Benedict J. Kuzmicz v. Minister of National Revenue, [1992] 1 CTC 2727, 92 DTC 1331

Teskey, T.C.C.J.:—The appellant appeals from a reassessment of income tax for the years 1984 and 1985 wherein the Minister of National Revenue (the "Minister") treated the gain on two sales of land as business income as opposed to a capital gain as reported by the appellant.

Facts

The facts assumed by the Minister are almost totally left intact by the evidence of the appellant. The facts are not really in dispute. The only fact in dispute is the appellant's intention at the time of purchase.

The appellant describes himself as a farmer businessman who in 1984 and 1985 resided at Candiac, Saskatchewan some 50 miles to the south east of the property in question. The appellant holds a Masters' degree in Business Administration. He worked as a commodities broker both in Winnipeg and Regina, prior to the purchase of the property. He was, and is, a sophisticated businessman.

In 1975, the appellant was the General Manager of Great Plains Livestock Centre Ltd. ("Livestock"). Livestock operated livestock auctions on a large parcel of land of approximately 480 acres, which is shown outlined and crosshatched in red on Exhibit A-1. This parcel is abutted on the north by the south limit of the Trans-Canada highway and lies a quarter section west of the western limit of White City which lies approximately six miles east of Regina. It is less than a 20 minute drive today from White City to downtown Regina.

On September 5,1975, the appellant entered into a one-page handwritten agreement to purchase two quarter sections containing approximately 303 acres. This property is shown outlined in green and cross-hatched on Exhibit A-1 and is the acreage that lies between the Livestock property and White City. The purchase price was $154,000, being approximately $500 per acre.

The appellant acknowledged and confirmed that the directors of Livestock, on October 5, 1975, at a directors' meeting at which he was present, (copies of the Minutes being entered as Exhibit R-3) passed the following resolution:

The General Manager disclosed to the Directors of the Company that he had purchased on his own account the North West Quarter of Section Fourteen and the South West Quarter of Section Twenty-Three, in Township Seventeen, Range Eighteen, West of the Second Meridian. This land adjoins that which is presently owned by the Company. Upon motion duly made, seconded and unanimously carried it was resolved that the General Manager be and he was thereby instructed to proceed with plans for the sub-division and development of land owned by the General Manager and land owned by the Company as a joint venture.

The purchase of the said property was completed on February 13, 1976 and title was taken jointly by the appellant and his sister, Bernadine New, each having an undivided one-half interest.

The purchase of the property was funded by a demand loan from the Canadian Imperial Bank of Commerce. Up to the time of the sales in question, only interest annually had been paid on the loan. The price per acre paid for the property was excessive when compared to other land sales in the area and the productivity ratings for the property. The land was inferior, producing an average yield of only 12.3 bushels an acre. The property was such that it could not produce a profit from an agricultural operation. For the first four years, the property was rented at a loss.

On July 6, 1976, the appellant, his sister and Livestock granted to Charles H. Knight an option to purchase the property; the first option was at $3,000 an acre.

On March 16, 1977, a concept plan for development of the property was presented to the Provincial Municipal Affairs Department on behalf of the appellant and his sister.

In January of 1979, the appellant and his sister approached the village of White City with the purpose of obtaining approval for rezoning and subdividing the property.

On May 1, 1979, the appellant signed an agreement on behalf of H.P. Developments Ltd. and 47933 Saskatchewan Inc., which agreement established a joint venture for the purposes of improving, developing as a modern residential subdivision or subdivisions and selling land which included the property and rescinded the earlier agreement dated July 6, 1976, namely the option agreement with Charles H. Knight.

On April 10, 1981, in an application to subdivide the land, the appellant swore an Affidavit stating that the land was poor for agriculture utilization.

In 1984, the appellant and his sister sold eight acres of property for proceeds of disposition of $340,000 to G.P. Developments Corporation and in 1985, the appellant and his sister sold 1.72 acres of the property for proceeds of disposition of $12,900. These portions of the property were sold as soon as a zoning change occurred.

During the period of time in which the appellant and his sister owned the property, nothing was done to improve it for agricultural purposes.

Taking all of these facts into consideration, the Court can only come to the conclusion that the appellants primary intention when he entered into the handwritten agreement on September 5,1975 to purchase the property was to develop the property and hold the same as inventory. Plans to develop the property being disclosed in the October 5th Livestock Minutes, which is some 30 days after entering into the Agreement of Purchase and Sale and some four months before the same, was completed by a deed of conveyance.

A review of Court documents reveals that His Honour Judge Bonner, on June 7, 1990, dealing with the same issue on the same property in the Ber- nadine New appeal, came to the same conclusion.

For the above reasons, the appeals are dismissed.

Appeals dismissed.