment. He did it. . .it is retroactive to September 30.

Q. Yes, it is retroactive to September 30, but if you were already the owner, what need was there for this?

A. Because [t]he last payment was to be made later, but on September 30, it was agreed with Mr. Landry that the suspensive condition would not fail.

Q. You had nothing in writing at that time?

A. Between the two of us. . .[i.e., an oral agreement] (Transcript, page 136)

A. In September, I mean, I agreed with Mr. Landry to make payments, and he "released" me on November 30. But I complied. . .I dropped the clause providing that on September 30, if my two conditions on the first contract were not met, that he had the right to sell the land to someone else.

Q. Because on November 30, the condition relating to the financing had not been met?

A. No, but the land, I had taken. . .on September 30 it was settled.

JUDGE TREMBLAY:

Q. In fact, on September 30, the land belonged to you?

A. Yes, yes, because the deed you just showed me is retroactive to September 30. Because we waited, it was finished on September 30, and when he was paid, he gave me my release, which was on November 30 just the same. (Transcript, pages 137-138)

[Translation.]

3.14 On December 9, 1987, the land in question was acquired on suspensive condition by Construction R. & V. Boucher Inc. (Exhibit A-9).

(a) The declaration by the appellant vendor concerning the origin of the property sold (clause 3 of the contract, Exhibit A-9) reads as follows:

The vendor declares that he acquired the property hereby sold by virtue of the following deeds, to wit:

(1) Sale on suspensive condition under the deed received before Denis Côté, notary, on March 19, 1987, a copy of which was registered in Témiscouata on March 20, 1987, as number 279,899;

(2) Confirmation of the sale under the deed received before Brigitte Sirois, notary, on November 30, 1987, a copy of which was registered in Témiscouata on December 1, 1987, as number 285,918.

[Translation.]

(b) The price was $145,000. In addition to the land, and included in that price, the appellant sold the following items:

2. DESCRIPTION

(2) All of his residential development project on the land including the soil test, plans, permits to build condominiums, as of November 23, 1987.

[Translation.]

(c) The suspensive condition is described in clause 9 of the contract (Exhibit A-9) and reads as follows:

9. SALE ON SUSPENSIVE CONDITION

The parties agree that the transfer of ownership is suspended until the following condition is met:

Obtaining firm offers to purchase representing 60 per cent of the condominiums to be built on the land.

Moreover, the parties agree that if confirmation of the condition is not registered by March 28, 1988, at the latest, the condition shall be considered not to have been met, without prejudice or remedy of each party in damages.

[Translation.]

This deadline was subsequently extended to September 14, 1988, the date on which the sale was finally completed.

3.15 In response to the question of why he sold to Construction R. & V. Boucher Inc., the appellant said, first, that the offer to purchase was very reasonable, and second, that if he had refused, Mr. Boucher would then have built his own condominium project close to the hospital. Thus Mr. Boucher would have diluted the market, which would have made it more difficult, or even impossible, to carry out his own luxury apartment rental project.

Moreover, he did not try to sell to anyone else, nor did he receive any offers. Mr. Boucher subsequently built 24 condominiums.

3.16 Concerning the various pieces of land and buildings that the appellant acquired prior to and after the land [sic] in issue, he related the following facts:

Transaction no. 1

(a) On July 11, 1986, by notarized contract (Exhibit A-10), he acquired a piece of land consisting in 85,000 square feet situated on Beaubien Street in Rivière-du- Loup at a cost of $30,000, from Viateur Coulombe Inc. In fact, he had started paying part of the cost in 1984, under a“ handwritten" contract between Mr. Coulombe and himself. On July 11, 1986, he had already paid $10,000. He undertook to pay $10,000 on July 11, 1987, and $10,000 on July 11, 1988.

(b) On November 1, 1988, the appellant bought a piece of land (Exhibit A-11), again from Viateur Coulombe Inc., consisting in 20,000 square feet situated on the other side of rue Beaubien, at a cost of $20,000. The appellant had and still has the intention of constructing three residential buildings on these two pieces of land. The plans for this project were entered as Exhibit A-12.

The dispute in respect of water and sewer service between the representatives of the city and the representatives of the parish where the land is situated is delaying construction. The appellant hopes that these services will one day be installed, and then he will build.

Transaction no. 2

On November 24, 1988, the appellant purchased a piece of land from an architect, Jocelyn Sirois, consisting in 42,000 square feet, at a cost of $52,000 (Exhibit A-13), with the intention of building a home for the elderly. The land is situated on rue Iberville in downtown Rivière-du-Loup. He is seeking a zoning change and one resident is opposing it. There will have to be a referendum, which delays the process a year. In the meantime, many homes for the elderly are being built and his project has fallen through. Since then, he has received many offers to purchase and he has refused to sell.

Transaction no. 3

In September 1989, through his company Les Immeubles Jacques Anctil Inc. (100 per cent of the shares of which are owned by Gestion Jacques Anctil Inc.), the appellant purchased a piece of land consisting in 325,000 square feet (Exhibit A-14) on which a large building used by a transportation firm had been constructed. It was renovated and transformed into seven or eight apartments from which he is still receiving rental income.

Transaction no. 4

On February 5, 1992, Les Immeubles Jacques Anctil Inc. acquired an old hardware store on rue Témiscouata in Rivière-du-Loup (Exhibit A-15) from Camille Dumais Inc., at a cost of $230,000. That building was transformed into a medical clinic with a pharmacy, and produces rental income.

Transaction no. 5

The appellant personally acquired 240,000 square feet of land adjoining his private home in the first concession east of St-Antonin de Rivière-du-Loup, at a cost of $9,000. This land is used to store masonry materials from his business Briques et Pierres Bas St-Laurent Inc.

3.17 Sale of properties

(a) Apart from the sale of the land in question, the appellant had to sell his private home in Saint-Jean-Port-Joli and move to the first concession east of St- Antonin. He also sold his parents' home, which he had acquired or which he had inherited.

(b) In addition, on October 12, 1989, by notarial contract (Exhibit 1-3), the appellant sold the land situated on Iberville Street in Rivière-du-Loup (see para. 3.15, transaction no. 2) and the two pieces of land situated on Beaubien Street in Rivière-du-Loup (see para 3.15, transaction no. 1) to Gestion Jacques Anctil Inc. for a total of $103,444, that is, 100,000 class "F" shares and 3,444 shares by issuing a demand note.

3.18 On cross-examination, in answer to the question of whether originally, that is, in March 1987, the appellant had the intention of building apartments to rent or condominiums to sell, he stated categorically that it was apartments to rent. Exhibit A-1 (clause 7.1) refers to apartments.

On the other hand, in Exhibit A-3 (para. 3.03), dated April 21, 1987, the architect refers to "carrying out your condominium project” and in Exhibit A-6, dated March 14, 1990, the Caisse populaire de Rivière-du-Loup, referring to the 1987 loan application, uses the words "the construction of a building consisting of 29 condos in Rivière-du-Loup" (para 3.07).

In Exhibit A-7, dated June 30, 1987 (para 3.07), Gesco Conseils gives the following reference in its letter:

Re: Anctil, Jacques (condominiums)

Our file: 2425-S

[Translation.]

In the contract filed as Exhibit A-9, dated December 9, 1987, the appellant sold the land and also certain items including "permits to build condominiums, as of November 23,1987" to Construction R. & V. Boucher Inc. (para. 3.14(b)).

The appellant contends that it was Mr. Boucher who was building condominiums for resale:

A. Excuse me. Because Mr. Boucher saw the floor plan, the building cross-section, and said: "I can do condominiums”, because that is his job, he builds and then sells, he is a real estate promoter. (Transcript, page 161)

[Translation.]

Moreover, the witness distinguished between a mortgage given to him by the Caisse populaire and bridge financing that financial institutions give for building condominiums. The difference lies in the fact that the guarantee provided by bridge financing applies for a fairly brief period of time.

3.19 The respondent entered the income tax return of Gestion Jacques Anctil Inc. for the 1990 taxation year as Exhibit 1-4, including the balance sheet at December 31, 1990. The following item appears under assets on the balance sheet:

Land for resale

118,420

[Translation.]

According to the appellant, these are the pieces of land situated on Iberville and Beaubien Streets in Rivière-du-Loup, which are in inventory:

. . .you cannot prejudge whether I am going to resell them or build on them.

Q. That is a possibility?

A. Of course, madam, it is a possibility. But I may keep them for myself and build on them, these pieces of land. (Transcript, page 154)

[Translation.]

4, Act — Case law and legal doctrine — Analysis

4.01 Act

The main provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") involved in this appeal are sections 3, 9 and 248. They will be referred to during the analysis if necessary.

4.02 Case law and legal doctrine

Counsel referred the Court to the following decisions:

1. Thom v. The Queen, [1979] C.T.C. 403, 79 D.T.C. 5324 (F.C.T.D.);

2. Snell Farms Ltd. v. Canada, [1991] 1 C.T.C. 5, 90 D.T.C 6693 (F.C.T.D.);

3. Racine, Demers, Nolin v. M.N.R., [1965] C.T.C. 150, 65 D.T.C. 5098 (Exch. Ct.);

4. Hiwako Investments Ltd. v. The Queen, [1978] C.T.C. 378, 78 D.T.C. 6281 (F.C.A.);

5. Riznek Construction Ltd. v. The Queen, [1979] C.T.C. 197, 79 D.T.C. 5131 (F.C.T.D.);

6. Power v. The Queen, [1975] C.T.C. 580, 75 D.T.C. 5388 (F.C.T.D.);

7. Taylor v. M.N.R., [1956] C.T.C. 189, 56 D.T.C. 1125 (Exch. Ct);

8. The Queen v. Ginakes Brothers Ltd., [1977] C.T.C. 18, 77 D.T.C. 5023 (F.C.T.D.);

9, Hill-Clark-Francis Ltd. v. M.N.R., [1963] S.C.R. 452, [1963] C.T.C. 337, 63 D.T.C. 1211; aff'g [1960] C.T.C. 303, 60 D.T.C. 1245 (Exch. Ct.);

10. Jean-Louis Baudouin, Les Obligations, Les Editions Yvon Blais Inc., 3rd edition, 1989, ch. 2, paras. 761-775.

4.03 Analysis

4.03.1 In view of the evidence heard, there are two points in issue.

(a) The first concerns the appellant's true intention at the time of the purchase of the land with the suspensive clause on March 19,1987. Was it his intention to build condominiums in order to resell them, as the respondent contends, or to build luxury apartments in order to rent them, as he contends himself?

(b) In order to answer the first question properly, we must establish the time at which the appellant's intention is to be determined. To that end, we need to understand the retroactive effect of the transaction signed on November 30, 1987 (Exhibit 1-2) stating that the sale of March 19, 1987 was final. According to the appellant, the transaction was retroactive to March 19,1987, and according to the respondent it was to November 30, 1987.

4.03.2 Intention — retroactivity

4.03.2(1) It has been held by the courts on many occasions that the relevant time in determining the taxpayer's intention in order to establish whether the profit from a transaction arose from a transaction in the nature of a capital gain or of income from a business was the time at which the option was acquired and not the time at which it was exercised (Thom (4.02(1), Snell Farms Ltd. (4.02(2)). However, Hill-Clark-Francis Ltd. (4.02(9)) does not seem to be as categorical, as we shall see later.

In the case at bar, the appellant contends that the option was acquired on March 19, 1987. It was under suspensive condition (para. 2.02(5)(a)). Even though one of the conditions (the financing) had not been met, the purchaser (the appellant) waived that condition and nonetheless purchased the land for the period established on September 30, 1987. This was at that time an oral agreement with the vendor, which became final by notarial contract on November 30, 1987 (Exhibit I-2, para. 3.13).

However, the provisions of that notarial contract also clearly establish that the agreement is “final with retroactive effect to September 30,1987".

4.03.2(2) In civil law, legal doctrine establishes that the creditor (the vendor, in this case) and the debtor (the appellant, in this case)"are thus deemed to have been bound by the obligation as of the day when the undertaking is made and not the day when the condition is fulfilled” (J.-L. Baudouin, Les Obligations, para. 772 (4.02(10)).

4.03.2(3) Thus, according to the appellant's argument, the vendor, Mr. Landry, and the appellant himself were bound by the obligation on March 19, 1987. The fact that the contract, Exhibit I-2, makes it retroactive to September 30, 1987, makes it retroactive to March 19, 1987. Relying also on the taxation case law, inter alia, Thom (4.02(1)) and Snell Farms Ltd. (4.02(2)), the appellant concludes that this is the time at which his intention to purchase the land to build luxury apartments for the purpose of renting them must be determined.

4.03.2(4) The respondent, on the other hand, interprets the contract (Exhibit I-2) of November 30, 1987 differently: pursuant to the release given on November 30, 1987 (Exhibit A-8), the contract (Exhibit 1-2) stipulates that the vendor, Landry, acknowledges that the sale of March 19, 1987 “is now final with retroactive effect to September 30, 1987” (para. 3.12).

Counsel for the respondent contends that this contract is of the greatest importance: had it not been concluded, the appellant would never have become the owner. He could not have resold the land.

4.03.2(5) Counsel for the respondent asserts that on September 30, 1987, one of the two suspensive conditions, the financing condition, had not been met, and so Mr. Landry was still the owner of his land. Thus it was not a resolutory condition, but a suspensive condition.

The appellant was not the owner of the land and so, according to the respondent, he had to acquire it. This he did on November 30, 1987 (Exhibit 1-2, para. 3.13), but in so doing referred in error to the contract of March 19, 1987.

On this point, the opinion of the Court is that the suspensive condition exists to protect the purchaser. The purchaser, however, is entitled to waive that protection. The vendor, whose objective it is to receive the sale price for the land, can hardly object to such a waiver. The weight of the evidence is to the effect that the appellant purchaser gave this waiver before September 30, 1987 (para. 3.10). Moreover, since the appellant had waived that protection, a contract had to be concluded in the form of a notarial deed to attest to the payment and to the fact that the conditions had been met or, at least, to the satisfaction of the vendor in accordance with the spirit of clause 7.3 of the contract, Exhibit A-1.

The vendor agreed that the money would be paid in two instalments, at least one of which was after September 30, 1987. There is nothing in the law on the basis of which it could be said that the vendor cannot consent to the extension of a deadline. This was, moreover, what happened between the appellant, who became the vendor, and the purchaser, R. & V. Boucher Inc. (final portion of para. 3.14).

4.03.2(6) Prima facie, it appears that the most significant legal fact in resolving this matter is the time at which Mr. Boucher informed the appellant that he was prepared to purchase, but that he wanted to carry it out on his own. The evidence on this fact is certainly not precise. We do not know whether it was in September 1987 or after, or rather we do not know whether it was before or after the appellant's decision actually to purchase the land (para. 3.08).

Is the appellant's knowledge of this fact prior to his decision to exercise the option despite the absence of the suspensive condition in respect of financing not an indication of the appellant's intention to purchase in order to resell?

4.03.2(7) Let us see what the leading cases have to say.

(a) Thus in Snell Farms Ltd. (4.02(2)), the intention of the principal shareholder of the taxpayer in buying the rented farm in 1974 with an option to purchase clause it had had since 1972 was to transfer it to Rupert, one of his three sons. The evidence indicated that the option was exercised in April 1974. Shortly thereafter Rupert, followed by his two brothers, informed their father that they were not interested in continuing to be farmers. The land was sold in 1976 at a profit. It was held that the time when the option was acquired, and not the time when it was exercised, was the time to be considered. The profit was considered to be a capital gain.

(b) In Thom (4.02(1)), Mr. and Mrs. Thom controlled a company that operated a business selling car parts in rented premises. The contract had been signed in 1964, for a period of ten years. The husband had personally guaranteed the yearly rent of $7,200. In return, the landlords had given the Thoms an option to purchase the property for $70,000 at any time during the period of the lease. In 1973, the company experienced financial problems as a result of embezzlement by some of its employees. Moreover, some of them started a similar business in competition with the company. The Thoms decided to close the business.

Through a a real estate agent, they learned on November 1,1973 that the land and building were worth $150,000. In April 1974 they exercised the option to purchase for $70,000 and in May they sold the property for $120,000.

The Court held that the resulting gain was a capital gain because the time for determining the intention of the taxpayer was at the time of acquiring the option, and not at the time it was exercised.

(c) In Ginakes Brothers Ltd. (4.02(8)), the owner of a restaurant had learned that the McDonald's chain wanted to open a restaurant in the area, and took advantage of the fact that McDonald's had not renewed its option within the time allowed, to obtain an option to purchase from the owner for $100,000, in order to block a potential competitor. Shortly thereafter, he exercised his option and sold the land for $135,000 subject to a clause that the land could not be used to establish a restaurant business.

The Court held that the appellant's sole motive at the time it acquired the option was to protect its business. A similar clause was subsequently imposed on the purchaser. This was a capital gain.

4.03.2(8) However, in Hill-Clark-Francis Ltd. (4.02(9)), the Supreme Court of Canada, affirming a judgment of the Exchequer Court, rendered the following decision:

Hill-Clark-Francis Ltd. (Hill-Clark), which was incorporated in 1913, carried on business as a general contractor. In 1952, one of its lumber suppliers, Poitras Frères Inc. (Poitras) of Québec, was in financial difficulties. Among other things, Hill-Clark guaranteed a bank loan to assist Poitras and gave it advances on payments for lumber to be supplied to it. In June 1952 the appellant, with the intention of making Poitras a subsidiary and thus assuring itself of not losing this major source of lumber, obtained an option for $100 to purchase the issued shares from the principal shareholder, which option it could exercise until November 20, 1952. The option to purchase allowed it to acquire the shares of Poitras for $50,000. In September 1952 the appellant received an offer to purchase the Poitras shares for $160,000. The appellant then exercised the option to purchase for $50,000 on September 24, 1952, and resold the shares on September 30, 1952, for $160,000.

The Exchequer Court and the Supreme Court of Canada acknowledged that at the time Hill-Clark acquired the option to purchase the shares of Poitras its intention was to make that company its subsidiary. Hill-Clark had in fact already acquired two companies for the same purpose, in 1943 and 1944.

The Exchequer Court stated at page 303 (D.T.C. 1247):

What was in fact sold was the shares, and these were sold after the appellant had acquired them, not to keep as capital assets, a purpose which had already been abandoned, but for the purpose of selling them in the transaction which ensued.

The Supreme Court of Canada stated at pages 454-55 (C.T.C. 339) that the contract of purchase and sale of the shares provided for the following:

(a) the cancellation of all contracts between Hill-Clark and Poitras: this means that Hill-Clark gave up its right to receive the lumber it had contracted for;

(b) the payment by Hill-Clark of a sum sufficient to reduce the Poitras bank loan to $60,000;

(c) repayment of Hill-Clark’s advances to Poitras amounting to approximately $280,000;

(d) cancellation of Hill-Clark’s guarantee of the Poitras bank loan when it was reduced to $60,000.

The Supreme Court of Canada added at page 455 (C.T.C. 339):

It is apparent from this outline that this was not a simple purchase and sale of shares.

Then, referring to the judgment of the Exchequer Court, the Supreme Court of Canada stated that it shared that Court's findings that Hill-Clark, which had only an option on the Poitras shares, had not carried out its plan to make the company a subsidiary. It exercised the option and sold the shares for cash and other considerations, and this gave both the purchase and sale of the shares a trading character rather than acquisition and realization of a capital asset. The profit was therefore a profit from a business.

4.03.2(9) Counsel for the respondent contends that the decision in Hill-Clark- Francis Ltd., applies to this case, and that a judgment of the Supreme Court of Canada must be followed in preference to a judgment of any other Court.

Hill-Clark-Francis Ltd. would apply, in my opinion, on condition that the evidence clearly shows that the taxpayer's intention at the time the option was exercised was to resell.

Is this apparent from the weight of the evidence in this case? The appellant's testimony is vague on this point (para. 3.08). On the other hand, we know that his intention to acquire the land was firm and that he exercised the option before September 30, 1987 (in October, he paid the school taxes — para. 3.11) to prevent Landry from selling it to someone else (final portion of para. 3.09).

Given that the appellant's evidence is vague, shouldn't the respondent's assumption prevail? Paragraph 5(f) of the reply to the notice of appeal reads as follows:

(f) during the fall of 1987 the appellant had discussions with a general contractor in the city of Rivière-du-Loup, which had expressed interest in acquiring the vacant land and in carrying out the 25-condominium building construction project itself;

[Translation.]

It may perhaps be argued that the fall starts on September 21, that is, before September 30, the date provided in the contract. On the other hand, the assumption described in paragraph 5(g) indicates that the date is much later:

(g) on November 30, 1987, even though the appellant knew that he could not himself carry out his construction project, he nonetheless acquired the vacant land in Rivière-du- Loup, at a cost of $45,000;

In the same spirit, on cross-examination, counsel for the respondent asked whether it was correct that in November" he [the appellant] was not the owner of the land” (para. 3.09).

Finally, the weight of the evidence establishes that Mr. Boucher did not make an offer to purchase at the time he informed the appellant that he did not wish to enter into a partnership to construct the building on the land in issue, but that he did so only in November 1987 (para. 3.09).

Accordingly, the weight of the evidence establishes, in my view, that at the time the appellant exercised the option he was not aware of Mr. Boucher's intention not to enter into partnership with him, let alone of the offer to purchase the land. Accordingly, this issue, the question of the appellant's intention on September 30, 1987, favours the appellant's argument.

4.04 Intention on March 19, 1987

One further point remains: whether on March 19,1987 the appellant did not already have the intention to build condominiums for resale or apartments to rent.

4.04.1 The Court notes that several documents entered (Exhibits A-3, A-6, A-7 and A-9) concerning the construction contemplated by the appellant refer to condominiums (para. 3.18). For one thing, many condominiums are rented. This word may therefore be used without expressing the economic concept of building for resale, particularly when there is no need to distinguish between sale and rental.

For another, the appellant testified categorically that he intended to make the apartment building his pension fund, that is, a long-term investment. Thus his goal of renting to hospital staff, to "doctors who come to Rivière-du-Loup sometimes just for one year or two years" (para. 3.04), among others, confirms his position that he was building apartments with the objective of renting them.

4.04.2 What also appears to me to be significant, moreover, is the manner in which the financing was handled. The banks refused financing because, essentially, in order to be able to repay the mortgage, he would have had to charge monthly rents of $1,500, which is too high for Rivière-du-Loup (para. 3.07). If the building is built to earn rent, it is indeed a long-term investment.

Moreover, if the objective had been to build condominiums for resale, why would the appellant not have required, as a second suspensive condition, that he obtain firm offers to purchase for a substantial percentage of the condominiums to be built, as Mr. Boucher did (para. 3.14(c))?

If the appellant sought long-term financing, does this not indicate that he wanted to build apartments to rent them?

4.04.3 The Court therefore finds that the evidence establishes that on March 19, 1987, the appellant's intention was to construct an apartment building for rental purposes.

5. Conclusion

Accordingly, the appeal is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment.

Appeal allowed