Hugessen,
J.A.:—The
appellants,
who
are
land
developers,
entered
into
a
certain
number
of
50-year
leases
of
residential
lots
with
an
option
to
purchase
exercisable
by
the
lessees
at
any
time
during
that
term.
At
issue
in
these
appeals
is
the
trial
judge's
finding
that
the
proceeds
to
the
appellants
from
the
exercise
of
those
options
was
income
in
their
hands
as
being
proceeds
from
the
sale
of
inventory.
It
is
conceded
that
the
lots
had
been
inventory
in
the
appellants'
hands
but
it
is
argued
that
they
had
been
converted
to
capital
assets
upon
the
making
of
the
lease-option
agreements.
That
is
at
bottom
an
issue
of
fact,
on
which
the
trial
judge
found
against
the
appellants.
She
said
[[1986]
1
C.T.C.
493;
86
D.T.C.
6233
at
496-97
(D.T.C.
6236)]:
The
conclusion
I
draw
from
the
evidence
is
that
the
leasing
scheme
was
merely
a
mechanism
for
postponing
the
date
of
the
ultimate
purchase
of
the
land.
The
leases
provided
for
reversion
to
the
plaintiffs
of
the
land
and
all
buildings
thereon
at
the
end
of
the
term
of
the
lease,
if
the
option
to
purchase
had
not
been
exercised.
There
is
no
provision
for
automatic
renewal.
The
leased
lots
were
scattered
randomly
throughout
the
subdivisions;
they
were
not
retained
in
one
block.
Whether
a
lot
was
leased
or
sold
in
the
first
instance
was,
in
general,
determined
by
the
purchaser
of
the
home
(subject
to
the
plaintiffs’
decision
to
lease
no
more
than
one
third
of
the
total
number
of
the
lots
available).
In
my
view,
the
scheme
was
designed
to
put
purchasers
of
a
house
built
on
a
leasehold
interest
in
the
same
position
as
purchasers
of
a
house
built
on
a
freehold
except
that
payment
for
the
land
component
was
deferred.
Thus
the
purchaser
could
pay
for
that
component
when
he
or
she
had
more
liquidity
than
might
be
the
case
at
the
time
of
the
initial
purchase
of
the
home.
I
cannot
conclude
that
the
plaintiffs
ever
considered
the
leasing
of
the
lots
to
be
a
permanent
conversion
from
inventory
to
capital
asset.
If
there
was
an
intention
to
convert,
it
was
that
the
lots
would
be
so
converted
for
a
temporary
period
of
time
only,
with
the
certainty
(apart
from
some
few
exceptions)
that
they
would
eventually,
when
the
option
to
purchase
was
called,
be
reconverted
to
their
original
status.
We
can
see
no
reversible
error
in
those
findings.
The
appellants’
intention
to
hold
the
lots
as
inventory
was
not
necessarily
converted,
as
counsel
seemed
to
suggest,
simply
because
they
were
also
able
to
realize
income
from
them
during
the
lease
periods;
the
analogy
may
be
made
to
a
dealer
in
bonds
who
realizes
income
from
his
inventory
not
only
when
he
sells
it
but
also
while
he
is
holding
it.
The
appeals
will
be
dismissed
with
costs.
Appeals
dismissed.
Email this Content