Guy
Taylor:—These
appeals
were
heard
on
common
evidence
on
November
4,
1982,
at
the
City
of
London,
Ontario.
1.
The
Point
at
Issue
The
point
is
whether
the
appellants,
partners
in
a
tobacco
farm,
are
correct
in
not
including
in
their
income
for
the
1979
taxation
year
an
amount
of
$13,443.45
as
a
capital
gain
resulting
from
the
sale
of
their
farm
in
the
said
year.
The
appellants
contend
that
because
they
purchased
a
new
farm
in
December
1980,
they
have
the
right
not
to
be
taxed
for
the
capital
gain
pursuant
to
subsection
44(1)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
2.
The
Burden
of
Proof
2.01
The
burden
is
on
the
appellants
to
show
that
the
respondent’s
reassessments
are
incorrect.
This
burden
of
proof
results
especially
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
2.02
In
the
same
judgment
the
Court
decided
that
the
assumptions
of
fact
on
which
the
respondent
based
the
assessment
are
also
deemed
to
be
correct.
In
the
present
case,
in
paragraph
4(a)
to
(g)
of
the
replies
to
the
notices
of
appeal,
the
respondent
described
the
facts
on
which
he
based
his
reassessments:
4.
The
reassessment
was
made
and
confirmed
on
the
following
assumptions
of
fact:
(a)
from
1974
to
1979
the
Appellant
owned
one
half
of
a
tobacco
farm
comprising
235
acres
of
land;
(b)
in
January,
1979
40
acres
of
the
land
were
sold
and
in
March,
1979,
148
acres
plus
buildings,
equipment
and
marketing
board
rights
were
sold;
(c)
the
Appellant
incurred
capital
gains
on
the
disposition
of
the
land
in
1979
calculated
as
follows:
|
Proceeds
of
sale
of
42
acres
|
$
40,000.00
|
|
Less:
Cost
|
|
14,097.00
|
|
Less:
Mortgage
reserve:
|
|
|
Capital
Gain
|
$
|
6,476.00
|
|
Appellant’s
share
(50%)
|
$
|
3,238.00
|
|
Proceeds
less
disposal
costs
on
sale
of
148
acres
|
$160,009.92
|
|
Less
Cost
|
|
49,674.47
|
|
Less
Mortgage
reserve:
|
|
|
Capital
Gain
|
$
47,297.82
|
|
Appellant’s
share
(50%)
|
$
23,648.91
|
(d)
the
Appellant
did
not
report
any
income
from
the
sale
of
the
farm
land
and
assets
in
1979;
(e)
on
the
sale
of
the
land
in
1979
the
Appellant
incurred
a
taxable
capital
gain
of
$13,443.46;
(f)
in
February
1981
the
Appellant
acquired
by
purchase
another
tobacco
farm
comprising
land,
marketing
board
rights,
buildings
and
equipment;
(g)
the
Appellant
did
not
file
an
election
under
subsection
44(1)
of
the
Income
Tax
Act
in
his
return
of
income
for
1980.
3.
The
Facts
3.01
The
appellants
admitted
all
of
the
respondent’s
assumptions
of
fact
quoted
above.
3.02
Moreover,
the
agreement
of
purchase
and
sale
of
the
new
farm
dated
December
1,
1980,
was
filed
as
Exhibit
A-1.
The
agreement
is
signed
by
the
vendor,
Emerson
Tobacco
Company
Limited,
and
by
the
purchaser,
Mr
Theo
Toebast
(Mrs
Rita
Toebast
did
not
sign).
Mrs
Toebast
does
not
appear
as
a
purchaser
in
the
said
Agreement.
An
amount
of
$5,000
was
given
as
a
deposit.
3.03
A
clause
of
the
agreement
reads
as
follows:
This
Agreement
shall
be
completed
on
the
27th
day
of
February
1981.
Upon
completion,
vacant
possession
of
the
property
shall
be
given
to
Purchaser
.
.
.
3.04
Mr
A
T
DeAthe,
Bookkeeper,
testified
that
in
the
middle
of
November
1980,
he
called
the
District
Taxation
Office
in
London
for
clarification
of
the
twelve
(12)
month
limit
to
purchase
another
farm,
thus
avoiding
the
capital
gain
tax
pursuant
to
subsection
44(1)
of
the
Income
Tax
Act.
The
information
he
received
was
that
the
deposit
of
$5,000
could
be
considered
as
a
bona
fide
purchase.
On
the
strength
of
this
information
the
deal
was
not
finalized
until
February
1981.
He
said
that
it
would
have
been
easy
to
finalize
the
transaction
before
the
end
of
December
1980.
4.
Law
—
Analysis
4.01
Law
The
main
legal
provision
involved
in
this
case
is
subsection
44(1)
of
the
Income
Tax
Act.
It
reads
as
follows:
44.
Exchanges
of
property.
(1)
Where
at
any
time
in
a
taxation
year
(in
this
subsection
referred
to
as
the
“initial
year”)
an
amount
has
become
receivable
by
a
taxpayer
as
proceeds
of
disposition
of
a
capital
property
(in
this
section
referred
to
as
his
“former
property”)
that
is
either
(a)
property
the
proceeds
of
disposition
of
which
are
described
in
subparagraph
13(21
)(d)(ii),
(iii)
or
(iv)
or
54(h)(ii),
(iii)
or
(iv),
or
(b)
a
property
that
was,
immediately
before
the
disposition,
a
former
business
property
of
the
taxpayer,
and
the
taxpayer
has
(c)
where
the
former
property
is
described
in
paragraph
(a),
before
the
end
of
the
second
taxation
year
following
the
initial
year,
and
(d)
in
any
other
case,
before
the
end
of
the
first
taxation
year
following
the
initial
year,
acquired
a
capital
property
(in
this
section
referred
to
as
his
“replacement
property”)
as
a
replacement
for
his
former
property
and
his
replacement
property
has
not
been
disposed
of
by
him
prior
to
the
time
he
disposed
of
his
former
property,
notwithstanding
subsection
40(1),
if
he
so
elects
under
this
subsection
in
his
return
of
income
under
this
Part
for
the
year
in
which
he
acquired
the
replacement
property,
(e)
the
gain,
if
any,
from
the
disposition
of
his
former
property
shall
be
deemed
to
be
the
lesser
of
(i)
the
gain
therefrom
otherwise
determined,
and
(ii)
the
amount,
if
any,
by
which
the
proceeds
of
disposition
of
his
former
property
exceed
the
cost
to
him
or,
in
the
case
of
depreciable
property,
the
capital
cost
to
him,
determined
without
reference
to
paragraph
(f),
of
his
replacement
property,
and
(f)
the
cost
to
him
or,
in
the
case
of
depreciable
property,
the
capital
cost
to
him,
of
his
replacement
property
at
any
time
after
the
time
he
disposed
of
his
former
property,
shall
be
deemed
to
be
(i)
the
cost
to
him
or,
in
the
case
of
depreciable
property,
the
capital
cost
to
him
of
his
replacement
property
otherwise
determined,
minus
(ii)
the
amount,
if
any,
by
which
the
gain
described
in
subparagraph
(e)(i)
exceeds
the
amount,
if
any,
determined
under
subparagraph
(e)(ii).
In
substance,
pursuant
to
this
provision
the
appellants,
in
order
not
to
be
taxed
on
the
capital
gain
in
1979,
had
to
acquire
a
new
farm
before
the
end
of
1980
and
make
an
election
not
to
be
taxed
in
filing
their
1980
tax
return.
4.02
Analysis
4.02.1
The
civil
law
issue
involved
here
is
whether
the
acquisition
of
the
new
farm
occurred
in
December
1980
or
in
February
1981.
In
the
Wardean
Drilling
Limited,
[1969]
CTC
265;
69
DTC
5194
case,
the
facts
are
well
summarized:
Toward
the
end
of
1963,
the
respondent
oil
well
drilling
company
(a
resident
of
Alberta)
decided
to
purchase
an
additional
drilling
rig
and
subsidiary
equipment.
Orders
were
given
for
the
rig
and
equipment,
invoices
received,
and
documents
regarding
terms
of
payment
exchanged
with
the
vendors
before
the
end
of
the
year.
Delivery
of
the
drilling
rig
(an
existing
rig
which
had
to
be
modified
for
the
respondent
company’s
purposes)
took
place
in
February
1964;
delivery
of
the
subsidiary
equipment
(which
had
to
be
manufactured
to
the
company’s
specifications)
took
place
later
in
1964.
Maintaining
that
the
company
had
not
acquired
the
drilling
rig
or
the
subsidiary
equipment
in
1963,
the
Minister
disallowed
the
capital
cost
allowance
claimed
by
the
company
on
these
two
items
in
its
1963
return.
The
company
contended
that
it
had
acquired
both
items
in
1963
because,
prior
to
the
end
of
that
year,
there
existed
binding
and
enforceable
contracts
of
sale
and
purchase
in
respect
of
the
rig
and
equipment.
The
Appeal
Board
(67
DTC
155)
allowed
the
company’s
appeal
on
this
issue,
as
well
as
on
another
matter
in
dispute.
The
Minister
appealed
the
Board’s
ruling
on
the
capital
cost
allowance
question
to
the
Exchequer
Court.
At
5197
of
the
Wardean
Drilling
case
(supra),
Justice
Cattanach
made
a
decision
concerning
the
test
to
determine
the
time
of
acquisition
of
property:
The
decision
in
this
appeal
turns
on
the
question
as
to
when
the
rig
and
substructure
were
“acquired”
by
the
respondent.
The
submission
on
behalf
of
the
respondent
was,
as
I
understood
it,
that
goods
are
acquired
by
a
purchaser
thereof
when
the
vendor
and
the
purchaser
have
entered
into
a
binding
and
enforceable
contract
of
sale
and
purchase.
The
test
and
concept
of
a
contract
was
that
adopted
by
the
Tax
Appeal
Board
in
the
decision
now
under
appeal.
With
all
deference
I
cannot
accede
to
that
view.
In
my
opinion
the
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
to
the
property
in
question
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.
The
Board,
being
bound
by
this
decision
of
the
former
Exchequer
Court,
has
no
choice
but
to
decide
that
the
acquisition
of
the
appellant’s
new
farm
was
made
in
February
1981,
thus
after
the
legal
time
limit
of
December
31,
1980.
Even
if
the
appellants
had
acquired
the
new
farm
within
the
legal
time
limit,
they
had
another
legal
requirement
to
fulfill:
the
election
provided
for
in
subsection
44(1)
of
the
Act.
The
election
was
not
filed
with
their
1980
income
tax
return.
4.02.2
The
Board,
being
bound
by
the
Act,
must
maintain
the
reassessments.
5.
Conclusion
The
appeals
are
dismissed
in
accordance
with
the
above
reasons
for
judgment.
Appeals
dismissed.
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