Garon,
J.T.C.C.:—These
are
appeals
from
income
tax
assessments
dated
March
16,
1990,
for
each
of
the
seven
appellants
for
the
1987
and
1988
taxation
years.
In
those
assessments
for
1987,
the
Minister
of
National
Revenue
included
in
computing
the
income
of
each
of
the
appellants
his
share
of
the
gain
resulting
from
the
disposition
on
September
3,
1987,
of
a
piece
of
land
located
in
Laval,
near
Montreal,
as
business
income,
whereas
that
same
gain
had
been
treated
by
each
of
the
appellants
as
a
capital
gain.
In
those
same
assessments
for
1987,
the
Minister
of
National
Revenue
disallowed
each
of
the
appellants
his
share
of
a
$50,000
deduction
which
had
been
claimed
as
a
commission
that
was
allegedly
paid
to
an
agent
or
broker.
In
the
assessments
pertaining
to
the
1988
taxation
year,
the
Minister
of
National
Revenue
disallowed
each
appellant
the
deduction
claimed
as
a
reserve
to
take
into
account
the
unpaid
portion
of
the
selling
price
of
the
land
in
question.
I
also
note
that
the
appellant
Joseph
Valentino
raised
another
issue
in
the
appeals
he
instituted
from
assessments
for
the
1987
and
1988
taxation
years.
That
issue
concerned
the
inclusion,
in
computing
his
income,
of
the
value
of
the
benefit
in
respect
of
standby
charges
for
a
certain
automobile.
This
same
issue
was
mentioned
in
the
appeal
which
he
instituted
in
respect
of
the
1986
taxation
year.
I
was
informed
at
the
hearing
that
the
appellant
Joseph
Valentino
ad
discontinued
his
appeals
in
respect
of
this
matter
for
the
three
years
in
issue.
The
main
point
at
issue
in
the
instant
cases
thus
concerns
the
question
whether
the
gain
realized
in
the
sale
of
the
land
in
question
on
September
3,
1987,
resulted
in
a
Capital
gain
or
a
business
income.
The
appellant
Joseph
Valentino
indicated
in
his
testimony
that
he
had,
for
some
time,
wished
to
make
a
real
estate
investment.
He
had
been
led
to
this
conclusion
or
to
this
interest
because
he
was
aware
of
the
success
which
the
appellants
Di
loia
and
Berlingieri
had
had
with
their
investment
in
a
rental
property
by
the
name
of
Résidence
Bellevue
which
the
latter
two
had
purchased
in
1977.
This
was
a
110-unit
building
occupied
by
retired
persons.
The
appellant
Joseph
Valentino
had,
on
a
number
of
occasions,
discussed
an
investment
similar
to
that
of
the
Résidence
Bellevue
with
the
appellant
Di
loia
and
the
latter’s
nephew,
the
appellant
Philip
Spensieri.
The
appellant
Joseph
Valentino
wanted
to
proceed
with
this
real
estate
investment
in
the
City
of
Laval,
being
of
the
view
that
this
latter
city
had
good
prospects
for
growth.
The
appellant
Joseph
Valentino
did
not
want
to
undertake
an
extensive
real
estate
project
alone,
even
though
his
financial
resources
were
considerable,
on
the
ground
that
he
did
not
have
the
necessary
experience
in
the
field
of
property
rental
and
management.
It
seemed
important
to
him
that
he
be
able
to
rely
on
the
experience
of
the
appellants
Di
loia
and
Berlingieri.
The
appellant
Di
loia
has
been
a
chartered
accountant
since
1962.
The
appellant
Valentino
has
been
his
client
since
1970.
As
to
the
appellant
Berlingieri,
he
has
been
retired
since
July
1992
and,
at
the
time
of
the
hearing
of
these
appeals,
was
the
owner
or
co-owner
of
five
residential
properties
including
the
Résidence
Bellevue.
The
appellant
Joseph
Valentino
had
also
expected
that
the
appellant
Philip
Spensieri
could
take
charge
of
the
accounting
aspects
of
the
management
of
a
property.
The
appellant
Philip
Spensieri
is
a
chartered
accountant
and
has
practised
his
profession
with
the
firm
Di
loia,
Beretta,
Bermicci
and
Spensieri
for
ten
years.
the
other
participants
in
a
potential
real
estate
transaction
could
quite
simply
provide
a
financial
contribution.
The
other
participants
were
the
appellant
Tony
Spensieri,
the
brother
of
the
appellant
Philip
Spensieri,
a
chartered
accountant
since
1984,
employed
by
the
firm
of
chartered
accountants
Di
loia,
Beretta,
Bermicci
and
Spensieri;
the
appellant
Pasquale
Spensieri,
father
of
the
appellants
Philip
Spensieri
and
Tony
Spensieri,
a
labourer
with
a
construction
firm
for
more
than
40
years,
and
lastly
the
appellant
Domenico
Valentino,
brother
of
the
appellant
Joseph
Valentino.
As
a
result
of
his
experience
in
the
real
estate
field
through
a
certain
number
of
companies
including
Construction
Edival
Inc.
("Edival"),
the
appellant
Joseph
Valentino
was
given
the
task
of
finding
an
appropriate
piece
of
land
and
negotiating
the
purchase
of
that
land.
It
was
in
the
fall
of
1986
that
he
learned
that
a
well-located
lot
in
the
city
of
Laval
bearing
no.
163
was
for
sale.
After
consulting
with
some
of
the
appellants,
the
appellant
Joseph
Valentino
first
made
a
verbal
offer
to
the
representatives
of
the
Blanche
Bigras
Barbe
Estate.
A
tour
was
subsequently
made
of
the
land
by
the
appellants
Joseph
Valentino,
Di
loia
and
Philip
Spensieri
and
a
written
offer
dated
September
17,
1986,
drafted
by
the
notary
Viglione,
was
sent
to
the
representatives
of
the
Blanche
Bigras
Barbe
Estate
for
the
purchase
of
that
lot
for
the
sum
of
$237,952.08.
When
this
first
offer
was
refused,
the
appellants
Joseph
Valentino,
Di
loia,
Berlingieri
and
Philip
Spensieri
met
again
to
discuss
the
next
step.
They
then
decided
to
submit
another
written
offer
dated
October
8,
1986,
for
the
sum
of
$405,000.
This
latter
offer
was
accepted
by
the
estate.
Financing
for
the
purchase
of
this
lot
was
established
upon
acceptance
of
this
offer.
However,
it
had
been
agreed
by
the
members
of
the
group
that
each
of
them
had
to
provide
$40,000
of
their
own
funds
in
order
to
purchase
this
lot.
To
finance
the
balance,
the
appellant
Joseph
Valentino
testified
that
he
had
not
expected
that
the
group
would
have
difficulty
borrowing
this
sum
from
the
Banca
Commerciale
Italiana
of
Canada
(the
“bank’’)
and,
as
will
be
seen
below,
this
expectation
was
entirely
legitimate.
As
a
result,
the
purchase
of
the
land
in
question
was
financed
in
part
by
a
loan
of
$205,000
from
the
bank
in
question,
and
the
balance
in
the
amount
of
$200,000
was
provided
by
the
appellants
Joseph
Valentino,
Domenico
Valentino,
Joseph
Di
loia,
Gino
Berlingieri
and
Philip
Spensieri.
This
last
borrowed
$40,000
from
his
father,
the
appellant
Pasquale
Spensieri,
who
insisted
that
his
two
other
sons
Tony
and
Robert
take
part
in
this
project.
Lastly,
the
appellants
Pasquale
Spensieri,
Philip
Spensieri
and
Tony
Spensieri
each
purchased
'/1s
of
that
property
in
undivided
ownership,
whereas
the
appellants
Joseph
Valentino,
Domenico
Valentino,
Di
loia
and
Berlingieri
each
purchased
one-fifth
of
that
property.
This
$205,000
loan
from
the
bank
was
made
in
the
form
of
a
promissory
note
payable
on
demand.
No
principal
repayment
was
required
in
the
year
that
followed
the
transaction;
only
the
interest
was
payable.
The
manager
of
the
bank
branch
in
question,
M.
Agostino,
did
not
know
his
clients’
intentions
as
to
when
they
would
repay
the
loan
in
question.
The
loan
was
to
be
reviewed
each
year.
It
is
not
without
interest
on
this
point
to
mention
that
Mr.
Agostino
indicated
in
his
testimony
that
his
bank
rarely
finances
purchases
of
vacant
lots.
In
this
case,
however,
the
bank
agreed
to
make
the
loan
to
the
appellants
taking
into
account
their
financial
situation
and
the
fact
that
the
appellants
Joseph
Valentino
and
Di
loia
were
customers
who
were
known
to
the
manager
of
the
bank
branch
in
question.
Mr.
Agostino
carefully
studied
the
balance
sheets
of
the
appellants,
and
several
of
them
had
assets
of
$1,000,000
or
more.
In
his
credit
report
to
the
bank's
authorities,
the
director
noted
the
fact
that
he
was
impressed
by
his
customers'
honesty,
reliability
and
conservatism.
Five
of
the
appellants
had
signed
the
promissory
note.
The
appellant
Pasquale
Spensieri
had
signed
the
note
himself
for
the
Spensieri
group.
A
document
entitled
"Statement"
attesting
to
the
intentions
of
the
appellant
Pasquale
Spensieri
was
signed
by
the
latter
on
February
4,
1987.
In
that
statement,
it
was
mentioned
that
he
had
purchased
the
property
in
question
for
himself
and
the
appellants
Philip
Spensieri
and
Tony
Spensieri,
each
in
a
proportion
of
one-third
undivided
ownership.
The
following
was
also
indicated
in
that
statement:
In
the
event
the
said
property
is
sold
by
the
PARTY
OF
THE
FIRST
PART
to
a
potential
purchaser,
every
sum
arising
therefrom,
that
is
the
one-fifth
undivided
ownership,
will
be
handed
over
by
the
PARTY
OF
THE
FIRST
PART
to
the
PARTY
OF
THE
SECOND
PART
and
to
the
PARTY
OF
THE
THIRD
PART
for
the
two-thirds
undivided
ownership.
[Translation.]
The
guarantee
given
to
the
bank
on
the
subject
of
the
loan
granted
in
the
form
of
a
note
consisted
of
a
first
mortgage.
This
deed
of
mortgage
contained
a
redemption
clause
which
made
it
possible
to
redeem
the
mortgage
on
part
of
the
land
if
that
part
of
the
principal
were
repaid.
The
manager
of
the
bank
branch
concerned
indicated
that,
in
his
view,
this
redemption
was
necessary
in
order
to
release
the
land
in
case
of
resale
or
in
case
of
development
of
part
of
the
land.
If
the
land
were
developed
in
stages,
the
mortgage
that
would
replace
that
which
had
been
extinguished
by
the
redemption
would
also
be
a
first
mortgage
and
would
be
calculated
on
the
basis
of
the
economic
value
of
the
part
of
the
property
in
question
—
the
rental
income
—
rather
than
on
the
basis
of
its
market
value.
According
to
Mr.
Agostino,
the
appellants
Joseph
Valentino,
Domenico
Valentino,
Di
loia
and
Spensieri
all
spoke
to
him
of
the
possible
construction
of
residential
properties
on
lot
163.
The
transaction
pertaining
to
the
purchase
of
lot
163
by
the
appellants
was
ultimately
closed
on
February
4,
1987.
The
four-month
period
between
the
moment
the
offer
was
accepted
and
the
contract
signed
is
attributable
in
large
part
to
the
fact
that
the
appellants
Domenico
and
Joseph
Valentino
spent
part
of
the
fall
of
1986
in
Italy
for
the
purposes
of
their
furniture
business.
Some
share
of
the
responsibility
for
this
delay
may
be
attributed
to
the
notary
Viglione
and
to
the
Blanche
Bigras
Barbe
Estate.
As
to
the
nature
of
the
project
envisaged
for
lot
163,
the
evidence
shows
a
certain
number
of
possibilities
and
different
visions
on
the
part
of
the
interested
parties.
The
appellant
Philip
Spensieri
testified
that
the
project
was
to
include
a
business
area
and
the
rest
rental
apartments.
According
to
the
appellant
Joseph
Valentino,
the
construction
of
four
residential
properties
with
two
to
four
storeys
each
was
being
considered.
The
appellant
Domenico
Valentino,
for
his
part,
indicated
that
they
proposed
to
build
houses,
"condos"
for
sale
or
rent.
He
fully
trusted
his
brother,
the
appellant
Joseph
Valentino,
on
the
subject
of
the
proper
operation
of
this
project.
It
was
with
the
appellant
Joseph
Valentino
only
that
he
had
discussions
on
the
subject
of
this
project.
He
was
not
present
at
the
meetings
which
the
appellant
Joseph
Valentino
might
have
had
with
the
other
members
of
the
group
on
the
subject
of
lot
163.
He
had
been
assured
by
Joseph
Valentino
that
the
project
would
generate
profits,
but
he
was
not
sure
how.
At
the
time
of
the
purchase,
the
appellant
Joseph
Valentino,
according
to
his
testimony,
consulted
a
city
official
informally
in
order
to
determine
whether
a
zoning
amendment
could
be
made.
He
was
reassured
on
this
subject
in
the
course
of
these
consultations.
The
appellant
Valentino
stated
that
he
had
previously
obtained
desired
zoning
amendments
in
every
case,
the
sale
by
Edival
not
even
constituting
an
exception.
It
should
be
added
that,
before
granting
the
$205,000
loan
to
the
appellants,
the
bank
had
asked
a
firm
of
chartered
appraisers,
Raymond,
Joyal,
Cadieux,
Paquette
&
Associés
Ltée
to
conduct
an
appraisal
of
lot
163.
According
to
that
appraisal,
the
market
value
of
that
property
was
estimated
at
$484,500.
That
appraisal
revealed
that
part
of
this
land
was
already
subdivided.
Apart
from
the
appraisal
that
was
conducted
at
the
bank's
request,
the
appellants
did
not
want
to
undertake
preliminary
studies
before
purchasing
the
land.
Since
the
project
was
to
go
ahead
in
stages,
the
appellants
did
not
concern
themselves
with
the
overall
cost
of
developing
this
land.
The
appellants
Di
loia
and
Berlingieri
had
experience
in
the
field
and
the
appellants
were
well
aware
that
the
project's
realization
could
amount
to
several
million
dollars.
In
February
or
March
1987,
the
appellant
Joseph
Valentino
was
informed
that
certain
individuals
were
interested
in
purchasing
lot
163.
About
ten
days
later,
a
certain
Serge
Delisle,
owner
of
the
adjacent
lot,
wanted
to
know
whether
lot
163
was
for
sale.
The
appellant
Joseph
Valentino
answered
him
that
it
was
not.
Mr.
Delisle
called
back
on
a
number
of
occasions,
but
the
answer
remained
the
same.
The
appellant
Joseph
Valentino
ultimately
received
a
written
offer
for
the
land
in
question
on
May
6,
1987,
for
a
sum
of
$900,000.
The
appellant
Joseph
Valentino
informed
the
other
appellants
of
this
offer
and
the
offer
was
quickly
rejected.
A
little
more
than
one
month
later,
that
is
on
June
10,
1987,
Mr.
Delisle
sent
a
second
written
offer
for
the
sum
of
$1,200,000.
The
appellants
met
to
consider
this
offer.
The
appellant
Berlingieri
did
not
want
to
sell,
but
he
ultimately
fell
in
with
the
opinion
of
the
other
appellants
who
were
inclined
to
sell.
According
to
the
appellants,
they
agreed
to
sell
the
land
at
the
price
of
$1,150,000,
but
in
the
end
the
price
was
allegedly
increased
to
$1,200,000
at
the
request
of
Mr.
Delisle;
the
latter,
according
to
the
appellant
Joseph
Valentino,
said
that
he
had
a
commission
of
$50,000
to
pay
to
a
certain
individual.
The
close
of
the
sale
by
the
appellants
took
place
on
September
3,
1987,
at
the
office
of
the
notary
Viglione.
At
the
signing
of
the
agreement
of
sale,
the
appellant
Joseph
Valentino
was
present
for
the
vendors
and
Mr.
Serge
Delisle
and
Mrs.
Marie-Thérèse
Desaultels
as
representatives
for
the
purchaser.
According
to
the
appellant
Joseph
Valentino
and
the
notary
Viglione,
a
certain
Gaétan
Tremblay
was
also
in
the
notary's
office
at
the
closing
of
this
transaction.
The
notary
Viglione
testified
that
Mr.
Tremblay
had
been
introduced
to
him
as
the
agent
to
whom
a
$50,000
commission
had
been
paid.
It
was
the
notary
Viglione
who
drafted
the
discharge
signed
by
Mr.
Gaétan
Tremblay.
According
to
their
testimony,
the
appellants
had
not
retained
Mr.
Tremblay’s
services.
The
other
appellants
were
not
in
the
notary's
office
at
the
time
of
this
closing;
according
to
the
notary
Viglione,
they
had
previously
signed
the
agreement
of
sale.
Mr.
Delisle’s
version
on
the
subject
of
this
Gaétan
Tremblay
was
entirely
different
from
that
of
Mr.
Valentino
and
the
notary
Viglione.
Mr.
Delisle
stated
that
he
had
not
known
a
Mr.
Gaétan
Tremblay,
and
that
he
had
never
declared
before
the
notary
that
he
had
made
a
payment
to
Mr.
Gaétan
Tremblay.
According
to
Mr.
Delisle,
he
paid
$50,000
in
cash
to
the
appellant
Joseph
Valentino
in
another
office
next
to
that
of
the
notary
Viglione
immediately
before
the
close
of
the
sale.
This
payment
of
$50,000
was
part
of
the
$175,000
which
the
purchasers
had
to
pay
before
the
closing.
The
appellant
Joseph
Valentino
denied
that
he
had
received
$50,000
from
Mr.
Delisle.
The
balance
of
the
selling
price
to
be
paid
by
the
purchasers
therefore
amounted
to
$1,025,000.
Since
Mr.
Delisle
did
not
make
certain
payments
on
the
appointed
dates,
the
appellants
brought
a
dation
in
payment
action
against
the
purchaser.
According
to
the
appellant
Joseph
Valentino,
Mr.
Delisle
offered
the
appellants
the
opportunity
to
purchase
interests
in
a
limited
partnership
to
develop
lot
163
and
adjacent
lands.
For
his
part,
Mr.
Delisle
did
not
remember
inviting
the
appellants
to
become
partners
in
a
limited
partnership.
He
acknowledged,
however,
that
the
idea
of
a
limited
partnership
project
arose
shortly
after
his
discussions
with
the
appellant
Joseph
Valentino.
At
all
events,
the
appellants
at
the
time
had
in
hand
a
profitability
study
entitled,
"Les
Hameaux
de
Fabreville”,
which
described
the
proposed
project.
The
appellants
indicated
that
they
were
not
interested
in
that
project;
they
had
not
even
read
the
study
in
question.
The
appellant
Philip
Spensieri
testified
in
particular
that
the
appellants
did
not
want
to
build
houses
and
that
they
had
neither
the
time
nor
the
experience
to
take
charge
of
the
sale
of
the
houses.
In
the
end,
lot
163
was
sold
to
Groupe
Immobilier
Grilli.
The
attesting
notary
in
this
transaction
repaid
the
appellants
out
of
the
proceeds
of
the
sale
paid
by
Groupe
Immobilier
Grilli.
This
sale
thus
put
an
end
to
the
“Les
Hameaux
de
Fabreville"
project.
The
payment
made
to
the
appellants
following
the
sale
of
lot
163
to
Groupe
Immobilier
Grilli
also
put
an
end
to
the
dation
in
payment
action
brought
by
the
appellants
in
respect
of
the
debt
of
principal
and
interest
pursuant
to
the
sale
of
lot
163.
The
proceeds
of
that
sale
were
allotted
in
five
equal
shares.
Furthermore,
the
appellant
Joseph
Valentino
allegedly
received
the
sum
of
$30,000
from
the
other
appellants
for
the
work
which
he
had
done
and
the
role
he
had
played
in
respect
of
the
purchase
and
sale
of
lot
163.
However,
this
amount
of
$30,000
was
paid
in
two
instalments
of
$15,000
to
Mrs.
Rina
Valentino,
wife
of
the
appellant
Joseph
Valentino.
The
latter
admitted
that
his
wife
had
had
nothing
to
do
with
the
purchase
and
sale
of
lot
163.
The
appellant
Joseph
Valentino
had
not
included
this
amount
of
$30,000
in
computing
his
income
for
the
taxation
year
concerned.
Following
the
sale
of
lot
163,
the
appellants
wanted
to
undertake
another
real
estate
project.
They
purchased
a
piece
of
land
with
an
area
of
8,000,000
square
feet
along
Sainte-Rose
Boulevard
in
Laval.
This
project
required
very
extensive
financial
resources
and
the
participation
of
other
investors
was
solicited.
Other
individuals
related
to
the
appellants
agreed
to
take
part
in
the
Sainte-Rose
project.
All
of
the
land
in
Sainte-Rose
was
purchased
in
three
stages.
First,
the
appellants
themselves
purchased
part
of
that
land.
Two
separate
companies
were
then
created
to
purchase
two
lots
adjacent
to
the
part
of
the
land
already
purchased
by
the
appellants.
Lastly,
a
final
parcel
of
land
was
acquired
in
November
1989.
The
two
companies
were
merged
into
one
by
the
name
of
2958-8639
Québec
Inc.
According
to
the
appellant
Joseph
Valentino,
they
used
this
method
because
they
did
not
want
the
vendors
to
know
that
the
same
purchasers
were
going
to
purchase
the
adjacent
lands.
The
total
price
of
the
lands
of
the
Sainte-Rose
project
amounted
to
$5,500,000.
The
appellants
and
their
partners
developed
certain
preliminary
plans
for
the
development
of
the
Sainte-Rose
land.
Not
all
of
this
land
could
be
developed
for
houses
or
residential
properties
because
part
of
the
land
was
prone
to
flooding.
The
appellants
conceived
the
idea
of
fitting
up
a
golf
course
on
approximately
75
per
cent
of
this
land,
that
is
6,000,000
square
feet.
On
the
rest
of
the
land,
a
residential
area
along
Sainte-Rose
Boulevard
would
be
established
and
a
business
area
with
shopping
centres
to
serve
the
surrounding
community.
The
residential
area
was
to
consist
of
a
high-density
portion
where
eight-
to
ten-storey
and
two-
to
four-storey
residential
properties
would
be
erected
for
rental
purposes.
Furthermore,
at
the
insistence
of
the
City
of
Laval,
a
low-density
zone
was
to
be
developed
where
single-family
homes
would
be
built.
The
target
clientele
would
be
those
who
liked
to
play
golf
and
those
who
had
at
least
average
or
above
average
incomes.
In
particular
semi-retired
and
retired
persons
were
targeted.
The
golf
course
would
reassure
potential
purchasers
as
to
the
permanent
existence
of
green
spaces,
with
a
higher
market
value
for
the
lands
in
question
as
a
result.
To
be
able
to
carry
out
this
overall
plan
for
this
land,
it
was
necessary
that
the
City
of
Laval
grant
an
amendment
to
the
zoning
by-law.
It
should
be
noted
that
25
per
cent
of
this
land
was
zoned
for
agricultural
purposes
and
that
the
zoning
for
the
rest
of
the
land
was
described
as
RX.
It
was
explained
that
this
latter
type
of
zoning
applied
to
large
areas
for
which
a
city,
and
in
the
instant
case
the
City
of
Laval,
wanted
a
development
plan
submitted
to
it.
To
assess
this
project's
feasibility,
the
appellants
retained
the
services
of
a
firm
by
the
name
of
Option
Aménagement
Inc.
("Option
Aménagement"),
a
firm
specialized
in
urban
planning,
and
a
lawyer,
Me
Fernand
Deveau,
who
specialized
in
municipal
law
and
environmental
law.
Option
Aménagement
was
a
wholly-owned
subsidiary
of
the
Dessau:
Group,
a
major
firm
of
consulting
engineers.
The
appellants
Joseph
Valentino
and
Philip
Spensieri
took
care
of
the
urban
planning
aspects
of
the
project.
The
appellant
Di
loia
was
consulted
when
important
decisions
had
to
be
made,
such
as
that
to
retain
professional
services
at
the
time
of
the
zoning
difficulties.
Me
Deveau
was
to
coordinate
the
efforts
of
certain
parties
involved
in
order
to
obtain
the
necessary
zoning
amendments.
One
of
the
important
questions
on
this
subject
concerned
the
extension
of
the
golf
course
within
the
agricultural
zone.
In
practical
terms,
the
permission
of
the
U.P.A.
and
the
City
or
Laval
had
to
be
obtained.
It
was
in
this
way
that
Me
Deveau
suggested
that
the
appellants
proceed
with
an
exchange
with
the
neighbouring
owners
of
land
already
located
in
the
“non-agricultural
zone"
and
relocate
the
golf
course.
On
this
point,
efforts
were
undertaken
to
conduct
the
exchange
operation
with
the
City
of
Laval
and
four
or
five
neighbouring
owners
involving
a
total
area
of
about
1,000,000
square
feet.
In
a
letter
dated
February
20,
1990,
addressed
to
the
appellant
Joseph
Valentino,
Mr.
Pierre
M.
Valiquette,
a
landscape
architect
with
the
firm
Option
Aménagement,
offered
his
professional
services
to
assist
the
appellants
in
realizing
their
real
estate
project.
Attached
to
that
letter,
which
was
further
to
a
prefeasibility
study,
was
a
seven-page
document
outlining
the
proposed
management
method,
the
proposed
strategy,
a
timetable,
cost
control
and
the
work
team.
A
professional
services
agreement
was
entered
into
by
Groupe
25294364
Québec
Inc.
and
Option
Aménagement
sometime
in
1990,
the
agreement
being
undated.
Mr.
Pierre
Valiquette
was,
at
the
outset,
put
in
charge
of
the
appellants’
project
for
Option
Aménagement.
That
agreement
provided
for
the
filing
of
a
comprehensive
plan
for
the
land
and
support
services
in
respect
of
the
design
of
a
golf
course
and
the
preparation
of
the
building
drawings
and
specifications.
That
agreement
also
provided
for
the
provision
of
consulting
services
in
the
fields
of
the
environment,
landscape
architecture
and
urban
planning.
A
number
of
persons
associated
with
the
Dessau
Group
were
involved
in
the
project:
Mr.
John
Watson
was
involved
in
the
design
of
the
golf
course,
two
biologists
were
to
examine
the
vegetation
and
wildlife
surveys,
Messrs.
Yves
Desrochers
and
Yvon
Fafard
were
to
consider
the
urban
planning
side
and
Mr.
Pierre
Fortin,
an
economist
with
the
firm
Soleco
Consultants,
another
subsidiary
of
the
Dessau
Group,
was
to
prepare
a
market
study.
Thus,
in
June
1990,
Option
Aménagement
prepared
a
study
entitled,
"Residential
and
Golf
Development
Project
in
Sainte-Rose,
City
of
Laval,”
a
34-
page
document
with
a
26-page
appendix.
The
first
part
of
that
document
was
prepared
by
Messrs.
Valiquette
and
Fafard,
but
Mr.
Valiquette
was
unable
to
examine
the
final
text
of
that
report,
having
left
Option
Aménagement
in
May
or
June
1990.
According
to
the
appellant
Joseph
Valentino,
the
task
given
to
Option
Aménagement
was
to
focus
on
the
feasibility
of
the
golf
course.
In
the
appellant
Philip
Spensieri's
view,
the
study
made
no
mention
of
any
project
in
particular,
but
referred
rather
to
a
description
of
the
land
with
a
market
study.
That
market
study,
attached
to
the
main
study,
stated
at
page
1
of
its
initial
draft
"that
the
project
site
could
accommodate
roughly
157
upscale
single-family
homes,
the
majority
of
which
would
be
located
directly
on
the
golf
course.
Plans
also
included
the
construction
of
higher-density
housing
such
as
condominiums
and
retirement
homes."
The
same
market
study
stated
in
particular
the
following,
at
page
2:
"Since
the
golf
course
housing
project
does
not
include
construction
of
rentaltype
residential
properties,
this
sector
was
expressly
excluded
from
our
study.
Furthermore,
no
specific
survey
or
poll
was
provided
for
in
the
work
specifications."
The
appellant
Joseph
Valentino
denied
that
there
were
to
be
any
condominium
apartments
described
as
"condos"
as
a
part
of
this
project.
Furthermore,
Mr.
Fafard
testified
that
the
appellant
Philip
Spensieri
had
indicated
to
him
in
1990
that
he
was
not
satisfied
with
the
market
study
because
that
study
did
not
include
housing
that
would
secure
rental
income.
For
his
part,
the
appellant
Philip
Spensieri
stated
that
he
had
never
asked
for
a
study
concerning
condominium
apartments,
but
rather
a
high-density
residential
whole.
The
appellant
Philip
Spensieri
was
of
the
view
that
Mr.
Valiquette
wanted
to
have
a
study
on
the
condominium
apartments
in
order
to
convince
the
city
to
amend
the
zoning
bylaws.
According
to
Mr.
Valiquette,
the
type
of
ownership
of
properties
was
important
as
regards
project
financing
and
implementation.
When
the
appellant
Philip
Spensieri
informed
Mr.
Valiquette
that
the
appellants
wanted
to
have
rental
properties
and
not
single-family
homes,
Mr.
Valiquette
allegedly
indicated
that
the
city
would
not
authorize
construction
of
residential
properties
because
of
traffic
problems
which
implementation
of
such
a
project
would
create.
As
to
Mr.
Valiquette,
he
testified
that,
with
Mr.
Fafard's
co-operation,
he
had
developed
scenarios
for
increasing
density
on
the
land
in
question.
In
any
case,
Mr.
Valiquette
added,
the
appellants
had
to
approve
the
terms
of
reference
appearing
at
page
1
of
the
market
study
before
that
study
was
undertaken
by
Soleco.
The
appellants
wished
to
clarify
the
terms
of
reference
and
Option
Aménagement
therefore
described
its
understanding
of
the
terms
of
reference
in
a
letter
dated
October
4,
1990.
That
letter
signed
by
Mr.
Fafard,
who
had
become
project
manager,
was
entitled
"Professional
Services
Agreement
and
Project
Status
Summary".
It
further
clarified
the
nature
of
the
terms
of
reference
regarding
the
work
to
come,
in
the
following
terms:
The
terms
of
reference
given
to
Option
Aménagement
Inc.
consist
in
designing
a
development
project
composed
of
a
golf
course
and
a
''rental"
type
housing
development
or
any
other
avenue
deemed
viable
on
the
basis
of
the
results
of
the
detailed
market
study.
[Translation.]
When
these
appeals
were
heard,
Option
Aménagement
had
not
received
instructions
to
"conduct
a
detailed
study
of
the
rental
aspect",
to
use
Mr.
Denis
Fafard's
expression.
This
delay
was
apparently
attributable
in
part
to
the
fact
that
it
seemed
desirable
that
the
persons
living
in
the
Ferme
Ste-Thérèse
area
approve
the
project
in
question,
given
that
they
would
be
entitled
to
vote
on
a
proposed
amendment
to
the
zoning
by-laws.
An
agreement
was
ultimately
reached
during
the
fall
of
1991
with
the
inhabitants
of
tne
area
in
question,
which
included
the
Ferme
Ste-Thérèse
in
particular.
Ultimately,
it
became
possible
to
change
the
RX-
type
zoning
bylaw
to
a
more
detailed
zoning.
This
amended
zoning
bylaw
came
into
effect
in
June
1992.
The
agricultural
portion
of
the
land
in
question
was
not
subject
to
an
application
for
a
zoning
amendment
by
the
appellants.
Me
Deveau
attended
a
number
of
meetings
with
the
appellants
Joseph
Valentino
and
Philip
Spensieri,
Mr.
Fafard
and
city
officials.
Me
Deveau
stated
that
the
appellants
never
dreamed
of
reselling
the
part
concerning
which
there
were
plans
for
high-density
zoning.
Me
Deveau
added
that
he
had
indicated
to
the
appellant
Philip
Spensieri,
likely
in
early
1992,
that
he
knew
of
third
parties
who
were
interested
in
this
land
development
project
and
the
appellant
Spensieri
answered
him
that
the
appellants
were
not
interested
in
selling.
In
substance,
the
question
of
establishing
a
source
of
retirement
income
was
mentioned
by
the
appellants
Joseph
Valentino
and
Philip
Spensieri.
In
Me
Deveau's
view,
that
mention
simply
meant
income
in
the
form
of
rent.
According
to
the
new
zoning
bylaw,
low-density
zoning
was
applicable
to
part
of
this
land
where
it
was
possible
to
build
single-family
homes,
detached,
in
rows
or
semi-detached,
of
an
area
of
2,000
square
feet
or
more,
including
the
basement.
This
low-density
portion
allegedly
represented
15
per
cent
of
the
total
area
of
the
location.
This
low-density
area
met
one
requirement
of
the
City
of
Laval.
As
to
another
part
of
this
lot,
representing
four
or
five
per
cent
of
land
as
a
whole,
the
zoning
bylaw
provided
for
a
high-density
area.
As
regards
the
high-density
part,
Option
Aménagement
examined
the
method
of
detention
of
the
proposed
properties,
condominium
apartments,
rental
properties.
As
a
result
of
negotiations
with
area
residents,
residential
properties
"towers"
which
were
to
be
15
storeys
were
reduced
to
ten
storeys.
When
these
appeals
were
heard,
discussions
were
under
way
with
the
officials
of
the
ministère
de
I'Environnement
of
Quebec
concerning
the
development
of
a
golf
course
and
necessary
facilities.
At
the
hearing
of
these
appeals,
Option
Aménagement
believed
that
work
on
the
golf
course
could
start
in
the
spring
of
1993.
The
municipal
services
profitability
and
infrastructure
design
study
was
then
under
way.
A
plan
of
subdivision,
which
was
designed
for
the
purpose
of
assessing
the
project's
profitability,
was
filed.
Me
Deveau
indicated
in
his
testimony
that
he
did
not
know
how
the
appellants
intended
to
give
effect
to
the
low-
density
zoning.
The
main
witness
called
for
the
respondent
was
the
Revenue
Canada
official
who
had
audited
the
appellants’
files
on
the
subjects
here
concerning
us.
The
auditor
met
with
the
appellant
Joseph
Valentino
in
early
February
1989.
The
appellant
Joseph
Valentino
told
him
that
the
appellants
intended
to
develop
lot
163,
but
that
their
plans
had
been
frustrated
by
the
city
and
the
purchaser.
On
February
16,
1989,
the
auditor
met
with
the
appellant
Spensieri
to
ask
him
for
explanations
on
the
subject
of
the
selling
price
of
that
property.
The
appellant
Spensieri
allegedly
answered
that
Mrs.
Rina
Valentino,
wife
of
the
appellant
Joseph
Valentino,
had
received
a
commission
because
it
was
she
who
had
introduced
the
purchasers
to
the
appellants.
Mrs.
Rina
Valentino
had
included
only
$15,000
of
the
sum
of
$30,000
which
she
had
received
in
computing
her
income.
The
appellant
Spensieri
also
allegedly
stated
that
the
project
under
consideration
included
construction
of
about
100
houses
over
a
period
of
two
to
five
years.
When
lot
163
was
purchased,
the
appellants
had
not
foreseen
any
difficulties
in
realizing
this
intention
to
build
single-family
homes
since,
according
to
him,
25
lots
were
already
subdivided
and
five
of
them
had
received
municipal
services.
He
allegedly
added
that
the
city
could
have
taken
five
years
to
install
the
necessary
utilities
and
that
the
appellants
did
not
want
to
wait
that
long
before
the
houses
could
be
sold.
In
March
1989,
the
auditor
met
with
Mr.
André
Ferland
at
Laval
City
Hall
and,
at
that
meeting,
examined
a
map
of
the
city
which
confirmed
for
him
that
lot
163
was
indeed
subdivided
into
100
lots
and
that
the
zoning
provided
for
singlefamily
homes.
He
returned
in
September
1989
to
ensure
that
his
observations
during
his
previous
visit
had
been
accurate.
In
June
1989,
the
auditor
once
again
communicated
with
the
appellant
Philip
Spensieri
concerning
the
subject
of
Mrs.
Rina
Valentino’s
role
in
the
sale
of
lot
163.
He
noted
that
in
the
chequebook
that
was
in
the
appellant
Philip
Spensieri’s
possession,
the
payment
to
Mrs.
Rina
Valentino
had
been
reported
in
the
return
of
income
as
a
commission.
At
the
auditor's
request,
the
appellant
Spensieri
sent
a
letter
dated
June
7,
1989,
providing
explanations
as
to
this
payment
of
$30,000
to
Mrs.
Rina
Valentino
in
the
following
terms:
This
is
to
confirm
that
the
owners
of
lot
163
and
related
subdivisions
in
Laval
paid
a
commission
of
$30,000
to
Rina
Valentino
in
connection
with
the
sale
of
the
above
land
to
2325-6894
Québec
Inc.
The
commission
was
paid
since
Rina
Valentino
was
the
person
who
introduced
the
representative
of
the
buyer
to
the
owners.
When
these
appeals
were
heard,
the
appellant
Philip
Spensieri
acknowledged
that
this
letter
had
been
drafted
in
order
to
obtain
a
reduction
of
income
tax
payable
by
the
appellant
Joseph
Valentino
and
did
not
reflect
the
reality.
After
that
letter
was
sent,
the
appellant
Philip
Spensieri
testified
that
he
had
obtained
the
opinion
of
a
tax
expert
named
Robert
Leewarden.
Pursuant
to
that
opinion,
he
acknowledged
that
he
had
made
a
mistake
and
hastened
to
correct
the
situation
with
Revenue
Canada.
The
only
other
substantial
piece
of
evidence
provided
by
the
auditor
concerned
a
payment
which
was
allegedly
made
to
Mr.
Gaétan
Tremblay
at
the
time
the
agreement
of
sale
was
signed
on
September
3,
1987.
The
auditor
stated
that
the
notary
Viglione
had
told
him
that
Mr.
Tremblay
had
received
$50,000
in
cash,
the
funds
in
question
not
coming
from
the
notary's
trust
account.
À
copy
of
the
notarized
discharge
signed
by
Mr.
Tremblay
was
sent
to
the
auditor
with
the
letter
of
September
6,
1989.
The
notary
Viglione
claimed
that
it
was
the
appellant
Joseph
Valentino
who
had
told
him
that
Mr.
Tremblay
had
received
this
amount
of
$50,000.
In
a
document
addressed
"to
whom
it
ma
concern",
issued
by
the
notary
Viglione
dated
October
2,
1989,
the
latter
stated:
.
.
.
according
to
the
purchaser,
$50,000
was
paid
as
a
commission
directly
to
the
purchaser's
representative
Gaétan
Tremblay;
the
latter
was
present
at
the
signing
of
the
said
agreement
of
sale
and
signed
a
receipt
stating
that
he
had
received
the
said
commission
of
$50,000
from
Joseph
Di
loia
et
al.
[Translation.]
This
last
document
was
sent
to
the
auditor.
The
latter
tried
to
contact
Mr.
Tremblay,
but
that
proved
impossible.
The
address
indicated
on
the
discharge
was
not
in
a
directory
of
addresses
for
the
Montreal
area.
The
address
indicated
referred
to
a
vacant
lot.
The
postal
code
did
not
exist.
The
appellants
stated,
during
a
meeting
with
the
auditor
in
September,
that
they
had
not
retained
the
services
of
a
real
estate
agent
in
respect
of
the
transaction
of
September
3,
1987.
Appellants’
claims
The
appellants
submitted
that
the
gain
realized
in
the
sale
of
lot
163
was
a
capital
gain
and
not
a
business
income.
The
appellants
advanced
the
following
reasons
in
particular,
and
I
refer
to
subparagraphs
23(b),
(c),
(d),
(e),
(f),
(g),
(i),
(j)
and
(k)
of
the
notices
of
appeal
filed
by
the
appellants
Joseph
Di
loia,
Gino
Berlingieri,
Tony
Spensieri,
Philip
Spensieri,
Pasquale
Spensieri
and
Domenico
Valentino.
Identical
subparagraphs
appear
at
paragraph
25
of
the
notice
of
appeal
of
the
appellant
Joseph
Valentino:
25(b)
your
appellant’s
intention
with
respect
to
the
lot
has
always
been
to
develop
it,
there
building
income
properties,
in
order
to
earn
rental
income;
(c)
to
this
end,
a
summary
project
development
study
was
to
be
completed,
before
the
construction
project
was
undertaken.
However,
your
appellant
and
the
other
purchasers
agreed
to
wait
for
the
summer
of
1987
in
order
to
complete
the
said
study,
because
of
the
varied
availabilities
of
the
purchasers;
(d)
your
appellant,
as
well
as
the
other
purchasers,
had
no
experience
in
the
field
of
real
estate
development
for
resale
purposes;
(e)
furthermore,
although
the
existing
zoning
where
the
lot
was
located
was
of
a
residential
nature,
your
appellant
inquired
as
to
possibilities
for
amendments
to
it
and
he
intended
to
proceed
with
applications
for
amendments
during
the
summer
of
1987;
(f)
the
said
unsolicited
offers,
which
were
communicated
to
your
appellant
and
to
the
other
purchasers,
were
presented
repeatedly
during
this
period,
and
it
was
not
until
around
June
3,
1987,
that
your
appellant,
as
well
as
the
other
purchasers,
finally
agreed
to
part
with
the
lot;
(g)
in
fact,
it
was
only
after
they
received
the
said
unsolicited
offers,
each
time
increased
by
approximately
$75,000,
that
your
appellant
and
the
other
purchasers
finally
agreed
to
the
last
offer,
which
was
exceptional
in
respect
of
the
price
paid;
(i)
the
sale
of
the
lot
is
the
only
transaction
of
this
kind
in
which
your
appellant
and
the
other
purchasers
were
involved,
having
been
actuated
by
an
unforeseen
and
exceptional
event,
that
is
an
offer
almost
three
times
greater
than
the
acquisition
cost
paid
a
few
months
earlier;
(j)
during
the
period
in
which
the
lot
was
held,
no
amount
of
money
was
used
to
render
the
lot
more
salable;
the
lot
was
preserved
in
the
state
in
which
it
was
at
the
time
of
the
sale
because
the
realization
of
the
objectives
contemplated
at
the
time
of
the
purchase
had
to
be
preceded
by
the
aforementioned
summary
study,
but
in
the
circumstances
the
unsolicited
offer
arrived
too
soon
for
the
plans
to
be
executed;
(k)
lastly,
the
use
of
the
proceeds
of
disposition
of
the
land
by
your
appellant
and
the
other
purchasers,
which
is
described
more
fully
at
paragraph
19
above,
confirms
your
appellant’s
intention
to
carry
out
a
long-term
real
estate
investment
project.
[Translation.]
On
the
subject
of
the
deduction
of
a
sum
which
was
allegedly
paid
to
Mr.
Gaétan
Tremblay,
the
following
appears
at
paragraph
25
of
the
notices
of
appeal
filed
by
six
of
the
seven
appellants:
25.
Your
appellant
submits
that
he
and
the
other
purchasers
were
justified
in
deducting
a
fraction,
established
on
the
basis
of
their
undivided
share
in
the
lot,
of
the
sum
of
$50,000
paid
as
a
commission
to
Mr.
Gaétan
Tremblay
since
the
latter
duly
identified
himself
as
the
purchaser's
representative
at
the
time
of
the
sale
of
the
lot
and
signed
a
receipt
pertaining
to
the
receipt
of
the
said
commission.
[Translation.]
An
identical
allegation
appears
at
paragraph
27
of
the
notice
of
appeal
in
the
record
of
the
appellant
Joseph
Valentino.
Respondent's
claims
For
the
respondent,
the
presumptions
of
fact
stated
at
subparagraphs
16(b),
(c),
(d),
(e),
(g),
(h),
(i),
(k)
and
(m)
and
(n)
of
the
replies
to
the
notices
of
appeal
in
the
records
of
all
the
appellants,
with
the
exception
of
the
appellant
Joseph
Valentino
where
those
presumptions
are
formulated
at
subparagraphs
17(f),
(g),
(h),
(i),
(k),
(I),
(m),
(o),
(q)
and
(r),
should
be
noted:
16(b)
the
lot
in
question
was
located
in
an
area
where
real
estate
development
was
very
widespread;
(c)
at
the
time
of
purchase,
the
land
was
already
subdivided
into
lots;
the
majority
of
the
subdivided
lots
measured
50
feet
by
123.5
feet;
(d)
the
land
in
question
was
zoned
for
the
construction
of
single-family
residences;
(e)
during
the
detention
period,
no
steps
were
taken
by
the
appellant
or
the
other
members
of
the
group
to
change
the
existing
zoning;
(g)
Domenico
Valentino
and
Joseph
Valentino
are
the
shareholders
of
Construction
Edival
Inc.,
a
real
estate
development
company
incorporated
in
1985;
(h)
Domenico
and
Joseph
Valentino
are
also
shareholders
of
D.J.
Holdings
Ltd.,
which
was
also
involved
in
the
acquisition
of
real
estate
assets;
(i)
according
to
the
information
obtained
by
an
official
of
the
respondent,
the
inventory
of
land
in
dispute
was
purchased
by
the
appellant
and
the
other
members
of
the
group
in
order
to
develop
the
lands
and
to
resell
them
individually
by
lot
at
a
profit;
(k)
the
appellant
and
the
other
members
of
the
group
purchased
the
land
in
issue
in
order
to
resell
it
at
a
profit.
Or,
at
the
very
least,
one
of
the
important
factors
which
incited
the
appellant
and
the
other
members
of
the
group
to
acquire
the
said
land
was
the
prospect
of
being
able
to
resell
it
at
a
profit;
(m)
the
Minister
of
National
Revenue
also
refused
to
allow
the
appellant
his
share
in
the
deduction
of
$50,000
allegedly
paid
to
a
certain
Gaétan
Tremblay
since
it
was
not
shown
that
the
said
sum
was
actually
paid
to
Mr.
Gaétan
Tremblay;
(n)
the
reserve
claimed
by
the
appellant
in
his
1987
return
was
disallowed
by
the
Minister
of
National
Revenue
.
.
.
[Translation.]
Paragraph
21
of
the
replies
to
the
notices
of
appeal
in
the
records
of
six
of
the
appellants
—
in
the
case
of
the
appellant
Joseph
Valentino,
reference
must
be
made
to
paragraph
23
of
the
notice
of
appeal,
which
is
identical
—
must
also
be
noted:
21.
He
contends
that
he
duly
disallowed
the
appellant’s
share
in
the
$50,000
deduction,
since
it
was
not
shown
that
the
said
sum
was
paid
to
Mr.
Gaétan
Tremblay
.
.
.
[Translation.]
Analysis
The
main
issue
in
the
instant
case
concerns
the
nature
of
the
gain
realized
by
the
appellants
in
disposing
of
lot
163
in
Laval.
To
resolve
this
issue,
it
must
be
determined
what
the
appellants'
intention
was
at
the
time
of
the
purchase
of
that
lot.
This
question
must
be
considered
in
the
light
of
the
appellants’
conduct
as
a
whole
during
the
period
which
preceded,
and
followed,
the
time
of
the
purchase
of
that
property.
It
was
admitted
by
the
parties
in
the
instant
case
that
the
appellant
Joseph
Valentino
was,
at
the
relevant
time,
the
leader
of
the
appellants
in
the
discussions
which
led
to
the
purchase,
and
sale,
of
lot
163
by
the
appellants.
The
appellant
Philip
Spensieri
was
more
active
than
the
other
appellants,
apart,
of
course,
from
the
appellant
Joseph
Valentino,
but
his
role
nevertheless
remained
a
secondary
role.
The
appellant
Joseph
Valentino's
intention
may
thus
be
attributed
to
the
other
appellants.
The
appellant
Joseph
Valentino
described
himself
as
a
furniture
manufacturer.
He
indicated
during
his
testimony
that
he
and
the
other
appellants
wished
to
make
an
investment
in
the
form
of
a
rental
property.
That
is
why,
according
to
his
version,
after
learning
that
lot
163
was
for
sale,
he
conceived
of
the
project
to
purchase
that
land
with,
in
particular,
the
appellants
Di
loia
and
Berlingieri,
who
had
substantial
experience
in
the
management
of
a
large
rental
property.
These
latter,
as
the
evidence
shows,
had
administered
such
a
property
for
several
years.
The
appellant
Joseph
Valentino
thus
associated
himself
with
the
appellants
Di
loia
and
Berlingieri,
who
were
investors
in
rental
properties.
The
other
appellants
were
not
real
estate
speculators
either.
As
to
the
mode
of
financing
of
the
purchase
of
lot
163,
the
appellants'
manner
of
proceeding
was
not
that
of
speculators.
The
appellants
were
able
to
pay
very
nearly
50
per
cent
of
the
purchase
price,
that
is
the
sum
of
$200,000
of
the
price
of
$505,000
[sic],
in
cash.
The
balance
was
borrowed
from
the
bank
by
means
of
a
demand
promissory
note,
payment
of
which
was
guaranteed
by
a
mortgage
granted
by
the
appellants
on
the
lot
in
question.
No
payment
was
made
by
the
appellants
during
the
first
year
of
acquisition.
This
situation
does
not
appear
to
have
disturbed
the
bank;
on
this
point,
it
should
be
recalled
that
the
value
of
the
property
had
been
estimated
at
$484,500.
The
redemption
clause
contained
in
the
deed
of
mortgage
described
in
the
preceding
paragraph
was
the
subject
of
extended
debate
by
counsel
for
the
parties.
That
clause
is
reproduced
below:
The
lender
undertakes
to
grant
the
debtor,
on
one
part
of
the
property
mortgaged
above,
redemption
from
all
encumbrances,
mortgages
and
other
rights
in
exchange
for
payment
by
the
debtor
to
the
lender
on
account
of
the
sum
lent,
of
either
of
the
following
two
amounts:
(a)
50
per
cent
of
the
proceeds
of
the
sale
of
the
part
of
the
property
thus
redeemed;
or
(b)
50
per
cent
paid
by
the
Debtor
for
the
said
part
of
the
property
thus
redeemed;
whichever
is
the
greater.
[Translation.]
I
am
of
the
view
that
the
respondent
has
attached
too
much
importance
to
this
clause.
Although
it
is
correct
that
this
clause
determines
the
amount
that
had
to
be
paid
by
the
borrower
to
obtain
a
redemption
on
a
part
of
the
property
in
the
event
of
the
sale
of
a
part
of
that
property,
it
must
not
necessarily
be
deduced
that
it
would
not
have
been
possible
for
the
appellants,
irrespective
of
that
clause,
to
proceed,
for
example,
with
the
development
of
that
land
by
stages
and,
in
order
to
do
so,
to
obtain
a
type
of
financing
that
would
have
included
a
redemption
on
one
part
of
that
land.
Mr.
Agostino's
testimony
was
entirely
clear
on
this
subject.
Another
element
in
assessing
all
the
circumstances
surrounding
the
purchase
of
this
vacant
lot
concerns
the
appellants’
financial
ability
to
erect
one
or
more
rental
properties.
On
this
point,
the
evidence
was
conclusive
that
with
the
resources
they
had
at
their
disposal,
the
appellants
were
able
to
develop
this
property
by
constructing
rental
properties.
The
appellants’
total
net
worth
was
in
the
order
of
$7,000,000
at
the
time
of
the
purchase
of
lot
163.
In
any
case,
the
respondent
did
not
dispute
this
financial
ability
which
the
appellants
had
to
proceed
with
the
construction
of
rental
properties.
If
we
examine
the
appellants’
conduct
during
the
discussions
which
culminated
in
the
sale
of
lot
163,
it
should
be
noted
first
that
the
appellants
received
unsolicited
offers
from
a
person
who
was
unknown
to
them.
They
rejected
a
first
verbal
offer,
then
a
written
offer
providing
for
payment
of
a
sum
of
$900,000.
They
ultimately
accepted
an
offer
including
a
selling
price
of
$1,200,000.
That
amount
represented
nearly
three
times
the
price
which
they
had
paid
only
a
few
months
earlier.
This
offer
was
without
any
doubt
extremely
attractive,
and
acceptance
of
such
an
offer
in
the
circumstances
was
not
incompatible
with
the
intention
which
the
appellants
might
have
had
to
construct
rental
properties.
If
the
appellants’
intention
was
to
sell
this
lot
for
profit
as
soon
as
the
circumstances
were
favourable,
it
seems
to
me
they
would
have
shown
more
interest
when
the
offer
to
purchase
the
lot
in
question
for
$900,000
was
made
to
them.
That
offer
represented
more
than
twice
the
purchase
price
of
the
same
lot
which
had
been
acquired
a
few
weeks
earlier.
Furthermore,
if
the
appellant
Joseph
Valentino
had
intended
from
the
outset
to
resell
at
a
profit,
it
seems
likely
to
me
that
he
would
not
have
associated
with
other
persons
who
would
have
been
entitled
to
share
in
the
profit
to
be
realized.
He
could
at
least
have
done
what
was
necessary
for
a
more
limited
number
of
persons
to
join
with
him
in
the
purchase
of
his
land.
Having
regard
to
all
the
circumstances,
the
appellant
Joseph
Valentino
had
the
resources
to
proceed
with
this
acquisition
alone.
It
also
appears
to
me
significant
that
he
invited
in
particular
the
appellants
Di
loia
ana
Berlingieri,
real
estate
investors,
to
purchase
this
property
with
him,
as
I
have
already
emphasized.
The
parties
in
the
instant
case
have
analyzed
the
many
aspects
of
the
abundant
evidence
which
was
filed
concerning
the
Sainte-Rose
project
in
which
the
appellants
invested
a
substantial
portion
of
the
funds
arising
from
the
sale
of
lot
163.
It
is
recognized
by
the
case
law
that
the
use
of
funds
received
upon
disposition
of
an
asset
may
constitute
a
factual
given
which
assists
in
determining
a
taxpayer's
intention
at
the
time
of
the
purchase
of
the
asset
in
question.
I
do
not
believe
it
is
necessary
to
analyze
all
the
evidence
pertaining
to
the
Sainte-Rose
project
in
detail.
Suffice
it
to
say
that
certain
elements
of
the
evidence
appear
to
suggest
that
the
appellants
purchased
this
real
estate
for
the
purpose
of
disposing
of
it.
I
am
thinking
inter
alia
of
the
terms
of
reference
originally
given
to
Option
Aménagement
and
of
certain
statements
of
the
appellants.
Furthermore,
the
appellants
today
are
still
pursuing
their
activities
pertaining
to
the
development
of
this
land.
A
golf
course
project
appears
to
be
on
the
verge
of
being
implemented.
The
terms
of
reference
more
recently
given
to
Option
Aménagement
appear
to
a
certain
degree
to
confirm
an
investment
intention.
It
does
not
now
appear
to
me
unlikely
that
rental
properties
may
be
built
in
the
not-too-
distant
future.
Furthermore,
it
is
also
likely
that
a
fairly
large
part
of
the
Sainte-Rose
land
will
be
used
to
build
single-family
homes
for
resale
purposes
in
order,
it
would
appear,
to
respond
to
pressing
demands
by
taxpayers
in
the
area
concerned
and,
in
the
final
analysis,
to
the
requirements
of
the
municipal
authorities.
Having
regard
to
the
circumstances,
the
Sainte-Rose
project
does
not
appear
to
me
a
decisive
factor
for
the
purpose
of
assessing
the
appellants’
intention
at
the
time
of
the
purchase
of
lot
163.
The
foregoing
examination
of
the
various
elements
of
the
evidence
leads
me
to
believe
that
the
appellants
intended,
at
the
time
of
the
purchase
of
lot
163,
to
proceed
with
an
investment
in
the
form
of
rental
properties.
Before
reaching
a
final
conclusion
on
the
subject
of
the
appellants’
intention,
it
seems
to
me
appropriate
to
consider
the
letter
from
the
officer
who
conducted
the
audit
of
the
appellants’
files.
That
letter,
which
was
sent
in
December
1989
—
the
copy
filed
at
the
hearing
bears
no
date
—
outlines
the
most
important
elements
considered
by
the
auditor
at
the
time
he
was
preparing
to
issue
the
assessments
here
under
appeal.
This
letter
reveals
an
absence
of
objectivity
on
a
number
of
points
on
the
auditor's
part.
For
example,
subparagraph
2(b)
reads
as
follows:
‘’(b)
the
bank
provided
a
mortgage
with
no
pay
down
for
a
year
to
allow
the
partnership
to
commence
development
and
sell
a
few
lots
before
paying
down
the
principal.”
Mr.
Agostino’s
report
to
the
executives
of
his
Bank
at
the
relevant
time,
as
well
as
his
testimony
at
the
hearing,
do
not
support
this
conclusion
of
the
auditor.
He
does
not
appear
to
have
considered
the
possibility
of
developing
the
land
in
question
in
stages.
Subparagraph
3(a)
of
the
same
letter
disregards
the
fact
that
Edival’s
main
role
was
to
serve
as
real
estate
support
for
the
other
companies
in
the
group
of
companies
in
which
the
appellant
Joseph
Valentino
held
a
substantial
financial
interest.
This
company
engaged
in
the
purchase
and
sale
of
real
estate
assets
only
on
a
few
occasions,
and
Edival's
inventory
included
only
two
vacant
lots
at
the
time
the
auditor
sent
his
letter
of
December
1989.
The
auditor
did
not
know
that
the
property
on
Pascal
Gagnon
Boulevard
was
not
a
vacant
lot;
in
fact,
a
store
was
located
on
that
lot
belonging
to
one
of
the
companies
of
the
group
of
companies
controlled
by
the
appellants
Joseph
Valentino
and
Domenico
Valentino.
One
of
the
real
estate
transactions
mentioned
by
the
auditor
in
his
letter
of
December
1989
concerned
a
transfer
made
under
section
85
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
auditor
did
not
state
that
this
was
a
transaction
of
a
very
particular
nature
which
could
not
be
likened
to
a
transaction
conducted
in
the
context
of
the
normal
operations
of
a
business.
He
appears
to
have
misunderstood
the
role
of
D
&
J
Valentino
Holdings
Ltd.,
which
is
a
holding
company.
This
latter
company
did
not
itself
purchase
real
estate
assets,
and
this
point
was
not
disputed
by
the
respondent
during
the
hearing
of
these
appeals.
In
his
examination
of
the
appellant
Joseph
Valentino’s
conduct
for
the
purposes
of
assessing
his
intention
at
the
time
of
the
purchase
of
lot
163,
the
auditor
drew
no
distinction
between
the
activities
of
the
appellant
Joseph
Valentino
as
an
individual
and
those
of
the
legal
person
Edival
whose
capital
stock
is
owned
in
equal
shares
by
the
appellants
Joseph
Valentino
and
Domenico
Valentino.
From
the
evidence
as
a
whole,
I
conclude
that
the
appellants
purchased
lot
163
for
investment
purposes.
They
thus
realized
a
capital
gain
in
disposing
of
that
lot.
The
appeals
are
therefore
allowed
on
this
point.
In
the
case
of
the
appellant
Joseph
Valentino,
it
was
indicated
at
the
hearing
that
he
had
abandoned
his
appeals
with
respect
to
the
inclusion
in
computing
the
income
for
the
1986,
1987
and
1988
taxation
years
of
the
benefit
for
standby
charges
for
a
certain
automobile.
Partial
discontinuances
have
been
filed
to
that
effect.
It
remains
for
me
to
consider
the
issue
of
the
deduction
of
the
sum
of
$50,000
which
was
allegedly
paid
by
the
appellants
to
a
Mr.
Gaétan
Tremblay
as
a
commission
at
the
request
of
Mr.
Delisle.
The
latter
claims
that
he
paid
this
amount
to
the
appellant
Joseph
Valentino.
Furthermore,
the
notary
Viglione
appeared
to
favour
the
contention
of
the
appellants
that
this
amount
was
disbursed
by
the
latter.
Furthermore,
according
to
the
auditor's
testimony,
the
notary
Viglione
told
him
that
this
sum
of
$50,000
Pad
been
paid
in
cash
in
his
presence.
The
testimony
of
some
the
appellants
themselves
on
this
question
did
not
seem
to
me
convincing.
I
have
some
doubt
as
to
their
credibility
on
this
subject.
On
the
whole,
I
am
not
persuaded
that
the
appellants
discharged
their
burden
of
proof
in
this
respect.
The
assessments
are
therefore
confirmed
on
this
point.
For
these
reasons,
the
appeals
are
allowed
with
costs
and
the
assessments
for
the
1987
and
1988
taxation
years
are
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
appellants
realized
a
capital
gain
in
the
disposition
of
lot
163.
The
assessments
are
confirmed
in
all
other
respects.
Appeals
allowed.
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