Tremblay,
T.C.C.J.:—These
appeals
were
heard
on
common
evidence.
1.
The
issue
According
to
the
pleadings,
the
notice
of
appeal
and
the
reply
to
the
notice
of
appeal,
the
issue
is
whether
the
four
appellants,
who
were
all
members
of
the
same
partnership,
are
correct,
in
computing
their
income
for
the
1983,
1984
and
1985
taxation
years,
to
treat
the
profit
from
the
sale
in
1983
of
a
lot
of
about
26'/2
acres,
located
in
Hull,
in
the
county
of
Hull,
Quebec,
as
a
capital
gain.
This
lot
had
been
acquired
in
1969
in
order,
according
to
the
appellants,
to
develop
a
durable
asset
which
would
profit
all
the
partners:
in
practice,
a
shopping
centre.
For
certain
reasons,
the
construction
of
the
shopping
centre
could
not
be
carried
out
(annexation
did
not
occur
within
the
anticipated
time,
road
system
not
developed,
construction
of
another
shopping
centre).
The
lot
was
sold
at
a
profit
in
1983
to
the
Société
de
placements
et
d
hypothèques
de
I'Outaouais
Limitée.
The
respondent
submits
that
the
profit
from
the
sale
is
a
profit
from
a
business,
alleging,
inter
alia:
—
that
all
the
partners
have
experience
in
the
real
estate
market
and
have
engaged
in
large
scale
purchases
and
sales
of
lots;
—
that
the
appellants
offered
no
documentary
evidence
of
their
intention
to
build
a
shopping
centre
on
the
lot
at
the
time
of
the
acquisition;
—
that
accordingly,
at
least
at
the
time
of
the
purchase,
the
appellants
had
the
secondary
intention
of
reselling
the
lot.
Moreover,
the
said
lot
was
located
in
a
region
which
was
favourable
for
speculation.
2.
Burden
of
proof
2.01
The
appellants
have
the
burden
of
showing
that
the
respondent's
assessments
are
incorrect.
This
burden
of
proof
arises
from
several
court
rulings,
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
Also
in
that
judgment,
the
Court
decided
that
the
facts
assumed
by
the
respondent
to
support
the
assessments
or
reassessments
are
also
presumed
to
be
true
until
proved
otherwise.
In
the
case
at
bar,
the
facts
presumed
by
the
respondent
are
described
in
subparagraphs
(a)
to
(h)
of
paragraph
12
of
the
reply
to
the
notice
of
appeal,
which
will
be
quoted
in
paragraph
3.01(2).
3.
Facts
3.01
Facts
alleged
by
the
appellant
3.01.1
The
facts
alleged
in
the
notice
of
appeal,
quoted
below,
relate
to
the
appellant
Michel
Beaudry.
The
facts
alleged
by
the
other
appellants
are
similar
to
those
for
Michel
Beaudry,
mutatis
mutandis.
The
facts
in
the
notice
of
appeal
are
admitted,
denied
or
ignored
by
the
respondent
in
its
reply
to
the
notice
of
appeal
(”
reply"):
1.
In
the
assessment
dated
June
12,
1987,
the
Minister
determined
the
federal
income
tax
to
be
paid
by
the
appellant
for
his
1983
taxation
year
to
be
$24,410.80.
The
basis
of
this
assessment
lies
in
the
Minister's
claim
that
the
gain
made
by
the
appellant
when
he
disposed
of
his
interest
in
a
lot
was
on
income
account
and
not
on
capital
account.
[Admitted
by
the
respondent,
except
for
the
date
of
the
reassessment
relating
to
1983
(parai,
reply).]
2.
As
for
the
assessments
for
the
1984
and
1985
taxation
years
they
relate
to
the
calculation
of
the
reserves
to
which,
according
to
the
Minister,
the
appellant
is
entitled,
computed
on
the
basis
that
the
gain
made
in
1983
by
the
appellant
was
on
income
account.
[Admitted
by
the
respondent
(para
2,
reply).]
3.
The
appellant
has
always
been
a
resident
of
Canada.
[Admitted
by
the
respondent
(para
2,
reply).]
4.
By
an
Agreement
signed
on
May
3,
1969,
the
appellant
became
a
member
of
a
partnership
the
sole
aim
of
which
was
.
.
.
.
to
purchase
a
lot
(hereinafter
referred
to
as
the
"lot")
belonging
to
Ken
Slater
and
located
on
Brickyard
Road
(Lucerne),
in
order
to
develop
it
so
as
to
realize
a
durable
asset
which
will
profit
all
the
parties."
[Denied
by
the
respondent
(para
3,
reply).]
5.
The
members
of
this
partnership
and
their
respective
shares
were:
|
Member
|
Partnership
share
|
|
Marcel
Beaudry
|
20%
|
|
Jeannine
Beaudry
D'Amour
|
20%
|
|
Florianne
Beaudry
Cardinal
|
20%
|
|
Michel
Beaudry
(the
appellant)
|
5%
|
|
Beaudry
Construction
(Quebec)
Ltée
|
35%
|
|
[Admitted
by
the
respondent
(para
4,
reply).]
|
|
6.
The
members
of
the
partnership
further
agreed
to
give
a
mandate
to
Beaudry
Construction
(Quebec)
Ltée
to
negotiate
the
purchase
of
the
lot
in
its
own
name.
Beaudry
Construction
(Quebec)
Ltée
further
undertook
[Translation]
.
.
.
to
transfer
to
each
of
the
partners
the
share
belonging
to
him
or
her,
at
such
time
as
it
may
deem
appropriate,
after
the
purchase,
but
at
the
latest
within
two
years
of
the
date
of
the
purchase
of
the
said
lot."
[Admitted
by
the
respondent
(para
5,
reply).]
7.
The
negotiations
to
acquire
the
lot
started
in
1969.
The
acquisition
was
concluded
in
1970.
The
purpose
of
the
acquisition,
for
the
members
of
the
partnership,
was
the
construction
on
the
site
of
a
shopping
centre
which
would
provide
investment
income
for
the
members.
[Ignored
by
the
respondent
(para
5,
reply).]
8.
The
reasons
why
the
members
of
the
partnership
believed
that
this
project
was
perfectly
feasible
and
economically
profitable
were,
inter
alia,
as
follows:
(a)
at
the
time
of
the
acquisition,
it
was
public
knowledge
that
the
city
of
Hull
intended
to
annex
part
of
the
territory
adjacent
to
the
lot
which
belonged
to
the
municipality
of
Lucerne,
the
effect
of
which
would
be
to
develop
the
area;
(b)
the
members
of
the
partnership
had
reasonable
grounds
to
believe
that
water
main
services
would
be
installed
and
a
major
road
system
would
be
developed
in
the
area,
which
would
have
the
effect
of
making
the
construction
of
a
shopping
centre
very
economically
advantageous;
(c)
even
if
the
city
of
Hull’s
annexation
plan
was
not
carried
out,
it
was
logical
for
the
members
of
the
partnership
to
think
that
the
municipality
of
Lucerne
would
undertake
development
in
the
area;
(d)
the
zoning,
which
was
commercial
and
institutional,
presented
no
difficulties
for
carrying
out
the
project.
[Admitted
by
the
respondent,
that
the
shopping
centre
project
was
profitable,
given
the
facts
set
out
in(a)
to
(d),
but
denied
that
the
appellants"
intention
was
to
build
such
a
shopping
centre
(para
6,
reply).]
9.
The
project
to
build
a
shopping
centre
could
not
be
carried
out,
for
the
following
reasons:
(a)
the
proposed
annexation
did
not
take
place,
and
gave
rise
to
very
lengthy
litigation
;
(b)
the
road
system
was
not
developed
in
this
area,
but
rather
in
another
area;
(c)
in
1971,
the
“Galeries
de
Hull”
was
developed.
[Admitted
by
the
respondent,
that
the
shopping
centre
could
not
be
developed
because
of
facts
(a),
(b)
and
(c),
but
denied
that
the
intention
was
to
try
to
carry
out
such
a
project
(para
7,
reply).]
10.
During
the
years
from
1969
to
1983,
that
is,
the
time
of
the
sale,
neither
the
appellant
nor
any
other
member
of
the
partnership
took
any
steps
whatsoever
to
sell
the
lot.
Thus:
(a)
no
advertising
was
done;
(b)
no
broker's
services
were
retained;
(c)
no
request
for
a
change
of
zoning
was
made;
(d)
none
of
the
members
tried
to
arrange
any
private
sale.
[Denied
by
the
respondent
(para
8,
reply).]
Tl.
In
1983,
the
appellant
sold
his
interest
in
the
lot
to
the
Société
de
Placements
et
d"
Hypothèques
de
l"Outaouais
Ltée
and
realized
a
gain
(if
we
do
not
take
into
account
the
rate
of
inflation
between
1969
and
1983).
The
appellant
argues
that
this
gain
is
on
capital
account
and
is
not
the
result
of
carrying
on
a
business
within
the
meaning
of
the
Act.
[The
respondent
admits
the
first
part,
to
the
end
of
the
parentheses,
but
denies
the
rest
(para
9,
reply).]
12.
In
assessing
the
appellant
for
his
taxation
year,
the
Minister
informed
the
appellant
or
the
members
of
the
partnership
that
the
gain
made
was
on
income
account
for
the
following
reasons:
(a)
as
to
the
facts:
(i)
one
of
the
co-owners
reported
the
sale
of
the
lot
as
income
from
a
business;
(ii)
no
documentary
evidence
was
provided
showing
that
a
shopping
centre
would
be
built;
(iii)
some
of
the
co-owners
are
involved
in
the
real
estate
market.
(b)
as
to
the
law:
the
decision
of
the
Federal
Court
of
Appeal
in
Hillsdale
Shopping
Centre
Ltd.
v.
M.N.R.,
35
D.T.C.
5261,
supported
the
Minister’s
position.
[The
respondent
admits
the
introduction
but
denies
subparagraphs
(a)
and
(b).]
13.
The
appellant
argues
that
the
reasons
relied
on
by
the
Minister
in
no
way
justify
the
assessment.
More
specifically,
(a)
the
fact
that
one
of
the
co-owners
reported
the
gain
as
on
income
account
(i)
is
not
relevant;
(ii)
is
erroneous
because
this
situation
has
since
been
corrected
and
the
transaction
reported
as
on
capital
account;
(iii)
the
Minister
himself
changed
his
mind,
initially
treating
the
gain
as
on
capital
account.
(b)
the
absence
of
documentary
evidence
(i)
is
entirely
understandable
since
the
project
was
aborted;
(ii)
the
explanations
that
are
verifiable
(with
municipal
and
provincial
authorities)
and
that
were
given
by
the
appellant
or
the
co-owners
are
complete
and
were
not
contradicted
in
any
way
in
terms
of
the
reason
for
the
acquisition
of
the
lot;
(iii)
in
an
appraisal
report
prepared
at
the
request
of
the
respondent,
the
department's
appraiser
himself
acknowledged
that
the
subject
[the
lot]
might
have
lent
itself
for
development
as
a
shopping
centre.
(c)
the
fact
that
some
of
the
co-owners
are
involved
in
the
real
estate
market
does
not
refute,
but
rather
confirms
that
the
appellant
and
the
other
members
were
in
a
position
to
assess
the
potential
of
this
site
for
a
shopping
centre.
[Denied
by
the
respondent,
para
13,
reply].
[Translation]
3.01.2
Facts
alleged
by
the
respondent
The
facts
cited
in
the
replies
to
the
notices
of
appeal
of
the
other
appellants
are
similar,
mutatis
mutandis,
to
those
concerning
Michel
Beaudry.
Paragraphs
1
to
11
reply
to
the
notice
of
appeal
and
are
substantially
as
described
under
the
paragraphs
of
the
notice
of
appeal
cited
above,
to
which
they
refer.
Subparagraphs
(a)
to
(h)
of
paragraph
12
read
as
follows:
12.
In
making
the
assessments,
the
Minister
relied
on
the
following
assumptions
of
fact,
inter
alia:
(a)
the
lot
in
question,
that
is,
lot
8A,
Range
III,
Chemin
de
la
Montagne,
Hull,
Quebec,
is
a
vacant
lot
of
26.473
acres
located
in
a
region
favourable
for
speculation;
[Admitted
by
the
appellant.]
(b)
all
the
members
of
the
partnership
have
engaged
in
large
scale
purchases
and
sales
of
lots
and
reported
income
from
the
business
of
selling
lots;
[Denied
by
the
appellant.]
(c)
all
the
members
of
the
partnership
have
experience
in
and
knowledge
of
the
real
estate
market;
[Admitted
by
the
appellant,
adding
that
if
someone
had
such
knowledge
he
or
she
would
have
purchased
not
for
speculation
but
for
investment.]
(d)
one
of
the
members
of
the
partnership,
Marcel
Beaudry,
reported
the
transaction
as
income
from
a
business;
[Admitted
by
the
appellant,
but
adding
that
this
was
not
relevant.
He
attempted
to
correct
his
position
but
the
respondent
refused.]
(e)
no
documentary
or
other
evidence
was
provided
showing
that
the
members
of
the
partnership
would
build
a
shopping
centre
on
the
lot;
[Admitted.
In
fact,
the
project
never
reached
that
stage
but
facts
to
be
placed
in
evidence
confirm
it.]
(f)
the
lot
was
sold
at
a
profit
to
a
corporation
in
which
one
of
the
members
of
the
partnership,
Marcel
Beaudry,
held
a
third
of
the
shares;
[Admitted
by
the
appellant.]
(g)
the
members
of
the
partnership
were
in
a
position,
given
their
financial
situation,
to
hold
the
lot
for
a
long
period,
knowing
that
it
would
be
resold
at
a
profit
eventually;
[Admitted
for
some
members,
denied
for
others.]
(h)
in
the
event
that
the
primary
intention
of
the
members
of
the
partnership
was
to
rent
the
lot,
they
had
at
least
the
secondary
intention
to
resell
it
at
a
profit.
[Denied
by
the
appellant.][Translation]
Facts
disclosed
by
the
witnesses
and
the
exhibits
filed
3.02
Testimony
of
Mr.
Jacques
Beaudry
3.02.1
Jacques
Beaudry,
61
years
of
age,
controlling
shareholder
of
the
appellant
Beaudry
Construction
(Quebec)
Ltée,
worked
in
the
construction
field
from
1961
to
1973.
In
1974,
he
left
construction.
He
is
semi-retired
but
he
continues
to
buy
and
sell
lots,
the
profits
from
which
are
reported
as
income.
3.02.2
Concerning
the
lot
in
issue,
located
on
Brickyard
Road
in
Lucerne,
the
witness
states
that
it
was
at
about
the
end
of
April
1969,
during
a
conversation
with
a
real
estate
agent,
that
he
learned
that
this
lot
was
for
sale.
He
knew
that
the
location
of
this
lot
was
strategic
for
a
shopping
centre.
He
then
spoke
about
it
with
his
sisters
and
brothers.
On
May
3,
1969,
a
partnership
arrangement
(Exhibit
A-1)
was
signed
with
his
brothers
and
sisters
and
Beaudry
Construction
(Quebec)
Ltée
to
form
a
partnership
in
order
to
purchase
the
said
lot,
owned
by
a
Mr.
Ken
Slater.
Paragraphs
1,
3
and
4
of
this
arrangement
(Exhibit
A-1)
are
substantially
as
described
in
paragraphs
4,
5
and
6
of
the
notice
of
appeal,
quoted
above
in
paragraph
3.01.1
of
this
judgment.
Paragraphs
2
and
5
of
Exhibit
A-1
read
as
follows:
2.
This
partnership
is
created
on
the
express
condition
that
the
purchase
may
take
place;
5.
Each
of
the
partners,
in
the
proportion
held
by
such
partner,
undertakes
to
identify
the
Company
for
all
moneys
spent
by
it,
for
the
purchase
of
the
lot,
at
the
latest
on
the
day
when
the
Company,
being
the
registered
owner
of
the
said
lot,
transfers
it
to
the
partners,
as
set
out
in
paragraph
3
above;
[Translation]
3.02.3
On
May
23,
1969,
a
contract
of
sale
under
private
seal
(Exhibit
A-2)
was
signed
by
Beaudry
Construction
(Quebec)
Ltée
(representing
the
partnership)
and
Mr.
Ken
Slater,
represented
by
the
company
Conrad
Sigouin
Limitée.
Payment
for
the
lot,
having
an
acreage
of
27.5
acres,
was
$100,000,
$18,000
of
which
was
in
cash
and
the
balance
payable
at
the
rate
of
$5,000
every
six
months,
with
an
interest
rate
of
five
per
cent
and
the
privilege
of
paying
the
balance
of
the
mortgage
at
any
time.
A
partial
discharge
would
be
given
for
one
acre
of
land
each
time
the
sum
of
$3,500
was
paid
on
the
principal
amount
and
upon
signature
of
the
notarized
contract
there
would
automatically
be
a
discharge
for
five
acres
of
land.
By
telegram
on
the
same
day,
May
23,
1969,
Mr.
Slater,
who
was
living
in
Florida,
confirmed
the
contract
A-2,
which
was
signed
as
follows:
"Ken
Slater
per
Conrad
Sigouin".
This
contract
under
private
seal
was
to
be
followed
by
a
notarized
contract.
Despite
the
contract
A-2,
Mr.
Slater
refused
to
sign
the
notarized
contract.
Following
legal
action
taken
against
him,
an
out
of
court
agreement
was
reached
(price
$105,000,
$20,000
cash)
and
a
notarized
contract
was
signed
before
the
notary
Guy
Lesage
on
March
23,
1970,
and
registered
the
following
April
3
(Exhibit
A-3).
The
discharge
terms
are
substantially
the
same
as
in
the
contract
A-2.
3.02.4
A
certificate
of
location
for
the
lot
prepared
by
Jean-Paul
Alary
and
dated
June
27,
1969,
was
filed
as
Exhibit
A-4.
3.02.5
No
soil
study
was
done.
According
to
the
witness,
such
a
study
is
required
only
when
a
very
tall
building
is
involved,
which
was
not
necessary
for
the
purposes
contemplated,
the
construction
of
a
shopping
centre,
particularly
since
the
lot
in
issue
was
not
swampy.
3.02.6
According
to
the
witness,
one
of
the
problems
the
appellants
had
to
deal
with
was
the
dispute
between
the
City
of
Hull,
which
wanted
to
annex
land
that
was
in
the
territorial
jurisdiction
of
Lucerne,
and
Lucerne,
which
opposed
the
annexation.
In
1968,
Hull
effected
an
annexation,
but
upon
the
appropriate
proceedings
being
taken
the
annexation
was
set
aside
in
July
1969.
There
was
a
strong
pressure
group
within
the
population
of
Hull.
According
to
the
witness,
throughout
this
dispute,
there
was
a
scale
model
in
the
lobby
of
the
Hull
city
hall
presuming
the
annexation
and
showing
roads
joining
or
extending
the
existing
arteries,
as
well
as
the
zoning
of
the
land
annexed.
This
scale
model,
the
basis
for
a
number
of
projects,
was
examined
by
numerous
people,
including
the
witness.
In
July
1970,
proceedings
for
annexing
872
acres
of
land,
including
the
lot
in
issue,
were
started.
They
were
confirmed
in
December
1970.
An
appeal
was
filed
in
the
Superior
Court
and
dismissed
in
February
1974.
3.02.7
During
the
second
half
of
1969
or
in
the
spring
of
1970,
the
witness
met
with
the
Lucerne
city
planner.
The
planner's
intention
was
that
the
lot
in
issue
should
become
a
commercially
zoned
lot.
The
planner
then
drew
a
very
general
plan
(Exhibit
A-5)
of
the
lots
located
between
Aylmer
Road
and
the
National
Capital
Commission
(NCC)
road.
These
two
roads
are
connected
by
the
road
previously
called
Brickyard
Road,
which
later
on
became
Chemin
de
la
Montagne.
Chemin
de
la
Montagne
joined
Aylmer
Road
at
a
roundabout.
At
the
meeting
point
of
the
NCC
road
and
Chemin
de
la
Montagne,
to
the
right
of
the
latter,
there
is
written
on
part
of
a
lot:
"High-Rise".
Below,
still
along
Chemin
de
la
Montagne,
on
another
lot
(the
lot
in
issue),
is
written:
[Translation]
"Shopping
centre".
On
a
dozen
other
parts
of
lots,
the
plan
Exhibit
A-5
shows
descriptions
such
as
[Translation]
"Multiples
and
High
Rise",
“Luxury
homes”,
"Triplex—doubles—single
family",
and
so
on,
along
with
names
(undoubtedly
the
owners
of
businesses)
such
as
"Vipond","
Brunet”,
"Lock",
"Moore",
“Bourque”,
and
so
on.
There
is
even
a
provision
for
widening
Chemin
de
la
Montagne
to
a
width
of
80
feet.
According
to
the
witness,
this
meeting
with
the
Lucerne
city
planner
was
to
him
a
certain
guarantee
that
if
the
annexation
was
not
carried
out
by
Hull
the
plan
to
build
a
shopping
centre
could
nonetheless
be
carried
out
by
Lucerne.
3.02.8
The
witness
also
met
with
Mr.
Red
St-Cyr
of
the
City
of
Hull,
a
Mr.
Lambert,
who
was
an
official
with
the
city
planning
and
appraisal
section,
and
Mr.
Martin,
an
engineer.
They
all
tell
him
that
the
lot
in
issue
is
a
good
location
for
building
a
shopping
centre.
Mr.
Gilles
Beaudry,
a
planner
with
the
City
of
Hull,
shares
their
opinion,
primarily
because
the
said
lot
is
located
near
the
intersection
of
two
arteries.
On
an
official
plan
(Exhibit
A-6)
issued
by
the
City
of
Hull
in
February
1971,
we
see
that
the
zoning
of
the
lot
in
issue
is
described
as
C-3,
a
commercial
lot
for
which
a
shopping
centre
is
a
permitted
use
(Section
72-17
of
zoning
by-law
1198,
Exhibit
R-3).
According
to
the
witness,
the
plan
(Exhibit
A-6)
shows
that
traffic
could
come
not
only
by
the
NCC
road
(which
joins
the
bridge
leading
to
Ottawa)
but
also
from
the
Champlain
bridge
which
joins
Highway
8,
that
is,
the
Aylmer
Road,
and
from
Laramée
Blvd.,
which
joins
the
NCC
road
(if
I
understand
the
witness's
testimony).
An
important
element
which
came
into
play
in
favour
of
the
expropriation
was
that
Lucerne
had
no
sewer
and
water
main
system
while
Hull
did,
and
servicing
from
the
latter
would
be
relatively
easier.
3.02.9
The
witness
explained
that
the
only
shopping
centre
in
Hull
at
the
time
the
lot
in
issue
was
purchased
was
Place
Cartier,
which
has
since
become
a
mall
but
which
was
then
only
half
the
size
it
is
now.
This
would
in
fact
have
been
the
only
competitor.
3.02.10
An
important
event
occurred
in
1970—the
provincial
election—the
consequence
of
which
was
the
high
level
decision
not
to
build
the
Laramee—
NCC
road
system.
In
the
meantime,
the
appeal
case
concerning
the
expropriation
had
still
not
been
heard.
Also
in
the
meantime,
a
large
shopping
centre,
the
Galeries
de
Hull,
was
built.
As
well,
Montcalm
and
St-Joseph
Streets
were
widened
to
five
lanes
of
traffic,
thus
opening
up
a
large
commercial
artery.
3.02.11
In
1969,
at
the
time
of
the
purchase,
the
witness
foresaw
that
all
the
litigious
matters
between
Hull
and
Lucerne
would
be
settled
within
a
reasonable
time,
and
so
the
shopping
centre
could
be
completed
in
two
or
three
years.
There
was
no
problem
with
financial
capacity.
The
partners
could
easily
provide
20
to
25%
of
the
cash.
With
long-term
leases,
it
was
easy
to
obtain
long-term
loans.
According
to
the
witness,
once
the
problems
with
the
zoning,
the
roads
and
the
expropriation
were
settled,
it
would
not
have
been
difficult
to
find
first
class
long-term
leases.
From
the
technical
point
of
view
of
the
construction,
the
witness
foresaw
no
problem.
He
had
good
knowledge
of
the
rules
including,
inter
alia,
the
rule
that
required
four
times
more
area
for
parking
than
for
the
shopping
centre
buildings.
He
had
the
appropriate
lot.
3.02.12
However,
a
problem
arose
when
the
partners
foresaw
that
Chemin
de
la
Montagne
might
be
widened.
The
partners
did
not
want
it
to
be
widened
on
the
side
of
the
lot
in
issue,
located
on
the
east
side
of
the
road.
That
might
have
taken
away
from
them
a
substantial
strip
of
land,
which
could
adversely
affect
the
construction
of
the
shopping
centre.
Thus,
in
order
to
prevent
any
widening
to
the
east,
they
thought
of
the
following
scheme:
sell
two
lots
with
an
acreage
of
110
by
60
feet
to
purchasers
who
were
aware
of
the
stratagem
and
have
a
plan
of
subdivision
for
the
lot
in
issue
drawn
up
for
the
construction
of
residential
houses.
Thus
when
an
expropriation
was
to
take
place,
the
cost
to
widen
the
east
side
would
be
too
high
and
the
west
side
would
be
expropriated
instead,
leaving
the
field
open
for
the
construction
of
the
shopping
centre.
Clearly,
the
stratagem
was
used
to
establish
the
highest
possible
value
for
the
lots.
Thus
on
April
28,
1970,
two
lots
were
sold,
one
to
Germain
Pigeon
for
$6,000
(Exhibit
A-7)
and
the
other
to
Robert
Poirier
for
$7,000
(Exhibit
A-8).
Contract
A-7
was
registered
on
June
8,
1970
as
No.
189-957
and
contract
A-8
on
June
22,
1970
as
No.
190-266.
The
certificate
of
location
for
the
lots
sold
was
prepared
on
April
30,
1970
by
Jean-Paul
Alary,
land
surveyor
(Exhibit
A-9).
At
the
request
of
the
witness,
Mr.
Alary
also
prepared
the
plan
of
subdivision
of
the
lot
in
issue
into
lots
for
residential
houses.
It
should
be
noted
that
in
1970
the
lot
in
issue
was
zoned
residential
by
the
City
of
Lucerne.
On
August
1,
1972,
the
two
lots
were
taken
back
by
the
appellants
by
notarized
contracts,
Mr.
Pigeon's
(Exhibit
A-11)
and
Mr.
Poirier's
(Exhibit
A-12).
Both
were
registered
on
the
same
day,
August
9,
1972,
as
Nos.
209-347
and
209-348
respectively.
According
to
the
witness,
the
contracts
of
April
28,
1970
and
August
1,1972
were
concluded
and
signed
on
the
same
day,
April
28,
1970,
except
that
for
the
contract
of
August
1,1972
a
blank
space
was
left
for
the
appropriate
date
which
was
later
determined
to
be
August
1,1972.
3.02.13
At
the
beginning
of
March
1972
a
real
offer
to
purchase
was
made
by
Shell
Canada
Ltd.
through
the
bank,
to
purchase
an
acre
of
the
lot
in
issue
for
$75,000.
This
offer
was
flatly
refused.
Another
offer
was
made
on
March
15,
1972,
this
time
to
rent
it
for
$580.83
per
month,
and
then
an
offer
of
$635
per
month
was
made.
This
request
to
rent
was
also
refused,
because
the
service
station
would
destroy
access
to
the
parking
entrance.
It
could
have
jeopardized
the
construction
of
the
shopping
centre.
The
offer
to
rent
by
Shell
Canada
Ltd.,
dated
March
15,
1972,
was
filed
as
Exhibit
A-13.
However,
the
offer
is
made
through
Gerard
J.
Bourque.
The
first
payment
was
to
start
on
May
1,
1972,
and
the
offer
was
for
the
rental
of
42,000
square
feet
of
a
lot
with
200
feet
frontage
on
Chemin
de
la
Montagne
and
210
feet
frontage
on
Radmore
St.
A
more
detailed
lease
contract
(Exhibit
A-14)
had
been
prepared
but
was
ultimately
not
executed
because
of
the
appellants"
negative
decision.
3.02.14
According
to
the
witness,
as
a
result
of
the
decisions
not
to
complete
the
Laramée
and
NCC
road
system,
and
as
a
result
of
the
construction
of
the
Galeries
de
Hull
shopping
centre,
the
appellants
found
there
was
no
possibility
of
carrying
out
their
project
unless
there
were
exceptional
circumstances
of
which
they
were
not
aware.
However,
according
to
the
witness,
they
did
not
put
the
property
up
for
sale
or
advertise
it
or
try
by
other
means
to
recruit
purchasers.
3.02.15
In
November
1983
Marcel
Beaudry,
one
of
the
members
of
the
partnership
to
which
the
appellants
belong,
made
an
offer
to
purchase
in
the
name
of
the
Société
de
placements
et
d"
hypothèques
de
I”Outaouais
Ltée,
of
which
he
was
also
a
member.
The
offer
to
purchase
was
for
$500,000,
consisting
of
$50,000
cash,
$50,000
on
May
1,
1984,
$50,000
on
October
1,
1984,
and
$350,000
on
May
1,
1985,
at
a
ten
per
cent
rate
of
interest.
The
notarized
contract
(Exhibit
A-15)
was
signed
on
December
12,
1983.
3.02.16
The
witness
Jacques
Beaudry's
experience
in
the
field
of
buying
land
in
order
to
subdivide
it
and
build
residential
houses,
apartment
buildings
or
restaurants
and
selling
them
within
the
year
or
two
years
following,
was
demonstrated
at
length
during
the
hearing.
He
has
also
built
shopping
centres.
Until
1965,
Jacques
Beaudry
carried
on
business
as
the
company
Beaudry
Construction
Ltée,
and
from
1966,
as
Beaudry
Construction
(Quebec)
Ltée.
From
1961
to
1988,
he
was
involved
in
13
transactions
of
this
nature.
Thus
from
1961
to
1972,
he
built
1,800
residential
houses
in
Touraine
after
buying
the
appropriate
land.
The
activities
of
the
company
were
carried
out
primarily
in
Hull
but
also
in
Ottawa,
Gatineau,
Orleans
(Ontario),
Rivermead,
and
so
on.
The
profits
from
all
these
transactions,
except
one,
were
reported
as
income
from
a
business
on
income
tax
returns.
3.02.17
The
witness
was
also
cross-examined
at
length
by
solicitor
for
the
respondent
on
all
these
transactions,
demonstrating
his
experience
in
buying
and
selling
land
and
in
general
construction.
According
to
the
witness,
it
was
because
of
this
experience
that
it
is
unthinkable
that
he
would
have
wanted
to
buy
the
lot
in
issue
in
order
to
hold
it
and
sell
it
14
years
later.
It
is
not
economical.
[Translation]
“If
a
speculator
wanted
to
hold
his
land
for
such
a
long
time,
he
would
go
bankrupt”,
he
said.
“While
the
value
of
a
lot
increases,
on
the
one
hand",
he
added,"on
the
other
hand,
the
buying
power
of
money
decreases."
3.02.18
With
respect
to
the
lot
in
issue,
the
witness
states
that
he
had
known
it
well
and
for
a
long
time.
Indeed
for
several
years,
he
had
taken
Chemin
de
la
Montagne
to
go
to
play
golf.
In
1968
and
1969,
since
he
knew
that
the
City
of
Hull
wanted
to
expropriate
this
part,
he
was
keeping
an
eye
on
it.
[Translation]
"When
there
is
development",
he
said,
"people
in
the
business
keep
an
eye
on
it".
During
the
same
period,
and
in
the
same
area,
he
could
have
bought
another
lot,
neighbouring
the
lot
in
issue,
belonging
to
a
person
named
Brunet.
The
lot
in
issue
was
more
interesting,
he
said,
because
it
was
located
closer
to
the
intersection
of
Chemin
de
la
Montagne
and
what
became
Laramée
Blvd.
The
location
of
a
shopping
centre
is
very
important
in
attracting
customers.
If
he
had
wanted
to
buy
a
lot
to
build
residential
houses,
he
said,
he
would
have
bought
farther
to
the
south.
Because
he
believed
that
the
lot
in
issue
was
a
good
investment,
he
talked
to
his
brothers
and
sisters
about
it.
All
indications
were
that
the
situation
was
favourable
for
a
regional
shopping
centre.
[Translation]
"The
reason
I
wanted
to
involve
my
brothers
and
sisters",
he
said,
"was
because
I
was
optimistic
about
the
success.
I
would
certainly
not
have
wanted
to
deceive
them.”
3.02.19
Continuing
on
cross-examination,
the
witness
states
that
he
went
to
meet
with
the
qualified
people
in
both
the
City
of
Lucerne
and
the
City
of
Hull,
before
the
purchase
of
the
lot,
that
is,
before
the
notarized
contract
was
signed
in
March
1970.
He
talked
to
them
about
the
lot
as
a
future
shopping
centre
and
they
were
in
agreement.
They
even
talked
about
widening
Chemin
de
la
Montagne
to
80
feet.
Exhibit
A-5
also
mentions
this.
The
City
of
Lucerne
thought
that
it
could
legally
force
the
City
of
Hull
to
provide
water.
3.02.20
Again
on
cross-examination,
the
witness
states
that
with
respect
to
the
offer
by
Shell
Canada
Ltd.,
gasoline
companies
had
a
tendency
to
move
away
from
the
downtown
and
establish
in
a
place
where
they
could
add
a
car
wash
service.
He
reiterates
that
with
respect
to
the
offer
to
purchase
and
then
the
offer
to
rent
by
Shell
Canada
Ltd.,
he
believed,
rightly
or
wrongly,
that
the
service
station
and
the
car
wash
building
would
have
jeopardized
the
entrance
to
the
shopping
centre,
and
for
this
reason
the
answer
was
negative.
3.02.21
With
respect
to
the
stratagem
used
(Exhibits
A-7
to
A-12)
to
have
Chemin
de
la
Montagne
widened
toward
the
east,
the
witness
substantially
repeated
what
he
had
said
on
direct
examination
(3.02.12).
He
added,
however,
that
the
plan
of
subdivision
A-9
had
never
been
submitted
to
the
city,
nor
was
it
their
intention
to
build
residential
houses
there.
3.02.22
The
witness
maintains
that
in
1983,
at
the
time
of
the
sale,
if
he
had
been
on
his
own
he
would
probably
have
kept
the
lot.
However,
because
of
his
sisters
who
had
reached
a
certain
age
and
who
did
not
have
the
same
financial
resources
as
he,
he
agreed
to
the
others'
wish
to
sell.
He
did
not
consider
buying
his
sisters'
share.
He
had
no
replacement
plan
in
the
immediate
future.
If
he
had
wanted
to
speculate,
he
would
have
gone
to
Hull
city
hall
to
have
the
plan
of
subdivision
A-9
approved.
With
respect
to
building
a
shopping
centre,
in
1983
there
was
no
longer
any
question
of
this.
In
addition
to
the
Galeries
de
Hull,
built
in
1972,
there
was
Les
Promenades
de
I
Outaouais,
built
in
Gatineau
in
1974
and
1975.
There
was
also
Place
du
Centre,
built
in
Hull
in
1975
and
1976.
In
Hull,
there
was
still
Place
Cartier,
and
Montcalm
St
and
St-Joseph
Blvd
which
had
been
widened
into
a
commercial
artery.
3.02.23
The
witness
maintains
that
in
1969,
at
the
time
the
lot
was
purchased,
he
did
not
look
for
a
potential
purchaser.
That
did
not
come
into
his
head.
What
he
had
in
mind
was
to
build
a
shopping
centre.
3.03
Testimony
of
Michel
Beaudry
3.03.1
Michel
Beaudry
had
been
admitted
to
the
Bar
of
Quebec
two
years
before
his
brother
Jacques
told
him
of
the
opportunity
of
buying
a
lot
with
a
view
to
building
a
shopping
centre
in
partnership
with
his
brothers
and
sisters.
He
agreed
to
contribute
five
per
cent.
In
fact,
the
money
was
provided
by
his
brother
Jacques
in
the
immediate
term.
He
repaid
it
to
him
over
the
following
years.
Neither
he
nor
his
sisters
had
pension
funds,
and
so
this
investment
was
to
provide
a
substitute.
He
knew
that
his
brother
Jacques
was
competent
in
the
field
of
land
location
and
in
building
a
shopping
centre
in
Touraine.
He
had
confidence
in
him.
He
also
knew
of
the
City
of
Hull's
plan
to
annex
lands
belonging
to
Lucerne
and
therefore
believed
the
project
to
be
sensible.
In
about
1975
and
1976,
when
he
realized
that
the
project
would
not
be
carried
out,
then
the
hope
for
the
success
of
the
project
took
on
less
importance.
3.03.2
On
December
10,
1985,
the
witness
and
his
partners
received
an
appraisal
report
of
the
lot
in
issue
(Exhibit
A-16)
which
was
appraised
on
December
31,
1971
by
the
respondent's
appraiser,
Mr.
Richard
Cyr.
On
that
date
the
lot
was
appraised
at
$132,550.
The
witness
then
received
from
the
respondent
a
letter
dated
December
17,
1985
(Exhibit
A-17)
informing
him
that
his
share
of
the
cost
base
of
the
lot
would
decrease
from
$17,715,
as
reported,
to
$11,340,
explained
as
follows:
|
Value
on
31/12/71
|
$132,550
|
|
Other
adjustments
|
94,302
|
|
$226,802
|
|
5%
|
$11,340
|
3.03.3
According
to
these
documents,
Exhibits
A-16
and
A-17,
we
see
that
the
respondent
then
treated
the
profit
as
a
capital
gain.
By
letter
dated
February
27,1986
(Exhibit
A-18),
the
witness
was
informed
that
the
respondent
now
considered
the
profit
to
be
income
from
a
business.
The
witness's
taxable
income
on
this
profit
is
now
broken
down
as
follows:
|
Sale
price
|
$500,000
|
|
Adjusted
cost
base
|
$199,301
|
|
Taxable
income
|
$300,699
|
|
Witness's
5%
share
|
$
15,035
|
By
letter
dated
March
17,
1986
(Exhibit
A-19),
the
witness
advised
that
he
was
disputing
the
respondent's
new
decision.
Moreover,
independently
of
this
dispute,
he
advised
that
instead
of
the
figure
of
$199,301
as
the
adjusted
cost
base,
as
set
out
in
the
letter
of
February
27,
1986
(Exhibit
A-18),
the
figure
must
be
$354,300.97.
This
decision
was
made
following
a
meeting
with
the
Revenue
Canada
appraiser.
By
letter
dated
April
10,
1986
(Exhibit
A-20),
the
witness
advised
the
respondent
that
attempts
were
made
to
try
to
find
the
documents
requested
concerning
the
purchase
of
the
lot.
By
letter
dated
April
16,
1986
(Exhibit
A-21),
the
respondent
advised
that
he
admitted
the
adjusted
cost
base
of
$354,300.97.
Moreover,
he
listed
the
reasons
why
he
considered
the
profit
to
be
income
from
a
business:
—
One
of
the
co-owners
reported
the
sale
of
the
lot
as
income
from
a
business.
—
No
documentary
or
other
evidence
has
been
provided
to
us
to
date
to
indicate
that
a
shopping
centre
would
be
built
on
your
lot
at
the
time
of
acquisition.
—
Some
of
the
co-owners
are
involved
in
the
real
estate
market.
[Translation]
3.03.4
The
witness's
experience
in
the
real
estate
field
may
be
summarized
as
follows:
—
In
1969,
in
addition
to
becoming
a
member
of
the
partnership
which
acquired
the
lot
in
issue,
he
buys
his
personal
residence.
—
In
August
1973,
he
participates
in
the
Terre
Charette
project
with
Beaudry
Construction
(Quebec)
Ltée.
His
share
is
five
per
cent.
He
purchases
and
resells
three
or
four
lots.
—
In
1974,
he
has
a
30
per
cent
share
in
another
company,
Laudru
Inc,
and
has
varying
percentage
shares
in
six
or
seven
other
companies.
These
involve
purchases
and
sales
of
lots
in
Gatineau
and
Templeton.
—
In
1975,
he
has
25
per
cent
of
the
shares
of
Licousi
Inc.
This
involves
lots
on
St-Joseph
Blvd.
in
Hull.
—
In
1976,
he
and
two
partners
buy
200
acres
of
land
in
Lac
Ste
Marie,
which
they
resell.
—
All
the
profits
from
these
transactions
are
reported
as
income
from
a
business.
—
In
1988,
he
also
participates
with
his
brother
Jacques
and
other
people
in
the
purchase
of
the
Rivermead
estate.
3.03.5
On
cross-examination,
Michel
Beaudry
stated
that
lots
were
in
such
demand
that
they
sometimes
resold
them
even
before
having
the
time
to
subdivide.
3.03.6
According
to
the
witness,
it
was
he
who
wrote
the
contract
A-1,
but
not
Exhibits
A-2,
A-3
and
R-3.
3.03.7
The
witness
confirmed
that
Exhibits
A-7
to
A-12
were
used
only
as
a
strategem
to
force
the
expropriation
of
the
west
side,
if
it
was
to
occur.
3.03.8
The
offer
to
purchase
was
accepted
in
1983
largely
because
of
the
fact
that
the
witness's
two
sisters
were
retired
or
on
the
point
of
retiring.
Moreover,
since
the
payments
provided
for
in
the
sale
were
to
take
place
within
two
years
following
the
signing
of
the
contract
(3.02.15),
this
would
allow
the
two
sisters
to
enjoy
their
share
while
they
could.
3.04
Testimony
of
Mr.
Richard
Cyr
3.04.1
Mr.
Richard
Cyr
has
been
a
real
estate
appraiser
since
1975.
Until
1985,
he
worked
for
the
respondent.
Since
then
he
has
been
a
member
of
the
firm
Royal
Lepage
Real
Estate
Services
Ltd.
and
a
member
of
the
Canadian
Institute
of
Appraisers.
He
has
often
testified
as
an
expert
before
this
Court
and
before
the
Supreme
Court
of
Ontario.
3.04.2
Mr.
Cyr
is
the
author
of
the
appraisal
report
A-16
and
the
more
detailed
report
updated
in
1988
(Exhibit
R-6).
With
respect
to
the
detailed
history
of
the
lot
in
issue,
the
following
facts
appear
from
Exhibits
A-16
and
R-6:
(a)
On
August
17,
1966,
the
City
of
Hull
made
a
Proposal
to
the
Municipality
of
Lucerne
to
annex
about
874
acres
of
land
surrounding
Chemin
de
la
Montagne.
This
proposal
was
rejected.
(b)
In
January
1968,
by
by-law
No.
982,
the
City
of
Hull
annexed
2141
acres
of
land.
However,
this
by-law
was
found
to
be
illegal
and
was
set
aside
by
a
judgment
of
the
Provincial
Court
in
July
1969.
(c)
On
July
20,
1970,
the
City
of
Hull
approved
by-law
No.
1121
asking
the
Ministry
of
Municipal
Affairs
to
annex
the
land,
having
an
acreage
of
872
acres.
The
Ministry
approved
the
transfer
on
December
9,
1970.
On
December
19,
1970,
the
Official
Gazette
published
the
transfer.
(d)
On
October
29,
1971,
the
Municipality
of
Lucerne
filed
a
notice
of
objection
to
the
transfer
in
Superior
Court.
On
February
21,
1974,
the
Superior
Court
dismissed
the
notice
of
objection.
(e)
On
December
21,
1971,
by-law
No.
1198
of
the
City
of
Hull
approved
the
new
zoning
of
the
lot
transferred,
and
thus
of
the
lot
in
issue:
25
per
cent
institutional
and
75
per
cent
commercial.
At
page
19
of
the
report
R-6,
Mr.
Cyr
concluded
the
historical
review
of
the
annexation
as
follows:
With
the
continuous
effort
by
the
City
of
Hull
since
1966
to
expand
it's
[sic]
territory
and
the
lack
of
development
potential
within
its
boundaries,
we
can
conclude
that,
as
of
the
latter
half
of
the
1960s,
most
investors
would
have
considered
the
probability
of
annexation
as
being
imminent.
3.04.3
Following
the
study
of
the
best
use
which
could
be
made
of
the
lot
in
issue
in
1970
(Exhibit
R-6,
p.
79),
Mr.
Cyr
gives
the
following
summary:
Based
on
the
foregoing,
the
appraiser
has
formed
the
opinion
that
the
optimum
use
of
the
subject
property
as
of
March
1970
is
that
of
a"
holding
use".
Such
interim
use
will
continue
until
such
time
as
all
forces
which
come
to
bear
on
highest
and
best
use
dictate
a
definitive
productive
use.
At
page
18
of
Exhibit
A-16,
Mr.
Cyr
makes
the
following
comments
concerning
zoning:
Because
of
the
combination
of
its
size
and
zoning
designation,
the
subject
might
have
lent
itself
for
development
as
a
shopping
centre.
Unfortunately,
because
of
the
lack
of
municipal
sewer
services
and
the
advent
of
"Les
Galeries
de
Hull”
in
late
1971
early
1972,
the
development
became
unfeasible.
4,
Act—case
law—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
the
case
at
bar
are
sections
3,
9,
12
and
20.
They
will
be
quoted
if
necessary
during
the
analysis.
4.02
Case
Law
Each
solicitor
filed
a
voluminous
book
of
authorities.
The
main
cases
to
which
they
referred
are
the
following:
A.
The
various
tests
1.
Hillsdale
Shopping
Centre
Ltd.
v.
M.N.R.,
[1981]
C.T.C.
322,
81
D.T.C.
5261,
(F.C.A.);
2.
M.N.R.
v.
Taylor,
[1956]
C.T.C.
189,
56
D.T.C.
1125
(Ex.
Ct.);
3.
Irrigation
Industries
Ltd.
v.
M.N.R.,
[1962]
S.C.R.
346,
[1962]
C.T.C.
215,
62
D.T.C.
1131;
4.
Cragg
v.
M.N.R.,
[1951]
C.T.C.
322,
52
D.T.C.
1004
(Ex.
Ct.);
5.
Walton
v.
The
Queen,
[1982]
C.T.C.
228,
82
D.T.C.
6220
(F.C.T.D.);
6.
Gall
v.
M.N.R.,
[1979]
C.T.C.
2778,
79
D.T.C.
658
(I.T.C.);
7.
Mastino
Developments
Ltd.
v.
The
Queen,
[1975]
C.T.C.
529,
75
D.T.C.
5353
(F.C.T.D.);
8.
McDonald
v.
The
Queen,
[1974]
C.T.C.
838,
74
D.T.C.
6645
(F.C.A.);
9.
Birmount
Holdings
Ltd.
v.
The
Queen,
[1978]
C.T.C.
320,
78
D.T.C.
6215
(F.C.T.D.);
10.
Program
Properties
Ltd.
v.
The
Queen,
[1978]
C.T.C.
320,
78
D.T.C.
6215
(F.C.T.D.);
11.
Dalfen
v.
M.N.R.,
[1981]
C.T.C.
2028,
81
D.T.C.
37
(I.T.C.);
12.
Marois
v.
The
Queen,
[1983]
C.T.C.
304,
83
D.T.C.
5344
(F.C.T.D.);
[1986]
2
C.T.C.
45
(F.C.A.);
13.
Happy
Valley
Farms
Ltd.
v.
The
Queen,
[1986]
2
C.T.C.
259,
86
D.T.C.
6421
(F.C.T.D.);
B.
Secondary
intention
14.
Regal
Heights
Ltd.
v.
M.N.R.,
[1960]
S.C.R.
902,
[1960]
C.T.C.
384,
60
D.T.C.
1270;
15.
Racine,
Demers
et
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5106
(Ex.
Ct.);
16.
Hiwako
Investments
Ltd.
v.
The
Queen,
[1974]
C.T.C.
542,
74
D.T.C.
6360,
(F.C.T.D.);
[1978]
C.T.C.
378,
78
D.T.C.
6281
(F.C.A.);
17.
Warn
ford
Court
[Canada)
Ltd.
v.
M.N.R.,
[1964]
C.T.C.
175,
64
D.T.C.
5103
(Ex.
Ct.);
18.
Desrochers
Development
Corporation
v.
The
Queen,
[1987]
2
C.T.C.
118,
87
D.T.C.
5363
(F.C.T.D.);
19.
Crystal
Glass
Canada
Ltd.
v.
The
Queen,
[1989]
1
C.T.C.
330,
89
D.T.C.
5143
(F.C.A.).
4.03
Analysis
4.03.1
After
studying
the
main
tests
set
out
in
the
case
law
with
regard
to
the
above
evidence
to
determine
whether
the
profit
from
the
transaction
in
issue
is
a
capital
gain
or
income
from
a
business,
the
Court
reaches
an
initial
conclusion
which
may
be
summarized
as
the
question
of
whether
or
not
there
existed
a
primary
intention
to
build
a
shopping
centre
and
secondly,
if
the
primary
intention
is
real,
whether
or
not
there
existed
a
secondary
intention
to
resell
the
lot
in
issue.
4.03.2
Indeed,
the
other
tests
add
little
complication
with
respect
to
the
evidence.
4.03.2(1)
Nature
of
the
property
sold
Since
the
subject
matter
of
the
sale
is
a
piece
of
real
estate,
it
is
by
its
nature
property
subject
to
investment
as
opposed
to
a
consumer
good
the
nature
of
which
is
to
be
consumed
or
used
by
the
purchaser.
The
reason
for
resale
of
such
a
property
is
that
the
initial
purchaser
wanted
to
engage
in
a
commercial
transaction
with
respect
to
it.
4.03.2(2)
Conduct
of
the
appellants
The
case
at
bar
involves
a
26-acre
lot.
Although
some
of
the
appellants,
according
to
the
evidence,
acted
as
real
estate
agents
(3.02.16,
3.03.4)
both
before
and
after
the
purchase
of
the
lot
in
issue,
that
does
not
necessarily
lead
to
the
conclusion
that
the
appellants’
intention
at
the
time
of
the
purchase
was
resale.
The
lot
is
still,
by
its
nature,
an
ideal
subject
for
investment
and
each
case
turns
on
its
facts.
4.03.2(3)
Period
of
possession
The
period
of
possession
of
the
lot
in
issue
was
14
years
(1969
to
1983).
Some
taxpayers
who
have
sold
a
lot
they
owned
for
20
or
30
years
have
had
their
profit
from
the
transaction
considered
to
be
income
from
a
business,
but
on
this
point
as
well
each
case
turns
on
its
facts.
Moreover,
the
Court
shares
Jacques
Beaudry's
opinion,
which
is
that
if
a
real
estate
promoter
buys
a
lot
with
the
intention
of
reselling
it
after
14
years,
he
will
not
make
a
financial
success
of
his
business,
even
if
we
consider
only
the
decreased
value
of
the
money.
On
this
point,
the
respondent
agrees
with
the
appellants,
by
its
partial
admission
of
paragraph
11
of
the
notice
of
appeal,
quoted
in
paragraph
3.01.1
of
this
judgment.
4.03.2(4)
Improvements
made
to
the
property
After
the
purchase,
and
during
the
period
of
possession
of
the
lot
in
issue,
there
were
no
improvements
made
or
work
of
any
sort
done
which
might
have
made
the
lot
easier
to
resell.
4.03.2(5)
Circumstances
surrounding
the
sale
of
the
property
The
circumstances
surrounding
the
sale
do
not,
at
first
glance,
seem
to
be
favourable
to
the
taxpayer.
Indeed,
Marcel
Beaudry
is
one
of
the
shareholders
of
the
Société
de
placements
et
d'hypothèques
de
l'Outaouais
Ltée,
as
well
as
being
a
member
of
the
partnership
which
purchased
the
lot
in
issue
(3.02.15).
However,
if
we
study
the
offer
made
and
the
specific
circumstances
of
the
retirement
age
of
the
appellants
Florianne
Cardinal
and
Jeannine
D'Amour,
who
were
the
people
most
interested
in
selling,
their
financial
circumstances
which
were
less
advantageous
than
the
others',
and
the
payment
of
the
sale
price
of
$500,000
over
a
period
of
less
than
two
years
(3.02.15,
3.02.22,
3.03.8),
all
these
factors
show,
in
my
opinion,
that
the
circumstances
surrounding
the
sale
cannot
prejudice
the
appellants'
thesis.
Moreover,
at
no
time
was
the
lot
really
put
up
for
sale,
so
that
the
strategem
used
in
1970
in
preparation
for
having
Chemin
de
la
Montagne
widened
on
the
west
side,
in
the
event
that
this
road
was
widened
(3.02.12,
3.03.7),
is
to
all
appearances
obviated.
4.03.3
Intention
4.03.3(1)
Even
if
all
the
tests
referred
to
above
favour
the
appellants'
thesis,
is
this
sufficient
to
allow
us
to
conclude
on
a
preponderance
of
the
evidence
that
the
primary
intention
was
to
build
a
shopping
centre
on
the
lot
in
issue?
The
arguments
to
the
contrary
alleged
by
the
respondent
are
of
great
weight,
even
though
he
admits
that
the
shopping
centre
plan
was
profitable,
because
of
facts
set
out
in
paragraph
8
of
the
notice
of
appeal
(3.01.1:
8),
and
even
though
he
admits
that
the
project
could
not
be
carried
out
because
of
the
facts
set
out
in
paragraph
9
of
the
notice
of
appeal
(3.01.1:
9).
These
admissions
are
further
confirmed
by
the
conclusions
of
the
respondent's
appraiser
(3.04.3).
Solicitor
for
the
respondent
maintains
that
there
is
no
concrete
evidence
to
confirm
the
testimonial
evidence
as
to
the
intention
to
build
a
shopping
centre
at
the
time
of
the
purchase
of
the
lot
in
issue.
He
alleges
that
there
is
no
evidence
that
a
plan
for
the
shopping
centre
was
made,
no
evidence
of
a
letter
of
intention
from
a
so-called
“three
star"
store
stating
it
was
interested
in
establishing
in
the
future
shopping
centre,
no
evidence
that
there
was
even
any
approach
made
to
such
a
store
or
bank,
and
so
on.
4.03.3(2)
Solicitor
for
the
respondent
referred
mainly
to
the
judgment
of
the
Supreme
Court
of
Canada
in
Regal
Heights
Ltd.
(4.02.14).
The
facts
in
that
case
were
summarized
as
follows
at
page
384
(1270
D.T.C.):
In
1952
four
associates
purchased
40
acres
of
land
with
a
view
to
building
a
large
shopping
centre
on
the
property.
Two
additional
parcels
of
land
were
acquired
nearby
in
1953
and
1954
to
further
enhance
the
value
of
the
property
for
the
purpose
of
a
shopping
centre.
In
February,
1954,
the
appellant
company
was
incorporated
and
all
the
property
was
transferred
by
the
partners
to
it
in
return
for
shares.
In
September,
1954,
it
became
apparent
that
a
shopping
centre
of
the
kind
intended
could
not
be
established
on
the
property
when
a
large
department
store
with
which
the
promoters
had
been
negotiating,
announced
that
it
intended
to
locate
elsewhere
in
the
neighbourhood.
Frustrated
in
its
intentions,
the
company
disposed
of
the
lands
in
three
separate
sales,
one
at
the
end
of
1954
and
two
in
1955,
at
a
total
profit
of
about
$136,000.
There
was
strong
evidence
introduced
with
respect
to
promotion
of
a
future
shopping
centre.
At
page
385
(D.T.C.
1272),
the
Supreme
Court,
which
was
divided,
states:
These
efforts
were
all
of
a
promotional
character.
The
establishment
of
a
regional
shopping
centre
was
always
dependent
upon
the
negotiation
of
a
lease
with
a
major
department
store.
There
is
no
evidence
that
any
such
store
did
anything
more
than
listen
to
the
promoters'
ideas.
There
is,
understandably,
no
evidence
of
any
intention
on
the
part
of
these
promoters
to
build
regardless
of
the
outcome
of
these
negotiations.
There
is
no
evidence
that
these
promoters
had
any
assurance
when
they
entered
upon
this
venture
that
they
could
interest
any
department
store.
Their
venture
was
entirely
speculative.
If
it
failed,
the
property
was
a
valuable
property,
as
is
proved
from
the
proceeds
of
the
sales
that
they
made.
There
is
ample
evidence
to
support
the
finding
of
the
learned
trial
Judge
that
this
was
an
undertaking
or
venture
in
the
nature
of
trade,
a
speculation
in
vacant
land.
These
promoters
were
hopeful
of
putting
the
land
to
one
use
but
that
hope
was
not
realized.
They
then
sold
at
a
substantial
profit
and
that
profit,
in
my
opinion,
is
income
and
subject
to
taxation.
4.03.3(3)
Solicitor
for
the
respondent
also
cited
(4.02.6)
in
which
the
undersigned
stated
the
following,
under
the
heading
Test
of
Intention:
According
to
the
appellant’s
testimony,
his
intention
was
clear:
he
wished
to
purchase
a
piece
of
land
to
build
a
plaza
in
which
he
would
have
his
own
store.
The
Board,
however,
is
surprised
that
the
appellant
and
his
co-owners
had
not
asked
an
architect
to
make
some
design
of
the
plaza.
It
was
not
in
evidence
that
important
stores,
banks,
etc,
were
approached
to
obtain
letters
showing
their
interest
to
rent
an
area
in
the
future
plaza,
neither
his
intention
to
calculate
the
return
of
his
future
investment.
It
seems
to
the
Board
that
the
intention
of
doing
something
requires
some
actual
action
to
prove
the
seriousness
of
the
intention.
In
the
present
case,
the
appellant
was
the
silent
partner
waiting
to
see
what
his
associates
would
do.
His
intention
seems
assimilated
in
those
of
his
associates.
4.03.3(4)
Solicitor
for
the
respondent
also
referred
to
the
cases
Program
Properties
Ltd.
v.
The
Queen,
[1978]
C.T.C.
320,
78
D.T.C.
6215
(F.C.T.D.)
heard
in
1978
by
the
Federal
Court-Trial
Division
(4.02
10),
Dalfen,
heard
in
1981
by
the
Federal
Court-Trial
Division
(4.02
11)
and
Marois
v.
The
Queen,
[1983]
C.T.C.
304,
83
D.T.C.
5344
(F.C.T.D.),
heard
by
the
Federal
Court-Trial
Division
in
1983
and
by
the
Federal
Court
of
Appeal
in
1986
(4.02
12).
In
those
three
cases,
the
lots
in
issue
were
also
located
in
Lucerne,
during
the
same
period
as
in
the
case
at
bar.
However,
each
case
turns
on
its
facts.
The
length
of
possession
of
the
property
was
much
shorter
than
in
the
case
at
bar:
5
years,
2
years
and
2
years,
rather
than
14
years.
4.03.3(5)
Solicitor
for
the
respondent
also
referred
to
the
judgment
of
the
Federal
Court
of
Appeal
in
1978
in
Birmount
Holdings
Ltd.
v.
The
Queen,
[1978]
C.T.C.
358,
78
D.T.C.
6254
(F.C.A.)
(4.02.9).
The
Court
refers
to
the
judgment
of
Mr.
Justice
Heald
of
the
Federal
Court
of
Appeal
at
page
365
(D.T.C.
6258):
The
authorities
make
it
clear
that
the
Court
was
required
to
consider
the
relevant
facts
as
of
the
time
of
purchase
together
with
subsequent
events
together
with
the
statement
by
Mr.
Mentzelopoulos
as
to
the
intention
of
the
appellant
at
the
time
of
acquisition.
If,
after
considering
all
these
matters,
the
Court
concludes
that
the
possibility
of
turning
the
property
to
account
for
profit
in
any
way
which
might
present
itself
as
convenient
or
expedient,
including
re-sale,
was
a
major
motivating
factor,
or
that
an
investment
intention
was
not
the
only
motivating
factor
at
time
of
acquisition,
then
the
Court
must
find
any
profit
ensuing
from
a
resulting
sale
to
be
taxable
as
an
adventure
in
the
nature
of
trade.
At
the
bottom
of
page
6258
D.T.C.,
the
Court
refers
to
Pine
Ridge
Property
Ltd.
v.
M.N.R.,
[1973]
C.T.C.
201
(FCA)
and
Racine,
Demers
et
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150,
65
D.T.C.
5106
(4.02.15).
4.03.3(6)
In
that
case,
Racine
et
al.,
at
pages
155
and
156
(D.T.C.
5111
and
5112),
Mr.
Justice
Noël
writes:
To
give
to
a
transaction
which
involves
the
acquisition
of
capital
the
double
character
of
also
being
at
the
same
time
an
adventure
in
the
nature
of
trade,
the
purchaser
must
have
in
his
mind,
at
the
moment
of
the
purchase,
the
possibility
of
reselling
as
an
operating
motivation
for
the
acquisition;
that
is
to
say
that
he
must
have
had
in
mind
that
upon
a
certain
type
of
circumstances
arising
he
had
hopes
of
being
able
to
resell
it
at
a
profit
instead
of
using
the
thing
purchased
for
purposes
of
capital.
Generally
speaking,
a
decision
that
such
a
motivation
exists
will
have
to
be
based
on
inferences
flowing
from
circumstances
surrounding
the
transaction
rather
than
on
direct
evidence
of
what
the
purchaser
had
in
mind.
When
a
man
purchases
a
large
expanse
of
land
for
the
avowed
purpose
of
building
on
it,
for
example,
a
shopping
centre
and
of
renting
stores
to
yield
an
income
from
rent,
but
at
the
moment
of
the
purchase
he
does
not
make
any
arrangement
at
all
to
obtain
the
permanent
financing
of
a
considerable
amount
of
money
that
he
must
invest
or
which
will
be
requiredfor
the
purposes
of
his
project,
or
any
arrangement
at
all
to
obtain
tenants,
and
he
has
not
obtained
any
information
concerning
the
question
of
learning
if
the
site
in
question
possesses
the
characteristics
necessary
and
adequate
for
such
a
project,
or
when
this
plot
of
land
is
situated
in
a
sector
which
is
adjacent
to
another
sector
which
is
growing
and
which
is
in
full
expansion
on
the
periphery
and
where
the
value
of
these
lands
has
already
begun
to
rise
and
where
the
purchaser
possesses
experience
in
the
realm
of
real
estate
which
allows
him
to
anticipate
the
changes
which
may
arise
in
real
estate
values,
there
arises
an
almost
irresistible
inference
that
this
man
had
the
idea
when
he
made
the
purchase
that
if
he
did
not
succeed
in
making
the
necessary
arrangements
to
establish
a
shopping
centre,
he
could
undubitably
be
able
to
resell
this
land
at
a
profit,
[official
English
version]
Essentially,
according
to
solicitor
for
the
respondent,
the
second
part
of
this
passage
is
a
good
description
of
the
situation
in
the
case
at
bar,
in
which
the
appellants
state
that
they
had
the
intention
of
building
a
shopping
centre,
speculating
that
there
would
be
-a
change
of
zoning,
that
there
would
be
an
annexation,
that
there
would
be
sewer
and
water
services,
and
that
there
would
be
a
road
system.
This
is
much
more
speculative
than
in
Mr.
Justice
Noël's
example
and
than
in
Regal
Heights
Ltd.,
according
to
solicitor
for
the
respondent.
4.03.3(7)
Solicitor
for
the
appellants
maintains
that
his
clients
took
a
calculated
risk.
According
to
all
the
indications,
they
foresaw
that
there
would
be
an
annexation
of
part
of
Lucerne
(they
got
it,
but
too
late),
they
foresaw
obtaining
commercial
zoning,
which
they
did;
they
foresaw
having
a
road
system
(water
service
would
follow
automatically),
relying
on
the
official
plans
for
the
City
of
Hull,
supported
by
a
scale
model
set
up
in
the
City
Hall
and
by
the
entire
publicity
campaign.
They
did
not
get
it.
With
respect
to
the
construction
of
a
shopping
centre,
it
is
not
the
most
difficult
thing
to
build
:
as
solicitor
said,
it's
building
a
warehouse”.
Moreover,
the
appellants
had
the
financing
and
the
know-how.
4.03.3(8)
The
1970
provincial
election,
with
the
result
that
a
high
level
decision
was
made
not
to
build
the
Laramee
and
National
Capital
Commission
road
systems,
along
with
the
delay
in
expropriating,
were
key
obstacles
to
the
construction
of
a
regional
shopping
centre.
The
consequences
of
these
obstacles
were
the
construction
of
the
Galeries
de
Hull
and
the
widening
of
Montcalm
St.
and
St-Joseph
Blvd.,
opening
up
a
commercial
artery
(3.02.10).
Should
the
appellants
have
waited
before
buying
the
lot
in
issue?
Someone
else
would
have
acquired
it.
4.03.3(9)
Was
it
necessary
to
obtain
letters
of
intention
from
“three
star"
stores
for
a
regional
shopping
centre
located
in
the
national
capital
close
to
key
arteries?
They
would
not
have
lacked
for
"three
star"
businesses,
nor
for
short
and
long-term
financing.
The
acquisition
of
a
lot
in
the
national
capital
in
1969
to
build
a
shopping
centre
does
not
have
the
same
impact
as
the
facts
in
the
cases
cited
above.
This
is
not
Calgary
in
1952
(Regal
Heights
Ltd.),
this
is
not
like
(4.02
6.)
in
which
the
lot
in
issue
was
located
15
miles
outside
Milton,
Ontario.
Here,
the
lot
was
located
in
the
heart
of
the
national
capital.
On
another
point,
the
case
at
bar
is
also
different
from
Birmount
Holdings
Ltd.
(4.02
9.)
in
which,
in
1960,
a
Parisian
purchases
75
acres
of
land
20
miles
outside
Toronto
with
no
specific
intention
at
the
time
of
purchase.
Nonetheless,
according
to
the
documents,
the
lot
could
easily
have
been
subdivided
for
residential
development.
The
mortgage
could
be
discharged
in
part,
to
payment.
Moreover,
the
taxpayer
advised
his
lawyer
in
1960,
shortly
after
the
purchase,
that
the
rental
of
the
lot
was
to
be
temporary,
subject
to
termination
With
six
months'
notice.
Relying
on
these
reasons,
inter
alia,
the
Court
decided
that
the
profit
from
the
sale
in
1972
was
taxable
because
it
was
an
adventure
in
the
nature
of
trade.
To
summarize:
on
the
one
hand,
evidence
of
requests
for
financing,
letters
of
intention
from
a"
three
star”
business,
and
so
on
are
quite
valid
evidence
for
demonstrating
the
intention
to
build
a
shopping
centre.
On
the
other
hand,
I
believe
that
such
evidence
is
not
a
condition
sine
qua
non,
especially
where,
as
in
the
case
at
bar,
there
are
intermediate
prerequisites
such
as
zoning,
expropriation,
the
road
system
and
municipal
services.
When
these
were
in
place,
the
other
immediate
prerequisites
for
construction
of
a
shopping
centre,
such
as
financing,
"three
star"
businesses,
banks
and
so
on
are
no
longer
problems,
precisely
because
of
the
location
in
the
national
capital.
The
evidence
is
to
the
effect
that
the
intermediate
prerequisites
for
the
shopping
centre
took
too
much
time
to
fall
into
place,
which
allowed
for
the
construction
of
other
shopping
centres.
4.03.3(10)
There
are
considerations
concerning
important
points,
but
the
crucial
point
is
this:
is
there
sufficient
substantial
evidence
confirming
the
oral
testimony
of
the
appellants
as
to
their
original
intention
to
build
a
shopping
centre?
As
soon
as
May
1969,
in
the
partnership
contract
(Exhibit
A-1),
the
appellants
agree
as
follows:
1.
To
form
a
partnership,
the
sole
purpose
being
to
purchase
a
lot
belonging
to
Ken
Slater
and
located
on
Brickyard
Road
(Lucerne),
in
order
to
develop
it
so
as
to
realize
a
durable
asset
which
will
profit
all
the
parties;
[Translation]
The
other
clauses
establish,
inter
alia,
a
mechanism
according
to
which
the
partnership
would
acquire
the
lot
through
Beaudry
Construction
(3.02.2).
The
fact
that
Mr.
Slater
subsequently
caused
problems
and
that
the
notarized
contract
was
signed
only
on
March
23,
1970
in
no
way
changes
the
original
intention
of
the
contract.
On
the
contrary,
the
actions
of
the
appellants
to
exercise
their
right
confirm
that
their
decision
was
a
firm
one
(3.02.3).
One
factor
which
in
my
view
confirms
the
taxpayers'
intention
was
the
approach
made
to
the
Lucerne
planner
to
learn
the
position
of
the
City
of
Lucerne
with
respect
to
the
lot
in
issue
in
the
event
that
the
annexation
by
the
City
of
Hull
was
not
carried
out.
The
planner's
plan
(Exhibit
A-5)
showing
a
shopping
centre
on
the
lot
in
issue
confirms
the
appellants’
decision
to
purchase
(3.02.7).
This
approach
was
made
before
the
contract
was
officially
signed
(3.02.19).
The
same
was
true
of
the
approaches
made
to
three
officials
of
the
City
of
Hull
in
the
event
that
the
annexation
was
approved.
The
meeting
confirms
that
the
lot
in
issue
is
an
appropriate
spot
for
a
shopping
centre.
The
official
plan
of
the
city
(Exhibit
A-6)
indicates
the
same
thing
(3.02.8).
Moreover,
this
point
was
admitted
and
confirmed
by
the
respondent's
witness,
Mr.
Richard
Cyr
(3.04.3),
final
part).
The
appellants’
stratagem
in
1970
to
prepare
for
the
widening
of
Chemin
de
la
Montagne
on
the
opposite
side
from
the
lot
in
issue
also
confirms
their
intention
to
retain
the
lot
as
an
integral
unit
in
order
to
carry
through
with
their
project
(3.02.12,
3.02.21,
3.03.7).
The
refusal
in
March
1972
of
the
offers
by
Shell
Canada
Ltd.
to
purchase,
and
then
to
rent
42,000
square
feet
of
the
lot
in
issue,
in
my
view,
also
confirms
the
desire
to
maintain
the
original
intention
(3.02.13
and
3.02.20).
Finally,
taking
into
account
the
conclusions
I
reach
in
paragraph
4.03
following
the
respondent's
arguments
(4.03.2
to
4.03.6)
as
to
the
necessity
that
the
appellants
provide
plans
and
agreements
as
to
financing
for
the
shopping
centre
and
letters
of
intention
from
major
businesses
capable
of
attracting
customers,
I
find
that
the
preponderance
of
the
evidence
is
to
the
effect
that
the
appellants’
primary
intention
was
to
acquire
the
lot
in
issue
[Translation]
in
order
to
develop
it
so
as
to
realize
a
durable
asset
which
will
profit
all
the
parties"
to
the
partnership.
The
durable
asset,
also
according
to
the
whole
of
the
evidence
including
the
testimony
of
the
respondent's
witness,
was
to
be
a
shopping
centre.
But
did
the
appellants
have
a
secondary
intention
to
resell
the
lot
in
question?
4.03.3(11)
According
to
Mr.
Jacques
Beaudry,
if
he
had
bought
the
lot
with
the
secondary
intention
of
reselling
it,
he
would
have
bought
farther
to
the
south
(3.02.18).
Moreover,
Mr.
Beaudry
claimed
that
he
had
no
replacement
plan
in
the
immediate
future
and
that
if
he
had
wanted
to
speculate,
he
would
have
gone
to
Hull
city
hall
to
have
the
plan
of
subdivision
A-9
approved
(3.02.22).
According
to
him,
he
had
no
potential
buyer
and
he
had
only
one
idea,
to
build
a
shopping
centre
(3.02.23).
4.03.3(12)
In
1989,
in
Crystal
Glass
Canada
Ltd.
(4.02.19),
the
Federal
Court
of
Appeal
reminded
us
of
a
fundamental
element
with
respect
to
secondary
intention.
The
facts
in
issue
were
as
follows:
The
plaintiff
taxpayer
company,
incorporated
in
1953,
was
engaged
in
the
business
of
installing
automobile
and
commercial
glass.
Business
prospered
and
by
1967
the
company
had
opened
several
branch
operations
across
the
country.
This
was
expected
as
the
business
was
competitive
and
expansion
was
essential.
However,
this
competitively
rapid
expansion
programme
was
brought
to
a
near
halt
in
1967
when
the
company
purportedly
shifted
to
more
passive
investments.
The
alleged
reason
for
this
hiatus
was
that
the
beneficial
owner
and
centrifugal
force
of
the
company
desired
to
spend
more
time
with
his
wife
who
was
terminally
ill.
Consequently,
the
company
acquired
a
parcel
of
land
in
1968
and
in
the
following
year
erected
a
luxurious
apartment
building
thereon.
Pursuant
to
an
unsolicited
offer,
the
company
sold
the
land
and
the
apartment
building
thereon
in
1971
and
the
resulting
profit
was
treated
by
the
Minister
as
income
on
the
basis
that
the
transaction
was
in
the
nature
of
trade.
Both
the
Tax
Review
Board
(75
D.T.C.
69)
and
the
Federal
Court-Trial
Division
(77
D.T.C.
5080)
dismissed
the
taxpayers
appeal
and
the
taxpayer
further
appealed
to
the
Federal
Court
of
Appeal.
The
appeal
was
allowed
by
the
Federal
Court
of
Appeal:
Mahoney,
J.
(Orally
for
the
Court):
The
learned
trial
judge
misstated
the
test
of
secondary
intention
Propounded
in
Racine
et
al.
v.
M.N.R.
65
D.T.C.
5098,
when
he
asked
himself
"did
Bean
have
in
his
mind
the
thought
that
he
might
sell
at
a
profit?".
Secondary
intention
requires
not
only
the
thought
of
sale
at
a
profit
but
that
the
prospect
of
such
a
sale
be
an
operating
motivation
in
the
acquisition
of
the
capital
property.
That
misstatement
of
the
test
taken
with
his
failure
to
find
facts
that
brought
the
transaction
within
the
test,
that
is
his
failure
to
find
that
the
prospect
of
the
resale
of
Crystal
Manor
at
a
profit
had,
in
fact,
been
an
operating
motivation
in
its
acquisition,
leads
us
to
conclude
that
the
learned
trial
judge
erred
in
law
in
finding
that
the
disposition
of
Crystal
Manor
resulted
in
a
trading
profit.
The
appeal
will
be
allowed
with
costs
here
and
in
the
Trial
Division.
The
appellant's
1971
income
tax
return
will
be
referred
back
to
the
Minister
of
National
Revenue
for
reassessment
on
the
basis
that
the
gain
on
the
sale
of
Crystal
Manor
was
a
gain
on
capital
account.”
[Emphasis
added.]
4.03.3(13)
May
secondary
intention
be
inferred
from
the
simple
facts
that
one
of
the
members
of
the
partnership
reported
the
profit
received
from
the
sale
as
income
from
a
business
in
his
income
tax
return,
and
that
some
of
them
were
involved
in
the
real
estate
market?
This
question
must
be
answered
in
the
negative.
Each
transaction
must
be
judged
on
its
merits.
If,
at
the
time
of
the
purchase,
the
appellants
had
the
secondary
intention
of
reselling,
they
did
not
act
on
that
intention.
Why
did
they
wait
14
years?
Why
did
they
not
accept
the
offer
by
Shell
Canada
Ltd.?
Why
did
they
not
have
the
plan
of
subdivision
(Exhibit
A-9)
approved
(3.02.22)?
4.03.14
The
profit
resulting
from
the
transaction
is
capital
in
nature.
For
the
purposes
of
computing
this
gain,
the
adjusted
cost
base
is
$354,300.97
(3.03).
5.
Conclusion
The
appeal
is
allowed
with
costs.
Appeal
allowed.
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