Goetz,
T.C.J.
[Orally]:—This
is
an
appeal
by
Westport
Gardens
Limited
("Westport")
with
respect
to
a
tax
assessment
for
its
1974
taxation
year.
Mr.
Ralph
Ferracuti,
a
man
of
83
years,
who
has
been
a
builder
of
homes
and
buildings
since
1938
in
Toronto
and
area,
gave
evidence
on
behalf
of
the
appellant
Westport.
He
explains
that
he
was
president
of
Westport
from
1962
to
1974.
The
question
to
be
resolved
by
the
Court
is
whether
the
disposition
by
the
appellant
in
1974
of
what
is
known
as
Block
A
was
on
account
of
income
or
on
account
of
capital.
Mr.
Ferracuti
says
that
he
acquired
a
parcel
of
land
in
the
Township
of
Humberstone
("the
Township")
which
was
composed
of
approximately
90
to
120
subdivided
lots,
Block
A
and
Block
B,
and
other
portions
along
the
west
side.
This
he
acquired
in
1958
but
he
then
sold
the
whole
block
of
land
just
referred
to
to
Killaly
Developments
Limited
("Killaly")
which
was
a
company
operated
by
Mr.
Herb
Katz.
I
am
going
to
go
through
the
facts
of
Mr.
Ralph
Ferracuti
as
given
by
him.
It
was
with
considerable
difficulty
that
his
counsel
elicited
the
information
he
wanted
from
his
client,
Mr.
Ferracuti,
but
the
evidence
from
the
notes
that
I
have
has
come
out
clear
and
strong.
I
find
Mr.
Ferracuti
a
very
intelligent
and
honest
witness.
He
states
that
Killaly
started
to
build
about
30
houses,
but
was
unable
to
complete
them
on
this
property
because
they
ran
short
of
finances
and
owed
a
large
amount
of
money
to
G.C.
Romano
who
had
put
in
the
water
lines.
In
that
Killaly
was
ready
to
throw
up
its
hands
and
walk
away
from
the
project,
as
stated
by
Mr.
Ferracuti,
Junior,
Mr.
Ralph
Ferracuti
had
no
alternative
but
to
take
back
rather
than
to
foreclose
a
mortgage
on
the
whole
of
the
property.
This
was
the
reason
why
he
set
up
Westport
Gardens
Limited
in
1962.
The
shareholders
of
Westport
were
Mr.
Ralph
Ferracuti,
Mr.
Herb
Katz
and
Mr.
G.C.
Romano.
Mr.
Ferracuti
wanted
to
get
his
money
back;
Mr.
Romano
wanted
to
get
his
money
back;
and
Mr.
Katz
wanted
to
be
paid,
in
the
order
that
I
have
just
mentioned,
out
of
whatever
Westport
could
do
with
this
whole
piece
of
land.
It
took
about
seven
years
to
place
buildings
on
these
subdivided
lots
and
to
sell
them.
With
respect
to
Block
A,
it
was
decided
by
the
appellant
in
1962
to
hold
onto
this
for
a
shopping
centre.
This
flows
from
the
fact
that
Killaly
had
obtained
a
building
permit
and
had
entered
into
an
agreement
with
the
Township
with
rather
stringent
conditions.
Mr.
Ferracuti
said
in
response
to
his
counsel's
questioning
about
Block
A
that
"we
did
not
know
whether
we
would
rent
or
sell
the
centre".
Mr.
Ralph
Ferracuti
said
he
made
efforts
with
Katz
and
Romano
to
get
a
building
permit
for
the
shopping
centre,
but
said
"we
did
not
get
it”.
One
of
the
problems
faced
by
the
appellant
was
that
storm
sewers
were
one
kilometer
away
from
Block
A.
On
the
balance
of
the
land,
Killaly
had
installed
storm
sewers
and
septic
tanks
on
the
building
lots.
There
was
some
discussion
about
a
sewage
plant,
but
nothing
developed
from
that.
Mr.
Ralph
Ferracuti
said
the
shopping
centre
idea
was
dropped
because
Westport
could
not
get
a
building
permit
from
the
Township
of
Humberstone
or
from
the
City
of
Port
Colborne.
The
reason
for
this
was
that
there
was
no
sewer
and
to
build
such
by
himself
(that
is
to
say
the
appellant
because
Ferracuti
is
the
alter-ego
of
the
corporation)
would
cost
at
least
one
million
dollars.
With
respect
to
the
obtaining
of
tenants,
Mr.
Ferracuti
said
there
was
no
point
in
doing
that
until
they
at
least
could
get
a
building
permit.
Killaly
had,
prior
to
the
acquisition
of
the
land
by
the
appellant,
retained
the
services
of
an
architect
who
made
a
very
primitive
sketch
plan
of
the
property.
The
appellant
obtained
an
agreement
of
purchase
and
sale
in
August
of
1973,
which
was
extended
on
November
3,
1973,
with
the
purchaser
being
Multi-Malls
Incorporated
("Multi-Malls").
Mr.
Ferracuti
said
that
Multi-Malls
got
a
building
permit
when
the
city
built
the
sewer
in
1984.
He
also
stated
that
Multi-Malls
sent
a
real
estate
agent
to
the
appellant.
He
does
not
recall
the
arrangement
with
respect
to
the
real
estate
commission.
He
said
that
for
seven
or
eight
months
prior
to
this
sale
the
appellant
had
erected
a
four-foot
by
eight-foot
"For
Sale"
sign
on
the
land.
Other
than
the
Multi-Malls
offer,
there
was
only
one
previous
offer,
which
had
been
refused.
Mr.
Ferracuti
stated
in
cross-examination
as
to
what
was
happening
to
the
lot
between
1963
and
1973
that
they
completed
Killaly’s
work
and
built
other
houses
on
the
other
lots
and
sold
each
one
to
the
public.
In
the
financial
statements
from
1963
to
1972,
we
can
note
the
following:
"Inventory-Service
Land-84
Lots
and
Block
A
at
Costs".
At
this
point
in
cross-examination
he
said
that
when
they
bought
Block
A
it
was
zoned
residential
and
was
in
the
middle
of
a
residential
area.
It
was
rezoned
plaza/commercial
in
1969.
Further
questioning
as
to
other
companies
that
Mr.
Ferracuti
owned,
made
it
clear
that
he
was
in
the
construction
business.
He
said
he
would
buy
land,
build
on
it,
and
sell
it.
His
real
estate
agent
throughout
quite
a
bit
of
his
construction
career
was
a
Mr.
Selkirk,
whose
name
would
appear
to
be
as
a
witness
on
the
Agreement
for
Sale
of
Block
A.
Mr.
Ferracuti
was
not
too
sure
of
this
and
he
did
not
recognize
Mr.
Selkirk's
signature,
but
he
feels
that
he
was
present
at
the
time
the
Agreement
for
Sale
was
executed.
Mr.
Ferracuti
told
the
Court
that
if
he
needed
property
rezoned
he
used
his
lawyer,
Mr.
MacDonald,
who
would
deal
with
the
municipal
bodies
and,
if
necessary,
he
would
request
rezoning
with
a
view
to
making
more
money,
which
is
quite
reasonable.
A
letter
was
produced
as
Exhibit
R-2
written
to
the
City
Clerk
of
Port
Colborne,
dated
May
15,
1961,
asking
for
an
extension
to
the
Killaly
building
permit.
Mr.
Ferracuti
further
said
that
in
1969
his
lawyer
tried
to
get
Block
A
rezoned
on
his
instructions.
We
have
the
evidence
of
Anthony
Romano
that
really
does
not
add
much
of
anything
to
the
meat
of
the
evidence
of
Mr.
Ferracuti,
Senior.
Anthony
Romano,
son
of
the
deceased
Romano,
said
on
questioning
that
he
represented
his
father's
estate
in
Westport
and
that
he
had
looked
and
could
find
no
documents
relating
to
prospective
tenants.
Remo
Ferracuti,
son
of
Ralph
Ferracuti,
gave
evidence
basically
corroborating
the
evidence
of
his
father,
embellished
somewhat
by
Exhibit
A-6
whereby
in
April
1960
it
was
shown
that
Killaly
had
$1,000
for
a
building
permit,
which
he
says
it
obtained,
although
it
had
no
formal
document,
and
another
cheque
for
$4,000
as
security
on
a
shopping
centre
agreement.
That
was
the
agreement
mentioned
earlier,
the
conditions
that
had
to
be
met
by
Killaly.
Remo
Ferracuti
went
on-site
in
1962
and
through
his
company
did
all
of
the
actual
construction
of
houses
on
all
of
the
lots.
He
lived
in
Port
Colborne
on-site
until
apparently
1967.
He
explains
the
letter
filed
as
Exhibit
A-2
as
indicating
to
the
city
that
Westport
had
been
assigned
the
full
interest
under
the
agreement
with
the
Township
and
was
the
owner
of
Block
A.
He
wanted
to
make
that
clear
to
the
authorities.
He
said
the
plaza
project
was
deferred
because
the
appellant
needed
more
money
and
had
hoped
to
get
approval
for
the
construction
of
apartments
on
the
right
side
of
what
is
known
as
Exhibit
A-1.
City
council,
although
approached
several
times
"shied
away
from
that"
(to
use
his
words).
Once
the
appellant
had
sold
all
of
the
lots,
exclusive
of
course
of
Block
A,
the
pay-out
was
made
to
the
three
owners
of
the
appellant:
Ralph
Ferracuti,
Romano
and
Katz.
He
mentioned
there
was
some
possibility
of
a
second
plaza,
but
it
would
appear,
in
response
to
the
letter
of
May
15,
1961,
that
the
city
had
forwarded
a
resolution
refusing
to
extend
the
building
permit.
This
information
was
conveyed
to
Mr.
MacDonald,
the
long-time
solicitor
for
Ralph
Ferracuti.
In
cross-examination
Mr.
Ferracuti
acknowledged
that
the
possibility
of
a
shopping
centre
or
mall
at
Block
A
was
a
good
selling
point
for
prospective
purchasers
of
the
various
lots
on
which
they
were
building
houses.
We
have
a
series
of
events
that
have
to
be
examined
to
determine
the
issue.
Every
case
must
be
judged
on
its
own
facts.
We
have
Mr.
Ferracuti
buying
the
whole
parcel
of
land
in
1958,
selling
it
to
Mr.
Katz
of
Killaly
in
1959,
and
then
Westport,
the
appellant,
taking
it
over
in
1962.
He
says
the
purpose
was
to
continue
the
Killaly
project
to
recover
money
which
he
was
in
a
position
to
lose
unless
the
project
was
carried
through,
which
meant
then
further
work
on
all
of
the
lots
so
that
they
could
be
sold.
This
enabled
the
pay-back
to
the
three
—
for
lack
of
a
better
word
—
partners:
Ferracuti,
Roman
and
Katz.
This
conduct
of
the
parties
must
be
reviewed
to
determine
was
their
intention
initially
or
secondarily
at
the
time
of
acquisition
by
the
appellant
of
the
property
in
1962.
I
would
refer
to
Leonard
Reeves
v.
M.N.R.,
[1985]
2
C.T.C.
2054
at
2058-59;
85
D.T.C.
419
at
422,
a
judgment
of
Associate
Chief
Christie,
which
is
an
acknowledged
state
of
the
law
and
a
concisely
worded
statement:
If
an
individual
who
is
an
appellant
has
a
history
of
trading
in
real
estate
or
if
the
appellant
is
a
corporation
that
is
controlled
by
such
a
person,
this
is
a
relevant
consideration
which
points
away
from
the
purchase
in
issue
being
made
with
the
primary
intention
of
securing
an
income-producing
asset.
.
.
As
authority
for
this,
Associate
Chief
Judge
Christie
cites
Vaughan
Construction
Company
Ltd.
v.
M.N.R.,
[1970]
C.T.C.
350;
70
D.T.C.
6268.
It
is
obvious
from
the
facts
as
given
by
Ralph
Ferracuti
that
he
had
been
in
the
business
of
constructing
homes
and
buildings
since
1938
—
purchasing
land,
constructing
and
selling.
That
is
as
close
as
can
be
to
establishing
the
previous
history
of
dealing
in
land.
Then
we
come
to
whether
at
the
time
of
acquisition
in
1962
the
appellant
had
a
primary
or
secondary
intention
of
disposing
of
the
property
for
a
profit.
Of
course,
the
first
intention
was
to
protect
the
appellant’s
investment
in
the
land.
This
it
was
able
to
do
over
a
period
of
seven
years
by
building
houses
and
selling
them.
It
would
appear
from
the
evidence
that
all
of
the
shareholders
of
the
appellant
were
able
to
get
their
money
back.
That
is
a
clearly
obvious
reason
why
the
appellant
bought
the
property.
It
was
carrying
through
with
an
existing
condition
that
had
been
set
up
Killaly.
In
Racine,
Demers
and
Nolin
v.
M.N.R.,
[1965]
C.T.C.
150;
65
D.T.C.5098,
it
is
stated
at
page
159
(D.T.C.
5103):
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.
Mr.
Ferracuti
used
the
words
with
respect
to
Block
A
as
to
what
he
was
going
to
do
with
it,
that
it
was
to
be
rented
or
sold.
I
know
it
is
a
mundane
way
of
expressing
what
has
just
been
quoted
from
Racine
et
al.
(supra),
but
it
does
seem
to
be
an
earthy
way
of
saying
it.
We
have
the
history
of
Ferracuti
of
buying
land,
building,
and
selling,
and
this
in
fact
was
done
between
1962
and
1969
when
all
the
lots
were
sold,
leaving
Block
A
which,
as
mentioned
earlier,
was
carried
as
inventory
up
to
1972
at
least.
Meanwhile,
in
holding
Block
A,
it
was
and
could
be
inferred,
as
counsel
for
the
respondent
suggested,
a
selling
tool
for
prospective
purchasers
that
a
plaza
would
be
built
close
to
the
various
new
houses
in
the
area.
Remo
Ferracuti
left
Port
Colborne
in
1967
when
his
work
was
done,
that
is
when
all
the
building
and
sale
of
all
of
the
lots
was
completed.
It
must
be
remembered
that
Mr.
Ferracuti
said
that
Block
A
was
residential
when
Westport
bought
it
in
1962.
Again
in
1969
Mr.
Ferracuti's
lawyer
tried
to
get
Block
A
rezoned
and
indeed
it
was
by
a
by-law
in
1969.
After
all
the
other
lots
were
sold
there
was
no
effort
to
dispose
of
Block
A
other
than
the
one
I
just
mentioned
above
until
it
was
sold
in
1974.
The
reason
given
is
that
the
appellant
could
not
get
a
building
permit.
The
next
point
is
that
it
was
Selkirk
who
was
the
real
estate
agent
who
had
done
so
much
work
for
Mr.
Ferracuti
in
the
past
that
brought
Multi-Malls'
representatives
to
inspect
the
property
and
who
really
in
fact
effected
the
sale,
although
Mr.
Ferracuti
says
that
the
land
was
not
listed
for
sale
as
he
recalls.
There
is
no
firm
evidence
as
to
prospective
tenants.
Mr.
Ferracuti
said
there
were
too
many
obstacles
in
trying
to
get
the
permit.
The
evidence
with
respect
to
zoning
was
vague.
There
was
the
cost
of
sewer
lines
which
was
prohibitive
on
the
face
of
it.
Throughout
all
of
this,
Block
A
was
listed
on
the
books
of
the
company
as
inventory.
Nothing
could
be
more
clear.
Consequently,
on
the
sale
in
1974
to
Multi-Malls
the
last
of
the
inventory
was
disposed
of.
I
find
that
Block
A,
regardless
of
whatever
efforts
were
made
to
get
permits
or
rezoning,
was
held
throughout
1962
to
the
point
of
sale
as
an
inventory
item,
and
I
therefore
dismiss
the
appeal.
Appeal
dismissed.
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