Christie,
A.C.J.T.C.:—This
appeal
relates
to
the
appellant's
1980
taxation
year.
The
question
to
be
answered
is
whether
the
gain
realized
on
the
sale
of
a
townhouse
in
the
municipality
of
Oak
Bay
in
the
greater
Victoria
area
(“the
property")
is
a
capital
gain
or
business
income.
The
appellant
was
born
on
June
17,
1941.
He
has
practised
dentistry
in
Victoria
for
19
years.
He
has
owned
a
home
there
for
17
years
and
for
two
years
prior
to
that
he
rented
an
apartment.
This
was
when
he
and
his
wife
moved
to
Victoria
from
Manitoba.
The
property
was
purchased
in
June
1979
for
$145,000
and
sold
in
September
1980
for
$190,000.
Apart
from
the
property,
the
appellant’s
involvement
with
real
estate
has
been
to
acquire
a
chalet
which
he
still
has
for
his
personal
use
at
Whistler.
This
was
16
years
ago.
Five
years
ago
he
and
a
friend
acquired
one-half
of
a
duplex,
also
at
Whistler.
It
continues
to
be
used
for
both
pleasure
and
business.
The
appellant
and
11
others
purchased
an
inn
in
Victoria,
but
this
venture
became
insolvent
about
three
years
later.
Bankruptcy
followed.
In
1977
he
and
nine
others
purchased
a
56-unit
apartment
building
in
Duncan.
Financial
considerations
led
to
a
conversion
of
the
apartments
to
condominiums
under
an
arrangement
whereby
each
investor
received
a
unit.
No
mention
was
made
of
any
sales.
The
appellant
still
has
his
condominium
and
rents
it.
In
August
1980
he
became
a
limited
partner
in
a
limited
partnership,
the
admitted
purpose
of
which
was
to
develop
and
sell
townhouses
as
a
business.
More
about
this
partnership
later.
The
appellant
testified
that
the
property
was
purchased
as
a
place
for
retirement
after
the
children
were
grown
up.
As
of
1979
he
had
two
sons
both
born
in
March,
one
in
1976
and
the
other
in
1979.
He
said
he
decided
to
sell
because
of
subsequent
unforeseen
financial
adversity.
The
real
estate
development
that
includes
the
property
is
within
three
blocks
of
the
appellant’s
home.
The
appellant
and
his
wife
decided
to
purchase
the
property
on
the
basis
of
their
knowledge
of
the
area
plus
seeing
a
beautiful
model
that
included
ponds
and
appealing
landscaping.
This
was
supported
by
alluring
architectural
drawings.
Appliances
of
the
finest
quality
were
promised.
The
entire
development
fronted
on
a
golf
course.
Nearby
was
a
pavilion
with
a
broad
range
of
recreational
facilities
including
tennis
courts.
A
feature
that
interested
the
appellant
was
the
property's
security
system.
Pictures
taken
shortly
after
completion
of
construction
support
what
was
anticipated.
The
pictorial
evidence
depicts
good
landscaping,
large
connecting
ponds
surrounded
by
retaining
walls
of
stone
and
attractive
homes.
The
appellant
indicated,
however,
that
this
was
somewhat
misleading.
In
the
course
of
construction
he
discovered
that
materials
being
used
were
inferior
to
what
had
been
expected.
The
promised
appliances
were
downgraded.
Nevertheless
the
appellant
did
not
attempt
to
disengage
from
the
project.
He
decided
to
proceed
with
renting
and
the
home
would
be
upgraded
to
his
tastes
and
that
of
his
wife
when
they
would
live
there.
Further
to
what
has
already
been
said,
the
substance
of
the
evidence
arranged,
as
far
as
possible,
in
chronological
order
is
this.
The
property
is
part
of
a
34-unit
townhouse
development
named
Uplands
Estates
promoted
by
Thomas
Hartshorne
Corporation
("the
corporation"),
which
was
owned
and
managed
by
Messrs.
Peter
Thomas
and
James
Hartshorne.
The
appellant
was
introduced
to
Thomas
by
a
friend.
In
February
or
March
1979
he
and
his
wife
became
seriously
interested
in
acquiring
the
property.
On
April
5,
1979
the
corporation
and
the
appellant
entered
into
an
agreement
wherein
the
latter
is
described
as
a
"joint
venture
participant”.
It
includes
a
schedule
in
which
the
property
is
described
as
townhouse
No.
131,
Plan
D.
There
were
four
plans:
A,
B,
C
and
D.
Plan
D
comprised
the
best
units.
In
consideration
of
$10,000
the
appellant
was
granted
an
option
to
purchase
the
property.
It
was
valid
until
June
1,
1979.
Completion
date
of
construction
was
set
for
December
31,
1979
or
sooner.
On
June
4,1979
the
appellant
and
the
corporation
signed
a
joint
venture
agreement
in
respect
of
the
property.
The
former
is
described
therein
as
"the
developer"
and
the
corporation
agrees
to
construct
a
townhouse.
The
second
clause
of
the
preamble,
Article
1,
Clause
1.01,
Article
II,
clause
2.10(0)
and
Article
V,
Clause
5.07
of
the
Agreement
read:
AND
WHEREAS
pursuant
to
a
Joint
Venture
Agreement
made
between
the
parties
hereto
on
the
5th
day
of
April,
1979
Thomas
Hartshorne
agreed
to
acquire
the
Lands
In
Trust
for
the
Developer
for
the
purpose
of
developing
the
Lands
by
having
constructed
thereon
a
residential
townhouse
for
the
purpose
of
gaining
or
producing
rental
income
therefrom;
1.01
The
parties
acknowledge
and
agree
that
the
sole
purpose
in
the
Developer
retaining
Thomas
Hartshorne
and
entering
into
this
Agreement,
is
for
the
purpose
of
having
erected
and
constructed
on
the
Lands,
a
multiple
unit
residential
building
within
the
meaning
of
Class
31
of
Schedule
“B”*
of
the
Regulations
made
pursuant
to
the
Income
Tax
Act
(Canada)
in
accordance
with
the
Specifications
attached
hereto
as
Schedule
I.
2.10
Incidental
to
the
Development
of
the
Parcel
of
Land
and
the
erection
of
the
Townhouse
Unit
and
as
part
of
the
Development
Price,
Thomas
Hartshorne
shall
do
or
cause
to
be
done
as
the
case
may
be
as
agent
for
and
on
behalf
of
the
Developer,
all
of
the
following
except
in
the
case
where
any
of
the
following
may
have
been
done
prior
to
the
date
of
this
Agreement,
namely:
(o)
Attend
to
.
.
.
preparation
of
the
Townhouse
Unit
for
rental
.
.
.
5.07
In
the
event
that
Thomas
Hartshorne
is
unable
to
have
the
development
certified
as
a
M.U.R.B.
within
the
meaning
of
Class
3+
of
Schedule
“B”
of
the
Regulations
made
pursuant
to
the
Income
Tax
Act
of
Canada
this
shall
not
relieve
either
the
Developer
or
Thomas
Hartshorne
from
their
respective
obligations
hereunder.
The
price
was
$145,000
to
which
the
$10,000
paid
under
the
agreement
of
April
5,
1979
was
applied.
An
additional
$25,000
was
paid
on
the
execution
of
the
agreement.
The
appellant
borrowed
$20,000
from
the
Toronto-
Dominion
Bank
and
produced
$5,000
from
his
savings.
A
new
completion
date
of
March
3,
1980
was
set.
When
construction
was
under
way
the
appellant
unsuccessfully
sought
to
persuade
his
wife's
grandparents,
her
parents
and
his
parents
to
rent
the
property
on
a
long-term
basis.
At
this
time
the
appellant
was
anticipating
a
rental
of
$1,200
to
$1,600
per
month.
The
appellant's
mother
testified
that
she
and
her
husband
preferred
remaining
in
Saskatchewan
with
their
friends
to
retiring
in
Victoria.
On
June
20,
1979
the
corporation
wrote
the
appellant
forwarding
a
copy
of
the
agreement
for
sale
for
his
files.
The
second
paragraph
reads:
I
should
like
to
express
our
gratitude
for
the
confidence
which
you
have
displayed
by
investing
in
our
development.
We
are
most
confident
about
the
poten-
tial
of
this
development
from
an
investment
standpoint
and
can
ensure
you
that
we
will
be
giving
a
100%
effort
in
our
attempt
to
service
you
in
the
manner
that
you
might
expect.
On
September
18,
1979
the
appellant
borrowed
$43,000
from
the
Canadian
Imperial
Bank
of
Commerce
for
the
specified
purpose
of
investing
in
Dome
Petroleum
stock
through
a
brokerage
account
with
Midland,
Doherty
Ltd.
It
was
a
condition
of
the
loan
that
the
stock
would
be
sold
within
three
months
and
the
proceeds
applied
in
repayment
of
the
loan.
Sometime
prior
to
when
the
matter
of
acquiring
the
property
arose,
the
appellant
had
invested
in
the
making
of
a
film.
In
computing
his
income
he
had
made
deductions
in
respect
of
this
investment.
The
upshot
was
that
he
was
reassessed
by
the
respondent
and,
with
interest,
he
faced
an
unanticipated
debt
of
about
$30,000.
Revenue
Canada
pressed
for
payment
and
indicated
its
intention
of
resorting
to
stringent
collection
procedures.
This
was
coming
to
a
head
in
November
of
1979.
The
appellant
was
unable
to
borrow
more
money
to
pay
Revenue
Canada
whereupon
he
decided
to
sell
his
shares
in
Dome
Petroleum.
The
stock
was
down
when
this
decision
was
taken,
but
he
was
confident
it
would
soon
rise
significantly.
Nevertheless,
on
November
19
he
closed
his
account
with
Midland,
Doherty
Ltd.
and
received
$27,000,
which
was
a
substantial
loss.
These
funds
were
paid
to
Revenue
Canada.
The
manager
of
the
branch
of
the
Bank
of
Commerce
where
the
appellant
borrowed
the
$43,000
learned
of
these
things
and
on
November
23,
1979
he
sent
a
letter
to
the
appellant
by
messenger.
After
reciting
the
fact
of
the
loan
having
been
made,
its
purpose,
the
condition
of
repayment,
the
closing
of
the
brokerage
account
and
the
payment
to
Revenue
Canada,
he
went
on:
As
indicated
above,
we
are
aware
that
you
have
actually
sold
the
stock,
withdrawn
the
funds,
and
used
them
for
purposes
other
than
retiring
loans.
Accordingly,
we
now
request
that
you
return
the
$27,000.00
to
this
branch
by
3:00
P.M.
Friday,
November
23rd,
1979,
failing
which
we
will
have
no
recourse
other
than
to
call
our
loan,
apply
any
outstanding
balances
in
your
current
account
to
loans
and
refuse
payment
of
any
cheques
presented
to
us.
We
can
only
add
that
we
are
very
disappointed
in
the
action
you
have
taken.
The
appellant
then
turned
to
the
Bank
of
British
Columbia
for
financial
help
which
was
forthcoming.
It
was
at
about
this
time
that
he
decided
to
sell
the
property.
Succinctly
stated
this
followed:
March
5,
1980
the
corporation
writes
the
appellant
that
the
completion
date
is
drawing
near
and
offers
to
rent
the
property
for
one-half
of
the
first
month's
rent
and
a
management
fee
of
$60
per
month,
owners'
responsibilities
to
include
a
monthly
maintenance
fee
of
$90
and
annual
taxes
of
approximately
$2,000;
March
31,
1980
the
appellant
completes
a
form
of
questionnaire
provided
by
the
corporation
regarding
renting
the
property
in
which
he
states
he
is
planning
to
rent,
but
adds
in
his
handwriting
“If
not
sold
first”
and
authorizes
the
corporation
to
lease
the
property
for
one
year
with
a
possible
option
to
renew
at
the
corporation's
suggested
rental
for
D
units
of
$1,100
per
month
"Subject
to
prior
sale”,
which
is
also
in
the
appellant’s
handwriting;
June
15,
1980
appellant
enters
into
a
one
year
mortgage
agreement
for
$131,000
with
interest
at
13
per
cent
per
annum
and
monthly
payments
of
$1,478
commencing
July
15,
1980;
August
15,
1980
appellant
lists
the
property
for
sale
at
$185,000
with
the
multiple
listing
service
of
the
Victoria
Real
Estate
Board;
August
29,
1980
the
appellant
executes
an
assignment
of
rents
in
favour
of
the
mortgagee
and
on
the
same
date
the
corporation
transfers
the
property
to
the
appellant;
September
7,
1980
the
appellant
enters
into
an
interim
agreement
to
sell
the
property
to
Denis
W.
Sullivan
for
$190,000;
October
6,
1980
appellant
retires
the
$20,000
loan
received
from
the
Toronto-Dominion
Bank
with
funds
received
from
the
$131,000
mortgage
and
on
November
20,
1980
the
appellant
transfers
the
property
to
Sullivan.
Mention
is
also
made
of
these
additional
matters.
The
appellant
entered
into
a
limited
partnership
named
Uplands
Estates
Limited
Partnership
as
a
limited
partner.
Its
purpose
was
to
construct
and
sell
ten
houses
as
the
second
phase
of
the
Uplands
development.
Financial
statements
in
evidence
prepared
by
a
firm
of
chartered
accountants
indicate
the
partnership
was
formed
in
August
1980.
This
was
an
admitted
business.
It
was
unsuccessful
and
the
appellant
lost
money.
There
is
in
evidence
a
letter
to
the
appellant
from
the
Bank
of
British
Columbia
in
which
it
is
said
that
in
midOctober
1980
the
bank
requested
the
appellant
to
sell
the
property
so
that
he
could
reduce
his
indebtedness.
By
this
time
the
decision
to
sell
had
already
been
taken.
As
previously
indicated,
the
appellant
authorized
the
renting
of
the
property
for
$1,100
per
month
when
facing
substantial
mortgage
payments
that
turned
out
to
be
$1,478
per
month
and,
in
addition,
there
was
a
monthly
maintenance
fee
of
$90
plus
annual
taxes
of
about
$2,000.
All
this
transpired
after
the
decision
to
sell
had
been
made.
The
appellant
indicated
that
if,
while
he
still
intended
to
hold
the
property
indefinitely,
he
had
been
faced
with
a
shortfall
he
was
prepared,
because
of
his
desire
to
have
the
property,
to
absorb
the
deficiency
until
it
was
overtaken
by
the
rent.
In
this
regard
reference
was
made
to
deductions
for
capital
cost
allowance.
In
Hall
et
al.
v.
The
Queen,
[1986]
1
C.T.C.
399;
86
D.T.C.
6209,
Mr.
Justice
Collier
said
at
(D.T.C.
6213):
.
.
.
all
these
cases
involving
capital
gain
versus
income,
or
adventure
in
the
nature
of
trade,
must
depend
on
their
own
particular
facts.
This
was
pointed
out
by
Judson,
J.
in
Regal
Heights
Limited
v.
M.N.R.,
[1960]
S.C.R.
902
at
907;
[1960]
C.T.C.
384
at
390.
I
refer
also
to
the
comment
of
Kerwin,
C.
J.
in
McIntosh
v.
M.N.R.,
[1958]
S.C.R.
119
at
121;
[1958]
C.T.C.
18
at
20:
It
is
impossible
to
lay
down
a
test
that
will
meet
the
multifarious
circumstances
that
may
arise
in
all
fields
of
human
endeavour
.
.
.
it
is
a
question
of
fact
in
each
case
.
.
.
If,
at
the
time
of
entering
into
the
joint
venture
agreement
of
June
4,
1979,
it
was
the
appellant's
intention
to
acquire
the
property
as
a
long-term
investment
in
a
rental
asset
and
eventual
residence,
the
appeal
succeeds.
The
onus
of
establishing
this
intention
on
the
balance
of
probability
rests
on
the
appellant.
If
this
burden
of
proof
is
not
discharged
the
respondent's
reassessment
stands.
The
part
of
the
preamble
to
the
agreement
previously
quoted
is
not,
strictly
speaking,
accurate.
The
agreement
of
April
5,
1979
does
not
make
specific
reference
to
constructing
the
townhouse
for
the
purpose
of
gaining
rental
income
from
it.
This,
however,
does
not
preclude
there
having
been
an
understanding
to
this
effect
on
April
5
that
was
not
reduced
to
writing
until
June
4,
1979.
Neither
the
portion
of
the
preamble
nor
any
of
the
clauses
cited
from
the
agreement
of
June
4,
1979
were
challenged
as
being
self-serving
documentation
prepared
in
anticipation
of
a
potential
dispute
with
the
tax
collector.
The
same
applies
to
the
letter
addressed
to
the
appellant
from
the
corporation
dated
June
20,
1979.
The
only
question
asked
in
cross-examination
regarding
these
things
was
whether
the
appellant
understood
the
meaning
of
clause
1.01
to
which
he
replied
yes.
Nothing
about
this
was
said
by
counsel
in
the
course
of
argument
about
the
preamble
or
the
clauses.
In
these
circumstances
I
believe
that
the
passages
quoted
can
be
regarded
as
sufficiently
authentic
that
they
may
be
placed
in
the
scale
on
the
side
of
the
appellant.
They
are
not
conclusive
but
are
something
to
be
weighed
along
with
all
other
relevant
evidence
adduced.
I
am
not
suggesting
that
all
unchallenged
documentation
that
might
be
regarded
as
self-serving
is
to
be
given
weight.
A
document
may
be
or
contain
a
statement
that
is
so
blatantly
self-serving
and
made
in
anticipation
of
a
dispute
over
tax
liability
that
it
is
self-destructive
of
any
evidentiary
value.
To
my
mind
a
good
and
recent
example
of
this
is
to
be
found
in
Brussels
Steel
Corp.
v.
The
Queen,
[1986]
1
C.T.C.
180;
86
D.T.C.
6077
(F.C.T.D.).
The
plaintiff
had
entered
into
a
contract
with
Newfoundland
Steel
Corporation
for
the
purchase
of
steel
rods
that
it
intended
to
sell
in
the
course
of
its
business.
The
steel
corporation
defaulted
and
paid
the
plaintiff
$478,773
in
settlement
of
a
claim
for
breach
of
contract.
The
issue
was
whether
this
sum
was
compensation
for
the
loss
of
a
capital
asset
and
therefore
a
capital
receipt
as
contended
by
the
plaintiff
or
an
income
receipt
received
in
the
normal
course
of
business.
Mr.
Justice
Joyal
held
that
it
was
the
latter.
The
instrument
of
settlement
regarding
the
$478,773
contained
this
paragraph.
It
was
included
at
the
insistence
of
the
plaintiff:
8.
The
present
settlement
constitutes
a
transaction
of
the
claim
which
the
Plaintiff
has
made
against
the
Defendant
herein
and
the
Plaintiff
represents,
which
representation
is
neither
admitted
nor
denied
by
Defendant,
that
the
amount
of
settlement
is
for
the
loss
of
Plaintiff’s
enduring
capital
trading
assets
in
steel
reinforcing
bars,
the
loss
of
which
said
capital
assets
has
seriously
affected
the
Plaintiffs
capital
structure
and
has
deprived
it
of
an
enduring
trading
asset
and
Plaintiff
further
represents,
which
representation
is
neither
admitted
nor
denied
by
Defendant,
that
any
and
all
amounts
paid
in
settlement
are
in
no
way
compensation
for
income
or
replacement
of
income
which
might
otherwise
have
been
earned
by
Plaintiff
from
the
said
capital
assets.
In
my
opinion
this
sort
of
thing
can
positively
harm
rather
than
benefit
a
taxpayer
because
of
its
capability
of
being
construed
as
a
calculated
distortion.
When
all
that
is
pertinent
is
considered,
I
am
satisfied
that
in
acquiring
the
land
the
exclusive
motivating
intention
of
the
appellant
that
is
relevant
to
the
determination
of
tax
implications
was
to
make
a
long-term
investment
in
a
capital
asset.
Sequentially
the
proceeds
of
disposition
of
the
asset
are
capital
in
nature.
While
the
lapse
of
time
between
acquisition
and
occupation
of
the
property
as
a
residence
would
have
been
very
substantial,
it
is
still
within
plausible
limits.
The
appellant’s
willingness
to
absorb
the
difference
between
rental
income
and
expenses
is
also
plausible
in
the
context
of
his
long-term
plan.
The
appellant
was
in
serious
financial
difficulties
in
November
1979.
The
sale
of
the
Dome
Petroleum
stock
and
turning
the
proceeds
over
to
Revenue
Canada
was
an
act
of
desperation.
That
in
these
conditions
he
would
jettison
his
protracted
intentions
for
the
property
in
favour
of
securing
ameliorating
cash
is
quite
credible.
The
appeal
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
profit
from
the
sale
of
the
property
is
a
capital
gain.
The
appellant
is
entitled
to
party
and
party
costs.
Appeal
allowed.
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