Pierre Guillet v. Minister of National Revenue, [1991] 2 CTC 2569, 92 DTC 1177

Tremblay, T.C.J. [Translation]:—This appeal was heard in the city of Montreal, Quebec, May 14, 1987.

1. Point at Issue

The question is whether in computing his income for the 1981 and 1983 taxation years the appellant is correct in regarding the profit of $36,540 and $18,270 resulting from the sale of two properties as a capital gain.

The appellant maintained that the two properties were bought as an investment for rental purposes. They were isolated transactions made in response to unsolicited purchase offers.

The respondent, who regards the profits as business income, maintained inter alia that in one case the property was held for five months and in the other for seven months. The buildings were never registered as for rental and the financing for both buildings was short-term. In the respondent's submission, the primary and secondary intent at the time of purchase was resale.

2. Burden of Proof

2.01 The appellant has the burden of showing that the respondent's assessments are incorrect. This burden of proof results from several decisions, including a judgment of the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same judgment, the Court held that the facts assumed by the respondent in support of the assessments or reassessments are also presumed to be true until the contrary is shown. In the case at bar, the facts presumed by the respondent are set out in paras. 9(a) to (v) of the respondent's reply to the notice of appeal. This paragraph reads as follows:

9. In assessing the appellant for its 1981 and 1983 taxation years, the respondent relied inter alia on the following facts:

(a) the appellant and Messrs Denis Robert, Peter Zinman and Allan Zinman were independent persons who invested jointly as co-owners in real property; [admitted]

(b) Guillet et Robert Inc was the supplier of agricultural equipment for the Zinman brothers' metal waste business; [denied]

(c) the Zinman brothers had very little experience in real estate, and decided to join with the appellant and Mr. Robert in purchasing the Fonderie Ste-Croix, thus creating a joint venture; [denied]

(d) the Zinman brothers had already been doing business with the Fonderie Ste-Croix and knew of the difficulties it was having; [not known]

(e) the joint venture thus created was made up as follows:

—Mr. Pierre Guillet	25%
—Mr. Denis Robert	25%
— Richelieu Style [sic] and Iron Suppliers Inc	50%	[admitted]

(f) the shareholders of Richelieu Style [sic] and Iron Suppliers Inc are:

—Mr. Peter Zinman	50%
—Mr. Allan Zinman	49%
—Mrs Nancy Zinman	1%	[not
		known]

(g) the events leading to purchase of the Fonderie Ste-Croix were the following:

— March 11, 1981	Purchase offer
— May 12, 1981	Contract of purchase registered
-June 17, 1981	Machinery and equipment auctioned
—August 14, 1981	Contract of sale registered [admitted]

(h) the time the property was held between registration of a contract to purchase the Fonderie Ste-Croix and registration of the contract of sale is three months, as indicated by the preceding paragraph; [admitted]

(i) the joint venture was involved in another transaction in 1983 when it bought a building located at Farnham; [denied as written]

(j) the events involved in this transaction were the following:

— March 7, 1983	Purchase offer signed
-June 3, 1983	Contract of purchase registered
—June 16, 1983	Lease signed
—October 31,1983	Sale of building [admitted]

(k) the time the property was held between registration of the contract of purchase and sale of the building was five months, as indicated by the preceding paragraph; [admitted]

(l) in the audit by the respondent of the Fonderie Ste-Croix purchase the appellant's representatives and Mr. Robert admitted to the respondent that their clients had bought these buildings solely to lease them [admitted], while the representatives of Messrs Zinman of Richelieu Steel & Iron Suppliers Inc stated in writing that the foundry was purchased in order to start it again, so it could be used to smelt their metal; [not known]

(m) the appellant presented no evidence in support of his alleged intent; [denied]

(n) the appellant never registered the properties as being for lease; [denied]

(o) the Zinman brothers have never started up the foundry; [admitted]

(p) the facts overall seem to refute the appellant’s stated intent; [denied]

(q) there was no external constraint, such as zoning, expropriation or financing,

to prevent the appellant proceeding with its alleged plans; [admitted]

(r) the method of financing adopted by the appellant to purchase his buildings was short-term; [denied]

(s) the appellant prepared no conclusive market study; [admitted]

(t) no tenant was found for the buildings owned by the company between 1981 and 1984; [denied]

(u) the history of the joint venture transactions, between 1981 and 1984, indicates short-term holdings, as shown by Appendix A of the reply to the notice of appeal, forming part of this paragraph as if stated at length; [denied]

(v) the appellant's primary and secondary intents were to resell the property purchased at a profit in the taxation years at issue, [denied]

	Appendix A
	Joint Venture
Richelieu Steel & Iron Suppliers Inc		50%
Pierre Guillet		25%
Denis Robert		25%
History of Purchase-sale transactions
	1981 to 1984
	4-
12-05-81 Fonderie Ste-Croix	1 —
14-08-81	1 — Fonderie Ste-Croix	(80%)
27-11-81 Singer	2—	20% Fonderie
		+ Singer
03-06-83 Farnham	3—
31-10-83	3— Farnham
16-11-83 Embouteilleur Ménard
27-04-84	2— Singer	20% Fonderie
		Embouteilleur
		Ménard
		+
21-12-84	4— 20% Fonderie
31-12-84		Embouteilleur
		Ménard (with
		purchase option
		on building)

Summary

1 — Fonderie

Ste-Croix 80% from 12-05-81 to 14-08-81 $146,000 3 months Ste-Croix 20% from 12-05-81 to 21-12-84 $20,000 31/2years

2— Singer	from 27-11-81 to 17-04-84 $15,000 21/2years
3— Farnham	from 03-06-83 to 31-10-83 $30,000 5 months
4— Fonderie

3. Facts

3.01 Of the facts assumed above by the respondent, the appellant admitted the facts alleged in paras. 9(a), (e), (g), (h), (j), (k), (I), (o), (q), and (s).

3.02 The appellant, who is 51 years old, is a businessman who has worked primarily in the agricultural machinery market since 1964, through the company Guillet et Robert Inc. He was co-shareholder with Mr. Denis Robert of a 45 per cent interest in the said company. He has been an active member of various chambers of commerce, the Optimists Club and the Knights of Columbus. From 1971 to 1983 he was a member of the management of the Caisse d'entraide économique.

3.03 The appellant has made a number of real estate investments in the course of his life, apart from the investments made in his home and in farms. The appellant was concerned in the following transactions between 1968 and 1986, as appears from Exhibit A-11, which reads as follows:

(xx) In co-ownership 50% with Mr. Denis Robert and 50% with Richelieu Steel and Iron Suppliers Inc.

3.04 With regard to transactions Nos 2 and 3, two commercial properties bought from Regoma Construction Inc. in 1975 (Exhibit A-6), the appellant contended that he bought them for lease, to act as a pension fund. These properties were not leased until two years later. He leased them himself. He further said that since he has been making real estate purchases he has never used a real estate agent for leasing. He has always had enough contacts and know-how to find tenants. He bought these properties in co-ownership and initially held 45 per cent of the shares. He is now sole owner. He maintained that he has received purchase offers for these two properties and declined them.

3.05 As regards the two transactions Nos. 4 and 6, which are the subject of the instant case, the properties were bought in a joint venture with Mr. Denis Robert and Richelieu Steel and Iron Suppliers Inc., the majority shareholders in which were Peter and Allan Zinman. The appellant had a 25 per cent share in this joint venture to purchase the two properties at issue.

3.06 The first property at issue (transaction No. 4 in Exhibit A-11) was purchased in the following circumstances: the appellant was leaving on a trip in February 1981 when he got a telephone call from Denis Robert. The latter told him that there was a possibility that this industrial property, located in St-Jean-sur- Richelieu and known as the Fonderie Ste-Croix, could be purchased with the Zinman brothers. He accordingly agreed, seeing this as a good means of increasing rental income. The appellant stated categorically that this was a long-term investment.

The offer was made when he returned from his trip on March 11.

The co-purchasers never discussed resale, always leasing. The $275,000 price was paid in cash, each making his contribution, and that of the appellant was 25%. The contract was registered on May 12, 1981.

He maintained that the equipment and machinery were completely useless to them because of the purpose they had in mind and everything was put up for sale at auction on June 17, 1981. It was all sold. The sales produced $90,000.

No real estate agent was hired to lease the properties since the appellant and the others had enough contacts to find the desired tenant.

In negotiations with two potential tenants, Poutrelles Le Tau Ltée and Les Alliages Sharper Inc., the latter company through its representative Jerry Lefson made an offer to purchase 80 per cent of the property (Exhibit A-15). The contract of sale was signed on August 14, 1981. The price was $300,000, $150,000 in cash and $150,000 on a 15 per cent mortgage expiring August 14, 1991 (Exhibit a-7). "The decision to sell was made unanimously", the appellant said.

The rest of the property, 20 per cent, was leased shortly afterwards.

3.07 The partners in the joint venture used the cash received to purchase a property adjacent to the Fonderie Ste-Croix, owned by Singer of Canada, comprising 27,000 square feet of land. It was an abandoned forge. This property was leased in 1982.

3.08 The appellant maintained that he had known the Zinman brothers for twenty years, but had never had any real estate dealings with them before 1981. Their only contact had been as neighbours.

3.09 Transaction No 6 in Exhibit A-11 (para. 3.03), involving the joint venture, is the second property at issue. It is located in Farnham and was purchased from General Trust of Canada for cash, $60,000, on June 3, 1983 (Exhibit A-8). The appellant maintained that this property was purchased to lease. It was in fact leased on June 16, 1983 by PeBen-Checo entreprise conjointe unité 5 for $3,000 (Exhibit A-9). The appellant testified that he found this tenant himself.

3.10 In the following October a farmer, Mr. J. R. Alvarez, made a purchase offer of $90,000. He needed this property to open a business. It should be noted that the said Alvarez was not one of the tenants.

The appellant did not want to sell because of the substantial income of $3,000 a month. Then too, the lease (Exhibit A-9) was not for a long period. The tenant was leaving at the end of October. He had even contacted another potential tenant to replace him, named Robitaille. He finally agreed to sell on October 31, 1983, but with the money to be immediately reinvested in property located on rue St-George in St-Jean-d’Iberville for $125,000 cash.

3.11 In a letter to Mr. Benoit Lacerte, the respondent's auditor, dated October 24, 1984, Mr. Morty Zafran, the accountant for Richelieu Steel and Iron Suppliers Inc., wrote: "It was the intention of the Board of Directors of Richelieu Steel and of Messrs Guillet and Robert at the time of the purchase of the property to operate a foundry. The foundry was intended to be carried on as a business and/or rented as an income producing property" (Exhibit 1-1).

Mr. Zafran, summoned to testify, said in cross-examination that he was not a director of Richelieu Steel and Iron Suppliers Inc. and admitted that he did not know Mr. Guillet's intentions.

3.12 Mr. Louis Bellefleur, the appellant's accountant since 1980, who prepared the tax returns for 1981 (Exhibit A-12) and 1983 (Exhibit A-13), also submitted his worksheet (Exhibit A-14) for 1986 rental income. This document shows that the appellant’s net income was as follows:

3.13 Mr. Bellefleur said that he was not involved himself in the decisions to purchase and sell the land at issue. He was informed after the fact. However, he helped Mr. Guillet prepare the notices of objection.

3.14 Mr. Jerry Lefson of Les Alliages Sharper Inc. testified that in 1981, representing three numbered companies, he visited the premises of the Fonderie Ste-Croix. His principals decided to lease. They asked for a month to think it over, and then decided to make an offer to purchase.

3.15 Mr. Peter Zinman, a businessman, operates through several corporations. Among other things, he heads a scrap iron business. He knows the appellant through being his neighbour. He has also from time to time bought old pieces of machinery from him. In 1981 he had an opportunity to meet the owners of the Fonderie Ste-Croix. He learned that they were having serious problems. He mentioned this to Mr. Denis Robert. Together they decided that it was a reasonable purchase and a good investment for their old age. At that time they did not know of Jerry Lefson's principals' intention to lease or subsequently to buy. He said he never intended to start the foundry up again. If that had been the case, why sell the machinery and equipment barely a month after the purchase? The buyer's intention was to lease. In any case, he said he did not nave the right to sell by himself: he had to consult with his partners.

3.16 Mr. Simon Beauregard, a witness for the respondent, is a member of the section which examines taxpayers' notices of objection. As such he met with the appellant and his accountant, Mr. Bellefleur, on October 24, 1984. The appellant confirmed that his intention was to buy for lease. He further said that Mr. Zinman knew of the financial problems the Fonderie Ste-Croix was having as the result of a strike by the employees. A purchase offer made by the said employees had been declined.

According to the witness, Mr. Zinman told the appellant that this foundry could be a good buy. Royal Trust was in fact the seller. Mr. Zinman knew that the Sheppard company, which operated a foundry in Montreal, had environmental problems with the city. However, the witness did not know whether the appellant or Mr. Zinman knew of this when the foundry was bought.

3.17 Mr. Benoit Lacerte, an auditor for the Department of National Revenue, said he had never met with the appellant about the purchase of the Fonderie Ste-Croix. He did however meet with a Mr. Zinman.

First, the witness stated that Mr. Zinman told him at the beginning of the audit that he bought because he was sure he could resell quickly. Mr. Zinman stated, he said, “that they tried to lease and they even refused to lease it on a long-term basis, in case the buyer would like to use it eventually".

Then, after checking his notes of his report of the meeting with Mr. Zinman, the witness said in cross-examination that there was nothing about these conversations in his notes and it was possible that he misunderstood or could not exactly remember what Mr. Zinman said to him.

3.18 Mr. Lacerte said that Mr. Zinman's company, Richelieu Steel and Iron Suppliers Inc., reported the transaction for the sale of the Fonderie Ste-Croix as business income.

In cross-examination, however, the witness admitted that Mr. Zafran, the accountant for Richelieu Steel and Iron Suppliers Inc., wrote the following in a letter to the respondent (Exhibit 1-1):

With respect to the proposal that the sale of the building on August 14, 1981 be treated as an income item, rather than as a capital item, we are strongly of the opinion that the sale should be treated as a capital gain.

However, Mr. Lacerte said, in other transactions engaged in by Richelieu Steel and Iron Suppliers Inc. the latter treated them as business income.

He said that in the purchase of the building in Farnham, Richelieu Steel and Iron Suppliers Inc. borrowed to pay its share and then repaid the loan after the sale. This appears in the said company's financial statements.

3.19 The witness Lacerte said that in December 1984 he saw a sign on the Fonderie Ste-Croix land reading "for sale”. He did not know whether it was put there by the Birons (the former owners of the Fonderie) or by someone else. Moreover, this sign was not located by the front of the main building but on a street corner. It should be noted that the group of foundry buildings extended over three streets.

It was stated in this testimony that in December 1984 the part of the foundry that was for rent (20%) was sold but subsequently had to be repossessed.

4. Act-Case Law—Analysis

4.01 Act

The principal provisions of the Income Tax Act ("the Act") involved in the instant case are subsection 9(1), section 12, paragraph 20(1)(m) and subsection 248(1). These provisions will be cited in the analysis if necessary.

4.02 Case law

The parties referred the Court to the following precedents:

1. Colville-Reeves v. The Queen, [1981] C.T.C. 512; 82 D.T.C. 6005 (F.C.T.D.);

2. Bead Realties Limited v. M.N.R., [1971] C.T.C. 774; 71 D.T.C. 5453 (F.C.T.D.);

3. M.N.R. v. Lawee, [1972] C.T.C. 359; 72 D.T.C. 6342 (F.C.T.D.);

4. The Queen v. Kyllo, [1976] C.T.C.409; 76 D.T.C. 6235 (F.C.T.D.);

5. Lee v. M.N.R., [1978] C.T.C. 2192; 78 D.T.C. 1152 (T.R.B.);

6 . Reich Hotels Ltd. v. M.N.R., [1982] C.T.C. 2334; 82 D.T.C. 1297 (T.R.B.);

7. Hébert v. The Queen, [1986] 2 C.T.C. 123; 86 D.T.C. 6543 (F.C.T.D.);

8. Racine Demers et Nolin v. M.N.R., [1965] 2 Ex. C.R. 338 (Ex. Ct.); [1965] C.T.C. 150; 65 D.T.C. 5098;

9. Kit-Win Holdings (1973) Ltd. v. The Queen, [1981] C.T.C. 43; 81 D.T.C. 5030 (F.C.T.D.);

10. The Queen v. Bassani, [1985] 1 C.T.C. 314; 85 D.T.C. 5232 (F.C.T.D.);

11. Regal Heights Ltd. v. M.N.R., [1960] S.C.R. 902 (S.C.C.); [1960] C.T.C. 384; 60 D.T.C. 1270;

12. Burns & Dutton Construction (1962) Ltd. v. M.N.R., [1972] C.T.C. 2533; 72 D.T.C. 1453 (T.R.B.);

13. Pierce Investment Corp. v. M.N.R., [1974] C.T.C. 825; 74 D.T.C. 6608 (F.C.T.D.);

14. Danchak v. M.N.R., [1978] C.T.C. 3049; 78 D.T.C. 1770 (T.R.B.);

15. Schwartz v. M.N.R., [1984] C.T.C. 3022; 84 D.T.C. 1836 (T.C.C.);

16. The Queen v. Anderson, [1973] C.T.C. 606; 73 D.T.C. 5444 (F.C.T.D.).

4.03 Analysis

4.03.1 In a real estate transaction the primary rule used to determine whether there has been a capital gain or business income is what the taxpayer intended when the property was purchased.

As the courts have often pointed out, all the other rules, such as the connection of the transaction with the taxpayer's business, the nature of the transaction and the property concerned in it, the number and frequency of transactions, are used only to determine the taxpayer's original intent at the time the property was bought.

4.03.2 In the instant appeal the appellant maintained that when he bought the two properties at issue, the Fonderie Ste-Croix and the Farnham property, his intention was to purchase them for leasing, that is, to make a long-term investment, or in the current phrase to set up a pension fund for himself.

The respondent's argument is of course to the contrary, namely that the appellant bought for resale. The principal facts assumed by the respondent in this regard and set out above (para. 2.02) are the following: the short period of possession (paras. 9(h) to (k)); the intention of Messrs Zinman in the purchase, to get the foundry going again, is different from that stated by the appellant, which was to lease, and the appellant provided the respondent with no evidence in this regard (paras. 9(l) and (m)); the properties purchased were not advertised for lease (para. 9(n)); there was nothing (such as zoning or expropri- ation) to prevent the appellant proceeding with his plan, of retaining the property as a long-term investment (para. 9(q)); the appellant used a shortterm method of financing the purchase (para. 9(r)); no conclusive market study was done (para. 9(s)); no tenant was found for the buildings between 1981 and 1984 (para. 9(t)) ; the history of the transactions from 1981 to 1984, cited in Appendix A, also proves short-term possession (para. 9(u)); and so the intention was to resell (para. 9(v)).

4.03.3 On the short period for which the two properties at issue were held, the respondent referred to Appendix A of the reply to the notice of appeal (para. 2.02). This Appendix A deals with 1981 to 1984. Additionally, it is to some extent contradicted by the table in Exhibit A-11 (para. 3.03), which covers the possession period of transactions from 1968 to 1986. Of ten properties bought since 1988, six (not taking into account 20% of the Fonderie Ste-Croix) are still owned by the appellant, at least in co-ownership, and possession varies from 1 / years (No 10) to 19 (No 1).

As to the properties sold, transactions Nos. 5 and 9, there was little if any evidence presented about them but it would appear at first sight, because of the long-term financing given to the purchasers, that in itself it is a good longterm investment. In this regard the appellant's actions with respect to real estate purchases in general tend to support his argument that the purchase of the two properties at issue was made for a long-term investment.

In Colville-Reeves (para. 4.02(1)), Mahoney, J. of the Federal Court, who had to decide a point similar to that in the instant appeal, as to whether the transaction was a capital gain, and thus as to the original intent at the time of the purchase, did not look at the transaction in question but examined the taxpayer's behaviour over a long period of time. He wrote at 517 (D.T.C. 6009):

. . .all of the Plaintiff's non-personal use real estate acquisitions, over two decades, have been of a character and have been dealt with by him in a manner entirely consistent with his avowed objective of investing, rather than trading or dealing, in those interests. I accept that the Plaintiff was not, when he bought and sold his interest in the Sandhurst, engaged in a business of trading or dealing in interests in real estate for his own account.

4.03.4 A very good explanation was given for the fact that the appellant did not use the services of a real estate agent to lease the property at issue: the appellant always used his own contacts, resulting from his activities and various organizations to which he had belonged for several years (para. 3.02) as a means of renting property (para. 3.04). It is logical that he would not use such services to rent the property at issue (paras. 3.06 to 3.09).

Further, regardless of the evidence of the appellant's contacts, the respondent maintained that the absence of any real estate agent or advertising for lease demonstrated the appellant's intention not to lease but to sell. This fact does not necessarily mean that the appellant intended to sell.

In Bead Realties Limited (para. 4.02(2)) Walsh, J. of the Federal Court, speaking of the owners of property, wrote at 783 (D.T.C. 5458):

The fact that they did not advertise in the newspapers that they had property available on which they would construct buildings to suit the requirements of the tenant, nor did they place large billboards on the property, is not, in my view a great significance. The fact that they had such property available was known in real estate circles in the city and direct contact was made with a number of industrial firms who might be interested. A potential tenant for a project of this sort is not apt to be found merely because he has seen an advertisement in a newspaper or noticed a sign on the property when he is driving by.

4.03.5 In any case, the evidence showed that the appellant found tenants for the two properties at issue. In the case of the Fonderie Ste-Croix, Poutrelles Le Tau Ltée and Les Alliages Sharper Inc. were two potential tenants when the latter company through Jerry Lefson offered to buy (para. 3.06).

In the case of the Farnham property, PeBen-Checo Entreprise conjointe unité 5 became its tenant on June 16, 1983, and the property was bought on the third of that month.

4.03.6 The respondent laid great emphasis on the different intention stated by the appellant and Messrs Zinman.

The appellant's avowed intention of buying to lease is not only contained in the facts assumed by the respondent (para. 2.02, para. 9(1)), but in those of the witness for the respondent, Mr. Beauregard (para. 3.16).

The Zinman brothers' intention of wanting to start the foundry up again is not very logical, since the equipment and machinery were sold barely a month after the property was bought (para. 3.06). This illogicality was in fact noted by Mr. Zinman himself (para. 3.15).

4.03.7 Mr. Lacerte's evidence on Mr. Zinman's intention to resell as soon as possible cannot be accepted. An admission of this type by Mr. Zinman would certainly have been included in Mr. Lacerte's report if it had actually been made (para. 3.17).

What I think is quite strange is that if Mr. Zinman actually did intend to resell and even, according to Mr. Beauregard's testimony (para. 3.16), had a fairly certain purchaser in the Sheppard company, how is it that he offered to make a joint purchase with the appellant and Mr. Denis Robert? It was Mr. Zinman who approached Mr. Robert and the appellant to carry out this transaction (para. 3.06). In these circumstances, offering to make a joint purchase is offering to share the profits. This is not a businessman's usual procedure.

4.03.8 Moreover, even if Mr. Zinman had such an intent, does this mean that the appellant's intent is irreparably damaged by it? It is true that a clear intent by partners whose business is to buy and sell land will colour the intent of the minority taxpayer in the partnership. His partner's intent will then be attributed to the taxpayer as a secondary intent (Schwartz, para 4.02(15)).

In the instant case the partners were all equal. According to the appellant the decision to sell was made unanimously (para. 3.06). Mr. Zinman stated that he could have sold without consulting the other parties (para. 3.15).

In Bassani (para. 4.02(10)), Reed, J. said regarding minority partners, at 317 (D.T.C. 5234): "It is clear that a gain made by one taxpayer in a group purchase of property may not be taxable as business income while the profits of the other members may be.”

She then went on, citing Cattanach, J. in Anderson (para. 4.02(16) at 615 (D.T.C. 5451):

The different results follow from the different intentions of the different taxpayers at the time of the acquisition of the property.

That intention is a question of fact to be determined after considering all the evidence.

4.03.9 One of the facts assumed by the respondent is that the appellant's method of financing the purchase of the properties was short-term (para. 2.02, para. 9(r)).

However, the undisputed evidence is that the appellant paid cash for the two properties in question (paras. 3.06 to 3.09). This seems to have been a rather common method, since cash was also paid in 1983 for the property located on rue St-George in St-Jean-d'Iberville (para. 3.10). Even though there is evidence that Richelieu Steel and Iron Suppliers Inc. borrowed to pay its share of the purchase of the Farnham building (para. 3.18), this can in no way affect the appellant's position.

Does the fact that the buildings were paid for in cash and without a mortgage not demonstrate that the appellant was not a speculator? In Lawee (para. 4.03(3)), Cattanach. J, wrote at 372 (D.T.C. 6352):

A speculator in land looks for quick turnovers and puts up only the minimum amount of money that will ensure control of the land. Frequently the purchase is made with money borrowed at a high rate of interest. There is the compulsion to use little money and there is the compulsion to realize forthwith and pass on to further purchases.

The respondents had resources available. For one lot in Pointe Claire they paid the purchase price all in cash. For the other lot there was a substantial payment in cash and the small balance was payable within two years. This is not what a speculator does. He gets as much land for as little actual cash as is possible. Therefore the respondents did not act as a speculator does but rather the facts are consistent with their being anxious to place their money in a secure investment.

4.03.10 The following point should be made about financing: in selling the Fonderie Ste-Croix for $300,000, the appellant and his partners kept a mortgage of $150,000 at 15 per cent interest expiring on August 14, 1991 (para. 3.06). This type of seller-buyer financing was a good long-term investment in the same way as other long-term investments. Though the sellers did not finance the buyer in the sale of the Farnham property for $90,000, it was proven that the partners purchased the property on rue St-Georges in St-Jean-d'lberville (para. 3.10) in the next few days, and that they still own it (para. 3.03, Exhibit A-11, transaction No. 7).

4.03.11 Finally, it should be pointed out that the taxpayer's business, which is chiefly concerned with the farm machinery market (para. 3.02), has no direct or indirect connection with the real estate market. This criterion, often used against the taxpayer, is in the appellant's favour here.

4.03.12 After considering the facts as a whole, I must conclude that the weight of the evidence is in favour of the appellant's argument.

5. Conclusion

The appeal is allowed with costs and the matter is referred back to the respondent for reconsideration and reassessment in accordance with the above reasons.

Appeal allowed.