Claude H. Alain, Annie Boucher, Jean Boucher, Claire Boucher, Jean- Philippe Boucher, Brigitte Alain, Marjorie Alain and Lyse Alain v. The Minister of National Revenue, [1994] 1 CTC 2254, 93 DTC 1090

Garon, J.T.C.C.:—These are appeals by the eight appellants from income tax assessments dated January 10, 1989 made by the Minister of National Revenue (the ''Minister") for the 1986 taxation year. In those assessments, the Minister determined that the $813,250 gain realized by the appellants[1] in the sale on June 3, 1986 of the Place Charlevoix shopping centre located at 1000 Boulevard de Comporté, city of La Malbaie, Quebec, constituted business income. In their income tax returns, the appellants considered that this transaction had resulted in a Capital gain.

The appellants consisted of two groups. The appellant Claude Alain is in charge of one of those groups, and the appellant Jean Boucher is at the head of the other group. The appellant Lyse Alain and the appellant Claude Alain — the latter acting both personally and in his capacity as trustee for the Marjorie Alain trust and the Brigitte Alain trust — form one group. Marjorie and Brigitte Alain are the daughters of the appellants Lise [sic] and Claude Alain, who are husband and wife. The other group consisted of the appellant Claire Boucher and the appellant Jean Boucher, who is acting both in his personal capacity and as trustee of the Annie Boucher trust and of the Jean-Philippe Boucher trust. Annie Boucher and Jean-Philippe Boucher are the children of the appellants Jean Boucher and Claire Boucher, husband and wife.

The appellant Claude Alain was a life insurance broker in the early 1980s; then, starting in 1983, he was active in the field of real estate investments. He currently administers 21 real estate companies and is therefore responsible for a large real estate portfolio. The appellant Jean Boucher, industrial administration accountant, devoted his time to real estate management for roughly ten years before going into the restaurant business in 1977 where he worked for some years. From 1980 to 1983, he acted as a financial consultant. His association with the appellant Claude Alain in the real estate field began in 1983 or 1984.

Before considering the transaction which led to the instant case, it is appropriate to describe briefly the manner in which the appellants Claude Alain and Jean Boucher proceeded in the context of their joint activities in the real estate field starting in 1983 or 1984.

The first company, Placements de Haute Direction P.H.D. Inc., ("Placements de Haute Direction’’), takes the necessary steps to find promising real estate projects. In an exhibit filed by the respondent, this company was described as specializing in prospecting for real estate investments. It therefore studies and analyzes various real estate proposals and recommends the purchase of a given real property. On this point, the appellant Claude Alain emphasized that, of roughly 100 real estate investment proposals that might be considered and analyzed, offers to purchase were made only in roughly ten cases, and a given real property was ultimately purchased in only about two of those cases. For this promotional work, the company receives fees and forms limited partnerships which purchases real properties or real estate complexes. From this source, this company allegedly realized income in the order of $700,000 to $800,000 per year at least over a period of several years which apparently included the year in issue, according to Exhibit 1-4. The sole shareholders of this company formed in 1984 are the appellants Claude Alain and Jean Boucher. Acquisition projects are then handed over to Gestion Immobilière P.H.D. Inc. ("Gestion Immobilière"), which prepares the offering memorandum and takes the necessary steps to find investors. Lastly, a limited partnership is formed in order to go ahead with the purchase of a given real property and to hold it as an investment. The general partner is usually a "numbered" business corporation which had previously had no activity -— "a virgin company", to use the expression of the appellant Claude Alain. This numbered company has only two shareholders, the appellants Claude Alain and Jean Boucher, whereas the limited partners invariably included the appellants Claude Alain and Jean Boucher and investors who agreed to purchase, through that company, interests in a real estate complex such as, for example, a shopping centre. Gestion Immobilière administered the real property for the benefit of the limited partnership.

It should be noted that the appellants Claude Alain and Jean Boucher agreed on a certain division of labour. Mr. Claude Alain was responsible for finding promising investment situations and appeared to play the leading role in marketing shares in the limited partnerships. Mr. Claude Boucher was more active on the management side. In the case of the purchase of the Place Charlevoix shopping centre, the subject of the instant case, the appellant Claude Boucher spent several days examining the leases pertaining to the space rented at that shopping centre and documents concerning the expenses necessary to the operation of the centre in question. However, these two appellants Claude Alain and Jean Boucher had both taken part in negotiations regarding the offer of purchase that was made to Immeubles Allard concerning the Place Charlevoix shopping centre.

According to the usual procedure, on behalf of the company 92248 Canada Ltée, with the words "in trust" appearing immediately after the name of the company, the appellant Claude Alain made an offer, submitted by a real estate agent, with a view to purchasing the "Place Charlevoix" shopping centre. The appellant Claude Alain was the sole shareholder of 92248 Canada Ltée. The original offer was made on March 17, 1986 to the owner of that shopping centre, Cie d'immeubles Allard Ltée ("Les Immeubles Allard"), of which Mr. Sam Wong was president. The offeror undertook to purchase that real property for the price of $5,900,000. That offer was accompanied by a deposit of $25,000 from the funds of the appellants Claude Alain and Jean Boucher. Another $25,000 deposit was promised by these same appellants at the time of the notification of acceptance of the offer, if such were given, by the company which owned that shopping centre. Les Immeubles Allard made a counterproposal on March 24, 1986, indicating that it was prepared to sell the centre at the price of $6,150,000. This counter-proposal was accepted by 92248 Canada Ltée on March 25, 1986. It was planned that the sale would close on July 1, 1986 at the latest. This acceptance was subject "to examination of the leases and expenses, inspection of the premises and title search by the purchaser within ten days following acceptance of this counter-proposal, the purchaser being required to confirm in writing with the promisor vendor its acceptance of the ten [sic] points within the said time limit", as was provided in clause 2.11 of that counter-proposal. According to the evidence, in the appellants” view, this shopping centre represented an excellent investment, having regard in particular to the price paid and to the fact that 55 per cent of the centre's space available for rental purposes was leased to "major" tenants, as they are called in the business, and to a few other tenants who were, to all intents and purposes, of equivalent standing.

Immediately following the acceptance of the counter-proposal, the appellants Claude Alain and Jean Boucher set to work to find the necessary limited partners in order to close the transaction by July 1, 1986 at the latest. They had three months in which to amass the necessary capital to form a limited partnership for the purpose of purchasing the real property in question. The appellant Alain in particular oversaw the preparation of the offering memorandum, and the appellant Boucher extracted the required items of information concerning the leases, expenses and certain other matters, items of information which had to appear in the offering memorandum which was to be provided to the prospective limited partners. In addition, the appellants Claude Alain and Jean Boucher contacted the limited partners who had invested in other projects to inform them of the possibility of taking an interest in a limited partnership to be established to purchase the Place Charlevoix shopping centre. The following was mentioned in a letter dated May 13, 1988 from the appellant Jean Boucher to Revenue Canada (Taxation), which was filed by the respondent:

We have prepared our final prospectus with all the relevant figures, and we also made our first presentation, in April 1986, to a group of 40 persons at an annual assembly of another already existing limited partnership. A number of clients immediately said they were interested in investing in this new limited partnership.

As a result of the fact that we had made public the fact that we had a proper offer of purchase on the La Malbaié[2] shopping centre, we received several telephone calls from investors and, inter alios, from a broker who had a client to purchase the said shopping centre in full.

[Emphasis in original, translation.]

The appellant Claude Alain also published an advertisement in the April 5, 1986 issue of the newspaper "Les Affaires", the wording of which gave rise to various interpretations. That advertisement read as follows:

SHOPPING CENTRE

Fully leased.

Guaranteed net income: $764,000

Lot dimensions [sic]: 285,000 square feet

Building dimensions [sic]: 119,000 square feet Directly with owner.

(418) 656-0191

[Translation.]

It is also in evidence that the appellants Claude Alain and Jean Boucher and their families did not have the necessary resources to purchase the Place Charlevoix shopping centre alone, but expected to be able to do so with other partners through a limited partnership which they were to set up. Furthermore, at the time, these two same appellants had already formed four or five limited partnerships to purchase various real estate complexes, and there was every reason to believe, based on the evidence, that these appellants could have obtained the necessary number of partners to put together the $2,470,000 in capital stock that was planned for the constitution of the prospective limited partnership. That capital stock was to be subdivided into a maximum number of 83 shares of $29,759 each.

On April 8, 1986, when the appellants Claude Alain and Jean Boucher had virtually completed the preliminary work described above, a real estate agent who did not know the appellant Claude Alain contacted the latter to inform him that a group of persons were interested in purchasing the Place Charlevoix shopping centre. He was informed by the appellant Claude Alain that the latter and the appellant Jean Boucher were forming a limited partnership which was to purchase that property and that they were not initially interested in selling that real property. They nevertheless agreed to consider the Dubois group's proposal. On the same day, April 8, 1986, that group represented by Mr. Clément Dubois made an offer in the amount of $6,700,000 to purchase this shopping centre. The following day, that is on April 9, 1986, 92248 Canada Ltée made a counter-proposal to Mr. Clément Dubois's group raising the purchase price of the centre in question to $7,250,000, with the obligation, were the counter-proposal to be accepted, that that acceptance be accompanied by a deposit of $100,000. Since this was a $550,000 increase over the Dubois group's initial offer, the appellants Claude Alain and Jean Boucher both stated categorically that they had expected this proposal would be rejected. These same appellants also demanded in the counter-proposal that the deed of sale be signed before the notary no later than April 16, 1986. This counter-proposal, which was originally valid for only one day, was extended for a few days on the condition that the deposit be increased to $250,000. This counter-proposal was accepted by the Dubois group on April 19, 1986. It was however, “conditional on inspection of the premises and examination of the leases”, with the obligation for the purchaser "to express its satisfaction in writing within five days of acceptance" of that counter-proposal. The necessary arrangements were then made by the appellants Claude Alain and Jean Boucher with the representatives of the shopping centre's owner, Les Immeubles Allard, to grant the Dubois group access to the premises and to proceed with the examination of the documentation pertaining to the leases and operating expenses of that shopping centre. The Dubois group then substantially did the same work that had just been completed by the appellants Claude Alain and Jean Boucher a few days earlier.

In a deed dated June 3, 1986, Les Immeubles Allard sold the Place Charlevoix shopping centre to the appellants Claude Alain and Jean Boucher, to their wives ana to certain trusts, for the price of $6,150,000. The table below shows the undivided share assignable to each purchaser, as indicated in subparagraph 12(h) of the reply to the notice of appeal in each of the records of the appellants Claude Alain and Jean Boucher:

A few minutes later, on June 3, 1986, the appellants Claude Alain and Jean Boucher, acting both personally and as trustees for the above-mentioned trusts and their wives, the appellants Lyse Gingras and Claire Desrochers, sold the same shopping centre for the sum of $7,250,000 to the group of Mr. Clément Dubois — consisting of 20 individuals and two business corporations — operating as "Le Groupe Charlevoix Enr.".

Also on the same day, in a contract signed with Placements Léger (1973) Inc., the appellants Claude Alain and Jean Boucher, using funds from the sale of the Place Charlevoix shopping centre, purchased jointly with Mr. Sam Wong and Mr. Perry Wong, all operating as “La Société Immobilière Alma Enr.", for the sum of $2,650,000, a building housing a shopping centre known and designated as "Les Galeries Lac St-Jean", with a surface area of 138,000 square feet located on a lot subject to an emphyteutic lease of which the Caisse de dépôt et placement du Québec was the lessor. On that same June 3, 1986, Mr. Sam Wong, Mr. Perry Wong and the appellants Claude Alain and Jean Boucher purchased a lot near that shopping centre from Placements Léger (1973) Inc. for the sum of $200,000. In the case of the purchase of the "Les Galeries Lac St- Jean” shopping centre, it was Mr. Sam Wong who had invited the appellants Claude Alain and Jean Boucher to take part in that transaction in discussions which had taken place a few weeks previously and whose purpose was to enable the group of Clément Dubois to gain access to the premises and desired documentation in their efforts which, as we know, were to lead to the purchase of the Place Charlevoix shopping centre by the Dubois group. It will be recalled that the company that owned that shopping centre, Les Immeubles Allard, was then represented by Mr. Sam Wong. The lot itself where the "Les Galeries Lac St-Jean" shopping centre was located was purchased from the Caisse de dépôt et placement du Québec on November 18, 1986 for the sum of $640,000 by Mr. Sam Wong and his group jointly with the appellants Claude Alain and Jean Boucher, the appellants Lyse Alain and Claire Boucher and the above- mentioned trusts. The emphyteutic lease on the real property where the "Les Galeries Lac St-Jean” shopping centre was located was expressly cancelled by the deed of November 18, 1986.

The evidence also shows that La Société Immobilière Alma Enr., owner of the "Les Galeries Lac St-Jean" shopping centre since June 3, 1986, had been formed in April 1986 for an indeterminate length of time in order to administer that income property. Its operations thus began in June 1986. On November 18, 1986, La Société Immobilière Alma Enr. sold, for $3,475,500, its undivided halfinterest in that real property to Société en commandite les Galeries d’Alma, which had been formed in order to finance, in particular, the major part of the substantial improvements and renovation works that had just been done to that real property. The cost of those works and improvements had been determined at $840,000. The Société en commandite Les Galeries d’Alma formed on October 8, 1986 was represented in the deed of purchase of November 18, 1986 by its sole general partner, the company 143978 Canada Limitée, which general partner acted through the appellant Claude Alain. This shopping centre was thus held in undivided ownership by La Société Immobilière Alma Enr. and the above-mentioned Société en commandite Les Galeries d'Alma. The market value of this shopping centre at the time these appeals were heard amounted to some $9 million, according to the appellant Claude Alain. The appellant Claude Alain and his family still hold in undivided ownership a 12 '/2 per cent portion in the Les Galeries Lac St-Jean shopping centre. The appellant Claude Alain is also the manager of the entire shopping centre. As for the appellant Jean Boucher and the members of his family, they disposed of their share in the limited partnership La Société Immobilière Alma Enr. in 1991 as a result of financial difficulties.

The evidence also shows that, since his career had taken a new direction in the early 1980s, focusing on the formation of limited partnerships in order to hold real estate investments, the appellant Claude Alain, together with others, including the appellant Jean Boucher, had set up 24 or 25 limited partnerships in order to administer real estate complexes. Of those 24 or 25 limited partnerships, the appellant Claude Alain had relinquished his interests in only three or four cases. It was also adduced in evidence that, from 1975 to 1980, the appellant Claude Alain had purchased five or six real properties. He had sold some of that group after holding them for two to four years. Furthermore, he disposed of another one of those five or six real properties eight to ten years after its purchase. Lastly, one final real property in this group of five or six is still held by the appellant and two other individuals. The appellant Claude Alain also assigned his shares in a company which owned real properties in Florida following a "dispute between the partners", to use his expression. As for the appellant Jean Boucher, following serious financial difficulties, he disposed of his interests in the limited partnerships which had been established in the context of his association with the appellant Claude Alain.

Claims of the appellants

It was put forward on the appellants’ behalf that the two leaders of the two groups of appellants, the appellants Claude Alain and Jean Boucher, were not real estate speculators and that the gain realized in the transaction involving Place Charlevoix was an isolated and unplanned transaction which did not result from any real estate speculation or business. It was argued that, in the particular case of this transaction, the appellants had had no intention of speculating. This offer was made, it was added, as had others in the past, purely with the intention of forming a limited partnership which would hold the real property as an investment. Paragraph 14 of the notices of appeal in the files of appellants Claude Alain and Jean Boucher reads as follows:

14. The appellant’s past practice shows that the steps taken by the appellant to purchase the real property were part of a well-established operation the purposes of which were to have the real property held by a limited partnership for long-term investment purposes and to produce professional fee income for the appellant.

[Translation.]

Claims of the respondent

In each of the replies to the notices of appeal in the records of the appellants Claude Alain and Jean Boucher, the Minister of National Revenue took for granted, in particular, the following, at subparagraph 12(p):

(p) the appellant purchased an undivided share in the “Place Charlevoix” shopping centre with the intention of reselling it at a profit, or at the very least the possibility of reselling it at a profit constituted one of the principal factors that incited the appellant to purchase it. ... .

[Translation.]

In support of these assessments, the Minister of National Revenue in particular advanced three other assumptions in this same paragraph 12 of the replies to the notices of appeal in the records of the appellants Claude Alain and Jean Boucher, the texts of which read as follows:

(o) when the contract of sale of June 3 between the appellant, his partners and Les Immeubles Allard Ltée was signed, the purchasers already knew that they were going to sell the property to the group represented by Clément Dubois and thus realized a considerable profit;

(q) the appellant being one of the principal shareholders of a number of companies that trade in the real estate field, he knows this market well and has solid experience with transactions of this scope, which leads us to believe that the appellant handled the real property which he acquired with his partners on June 3, 1986 in the same manner as a trader would ordinarily have handled such real property.

(r) the profits realized by the appellant in the resale of the “Place Charlevoix” shopping centre in La Ma baie constitute business income.

[Translation.]

In her oral argument, counsel for the respondent vigorously defended the proposition that the appellants had at least a secondary intention of selling the Place Charlevoix shopping centre. She contended that many indicators supported this view of matters. She placed considerable emphasis on the matter of the advertisement. She added that the fact that 92248 Canada Limitée, which made an offer to purchase the shopping centre in question, was not that which proceeded with the purchase of that centre was not without importance. According to her, the low degree of participation of the appellants Claude Alain and Jean Boucher in the various limited partnerships is another important factor to bear in mind.

Analysis

It must therefore be determined, in light of these facts, what the appellants’ intention was at the appropriate time during the period which ended with the purchase of the Place Charlevoix shopping centre by the appellants on June 3, 1986.

Regarding the period which must be considered in order to determine this intention of the appellants, it seems clear to me, based on the evidence, that it must be situated in the period starting at the point the appellants Claude Alain and Jean Boucher submitted an offer to purchase to Les Immeubles Allard and ending at the latest when those same appellants, upon inspection of the premises and examination of the relevant documentation, confirmed their acceptance of Les Immeubles Allard’s counter-proposal, thus a few days after the date of that counter-proposal. It was actually during this brief lapse of time that the appellants necessarily formed the specific plans for the method of purchasing this property. Pressed by the Court, counsel for the respondent advanced the date of May 10, 1986 as the point in time at which the appellants’ intention was to be examined for the purposes of the instant case. However, there is no evidence to support this statement. On the subject of this question of the time at which the appellants’ intention must be considered, I would like to refer to the decision of the President of the Exchequer Court of Canada —— who was later to become Chief Justice of the Federal Court — in Warnford Court (Canada) Ltd. v. M.N.R., [1964] C.T.C. 175, 64 D.T.C. 5103 (Exch. Ct.). At that time, Jackett, J. made the following comments, at page 176 (D.T.C. 5104):

For the purpose of determining whether a transaction is a transaction in the course of a business or is a venture in the nature of trade, the time as of which the intention of the purchaser is significant is ordinarily, in my opinion, the time when the purchase agreement becomes legally binding rather than the time when legal title is acquired.

It is true that, in the instant case, the offer made to the owner of the Place Charlevoix shopping centre was transmitted by the broker on behalf of 92248 Canada Ltée, as appears from the very text of the offer to purchase of March 17, 1986. The words "in trust" appear immediately after the name of that company. The counter-proposal made by Les Immeubles Allard described the offeror in the same manner. In acting in this way, the parties concerned, the appellants Claude Alain and Jean Boucher and the company 92248 Canada Ltée, did not create a trust under Quebec law. On this point, it should not be forgotten that under article 981a of the Civil Code, a trust is established only by gift or will. Apart from the Civil Code, certain Quebec statutes also provide that a trust may be established in certain circumstances, but none of those circumstances applies here. It therefore appears to me that the company 92248 Canada Ltée in question could act only as an agent. The mention of the name of the offeror with the addition of the expression “in trust" clearly suggested that 92248 Canada Ltée would not be the purchaser when the contract of sale would be executed. It seems clear to me in the circumstances that 92248 Canada Ltée was responsible for executing a mandate in which, based on the evidence, the principals could only be the appellants Claude Alain and Jean Boucher. Even if the appellants Claude Alain and Jean Boucher had originally, at the time the offer was made to Les Immeubles Allard, planned that the purchase of this shopping centre was to be made by a limited partnership, 92248 Canada Ltée held the offer for the appellants Claude Alain and Jean Boucher as long as that limited partnership was not formed.

Even if we consider a time subsequent to that which II have just suggested, at a time immediately preceding the sale, on June 3, 1986, of the Place Charlevoix shopping centre, it is beyond any doubt that the intention of the eight appellants was in fact that of the appellants Claude Alain and Jean Boucher. It was these latter who made all the decisions for all the appellants. The evidence is conclusive on the point that the appellants Lyse Alain and Claire Boucher played no real role in the purchase and sale of the Place Charlevoix shopping centre. They adduced no evidence of any activity in the context of the course of the events relevant to the instant case. As for the other four appellants, each of them was the beneficiary of a trust established by his or her father, who was also the trustee. The appellants Claude Alain and Jean Boucher were thus the only persons authorized to act for the trusts in question. This question of the intentions of individuals or bodies corporate which it is important to consider for the resolution of a dispute such as the one that currently concerns us brings to mind the comments of the Associate Chief Judge of this Court, Judge Christie, in Darade Investments Ltd. v. M.N.R., [1985] 2 C.T.C. 2168, 85 D.T.C. 525, at page 2171 (D.T.C. 527):

In Leonard Reeves Inc. v. M.N.R., [1985] 2 C.T.C. 2054, 85 D.T.C. 419, a number of propositions are enumerated which are applicable to ascertaining relevant intentions in relation to “trading cases” of the kind under consideration. They need not be repeated here, but applying what is pertinent therein to the facts of this appeal, this may be said. Ordinarily the intention to be attributed to the appellant at the time of the acquisition by it of a 25 per cent interest in the property would be that which Sherrin, as president and sole shareholder, had for it, but this does not obtain for these reasons. Sherrin placed the appellant in the position where it was a passive investor in relation to Fred Westen Construction Ltd., which was clearly dominant and authoritative in the group. The intention of the construction company at the time of acquisition is therefore what decides whether the profit from the sale of units of the property was a capital gain or an adventure in the nature of trade and therefore business income of the appellant. Also the intention to be attributed to Fred Westen Construction Ltd. is that which Jack Westen had for it at the relevant time which is the time when a legally binding agreement to purchase the property came into existence: Warnford Court (Canada) Ltd. v. M.N.R., [1964] C.T.C. 175, 64 D.T.C. 5103 (Exch. Ct.) per Jackett, P. (as he then was) at page 176 (D.T.C. 5104).

The intention of the appellants Claude Alain and Jean Boucher in the last two weeks of March or at the very start of April 1986 regarding the purchase of the Place Charlevoix shopping centre must therefore be determined.

According to the respondent, one indication of the appellants’ intention was the advertisement that appeared in the newspaper "Les Affaires". Much discussion focused on the meaning to be ascribed to that advertisement. Counsel for the respondent, for her part, contended that the appellants had informed the reading public through that advertisement that they wished quite simply to sell the real property. According to the appellants, the purpose of this advertisement was to solicit persons who might be interested in purchas- ing shares in a limited partnership to be established. A valid explanation was provided by the appellant Claude Alain during his testimony on the subject of the very vague wording of that advertisement and, in particular, of the absence of any mention that the purpose of that advertisement was to recruit limited partners or, to express myself more accurately in legal terms, to offer shares in a limited partnership. The explanation given concerns the fact that the appellants wanted to avoid difficulties they might otherwise have had with the Commission des valeurs mobilières du Québec. They feared that the latter might consider that the Securities Act might apply to the offering of shares ina limited partnership. If such had been the case, the Commission would have had authority to require that certain formalities be completed.

I accept the appellants’ argument for two reasons. The appellant Claude Alain seemed to me a credible witness, and I have no reason to doubt his statement on this matter. Second, the explanation given appears to me valid and entirely rational. It seems to me plausible that, if one wished to sell a real property worth $6,000,000 or $7,000,000, one would proceed in another manner. One would have sought the services of brokers, and the wording of the advertisement would have been different. One could clearly have mentioned that the idea was to sell a shopping centre. I also add that no evidence was adduced or any serious claim advanced, in the course of the oral argument, on the respondent's behalf, evidence or claim that would have enabled me to conclude that the explanations given by the appellant Claude Alain concerning the text of this advertisement were not based on any solid foundation. Consequently, this fear on the appellant Claude Alain’s part seems to me justified, given that the Commission des valeurs mobilières du Québec had adopted the position at the relevant time that the purchase of undivided shares in a real property could constitute an investment contract subject to the Securities Act, as appears from a decision, no. 7335, of that Commission dated March 29, 1985 in a matter concerning Lacaille, Larose, Ouellette et Associés Inc. and Immovax Inc. See also the Quebec Court of Appeal judgment of September 19, 1986 in Les Rentes immobilières Michel Maheux Inc., Michel Maheux et Denis Lasnier c. La Commission des valeurs mobilières du Québec. Furthermore, in an amendment made by order no. 1263-85 to the regulations made under the Securities Act, it became expressly provided under section 1.7 that the purchase of shares in a limited partnership was governed by the Securities Act.

Based on the evidence as a whole, the offer to purchase originally made by 92248 Canada Ltée was undeniably to be followed, if accepted, by the purchase of that property by a limited partnership. That was the manner in which the appellants had proceeded for some years. It was their preferred modus operandi. It was simply because the appellants Claude Alain and Jean Boucher received a very attractive offer that they changed their plan regarding the Place Charlevoix shopping centre. That offer enabled all the appellants to realize a potential gross gain of $1,100,000 relative to a purchase price of $6,150,000. It should be noted on this point that the appellants refused a first offer which would have yielded a gross gain of $550,000 and prepared a counter-proposal which represented a very substantial increase in the purchase price. The comments of President Jackett in Warnford Court, cited above, at pages 175-76 (D.T.C. 5103), apply to the instant situation:

On the other hand, there is the fact that the sale had hardly been completed when there was a quick resale resulting in a substantial profit. Unexplained, that quick resale and profit might give rise to an inference that the acquisition and resale was a venture in the nature of trade within the meaning of those words as used in the definition of "business" in the Income Tax Act. The resale, however, has been explained by the evidence of Mr. Sebba, which I accept, that the increasing amounts of the offers made to the appellant by the person who purchased from the appellant, which offers were completely unexpected, became too great for him to resist.

I further accept his evidence that possibility of resale was not one of the possibilities contemplated by the appellant at the time that the appellant entered into the agreement for acquisition of the property.

I therefore conclude that, at the relevant time, more precisely in the second half of March or at the very start of April 1986, the appellants Claude Alain and Jean Boucher had the very firm intention of forming a limited partnership which was to purchase the shopping centre in question. This finding of fact necessarily implies that, during that same period, in March or April 1986, the appellants Claude Alain and Jean Boucher intended to relinquish the right they then held to purchase the entire shopping centre in question themselves. They then proposed to offer to third parties the very large majority of the shares in a limited partnership to be formed in order to purchase this real property and to retain for themselves only a small interest in that same limited partnership. This intention not to exercise their right to purchase the shopping centre in question and the steps which the appellants Claude Alain and Jean Boucher intended to take toward the constitution of the limited partnership and the purchase of this shopping centre by the latter apparently constituted transactions which formed an integral part of the operation of a business conducted by the appellants Claude Alain and Jean Boucher. It seems clear from the evidence that these appellants had, since 1983 or 1984, operated a business which had a number of facets and which required the assistance of a number of intervening parties.

The various components of this business should be described. First, a company by the name of Les Placements de Haute-Direction P.H.D. Inc., specialized in the search for real estate investment projects, acted as real estate promoter and recommended the purchase of a given real property to the appellants Claude Alain and Jean Boucher. These latter gave a numbered company a mandate to make an offer to purchase to the vendor of the real property in question through a broker. If the offer to purchase was accepted, the appellants Claude Alain and Jean Boucher made efforts to solicit the desired number of persons who would agree to be limited partners and prepared the appropriate documentation in order to do so, in particular the offering memorandum or the prospectus, as the case might be. Once this work was completed through the efforts of the appellants Claude Alain and Jean Boucher, a limited partnership was formed, and the latter proceeded with the purchase of the real property in question. This stage necessarily required that the appellants in question waive in practice the right that they held to purchase a given real property in order to purchase a relatively small interest in the limited partnership which was going to become the owner of that real property. At the same time, the appellants Claude Alain and Jean Boucher did what was necessary to set up a business corporation in which they would be the sole shareholders and which would be the general partner of the limited partnership in question. The appellants Claude Alain and Jean Boucher were also made responsible by the general partner for handling the administration of the same real property, thus enabling them to realize additional income as managers of that real property.

Viewed as a whole, the activities of the appellants Claude Alain and Jean Boucher constituted commercial transactions or, put in another way, the operation of a business. The disposition of the Place Charlevoix shopping centre is an activity that fits into the framework of the operation of that business. The gain made at the time of that disposition is consequently in the nature of business income.

For these reasons, the appeals are dismissed.

Appeals dismissed.