Rocco Cappuccitti, Luigi Biffis and Frances Cappuccitti v. Minister of National Revenue, [1984] CTC 2393

Goetz, TC J [ORALLY]:—The appeals of Rocco Cappuccitti, Frances Cappuc- citti and Luigi Biffis were heard on common evidence.

The issue is whether the property known as Poyntz Plaza and the sale thereof was on account of capital or on account of income.

The appeals relate to the 1974 taxation year of the various appellants. Basically, the position of the appellants is that Poyntz Plaza was purchased with a view to expanding and holding it as a rental income property and that, having received an unexpected offer from Mr Anthony who ultimately purchased the property within a short time after acquisition for the sum of $575,000, the property was sold. The reason given by the appellants was that they decided on the advice of Mr Biffis that the offer was very attractive and that there was a possibility that they would not generate sufficient rental income to justify or reach the price as offered and paid by Mr Anthony.

This case has many interesting facets — it’s almost a Horatio Alger story whereby Rocco Cappuccitti in the late ’40s started hauling, by truck, potatoes from farmers to the market. In his wisdom, he deemed it prudent to increase his activity in the potato field, — whereby he ultimately acquired a large amount of farm land. He, with his brother Gordon, established a company known as Ontario Potato Distributors Inc and they developed what Rocco Cappuccitti described as a land bank, of which he has only sold 200 acres. They had a total farm acreage of 8,000 acres, a good portion of which they leased back to Hostess Potato Company for which they had been growing and delivering potatoes for the making of potato chips.

At this point in time the company (Ontario Potato) was receiving 20 per cent return on its capital investment in this farmland. This gave Rocco Cappuccitti what he calls leverage in the borrowing of money for the purpose of acquiring property which he wished to acquire as a lasting investment.

His first acquisition, if I have the sequence correct, was in 1970 of a 25 per cent interest in Alset Construction. Biffis was involved with this company and it’s still active in construction and development.

Biffis owned Nottawasaga Inn which had 107 units plus 200 adjoining acres. Biffis was having problems with his partners and approached Rocco Cappuccitti who, in turn, brought in his brother Gordon and two other persons who bought out Biffis’ partners; and Biffis retained a 50 per cent interest in this company.

In 1971 also, Mr Cappuccitti acquired a 33 per cent interest in a piece of land upon which he had built a truck terminal and which he leased to a trucking company; this was known as N G R Rentals; the trucker was a man by the name of Blake. He had had a lease of over five years’ duration and was leasing the terminal for two years without a lease. Mr Blake approached Rocco Cappuccitti in 1978, asking that he (Cappuccitti) sell to him (Blake) his interest in the land and building because Blake intended to sell his trucking operation and wanted to sell with it the land because every trucking operation must either lease or build a trucking terminal if it wishes to carry on business. Rocco agreed to this and sold his interest in 1978.

According to Rocco Cappuccitti’s evidence, he says that he, his wife Frances, and Biffis purchased Poyntz Plaza in 1974 for $250,000 and he put in, as a cash payment, $80,000 to $90,000 and the rest was secured by two mortgages.

Paragraphs I to 6 inclusive of the notice of appeal read as follows:

STATEMENT OF ALLEGATION OF FACTS (this is the Appellant’s notice of appeal)

1. The appellant, his wife, Mrs Frances Cappuccitti, and Mr Luigi Biffis purchased a shopping centre known as The Poyntz Plaza in Penetang, Ontario in 1974.

2. The appellant, with the others, had purchased the Poyntz Plaza with a view to expanding it and then holding it as a rental income property.

3. A business acquaintance of Mr Biffis, a Mr J Anthony, offered to purchase the Poyntz Plaza after hearing the proposal for its expansion.

4. Ultimately, Mr Anthony offered to purchase the Poyntz Plaza for $575,000.

5. Mr Biffis advised the others that they should accept Mr Anthony’s offer because in his view the price offered by Mr Anthony was far better than the income earning potential of the Poyntz Plaza would justify and other income earning properties could be purchased with the proceeds from sale of the Poyntz Plaza to Mr Anthony.

6. Accordingly, the appellant, Mrs Cappuccitti and Mr Biffis sold the Poyntz Plaza to Mr Anthony who proceeded to carry out the proposed expansion of the Poyntz Plaza.

The notice of appeal conforms to the evidence given under oath by Mr Cappuccitti.

Luigi Biffis, when giving evidence, said that he had acquired property in Owen Sound prior to the acquisition of Poyntz Plaza. He was very excited about the prospects of Poyntz Plaza.

Frances Cappuccitti was involved in the purchase and sale of a number of pieces of property, although there were properties which she held as a lasting investment.

Rocco Cappuccitti, after 1974, continued to acquire property which I could characterize no other than long-term investments. He bought in 1974 the Galleria Mall, a 50 per cent interest of a $3,300,000 complex. He bought the Westbury Hotel in 1975 for $6,500,000, and his company, Ontario Potato Distributing Inc, purchased 50 per cent of that. In 1976 he bought Clarkson Cold Storage; he purchased 50 per cent of the outstanding shares in that company. In 1978 he ultimately acquired a 100 per cent interest in the Atlanta Biltmore Hotel in Atlanta, Georgia; the purchaser was Ontario Potato Distibuting Inc (US), which was a company that had been set up by himself and his brother Gordon, in the United States.

To say the least, Mr Cappuccitti obviously worked himself up financially, in a comparatively short period of time, from being a mere truck driver and potato grower to a successful businessman in the growing and sale of potatoes.

The problem that faces me, of course, is that in the face of these acquisitions (I know there were some prior to 1974 and some after), they indicate a continuing intention on the part of Cappuccitti to acquire investment property for long- lasting security. He seems to have been successful in doing that but in this case we are faced with a rather unique situation in a series of buying the type of property I’ve just referred to, one which I have to decide whether it is a sale on account of capital or a sale on account of income.

Counsel for the appellants referred me to the Racine decision, particularly at 159 [5103]. Now, it is trite for me to say that I must decide the case or the issue before me on the facts surrounding the transaction. Quoting from the Racine judgment — It’s Racine v MNR, [1965] CTC 150; 65 DTC 5098, counsel referred me to 159 [5103], a portion of which I shall read. And this is a judgment of Noel, J of the Federal Court.

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 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 transfer rather than on direct evidence of what the purchaser had in mind.

And that is my guideline as to my decision.

When Mr Rocco Cappuccitti (“Rocco”) bought the plaza in the company of Biffis, he was told that he should triple the size and that it would therefore be worth a lot more. Biffis looks to me like the trigger for a number of transactions, capital transactions, in which the appellants had basically done the financing because — to repeat — he had the financial leverage from his very successful potato business and very high reputation. Rocco offered Biffis a one-third interest in Poyntz Plaza without Biffis having to put up any money, provided Biffis acquired all the necessary planning permits, registration of subdivision plans, all dealing with municipal authorities. Rocco seemed to be doing extremely well at this because the mayor of the town had been the previous owner and was ensuring that Biffis received cooperation that ordinarily wouldn’t be there when one deals with municipal planning boards and other groups.

Now, it is this thread of Biffis’ relationship with the appellant Rocco Cappuccitti that has given me considerable pause for thought. For instance, he got Mr Cappuccitti to advance money for the 200 acres of flatland near the Inn in the township of Tecumseth with a view to building executive-type condominiums, and it was purchased on the recommendation of Biffis.

The sale of the truck terminal is somewhat coloured in light of the fact that if Rocco wanted a lasting investment, a new purchaser of the trucking business could very easily have acquired a lease from him, which was the basic purpose in buying and building the terminal.

Nevertheless, in cross-examination, Rocco mentioned that he had not calculated the cost of expansion or what income there would be from the acquisition of the Poyntz Plaza property and again, the notice of appeal (a portion of which I read) seems to me rather relevant to his evidence.

Now, Mr Anthony, who humbly called himself a carpenter but was, in fact, a builder, knew Biffis since 1964 and they have had business dealings since 1972 whereby Anthony built houses and apartments for Biffis, particularly related to Alset Construction.

The incident whereby Biffis met Anthony in the hotel, with sketch plans under his arm, leaves me at somewhat of a loss because Anthony, in a sense, was a competitor of Alset and the amazing curiosity of Mr Anthony and the more amazing willingness of Biffis to show him these plans and tell him about them, in the face of Biffis’ enthusiasm to expand the property, leave me at a loss.

Anthony said he had to make a number of offers in the face of Mr Cappu- ccitti’s and Mr Biffis’ purported reluctance to dispose of the property. He nevertheless came up with an offer of $575,000, which offer was accepted and paid. Anthony said that he had a customer who wanted Anthony to buy and expand the plaza and that he knew the property.

Then Mr Biffis gave evidence describing himself as an operator — and I think he could leave the adjective hotel off and call himself an operator or promoter; he was a small-scale builder and he said he was still building. He explained the Inn transaction and the Alset transaction and stated that (and he reiterated what Rocco said) “If I (Biffis) could get all of these permits, necessary approvals from the municipality and the town, he would give (Rocco would give Biffis) one-third of the finished property; Rocco would do the financing”.

Now, Rocco in his evidence said that Biffis, when Anthony’s offer was made (and Anthony gives me the impression that he was more or less waiting in the wings for Biffis to make his move to buy the land, Poyntz Plaza), suddenly came to the conclusion that “maybe we couldn't lease as easily as we first thought and he was interested in a property in Owen Sound, so I (Rocco) sold to Anthony's company, Anthony unseen, ten days after I purchased the Plaza” and stated there was no advertisement, of course, there wouldn’t have to be.

I simply say this, that if there were an investment intention at the time of purchase to the exclusion of all others, when all municipal approvals were going well (the mayor was being so very cooperative), I find it strange that if this was intended from the outset as an investment property, to sell and then purchase unproven property at Owen Sound which still required subdivision plans and approvals and which was ultimately dropped, I would refer to the Owen Sound proposal as a pig in a poke compared to Poyntz Plaza as a lasting investment.

It seems to me that the very short time between purchase and sale, the appearance of Anthony on the scene, the actions of Biffis throughout the years (and in particular, with respect to the Poyntz Plaza) were all too convenient and I would feel that there was an intention almost in the conduct of Biffis, Anthony and Mr Cappuccitti for quick turnover of the property. There was at least a secondary intention at the outset of the purchase to turn the property over for a profit and the Racine case is authority for that. On that basis I must dismiss the appeals.

Appeals dismissed.