Jan Reiss v. Minister of National Revenue, [1985] 1 CTC 2196, 85 DTC 217

St-Onge, TCJ [ORALLY]:—The appeal of Mr Jan Reiss was heard on July 9, 1984, at the city of Montréal, Québec, and it has to do with money received by the appellant following the expropriation of raw land and later a declaration of abandonment thereof by the City of Dartmouth, Nova Scotia, with respect to the appellant’s 1979 taxation year.

The contentions of the parties are in paragraph 9 of the respondent’s statement of facts in the amended reply to the notice of appeal which reads as follows:

9. In reassessing the Appellant for the 1979 taxation year, the Minister of National Revenue relied, inter alia, on the following presumptions of facts:

(a) During the relevant period, the Appellant was the owner of a 50% interest in a 25.8936 acre parcel of land located at the intersection of Portland Street and the Circumferential Highway in the City of Dartmouth (herein referred to as the land);

(b) During the relevant period, Dr Hammerling (hereinafter referred to as the Appellant’s partner) owned the other 50% interest in the land;

(c) On February 3, 1977, the land was formally expropriated by the City of Dartmouth

which intended to build a High School on the expropriated land;

(d) On April 25, 1977, pursuant to section 16(2) of the Expropriation Act (1973 RSNS chap 7) the City of Dartmouth paid to the Appellant and his partner the sum of $356,250.00 being 75% of the offer of the amount of full compensation made by the City of Dartmouth;

(e) On July 5, 1977, the city counsel of Dartmouth approved a resolution providing for the abandonment of the expropriation of the Appellant’s land;

(f) On July 26, 1977, a declaration of abandonment was filed in the office of Halifax County Registry of Deeds;

(g) On July 29, 1977, the Appellant and his partner were notified of the abandonment

of the expropriation and were requested to return the sum of $356,250.00;

(h) On November 23, 1977, the City of Dartmouth filed a Notice of hearing with the Expropriation Compensation Board requesting a hearing to determine the damages sustained, if any, and the cost incurred by the Appellant and his partner and consequences of the taking and abandonment and that an order be issued by the Board requesting the Appellant and his partner to repay the City the above mentioned sum of $356,250.00 less the amount of any damages sustained by the Appellant and his partner as might be determined by the Board;

(i) On October 26, 1978, the Expropriation Compensation Board reached the conclusion that the Appellant and his partner have not suffered any compensible (sic) loss or damage attributable to the taking and abandonment of the land and therefore ordered the Appellant and his partner to repay to the City of Dartmouth the sum of $356,250.00 received by them pursuant to section 16(2) of the Act;

(j) In the course of his decision, the Expropriation Compensation Board also reached the conclusion that it did not have any jurisdiction to impose interest on the repayment obligation of the Appellant and his partner;

(k) On April 12, 1979, the Supreme Court of Nova Scotia, trial division, ordered that general damages of $10,000.00 to be allowed to the Appellant and that in all other respects, the findings of the Expropriation Compensation Board to be confirmed;

(l) The said sum of $10,000.00 was awarded by the Supreme Court of Nova Scotia to the Appellant and his partner in order to compensate them for the interruption of the Appellant and his partner plans to develop the land;

(m) At the redevelopment time, the Appellant intended to develop the land, to subdivide it and to sell it by lots;

(n) During the relevant period, the Appellant and his partner engaged the firm of J McElmon and Associates Ltd to conduct a survey of the land to advise the Appellant as to the type of development suitable to the said land;

(o) During the relevant period, the Appellant and his partner also engaged Mr

Hugh Porter, an engineer and planner, to work on a development plan;

(p) During the relevant period, the Appellant and his experts had frequent meetings with City of Dartmouth officials to discuss their plan of development and the changes in the zoning that would be necessary in order to implement their plan;

(q) During the relevant period, the Appellant had retained the services of the firm of J McElmon and Associates Ltd to supervise his project of development through Mr Tomar, an engineer employed by the said firm;

(r) During the relevant period, the Appellant and his partner were very much knowledgeable of the real estate business, as having been involved in the said business for years;

(s) During the relevant year, the Appellant was engaged in the business of developing and selling its land;

(t) The damages awarded by the Supreme Court of Nova Scotia to the Appellant and his partner were to compensate for the loss of business profits caused by the interruption of their business resulting the expropriation;

(u) During the relevant year, the Appellant claimed to deduct an amount of $14,500.00 as legal expenses incurred with respect to the above mentioned expropriation proceedings;

(v) During the relevant year, the Appellant claimed to deduct an amount of $2,110.00 as travelling expenses incurred with respect to the above mentioned expropriation proceedings;

(w) During the relevant year, the Appellant invested his share of $356,250.00 received

from the City of Dartmouth and earned income therefrom of $28,921.00.

Paragraphs 1, 2, 3, 4, 5, 6 and 7 of the amended notice of appeal of the appellant’s statement of facts are admitted by the respondent and the figures are not in dispute. Furthermore, most of the facts alleged by the appellant are substantiated. the only issue is whether the two amounts involved, namely $53,748 the estimated amount of interest earned by the appellant for the use of $356,250 received from the city of Dartmouth for the land expropriated and the $10,000 granted to the appellant by the Supreme Court of Nova Scotia as general damages are taxable or not as income.

At the hearing, amongst others, two documents were filed as Exhibits A-8 and A-9, which are a decision of the Expropriation Compensation Board of the Province of Nova Scotia and a judgment of the Supreme Court of the same province respectively. Exhibit A-8 at pages 28 and 29, and Exhibit A-9 at page 14 read as follows:

(Exhibit A-8 at pages 28 and 29):

In making the foregoing orders the Board has also taken into consideration the fact that the Claimants have had the use of $356,250.00 since April of 1977 and retained these funds after abandonment in July of 1977, the same having been formally demanded on July 28th, 1977 (Exhibit #55). Even at minimal rates the use of these funds for such an extended period (to which must be added the 60 day period which the Board deems necessary to enable the Claimants to arrange for repayment) represent a substantial compensatory benefit to the Claimants and it is not surprising that these proceedings were commenced by the Respondent. It is maintained on behalf of the Respondent that interest on $356,250.00 since the date of abandonment at six per cent per annum should be added to the repayment obligation of the Claimants. The Expropriation Act does not confer upon the Board any power to impose interest of that kind and the only sections of the Act which deal with the subject have no relevance in these circumstances. It is one thing to infer from the Act an obligation in the event of abandonment to repay any sum disbursed under Section 16(2); it is quite a different matter to infer a power to impose interest in the absence of any express statutory provision and the Board has concluded that it has no jurisdiction so to do. In any event the imposition of an additional interest penalty would seem to be entirely inappropriate in the present circumstances. Bearing in mind the fact that the Claimants were not only divested of their lands for nearly six months but lay under the shadow of a threatened expropriation for approximately one year previously, the benefit to the Claimants through having the use of the principal sum in question, would seem to be quite appropriate, arising as it does from the same kind of limitations in the existing law which confine the Claimant’s right to claim damages.

(Exhibit A-9 at page 14):

Between the date of the expropriation, February 3rd, 1977, and the abandonment, July 5th, 1977, title and control of the subject lands were in the Respondent. Any plans the Appellants might of had were necessarily delayed at least the five months between the two mentioned dates. The evidence indicates that the Appellant had commenced plans to develop these lands. The fact that such development plans were interrupted by the expropriation and abandonment are by virtue of section 34 a factor to be considered in assessing what damages the Appellants may have suffered. Such an assessment is obviously a difficult task, but being difficult is no reason for refusing to make such an assessment. Keeping in mind the extent of the Appellants’ planning, general economic conditions of the area, the evidence as to size and location and suggested values of these lands I fix as general damages in this regard the sum of $10,000.00.

As may be seen, the first decision did not grant anything for damages whereas on their appeal, the appellant was allowed to receive $10,000 as general damages. According to the evidence adduced, it is quite obvious that the amount earned as interest by the appellant is taxable as income within the meaning of paragraph 12(l)(c) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which reads as follows:

Sec 12(1)(c)

(c) Interest.—any amount received by the taxpayer in the year or receivable by him in the year (depending upon the method regularly followed by the taxpayer in computing his profit) as, on account or in lieu of payment of, or in satisfaction of, interest;

As to the amount of $10,000 which was granted as general damages there is no evidence to show that this amount was granted in compensation for a loss of income. Consequently, this amount should not be considered as income.

For these reasons, the appeal is allowed in part and the matter referred back to the Minister to consider the $10,000 not as income but on account of capital. In all other respects, the appeal is dismissed.

Appeal allowed in part.