Christie,
ACJTC:—This
appeal
relates
to
the
appellant’s
1980
taxation
year.
The
issue
is
whether
the
profit
which
he
made
on
the
purchase
and
resale
of
certain
real
estate
is
a
capital
gain
or
taxable
in
his
hands
as
ordinary
income.
The
appellant
is
a
graduate
of
McMaster
University
which
conferred
on
him
the
degrees
of
Bachelor
of
Commerce
and
Master
of
Business
Administration.
From
1972
until
1977
he
worked
as
controller
for
Mr
Ernie
Geisel,
a
real
estate
broker
and
property
manager.
On
September
23,
1977,
the
appellant
purchased
Geisel’s
property
management
business
effective
October
1,
1977.
The
sale
of
the
business
consisted
primarily
of
the
assignment
by
Geisel
to
the
appellant
of
the
former's
interest
in
a
number
of
management
contracts
pertaining
to
apartment
properties
listed
in
a
schedule
to
the
agreement.
The
agreement
gives
the
appellant
the
right
to
assign
his
interest
in
the
property
management
contracts
to
Jordan
Management
Ltd,
a
corporation
entirely
owned
and
controlled
by
the
appellant.
The
parties
“acknowledge"
the
appellant's
intention
to
change
the
name
of
jordan
Management
Ltd
to
Jordan
and
Geisel
Management
Ltd.
Geisel
and
the
appellant
agreed
not
to
compete
with
each
other
for
five
years.
Clauses
7,
10
and
11
of
the
agreement
provide:
7.
The
Parties
agree
that
it
is
not
the
intention
to
advise
the
property
owners
of
the
within
assignment
forthwith
on
the
effective
date
but
rather
that
they
would
advise
the
property
owners
at
opportune
moments
in
consultation
between
each
other
and
further
shall
endeavour
to
enter
into
new
management
contracts
with
the
said
property
owners
at
such
opportune
moments.
10.
Geisel
hereby
agrees
that
he
shall
at
all
times
endeavour
to
procure
for
Jordan
management
contracts
on
any
building
that
is
either
purchased
or
sold
through
his
business
as
realtor.
11.
Jordan
hereby
agrees
that
he
shall
endeavour
to
have
the
owners
of
any
property
that
he
is
managing
enlist
the
services
of
Geisel
as
realtor
for
the
purchase
or
sale
of
any
property
of
such
owner.
The
reason
for
changing
the
name
of
Jordan
Management
Ltd
and
for
clause
78
was
that,
of
the
approximately
800
apartment
units
under
management
by
Geisel
in
September
1977,
three
quarters
were
owned
by
residents
of
Germany.
Geisel
is
of
German
origin
and
there
was
concern
that
his
German
clients
might
wish
to
make
different
arrangements
for
the
management
of
their
properties
when
they
became
aware
of
the
altered
relationship
between
the
appellant
and
Geisel.
In
fact
there
were
some
initial
difficulties
with
respect
to
the
appellant's
acceptability
by
Geisel’s
former
clients.
Particular
reference
was
made
in
the
evidence
to
a
Dr
Stoffels
about
whom
more
will
be
said
later.
These
difficulties,
however,
ironed
out
in
a
manner
favourable
to
the
appellant
and
he
retained
their
patronage.
Among
the
things
which
the
appellant
did
as
controller
for
Geisel
was
to
prepare
financial
statements
regarding
apartments
owned
by
persons
in
Germany
and
report
to
them.
Early
in
1979
the
appellant
was
approached
by
Mr
Donald
B
Schroeder,
who
is
his
counsel
on
this
appeal,
regarding
a
59-unit
apartment
building
called
Vernon
Towers
at
125
Forest
Avenue,
Hamilton
("the
property").
Schroeder
was
acting
in
relation
to
an
estate
and
was
considering
the
prospect
of
trading
a
farm
forming
part
of
it
for
the
property.
Difficulties
had
been
encountered
in
selling
the
farm.
On
January
17,
1979,
the
appellant
wrote
Schroeder
as
follows:
Pursuant
to
your
instructions,
I
have
examined
the
above-referenced
property
on
the
understanding
that
the
present
owner
is
willing
to
trade
125
Forest
Avenue
for
the
farm
now
controlled
by
the
estate
you
represent.
If
an
even
trade
was
made
this
would
translate
into
a
value
of
$758,000.
for
the
apartment
building
based
upon
the
assumption
that
the
estate
would
value
their
property
at
$165,000.
net.
A
price
of
$758,000.
is
approx
$12,800.
per
suite
(59
suites)
which
is
very
good
value.
This
price
would
mean
a
return
of
approx
7.8%
on
the
downpayment
considering
the
current
operating
situation
in
the
building.
I
think
this
return
could
be
substantially
increased
in
the
next
6-12
months
which
would
mean
that
the
building
could
be
sold
for
a
considerably
higher
price.
Based
upon
my
investigation
of
the
building,
I
would
like
to
offer
the
estate
two
alternatives.
Firstly,
if
the
estate
would
trade
their
property
for
the
apartment
building
/
would
purchase
the
apartment
building
outright
from
the
estate
for
$165,000.
net.
Secondly,
if
the
estate
chooses
to
retain
the
building,
I
would
manage
the
building
for
the
estate
at
a
management
fee
of
4%
of
revenues
plus
$35.
for
each
new
lease
for
at
least
one
year.
I
think
I
would
be
able
to
sell
the
building
within
a
year
and
show
the
estate
a
good
increase
in
value.
My
fee
for
this
would
be
5%
on
the
first
$100,000.
of
selling
price
and
3%
thereafter.
I
think
the
building
represents
good
value
and
is
quite
sellable
and
this
is
why
I
am
prepared
to
buy
it
myself.
[Emphasis
supplied.]
At
this
time
the
number
of
apartment
units
being
managed
by
Jordan
and
Geisel
Management
Ltd
("the
company")
had
increased
to
about
1,200.
At
the
time
of
the
hearing
of
this
appeal
the
number
had
further
increased
to
2,200.
The
farm
was
traded
for
the
property
and
on
March
1,
1979,
the
appellant
purchased
the
property
from
the
estate.
The
evidence
regarding
the
terms
and
financing
of
the
purchase,
while
not
varying
a
great
deal,
is
not
entirely
consistent.
The
pleadings
are
also
inconsistent
with
the
evidence.
My
reconciliation
of
this
is
that
the
appellant
paid
the
estate
$758,256,
which
included
about
$9,000
for
chattels.
There
was
a
first
mortgage
of
$425,256
at
10.5
per
cent
interest
due
on
August
1,
1982
and
a
second
mortgage
of
$168,000
at
eight
per
cent
interest
due
on
September
1,
1987.
A
cash
payment
of
$165,000
was
made
of
which
$140,000
was
borrowed
by
the
company
from
a
bank
at
prime
plus
one.
These
funds
were
turned
over
by
the
company
to
the
appellant
to
be
used
by
him
in
financing
the
purchase
of
the
property.
The
prime
rate
of
the
lending
bank
at
the
time
was
12
per
cent.
The
balance
of
the
down
payment
was
from
the
appellant’s
funds.
I
add,
however,
that
cross-examination
of
the
appellant
indicated
that
the
amount
of
unborrowed
funds
used
in
the
down
payment
may
have
been
as
low
as
$8,500.
This
point
was
not
satisfactorily
resolved
by
re-examination.
After
purchasing
the
property
the
appellant
renamed
it
“Jordan
Place".
He
then
proceeded
to
make
what
he
described
as
"cosmetic
changes"
to
it
which
included
painting
the
balconies,
redecorating
the
lobby
and
tile
work.
The
appellant
spoke
of
generally
"sprucing
up"
the
outside
of
the
building
to
make
it
attractive.
The
appellant
said
all
this
"really
enhanced
the
image
of
the
building."
He
encountered
"many
tenant
problems"
which
he
proceeded
to
resolve
by
getting
rid
of
them
and
replacing
them
with
other
tenants
which
he
regarded
as
more
satisfactory.
In
the
first
year
there
were
50
to
60
turnovers
in
the
rental
of
apartments.
Some
changed
hands
twice.
The
appellant
stated:
“1
think
at
almost
the
end
of
the
first
year,
a
little
after
that,
we
felt
we
had
turned
over
the
whole
building
in
terms
of
number
of
units/'
In
the
result
there
was,
in
the
view
of
the
appellant,
"a
much
upgraded
tenant
mix".
Rents
were
increased.
Prior
to
purchasing
the
property
the
appellant
carried
on
business
at
244
King
St
East,
Hamilton,
on
a
month
to
month
tenancy.
He
gave
as
one
of
the
reasons
for
purchasing
the
property
the
fact
that
it
was
so
constructed
that
the
ground
floor
was
easily
adaptable
to
conversion
to
office
space
from
which
to
run
his
property
management
business.
All
of
the
space
that
could,
according
to
legal
requirements,
be
dedicated
to
apartments
in
the
building
had
been
so
dedicated
and
the
proposed
office
space
was
extra.
A
firm
of
design
engineers
prepared
a
set
of
office
plans
in
July
1979.
Under
existing
zoning
laws
the
property
was
restricted
to
500
to
600
square
feet
for
office
space
and
this
space
could
only
be
used
for
the
purposes
of
managing
the
property.
This
would
not
allow
for
what
the
appellant
had
in
mind
which
was
to
use
the
office
for
the
whole
of
his
property
management
business.
Acting
on
legal
advice
he
achieved
what
he
wanted
in
two
stages:
first,
on
March
18,
1980,
he
secured
an
acceptable
increase
in
square
footage
for
office
space
from
the
Committee
of
Adjustments
of
the
City
of
Hamilton.
The
Committee
however
imposed
a
condition
that
the
space
“be
used
only
for
office
purposes
in
conjunction
with”
the
property.
At
some
unspecified
time
during
the
summer
of
1980
the
Ontario
Municipal
Board
effected
a
change
in
zoning
of
the
office
space
from
residential
to
commercial.
This
met
the
appellant’s
requirements.
Renovations
followed
and
he
occupied
the
office
space
in
February
1981
and
continues
to
do
so
to
the
present.
In
November
1979,
Stoffels,
a
German
real
estate
broker
and
former
client
of
Geisel,
was
in
Hamilton
regarding
apartments
which
were
owned
by
residents
of
Germany
and
managed
by
the
company.
The
appellant
had
previously
met
Stoffels
in
1975
and
1976.
He
introduced
him
to
a
Hamilton
real
estate
agent,
Michael
Struss.
Stoffels
showed
interest
in
an
apartment
building
one
and
one-half
blocks
from
the
property,
but
nothing
came
of
this.
He
learned
of
the
appellant’s
ownership
of
the
property
and
they
discussed
its
possible
sale.
Stoffels
returned
to
Germany
to
consult
with
clients
and
the
upshot
was
that
in
January
1980
he
telephoned
the
appellant
who
described
him
as
being
"quite
serious"
about
buying
the
property.
The
appellant
described
the
proposed
price
in
this
way:
“It
afforded
me
a
chance
to
make
the
biggest
profit
I
had
ever
made
in
my
life
and
I
was
quite
excited
about
it".
An
agreement
for
sale
of
three
quarters
of
the
property
was
entered
into
in
February
1980,
effective
April
1,
1980.
The
purchasers
were
German
clients
of
Stoffels.
Paragraph
10(b)
of
the
reply
to
the
notice
of
appeal
describes
the
price
as
"208,200
cash,
and
the
assumption
of
mortgages
in
the
amount
of
$445,125
and
$6,000
for
the
chattels".
The
appellant
agreed
with
these
figures.
Included
in
the
25
per
cent
retained
by
him
was
the
office
space.
In
February
or
March
of
1982
the
appellant
sold
his
remaining
25
per
cent
to
another
of
Stoffels’
clients.
He
gave
this
as
the
reason:
Well,
at
that
time
I
suppose
my
first
mortgage
was
becoming
due
on
August
1,
1982,
and
the
other
German
partners
had
a
lot
of
cash
and
they
wanted
to
pay
off
the
mortgage,
which
was
not
a
bad
decision,
but
it
required
$100,000
from
each
partner.
The
mortgage
was
$412,000.
I
didn’t
want
to
invest
that
kind
of
money
in
the
building
and
I
was
able
to
.
.
.
Dr
Stoffels
had
a
client
who
wanted
to
buy
it.
The
appellant
continued
to
manage
the
property.
The
conditions
under
which
he
continued
to
occupy
the
office
space
were
not
disclosed.
The
appellant
has
some
history
of
dealing
in
real
estate
on
his
own
account
but,
in
my
opinion,
it
is
not
sufficiently
extensive
nor
is
its
quality
such
that
it
can
properly
have
any
bearing
on
the
outcome
of
this
appeal.
For
the
purposes
of
this
litigation,
I
regard
the
purchase
and
subsequent
sale
of
the
property
by
the
appellant
as
being
in
the
nature
of
an
isolated
transaction.
If
the
evidence
establishes
that
at
the
time
of
the
acquisition
of
the
property
the
sole
motivating
intention
of
the
appellant
was
to
retain
the
property
as
an
investment,
ie
as
a
revenue
producing
asset,
the
profit
on
the
resale
was
a
Capital
gain.
In
considering
the
evidence
in
cases
like
this
the
matter
of
“secondary
intention”
in
relation
to
“trading
cases”
must
also
be
borne
in
mind.
This
concept
appears
to
have
originated
with
the
judgment
of
Thurlow,
J
(as
he
then
was)
in
Bayridge
Estates
Ltd
v
MNR,
[1959]
CTC
158;
59
DTC
1098.
The
appellant
was
incorporated
in
1951
and
in
its
first
year
it
purchased
and
resold
undeveloped
land
and
treated
the
profit
as
business
income.
In
August
1952
it
bought
another
parcel
of
undeveloped
land
with
the
intention
of
constructing
and
operating
a
motel
and
service
station
as
an
investment.
The
appellant
was
unable
to
finance
the
project
and
it
sold
the
land
in
June
1953
realizing
a
substantial
profit.
It
was
unsuccessfully
alleged
that
the
profit
was
a
non-taxable
capital
gain.
Mr
Justice
Thurlow
stated
at
164-65
(DTC
1101-2):
In
the
present
case,
the
evidence,
in
my
opinion,
points
to
the
conclusion
that
the
property
was
acquired
with
the
overall
intention
of
turning
it
to
account
for
profit.
The
method
favoured
by
the
directors
by
which
this
intention
was
to
be
carried
out
was
that
of
developing
the
property
as
the
site
of
a
motel
and
service
station
if
the
moneys
necessary
to
carry
out
that
purpose
could
conveniently
be
borrowed,
and
for
that
reason
they
turned
down
the
early
offers
received
for
the
property.
They
intended,
however,
if
such
moneys
could
not
conveniently
be
borrowed,
to
turn
the
property
to
account
for
profit
in
any
way
that
might
present
itself,
and
in
my
opinion
such
ways
included
sale
of
the
property.
In
purchasing
the
property,
the
directors
relied
on
their
own
knowledge
of
real
estate
and
acted
without
any
independent
appraisal
of
the
property,
and
in
the
transaction
they
committed
the
bulk
of
their
company’s
financial
resources
for
an
unproductive,
but
saleable,
property.
I
am
far
from
satisfied
that
men
of
their
ability
and
experience
would
have
done
this
for
the
purpose
of
building
a
motel
and
service
station
without
having
arranged
for
the
funds
to
finance
this
construction
and
without,
at
the
same
time,
having
in
mind
the
most
obvious
alternative
course
open
to
them
for
turning
the
property
to
account
for
profit.
Despite
their
optimism
the
possibility,
if
not
the
probability,
of
their
not
being
able
to
obtain
the
necessary
loan
must,
in
my
opinion,
have
been
present
in
their
minds,
and
the
experience
of
the
appellant’s
first
project
alone
would
have
suggested
both
the
necessity
for
an
alternative
course
and
the
availability
of
the
alternative
course
which
was
in
fact
followed
less
than
a
year
after
the
property
was
purchased.
To
my
mind,
it
is
not
without
significance
that
that
course
was
the
only
alternative
course
considered
and
that
it
was
decided
upon
as
the
only
thing
left
to
do.
In
my
opinion,
the
sale
of
the
property
for
profit
was
one
of
the
several
alternative
purposes
for
which
the
property
was
acquired,
and
it
was
in
the
carrying
out
of
that
alternative
purpose,
when
it
became
clear
that
the
preferred
purpose
was
unattainable,
that
the
profit
in
question
was
made.
It
was,
accordingly,
a
profit
made
in
an
operation
of
business
in
carrying
out
a
scheme
for
profit-making
and
was
properly
assessed.
In
Regal
Heights
Ltd
v
MNR,
[1960]
CTC
46;
60
DTC
1041,
the
appellant
again
unsuccessfully
took
the
position
that
the
profit
realized
on
the
sale
of
land
was
a
non-taxable
capital
gain.
For
present
purposes
the
relevant
facts
are
set
out
in
this
extract
from
the
headnote:
The
appellant
private
company
was
incorporated
in
1954
and
took
over
the
assets
of
a
partnership,
the
four
partners
becoming
the
sole
shareholders
of
the
new
corporation.
The
partnership
had
acquired
about
40
acres
of
land
in
the
city
of
Calgary
with
the
intention
of
building
a
shopping
centre
thereon
for
the
purpose
of
obtaining
rental
income.
Several
large
retailing
organizations
were
approached
but
no
definite
commitment
could
be
obtained.
When
it
was
learned
that
Simpson-Sears
had
decided
to
build
a
shopping
centre
some
two
miles
from
the
appellant
company’s
site,
it
was
decided
to
dispose
of
the
property
and
to
wind
up
the
company.
The
land
was
resold
in
three
large
parcels
in
1954
and
1955,
with
a
profit.
The
Minister
assessing
this
profit
as
income
in
the
company’s
hands.
In
dismissing
the
appeal,
Dumoulin,
J
said
at
51
(DTC
1044):
Such
are
the
facts
in
this
case,
and
before
any
attempt
at
unravelling
the
complexities
of
law
involved,
I
feel
in
duty
bound
to
say
that
Messrs
Cohen,
Raber
and
Belzberg’s
testimonies
substantiate
full
well
the
averment
inserted
in
paragraph
5(b)
of
the
Notice
of
Appeal,
which
I
quote:
.
The
intent
of
the
partnership
was
to
develop
and
construct
a
shopping
centre
for
investment
purposes,
and
it
was
felt
that
to
do
this
successfully
it
was
first
necessary
to
have
a
major
chain
department
store
to
locate
in
the
centre
and
to
act
as
nucleus.”
The
primary
and
preponderant
aim,
this
much
l
readily
grant;
on
the
other
hand,
was
there
not
the
alternate,
unescapably
foreseen
loop-hole
of
a
profitable
disposal
of
the
land,
should
major
expectations
fail
to
materialize
as,
for
instance,
recently
found
in
the
matters
of
Fogel
v
MNR,
[1959]
CTC
227,
and
more
particularly
still
in
Bay
ridge
Estates
Limited
v
MNR,
[1959]
CTC
158.
His
Lordship
went
on
at
54
(DTC
1045):
Does
a
primary
purpose
necessarily
exclude
a
secondary
or
ancillary
one,
meant
to
save
the
day
should
a
“‘bolt
out
of
the
blue”
shatter
all
else?
Highly
competent
and
experienced
business
men
such
as
these
surely
did
not
ignore
there
was
a
second
string
to
their
bow:
the
estate’s
profitable
resale,
should,
peradventure,
the
shopping
centre
one
snap.
A
contrary
opinion
seems
hardly
tenable.
An
appeal
to
the
Supreme
Court
of
Canada
was
dismissed:
[1960]
CTC
384;
60
DTC
1270.
In
delivering
the
judgment
of
the
majority,
Judson,
J
said
at
388
(DTC
1272):
There
is
no
doubt
that
the
primary
aim
of
the
partners
in
the
acquisition
of
these
properties,
and
the
learned
trial
judge
so
found,
was
the
establishment
of
a
shopping
centre
but
he
also
found
that
their
intention
was
to
sell
at
a
profit
if
they
were
unable
to
carry
out
their
primary
aim.
It
is
the
second
finding
which
the
appellant
attacks
as
a
basis
for
the
taxation
of
the
profit
as
income.
The
Minister,
on
the
other
hand,
submits
that
this
finding
is
just
as
strong
and
valid
as
the
first
finding
and
that
the
promoters
had
this
secondary
intention
from
the
beginning.
These
efforts
were
all
of
a
promotional
character.
The
establishment
of
a
regional
shopping
centre
was
always
dependent
upon
the
negotiation
of
a
lease
with
a
major
department
store.
There
is
no
evidence
that
any
such
store
did
anything
more
than
listen
to
the
promoters’
ideas.
There
is,
understandably,
no
evidence
of
any
intention
on
the
part
of
these
promoters
to
build
regardless
of
the
outcome
of
these
negotiations.
There
is
no
evidence
that
these
promoters
had
any
assurance
when
they
entered
upon
this
venture
that
they
could
interest
any
such
department
store.
Their
venture
was
entirely
speculative.
If
it
failed,
the
property
was
a
valuable
property,
as
is
proved
from
the
proceeds
of
the
sales
that
they
made.
There
is
ample
evidence
to
support
the
finding
of
the
learned
trial
Judge
that
this
was
an
undertaking
or
venture
in
the
nature
of
trade,
a
speculation
in
vacant
land.
These
promoters
were
hopeful
of
putting
the
land
to
one
use
but
that
hope
was
not
realized.
They
then
sold
at
a
substantial
profit
and
that
profit,
in
my
opinion,
is
income
and
subject
to
taxation.
The
best*
exposition
of
the
meaning
and
application
of
“secondary
intention”
of
which
I
am
aware
is
this
passage
from
the
judgment
of
Mr
Justice
Noël
in
Racine
et
al
v
MNR,
[1965]
CTC
150
at
159;
65
DTC
5098
at
5103:
In
examining
this
question
whether
the
appellants
had,
at
the
time
of
the
purchase,
what
has
sometimes
been
called
a
“secondary
intention”
of
reselling
the
commercial
enterprise
if
circumstances
made
that
desirable,
it
is
important
to
consider
what
this
idea
involves.
It
is
not,
in
fact,
sufficient
to
find
merely
that
if
a
purchaser
had
stopped
to
think
at
the
moment
of
the
purchase,
he
would
be
obliged
to
admit
that
if
at
the
conclusion
of
the
purchase
an
attractive
offer
were
made
to
him
he
would
resell
it,
for
every
person
buying
a
house
for
his
family,
a
painting
for
his
house,
machinery
for
his
business
or
a
building
for
his
factory
would
be
obliged
to
admit,
if
this
person
were
honest
and
if
the
transaction
were
not
based
exclusively
on
a
sentimental
attachment,
that
if
he
were
offered
a
sufficiently
high
price
a
moment
after
the
purchase,
he
would
resell.
Thus,
it
appears
that
the
fact
alone
that
a
person
buying
a
property
with
the
aim
of
using
it
as
capital
could
be
induced
to
resell
it
if
a
sufficiently
high
price
were
offered
to
him,
is
not
sufficient
to
change
an
acquisition
of
capital
into
an
adventure
in
the
nature
of
trade.
In
fact,
this
is
not
what
must
be
understood
by
a
“secondary
intention”
if
one
wants
to
utilize
this
term.
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.*
Included
in
the
extended
definition
of
“business”
in
subsection
248(1)
of
the
Income
Tax
Act
is
“an
adventure
or
concern
in
the
nature
of
trade”.
In
the
often
cited
case
of
MNR
v
Taylor,
[1956]
CTC
189;
56
DTC
1125,
Thorson,
P
said
at
210
(DTC
1137):
Singleness
or
isolation
of
a
transaction
cannot
be
a
test
of
whether
it
was
an
adventure
in
the
nature
of
trade.
In
Atlantic
Sugar
Refineries
Limited
v
MNR,
[1948]
Ex
CR
622
at
631;
[1948]
CTC
326
at
333,
I
expressed
the
opinion
that
the
fact
that
a
transaction
was
an
isolated
one
did
not
exclude
it
from
the
category
of
trading
or
business
transactions
of
such
a
nature
as
to
attract
tax
to
the
profit
therefrom
and
cited
several
decisions
in
support
of
my
statement.
The
decision
in
that
case
was
affirmed
by
the
Supreme
Court
of
Canada,
[1949]
SCR
706;
[1949]
CTC
196
and
has
been
followed
in
other
cases:
vide,
for
example,
Honeyman
v
MNR,
[1955]
Ex
CR
200
at
208;
[1955]
CTC
151
at
158.
This
does
not
mean
that
the
isolation
or
singleness
of
a
transaction
has
no
bearing
on
whether
it
was
a
business
or
trading
transaction.
On
the
contrary,
it
might
be
a
very
important
factor.
But
“trade”
is
not
the
same
thing
as
“an
adventure
in
the
nature
of
trade”
and
a
transaction
might
well
be
the
latter
without
being
the
former
or
constituting
its
maker
a
“trader”.
And
whatever
merit
the
singleness
or
isolation
of
a
transaction
may
have
in
determining
whether
it
was
a
trading
or
business
transaction
it
has
no
place
at
all
in
determining
whether
it
was
an
adventure
in
the
nature
of
trade.
The
very
word
“adventure”
implies
a
single
or
isolated
transaction
and
it
is
erroneous
to
set
up
its
singleness
or
isolation
as
an
indication
that
it
was
not
an
adventure
in
the
nature
of
trade.
Lord
Simonds
put
the
matter
explicitly
in
Edwards
v
Bairstow
(supra)
when
he
said,
at
page
54:
“The
determination
that
a
transaction
was
not
an
adventure
in
the
nature
of
trade
because
it
was
an
isolated
transaction
was
clearly
wrong
in
law.”
In
my
opinion,
it
may
now
be
taken
as
established
that
the
fact
that
a
person
has
entered
into
only
one
transaction
of
the
kind
under
consideration
has
no
bearing
on
the
question
whether
it
was
an
adventure
in
the
nature
of
trade.
It
is
the
nature
of
the
transaction,
not
its
singleness
or
isolation,
that
is
to
be
determined.
I
have
concluded
that
the
appellant
has
expert
knowledge
regarding
the
management
of
apartment
buildings.
This
stems
from
his
academic
background
and
the
experience
he
has
acquired
since
1972.
The
fact
that
when
he
took
over
Geisel’s
management
business
in
October
1977
there
were
about
800
units
involved
and
at
the
time
of
the
hearing
this
had
grown
to
2,200
is
evidence
of
the
appellant’s
skill
in
his
chosen
commercial
field.
He
retained
Geisel’s
former
German
clients
by
dint
of
the
quality
of
the
services
rendered
by
him.
The
appellant’s
ability
to
fully
appreciate
the
commercial
potential
of
the
property
combined
with
his
knowledge
of
European
sources
of
capital
for
investment
in
apartments
in
Hamilton
is,
I
believe,
what
led
him
to
offer
to
purchase
the
property
in
his
letter
to
Schroeder
of
January
17,
1979.
These
were
the
ideal
ingredients
to
fulfil
the
prediction
made
by
the
appellant
in
that
letter
that
the
property
could
be
sold
within
a
year
at
a
good
profit.
The
German
clients
were
not
only
interested
in
apartment
properties,
but
judging
from
the
evidence
regarding
the
magnitude
of
their
property
holdings
in
Hamilton
some
of
them
at
least
are
persons
of
substantial
wealth.
The
appellant
remarked
that
“they
(German
clients)
want
something
always
mortgage
free".
This
is
consistent
with
the
previously
mentioned
desire
to
pay
off
the
first
mortgage
on
the
property
which
was
in
excess
of
$400,000.
The
construction
which
the
appellant
sought
to
place
on
the
letter
of
January
17
was
that
his
real
interest
was
to
secure
a
contract
to
manage
the
property
and
that
by
offering
to
purchase
it
this
would
enhance
that
opportunity
by
convincing
Schroeder
that
the
acquisition
of
the
property
would
be
a
good
thing
for
the
estate.
The
appellant
said
that
the
offer
to
purchase
was
“bluffing
a
little
bit
on
my
part”,
but
he
admitted
that
the
offer
was
binding
and
that
he
was
prepared
to
honour
it
when
he
made
it.
When
asked
about
potential
purchasers
in
relation
to
the
statement
just
referred
to
in
his
letter
to
Schroeder,
the
appellant
replied:
“I
suppose
I
was
thinking
of
Mr
Geisel’s
clients”.
I
find
it
difficult
to
accept
that
the
appellant,
who
said
his
assets
“weren't
that
strong
at
the
time’
would
offer
to
purchase
a
property
under
circumstances
involving
his
company
borrowing
at
least
$140,000
plus
his
providing
the
balance
of
the
down
payment
with
the
basic
objective
of
increasing
the
management
business
from
1,500
units
to
1,559
plus
new
office
space,
the
adequacy
of
which
was
not
a
certainty
at
the
time.
Furthermore
when
dealing
with
Schroeder
regarding
the
trading
of
the
property
for
the
farm,
the
appellant
prepared
a
document
entitled
“Operating
Statement"
(Exhibit
R-
2)
in
which,
based
on
certain
assumptions
and
calculations,
the
property
could
be
regarded
as
a
reasonably
attractive
investment
at
a
purchase
price
of
$758,000
with
a
cash
down
payment
of
$165,000.
The
inference
to
be
drawn
from
this
document
is
that
the
purchase
as
actually
financed
by
the
appellant
did
not
make
the
property
an
attractive
investment.
While
some
of
the
things
done
by
the
appellant
could
be
regarded
as
consistent
with
an
intention
at
the
time
of
purchasing
the
property
of
retaining
it
as
a
revenue
producing
asset,
eg
the
physical
improvements
and
replacing
the
undesirable
tenants,
these
things
may
also
be
regarded
as
being
in
accord
with
an
intention
at
the
time
of
purchase
to
resell
at
a
profit
at
an
early
favourable
opportunity.
In
my
opinion,
even
if
it
is
conceded
for
the
purposes
of
this
appeal
that
the
appellant’s
intention
at
the
time
of
acquiring
the
property
was
to
retain
it
as
a
revenue-producing
investment,
there
certainly
was,
at
that
time,
a
secondary
intention
as
an
operating
motivation
for
the
purchase,
of
early
resale
at
a
profit
if
this
opportunity
presented
itself.
The
consequence
is
that
the
purchase
and
subsequent
sale
of
the
property
was
an
adventure
in
the
nature
of
trade
and
the
profit
from
it
is
to
be
regarded
as
ordinary
business
income
and
taxable
as
such.
The
appeal
is
dismissed.
Appeal
dismissed.
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