Mary Finochio v. Minister of National Revenue, [1984] CTC 2322, 84 DTC 1304

Taylor, TCJ:—This is an appeal heard in Toronto, Ontario, on December 7, 1983 against an income tax assessment for the year 1978 in which the Minister of National Revenue reduced the reported income of the taxpayer by an amount of $167,898.47 and, instead, treated that amount as income of the year 1977. The amount at issue arose as the gain on the sale of a real property known as 1220 Upper Wentworth Avenue in the City of Hamilton, which property the appellant had acquired in August 1972, and sold in November 1977. Both parties agreed that over the course of several years the appellant had acquired and disposed of several properties. The critical paragraphs from the notice of appeal read as follows:

Commencing in 1970, the Appellant acquired several real properties (the “Properties”) with a view towards developing them as economic circumstances and her financial resources permitted. The Properties acquired may be summarized as 1073 West 5th Street, 185 Stone Church Road, 832 West 5th Street, 1220 Upper Wentworth, 227 Stone Church Road, 207 Upper Wentworth, 106 Brucedale Avenue, and 80 Herkimer Street (260 Bay Street), all in the City of Hamilton.

Due to worsening economic conditions in general and an unfavourable climate for real estate development in particular, the Taxpayer determined to dispose of the Properties as soon as circumstances permitted, and in particular, the 1220 Upper Wentworth Street property (the “Upper Wentworth property”) which was acquired as at August 31st, 1972 was disposed of by the Taxpayer in 1978.

Although a deed from the Vendor in favour of the Purchaser was registered on November 30th, 1977 as Instrument No. 73457 CD, the transaction was not fully completed at that point on account of the need to satisfy legal requirements and the funds were not released to the Vendor until January, 1978. It is the position of the Vendor that the disposition of the Upper Wentworth Property took place in calendar year 1978.

The Taxpayer subsequently disposed of all the Properties save and except for 1073 West 5th Street, which remains undisposed of despite active attempts to dispose of same.

From the respondent’s viewpoint, the factual situation was:

at all material times, the Appellant was in the business of purchasing and selling real properties for profit;

on 30th November, 1977, the Appellant conveyed to Di Cenzo Construction Company Limited a property municipally described as 1220 Upper Wentworth, Hamilton, Ontario;

the total sale price of the aforementioned property was $405,000.00, resulting in a net profit to the Appellant of $167,898.47;

the amount due to the Appellant on the closing of the sale of the aforementioned property, being $123,806.53, was received by Ross and Vasan, the Appellant’s solicitors, on or before 1 December 1977, and said funds were deposited to the solicitors’ trust account.

The Minister relied, inter alia, upon sections 3, 9, and 61, and subsection 23(1) of the Income Tax Act, R.S.C. 1952, Chapter 148, as amended.

In my view, there was little of value added by the direct testimony of the appellant other than that during the period 1968 to 1976, her husband Mr Finochio was in the construction business. The appellant gave certain reasons for the various property dispositions which had occurred over the years and, in particular, that of the subject property. To a very substantial degree such disposals had been precipitated by financial difficulties which arose in her husband’s business and a local amateur hockey team which he sponsored. Where the property acquired had been vacant land, she had always intended to develop it (by subdividing or building on it), and where the property acquired had been previously developed, she intended to improve and retain it. Obviously these intentions did not materialize. With regard to the subject property, I am not impressed with the alleged “legal requirements” which prevented finalization and payment with regard to the sale in November 1977. At the very minimum, there were substantial gaps in the testimony and evidence provided as “proof’ that the sale actually took place as of the date of receipt of the funds by the appellant (January 1978), as opposed to the date of agreement of sale and, in fact, registration of the sale documents (November 1977).

After reflection, I find it is not necessary to make any determination of one of the points which seemed to be in dispute — whether the appellant was in the business of buying and selling property (including the subject property) — or in the business of developing the properties. I have little difficulty in visualizing an “inventory” in either event. The proposition was advanced by the appellant at the notice of objection stage that each one of her real property transactions could be regarded as individual and unique in nature, that is — the acquisition of the subject property and its disposition in 1978 constituted an “adventure in the nature of trade” and, irrespective of the other real properties with which she had been involved, — could be considered by the Court as coming under subsection 23(1) of the Income Tax Act, the “business” continuing up until that date. I fail to see how that rationale advances the cause of the appellant at all. Perhaps some very technical distinctions could be made which might provide other perspectives in this matter but in the final analysis, that which must be decided is whether the sale transaction with regard to this property — for whatever purpose and under whatever circumstances — occurred in November 1977 or January 1978 for income tax purposes.

On that point, the essence of the argument by counsel for the appellant is that the phrase “ceasing to carry on a business or a part of a business” (subsection 23(1)) must be considered in this case to have taken place at the date the funds were received by the appellant. As I see it, that proposition is unsupportable both with regard to the facts and the law. Payment was indeed delayed until 1978, but that had no bearing whatsoever on the fact that the sale transaction for which payment was eventually received was completed in 1977. I am satisfied that a clear legal obligation for payment existed in the year 1977.

The appeal is dismissed.

Appeal dismissed.