Michael Natale v. Minister of National Revenue, [1984] CTC 2484, 84 DTC 1439

Rip, TCJ:—This is an appeal from income tax assessments in respect of 1977 and 1978 wherein the respondent assessed the appellant’s tax on the basis that a gain from disposition of real estate was on income account. This appeal was heard on common evidence with the appeals of Joseph Domenici, Salvatore DeAngelis, Luigi Guglietti and Nicola Tersigni.

In 1965 the appellant together with Joseph Domenici, Salvatore DeAngelis, Luigi Guglietti and Nicola Tersigni (sometimes referred to as “owners”) purchased 75 acres of land described as parts of lots 1 and 2, concession 3, WHS in the present City of Mississauga, in the Regional Municipality of Peel, in Ontario. At the time of purchase Mississauga was not a city and Peel was not a regional municipality. The purchase price of the property was $82,500. In 1977 the land was sold for $2,625,000 plus 15 per cent of the net profit from development of the land by the purchaser.

The appellant purchased a one-third undivided interest in the property; Domenici purchased a one-ninth undivided interest, Guglietti a one-ninth interest, DeAngelis one-third interest and Tersigni a one-ninth interest in the property.

Guglietti, Tersigni and the appellant were born in Italy and emigrated to Canada after World War Two; in Italy they each resided on family farms where they worked helping out their parents. The appellant’s family still farms the same land they farmed when the appellant was a youth. Domenici’s parents were born in Italy where they farmed. DeAngelis’ parents had a small farm in what is today the rear of Yorkdale Shopping Centre in Toronto and the young DeAngelis looked after the animals on the farm. Guglietti, Tersigni, DeAngelis and the appellant had experience in raising chickens, ducks, pigs, rabbits and other animals on a farm as well as growing crops.

When the appellant immigrated to Canada in 1950 he worked for a relative’s construction company for 13 years and then was employed by Durian Construction Ltd as a carpenter and general labourer. DeAngelis started working as a plumber in 1950 and soon he became a master plumber owning his own firm in Toronto. Domenici worked for a contracting company from 1947 until 1953 when he became a cement mason and started his own firm, Yorkview Contracting Company Ltd (“Yorkview”) with Guglietti and Tersigni.

Durian Construction Ltd was a general contractor in Toronto and DeAngelis and Yorkview were its frequent subcontractors. The appellant, DeAngelis, Guglietti, Tersigni and Domenici saw each other frequently on work sites and soon became friends.

DeAngelis had business relations with one Paul Roccomorra who operated Roccomorra Brothers, a wholesaler of plumbing and heating supplies. DeAngelis and Roccomorra were also friends and Roccomorra, knowing of DeAngelis’ farm background, told DeAngelis of the profits and enjoyment he was getting from his pig operation. Roccomorra had a 200-acre farm near Brantford, Ontario where he raised pigs and grew vegetables. Roccomorra’s enthusiasm for the farm, according to DeAngelis, “got me excited. I thought maybe it was something for us.” DeAngelis and the appellant visited Roccomorra’s operation and found it “quite interesting”. The pigs were penned off, the work looked easy and they thought they could handle it.

DeAngelis and the appellant discussed the possibility of acquiring a farm with Domenici and Domenici got Guglietti and Tersigni interested. It would appear from the evidence that this was not the first time these five gentlemen considered going into a farm venture. The prospective owners discussed the possibility of the farm amongst themselves at every opportunity and eventually agreed to buy a property. They wanted a farm to the west of Toronto since they worked and lived in the western part of Toronto and wanted the farm to be close to their work.

They did not know any real estate agent in the area but had seen many For Sale signs in that area set up by an agent by the name of Newton. They got in touch with Newton and told him to find them land with a barn and a pond on it. Eventually Newton showed them the farm which they purchased. The farm was located near Highway 10 and Baseline Street, 15 miles south of Brampton and consisted of 75 acres. The property was 17 miles from the appellant’s home in Downsview. The nearest built-up area to the farm was ten miles to the east of Dixie Road and the Queen Elizabeth Way; the closest town was the Village of Streetsville, about two miles away. Malton airport was about nine miles from the farm.

Before the purchase the farm had been used for cattle. There was hydro but no other services. The land was — and still is — zoned agricultural. The soil was good for growing; about 45 acres could be worked. Ten acres of the farm was fenced off; within the fenced off area were a house, barn and pond. Twenty acres were bush which the appellant and the new owners used for firewood and beams for growing tomatoes.

The terms of sale were “very reasonable” and included a six per cent mortgage over ten years. The cash payment was $20,000, and each owner put up his proportionate share.

The owners bought the property in October 1965 to operate a pig farm, to grow vegetables and for general recreation. They wanted to make a modest profit from the farm. All the owners testified, and each corroborated the evidence of the others, on this point.

In 1966 the owners began to make the farm suitable for a pig operation. The barn was full of manure from the previous inhabitants and the owners removed it by hand during many evenings and weekends. After removing the manure they fixed up the barn, each owner taking advantage of his background; the appellant, a carpenter, did carpentry work; DeAngelis, a master plumber, put in pumps and ran pipes for automatic drinkers for the pigs. The others cleaned the barn with whitewash and antiseptic. Almost all weekends in 1966 were spent on the farm getting it ready. In May 1967, 75 pigs were purchased.

In 1967 the owners continued working weekends and nights on the farm. At least once a week one of the owners would clean the barn. The owners put in automatic machinery so they would not be required in attendance on the farm on a 24-hour basis. However, at least once a day one of the owners would attend at the farm to make sure feed was available, clean up the area, spray to prevent flies and in general insure that all was in order.

Unfortunately the modest profits the owners were seeking became a modest loss of $400 for 1967. The owners were frustrated. All the work, in their view, came to naught. The appellant testified that because of his experience in Italy he thought he knew everything about pigs. “But I didn’t know how to make money from pigs.’’ In Italy the appellant would feed scraps to the pigs; in Canada “you have to buy feed for them’’. The owners were discouraged and realized they could not get a profit from their operation unless they had 1000 pigs. They gave up the pig operation.

After 1967 the owners raised some ducks, chickens, and rabbits for their families and grew vegetables on two acres of the property. Sixty-five acres were rented to a neighbouring farmer for two years, and then rented to another neighbour.

Each owner found his own use for the property after the pig operation was curtailed. The appellant gardened and hunted rabbits and ducks, DeAngelis gardened and skied cross-country, Domenici did skeet shooting, Guglietti and Ter- signi gardened. All of the owners would spend weekends at the farm with their families.

No attempts were made to sell the property. The owners wanted to retain the property as recreational property and from the evidence, did so. None of the owners were experienced in real estate; the only other properties they owned were their homes.

In 1977 a real estate agent advised them a neighbour was selling his farm and asked whether they wanted to sell theirs under the same terms and conditions. The agent approached them several times with this offer. Finally the owners took the offer to a lawyer who told them the offer was for “lots of money so we decided to sell’’.

Most of the owners had experience in pig farming in Italy; all of the owners had, because of that background, a strong desire to farm, albeit on a part-time basis. The owners also saw the farm as a recreational property, their place in the country. Their intent to have a pig farm was honest; they worked long and hard hours putting the farm into operation for this purpose. That they gave pig farming up at the end of 1967 after experiencing a small loss takes nothing away from their original intention, even if their original plan was not properly thought out; surely giving up the pig farm does not transform their intention, when they purchased the property, to something else, and they did use the property for recreational purposes, there was undisputed evidence that the owners’ families regularly spent weekends on the farm.

In assessing the appellant the respondent was no doubt influenced by the fact that the appellant and the other owners were engaged in the construction business, two of the owners owned shares in a corporation whose corporate objects included the right to buy and sell property, the property generated insufficient income to defray expenses and that the agreement for the sale of the property contained a profit participation clause. The evidence, however, was that the corporation owned by two of the owners never bought and sold property, and the agreement of purchase and sale was identical to that negotiated by their neighbour and that the appellants simply took the offer they received to their lawyer for approval. A person in the construction business may purchase land for investment or recreational purposes and if that is the motivating reason for acquiring the land, then it is a capital asset. As far as the property not generating profits is concerned, recreational property seldom does. The appellant and the other owners testified their sole intent at the time of purchase of the property was to start a farm operation and use the land for recreational purposes. There was no evidence the appellant and the other owners had a possibility of reselling at a profit as an operating motive for the acquisition, nor was there evidence that the possibility of reselling at a profit was a secondary intent in their minds at the time of acquisition. That five hard-working taxpayers purchased farm land for a modest sum and sold it much later for a very large profit is not in itself a badge of trade. In my view the appellant and his four associates purchased a property for the reasons they professed in testimony before this Court. The profits on the sale of the property were on account of capital.

The appeal is therefore allowed.

Appeal allowed.