Brulé,
T.C.J.:—This
is
an
appeal
from
a
reassessment
by
the
Minister
of
National
Revenue
with
respect
to
the
appellant's
1984
taxation
year
wherein
it
had
claimed
that
the
purchase
of
a
piece
of
property
was
inventory
whereas
the
Minister
determined
that
the
purchase
was
a
capital
property.
At
the
outset
counsel
presented
to
the
Court:
Partial
Agreed
Statement
of
Facts
The
appellant,
A.L.
Blair
Construction
Ltd.,
is
in
the
business
of
rock
processing.
In
1984,
the
appellant
purchased
for
the
sum
of
one
hundred
and
seven
thousand
dollars
($107,000),
in
an
arm's
length
transaction,
a
37.04
acre
property
(the
"property")
in
the
Township
of
Russell,
in
the
United
Counties
of
Prescott
&
Russell.
The
issue
to
be
decided
is
whether
that
property
purchased
was
a
capital
asset
or
inventory.
The
issue
of
valuation
of
the
property
will
be
dealt
with
only
once
this
Court
has
determined
whether
or
not
the
property
purchased
was
capital
property
or
inventory.
The
subject
property
is
legally
described
as
being
part
of
Lot
B,
Concession
10,
and
more
particularly
described
as
Part
I
of
registered
plan
50R4115
together
with
a
right
of
way
over
Parts
3,
4,
and
5,
all
of
which
are
located
in
the
Township
of
Russell,
in
the
United
Counties
of
Prescott
&
Russell.
The
subject
property
has
numerous
boulders
on
the
surface,
with
an
undetermined
amount
of
bedrock
below
the
surface.
As
of
the
date
of
the
appellant's
appeal,
the
zoning
of
the
subject
property
was
A
2-2,
which
is
general
rural,
and
the
permitted
uses
are
for
agricultural
purposes.
This
would
include
any
dwellings
or
buildings,
which
have
a
farm-
related
use.
There
are
no
dwellings
or
buildings
on
the
subject
property.
On
June
22,
1987
the
Reeve
from
the
Corporation
of
the
Township
of
Russell,
Gaston
Patenaude,
supplied
the
appellant
with
a
letter,
a
copy
of
which
is
attached
as
Exhibit
"A".
A
copy
of
this
letter
was
provided
by
the
appellant
to
the
Minister
of
National
Revenue.
The
vendors
of
the
property
had
threatened
to
sell
the
property
to
a
potential
competitor
of
the
appellant
and
the
appellant
purchased
the
property
to
protect
itself
from
competition.
Corporation
of
the
Township
of
Russell
Embrun,
ON
June
22,
1987
To
whom
it
may
concern:
Re:
Parcel
of
land
described
in
the
assessment
roll
as
Part
of
lot
B,
concession
10.
Township
of
Russell
being
Part
1
of
RP
50R4115
with
right
of
way
over
parts
3,
4
and
5
covering
37.04
acres
and
having
a
frontage
on
a
public
road
of
674.34
feet.
Please
be
advised
that
the
Township
Council
intends
to
recommend
that
the
above
described
land
be
designated
for
“Mineral
Extraction”
in
the
new
Official
Plan
Which
will
be
completed
for
public
hearings
later
this
year.
Yours
truly,
Gaston
Patenaude
Reeve
Additional
Facts
The
appellant
operates
two
of
its
rock
processing
locations
on
each
side
of
the
subject
property.
At
one
time
the
company
took
rock
from
the
property
in
question.
While
at
the
time
of
purchase
the
property
was
zoned
agricultural
a
witness
from
the
Province
of
Ontario
testified
that
the
company,
in
all
probability
could
have
obtained
a
license
to
treat
the
property
as
a
quarry
before
the
provisions
of
the
Ontario
Pits
and
Quarries
Act
came
into
effect.
The
company,
however,
did
not
proceed
to
obtain
a
license.
The
land
remained
zoned
as
agricultural
and
a
change
was
required.
This
situation
has
not
changed
to
date.
There
was
no
indication
that
the
property
was
purchased
other
than
in
an
arm's
length
transaction.
The
price
paid
was
$107,000.
Shortly
thereafter
the
company
treated
the
acquisition
as
inventory
and
placed
a
value
on
the
property
at
year
end
of
$50,000
thus
attempting
to
write
down
the
value
of
the
purchase
price.
Appellant's
Position
Counsel
for
the
appellant
told
the
Court
that
the
company
was
following
normal
accounting
practices
when
it
placed
what
was
described
as
a
fair
market
value
of
$50,000
on
the
property.
The
purchase
price
paid
was
admittedly
high
but
this
was
necessary
to
prevent
a
competitor
from
acquiring
the
site.
In
support
of
his
argument
six
cases
were
directed
to
the
Court.
Three
of
them:
J.
Wm.
Fryer
v.
M.N.R.,
[1960]
25
Tax
A.B.C.
356;
60
D.T.C.
556;
William
J.
Ozem
v.
M.N.R.,
[1971]
Tax
A.B.C.
929;
71
D.T.C.
613;
and
Henri
Cayer
v.
M.N.R.,
[1979]
C.T.C.
2701;
79
D.T.C.
463
all
dealt
with
properties
involving
gravel
deposits
and
when
sold
the
profits
were
classed
as
income.
Counsel
said
that
the
acquisition
of
the
property
in
this
case
should
not
be
on
capital
account
but
rather
considered
as
inventory
and
on
income
account.
The
other
three
cases:
Nomad
Sand
&
Gravel
Ltd.
v.
M.N.R.,
[1982]
C.T.C.
2035;
82
D.T.C.
1070;
The
Queen
v.
Nomad
Sand
&
Gravel
Ltd.,
[1987]
2
C.T.C.
112;
87
D.T.C.
5343
(on
appeal);
and
On
ni
Paju
and
Oiva
V.
Paju
v.
M.N.R.,
[1974]
C.T.C.
2121;
74
D.T.C.
1087
all
dealt
with,
and
confirmed,
that
a
gravel
pit
is
not
a
"mine"
for
the
purposes
of
the
Income
Tax
Act.
The
appellant's
intention
was
to
acquire
the
property
to
use
in
its
business
and
to
have
available
quarry
rock
as
inventory.
It
follows
then
that
the
treatment
of
the
cost
price
and
writing
down
the
value
of
the
property
as
inventory
was
correct.
This
was
counsel's
position.
Minister's
Position
Simply
put
it
was
contended
that
the
property
was
a
capital
asset
and
not
inventory.
At
the
time
of
purchase
the
property
was
zoned
as
agricultural,
and
no
gravel
extraction
could
take
place
on
it
on
a
commercial
basis.
By
definition
to
be
"inventory"
such
must
be
available
for
sale
and
this
was
impossible
based
on
the
facts
in
this
case.
Referring
to
the
cases
cited
by
the
appellant
it
was
said
that
the
first
three
were
adventures
in
the
nature
of
trade
and
not
analogous
to
the
present
case,
while
the
other
three
cases
dealing
with
the
definition
of
a
"mine"
were
noteworthy
only
in
relation
to
the
question
of
capital
cost
allowance.
Analysis
The
Minister's
position
is
correct
even
though
counsel
did
not
present
any
authorities
in
his
argument.
As
such
these
cannot
be
ignored
by
the
Court.
In
Regulation
1100(1)(g)
of
the
Income
Tax
Regulations
provision
is
made
for
a
deduction
in
respect
of
the
capital
cost
of
industrial
mineral
mines.
An
"industrial
mineral
mine”
by
Regulation
1104(3)
expressly
by
definition
omits
a
"mineral
resource".
Hence
gravel
pits
according
to
the
judgment
in
the
case
of
Risebrough
v.
M.N.R.,
[1956]
14
Tax
A.B.C.
304;
56
D.T.C.
77
are
not
“mineral
resource?'
but
are
included
as
“industrial
mineral
mines",
and
are
depreciable
and
subject
to
capital
cost
allowance.
In
the
case
of
Avril
Holdings
Ltd.
v.
M.N.R.,
[1970]
C.T.C.
572
;
70
D.T.C.
6366
the
Court
held
for
the
purposes
of
computing
capital
cost
allowance,
sand
or
gravel
cannot
be
treated
separately
from
the
residual
land
in
which
they
are
situated.
At
page
574
(D.T.C.
6368)
Pigeon,
J.
said
on
behalf
of
the
Supreme
Court
of
Canada:
.
.
.
Instead
of
metal
mines
that
are
usually
acquired
in
the
form
of
mining
rights,
we
are
here
dealing
with
“industrial
mineral
mines"
that
are
almost
invariably
obtained
by
purchasing
the
fee.
Also,
a
completely
different
system
of
allowance
is
involved,
namely
depreciation
not
depletion.
The
present
case
is
no
different.
What
was
purchased
was
capital
property
and
the
treatment
of
such
was
correctly
assessed
by
the
Minister.
For
these
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
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