F J) Lamb Farming LTD v. Minister of National Revenue, [1985] 2 CTC 2320

Goetz, TCJ [ORALLY]:—This is an appeal by F J Lamb Farming Ltd with respect to its 1979 taxation year. Mr F Lamb is the moving force of the appellant and started farming after the Second World War with a grant from the Veterans' Land Act. His farm, which he has augmented to 22 quarter sections, is located near the Lloydminster area. There is no doubt about it that he was a successful farmer and is still active on the farm.

The issue of course is the purchase by Mr Lamb in 1958 of 80 acres of land on the perimeter of the City of Saskatoon, Saskatchewan, and located immediately south of the airport. This parcel of land would be such a distance from his whole farming operation that it would have to be a completely separate operation in itself.

Mr Lamb learned of the land from a friend by the name of Barnes who had a business in the Lloydminster area and who had become a real estate agent. He approached Mr Lamb about the purchase of this piece of property. Mr Lamb then went to see the land at that time being farmed by a tenant, and he arranged with the tenant to continue farming that acreage (about 76 acres were arable) whereby the tenant did lease on a one-third, two-thirds crop-share arrangement. He did continue leasing the land for well over 20 years.

Mr Lamb was asked why he bought this 80-acre farm so far removed from his regular farming operation, and he simply stated that he wanted a place for his son who was going to university and he wanted to settle there.

From the time of purchase of this land, Mr Lamb received a number of offers for sale which he refused. A significant document, which has weighed rather heavily on me, is that agency agreement entered into between Barnes and Mr Lamb shortly after the purchase of the land and this agreement is dated February 16, 1959.

A Mr Webster comes into the picture, he being a consulting engineer who would be interested in the physical aspects and possible development of the 80 acres.

The agency agreement mentioned above gives Barnes, subject to Mr Lamb’s approval, the right to take all steps to get the property zoned and developed and in the process Webster had to be brought into the scene.

The efforts by Barnes and Webster carried on for quite some time and in the meanwhile the City wanted to rezone the land as a greenbelt surrounding the City. Somewhere in the 1960s Mr Lamb incorporated what I would consider as a farming company and all of the land he held at that time, including the property in question, became assets of the company.

Up to this point I feel that the things done by Mr Lamb or those on his behalf, were clearly directed to the development of the property and to the sale at a profit of course. I cannot escape that conclusion from all of what transpired.

Admittedly, Mr Lamb became rather disheartened in August 1969, when he received a letter from the airport manager and he had to take action against the City of Saskatoon, he says, to cease and desist. It was becoming a real headache to him. The rental of the property was enough to cover the taxes and while he had a farm agreement with the City, that was subsequently changed and the taxes became higher and it was a weight on his back but he had to wait it out which, in fact, he did.

The crucial area is in facing the eloquent argument of counsel for the appellant, whereby there was, as he says, an intention of determination by Mr Lamb and that occurred when Mr Lamb told Barnes and Webster that he was no longer interested in fighting the City of Saskatoon and he had no hope of doing anything after that letter from the airport manager, as he stated.

From that point on until Mr Lamb received an option from BLT Holdings Ltd to buy the land in April 1978, the farm carried on in the same way as it had during the 20 following his purchase of the land, and nothing had changed.

In itself and by itself that land is not and could not be considered a viable investment for a farming business or the capital investment for a farming business.

With the decision by Mr Lamb in 1971 and 1972 to throw up his hands, I would consider up to that point in time that the land was an inventory item because all efforts were directed to use it as an inventory item and for sale. It is that disengagement that Mr Kohaly refers to combined with the state of frustration encountered by Mr Lamb, that either will result in the granting of the appeal or its dismissal. I do not think there was a sufficient change in the position of Mr Lamb in his efforts to get the land subdivided, developed and ultimately sold.

I would read from my colleague Judge Bonner's decision in the case of Dartmouth Developments Ltd v MNR, [1979] CTC 2611; 79 DTC 545, wherein he cites with approval, at 2615 (DTC 548):

The decision of Jackett, CJ in Les Entreprises Chelsea Limitée v Minister of National Revenue, [1970] CTC 598; 70 DTC 6379, is of importance on one point, in my consideration of the issue here involved.

Jackett, CJ states:

“In my view where one finds such a business, as long as there continues to be land of the original inventory of the business on the ownership of the company, it is reasonable to assume that the business has not been brought to an end in the absence of some evidence that something has been done to bring the business to an end, as, for example, where the corporation takes the land out of the business and dedicates it to the creation of some structure to be used as the capital asset of another business.”

This example is undoubtedly only one of possibly several acts which can be interpreted as showing a definite change of position following which land so acquired can be deemed to have become a capital asset. It, however, requires some positive step or act to effect such change. No such step or act is found here.

I find that this statement by Jackett, CJ, compels me to the conclusion that there was not a sufficient termination or disengagement on the part of the appellant to convert what to me was clearly an inventory item, to a Capital assets, because, as subsequently noted, after the option agreement was entered into it was ultimately sold in 1979 for the sum of money as set out in the pleadings.

That being so I would also refer to a decision referred to by counsel for the respondent in Edmund Peachey Ltd v The Queen, [1979] CTC 51; 79 DTC 5064, a decision of Heald, J and I will just read from the [DTC] head- note which is close enough to the situation:

The Court found it clearly established that the basic intention of the taxpayer from the time of purchase to the time of sale, was to sell the land whether via the house building route or the undeveloped land route. Accordingly, the character of the land did not change from inventory to capital asset with the cessation of house building.

That would be comparable to Mr Lamb telling Mr Barnes and Mr Webster that he did not want them any more.

For the reasons stated above, I dismiss the appeal.

Appeal dismissed.