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