Conrad L Wyrzykowski, Arthur Beghin v. Minister of National Revenue, [1982] CTC 2015, 82 DTC 1051

D E Taylor:—These are appeals of Conrad Wyrzykowski and Arthur Beghin with respect to the 1975 and 1976 taxation years. The appeals were heard on common evidence in Winnipeg on November 17 and 18, 1981. Mr Wyrzykowski is a practising barrister and solicitor here in the City of Winnipeg. Mr Beghin, at this point in time, is a retired farmer.

In outlining the case, I shall read specifically from the notice of appeal of the appellant, Mr Wyrzykowski. That of Mr Beghin is similar.

• During the relevant years together with Mr Beghin, Mr Wyrzykowski sought to acquire and did acquire some lands in and around the town of Lorette, Province of Manitoba. The purpose of such acquisition was to hold and operate such lands as farms and as well the appellant was seeking property as a home for an organization known as L’Arche.

e During the relevant years Mr Wyrzykowski was able to improve his holdings and consolidate the same. As a result the appellant subsequently established his residence at Lorette, Manitoba, operated his farming operation and as well established a residence for the charitable organization known as L’Arche. e In the course of the acquisitions for the purposes aforesaid, certain dispositions occurred (in respect of the matters referred to in subsequent paragraphs of the Notice of Appeal), resulting in gains to the appellant in the sums of $77,087.59 for one year and $29,201.63 for the second year.

• The Minister has taxed these gains as income account rather than as capital account as they had been reported by the appellant.

In essence, the Minister’s contentions from the reply to the notice of Appeal of Mr Wyrzykowski were as follows:

e During the relevant years the appellant acted in partnership with one Beghin

e . .. during the relevant years the business of the partnership was the purchase and sale of farm land and one of the major motivating factors for the acquisition of the property by the appellant and partner was the possibility of resale at a profit at some future time.

I note with emphasis the words “major motivating factors . . .

The evidence and testimony showed that there were (9) properties in question to which reference was made, over the entire period of the purchases. Details have been provided to the Board by counsel for the appellant on an exhibit listed as A-3. The total acquisitions were some 1,579.5 acres, of which, during the period in question, some 553.5 acres were sold and 7 acres donated to L’Arche. Of the 9 acquisitions, there are three at issue in this appeal. They are the first three acquisitions known as the Glass, Sarrasin and Rosewood Lands. The Board specifically leaves certain smaller dispositions aside as they were not concentrated on, nor critically examined at this appeal. Leaving those aside, the issue comes down very simply to a question of whether or not there was anything generically or primarily different about the three acquisitions, Glass, Sarrasin and Rosewood, that there was in the later six acquisitions; and whether the intention of the appellants was to consolidate farm properties and to farm the properties, as it is portrayed by them.

In my opinion, the Minister has answered the major question in argument by stating: “Mr Wyrzykowski, in addition to being a lawyer, also became a farmer.”

The comments I have to make with regard to this appeal I want understood in the context that I am accepting what the Minister has just said: “that Mr Wyrzykowski became a farmer”. I point out that it might well be argued differently, but it was not so argued by the Minister. The farms are very substantial in size, but they are only marginally profitable. It would be of no consequence that they are larger than normal farms and that they are all under cultivation of some sort — there is very little indication that they have been profitable, or that they might be profitable despite evidence to the contrary by the appellants. It might well have been argued that there were hobby farms no matter their size, but that was not put forward by the Minister.

A second point that I do want to note is that I have had some difficulty with a letter dated December 31, 1975, from the law firm of Mr Wyrzykowski with respect to a purchase referred to as the Landry Property, and his insistence on that property being subdivided before he would accept transfer of title. I think that word “subdivided” can be used quite specifically in connection with the context of the land management practices which were going on in those years of acquisition of the relevant properties. I am perfectly satisfied that the appellants were fully aware in 1974 and 1975 of the potential for damage to their land investments from incoming legislation. A copy of the relevant Planning Act passed in the year 1975 for the Province of Manitoba was provided to the Board as Exhibit A-11. The appellants were aware of the potential for damage, and also of the potential for gain with respect to that legislation. The evidence provided to the Board by Mr Chap- pel, a lawyer and a witness for the appellants this morning, was that there were vast tracts of land, if I understood him properly, which were “subdivided” in the same way as the appellants did, not only during the period preceding and concurrent with the passage of the above legislation and immediately subsequent thereto, but before its implementation. I am fully aware that the prospect therefore exists for other separate appeals arising out of those “subdivisions”, but that prospect does not affect this situation before the Board.

In this matter, the simple fact is that that Mr Wyrzykowski, according to the Minister’s admissions, became a farmer. According to the evidence and testimony, his first objective, and his firm objective, was to acquire and hold farm land for that purpose. There were adequate, available finances in the hands of both parties to carry out that objective. Mr Beghin, at least, had a background and a substantial knowledge in farming. Mr Beghin knew the land in the area, the land values and the agricultural potential in all of the area east of Winnipeg. Eventually, the Lorette area became the focal point, and the region of the acquisitions which are still held and farmed.

In each case the farm land acquired and subsequently sold (Glass, Sarrasin and Rosewood specifically) was exactly that — serviceable and operative for the purpose of farming. Later acquisitions (after the sales in question) perhaps provided better and improved land for that purpose. Since Glass, Sarrasin and Rosewood were subdivided at, or shortly after acquisition, this situation clearly included the prospect that the appellants could make substantial gains on the subdivision of the three properties. The same prospect remains with regard to the subdivision of the land still held by Mr Wyrzykowski. Indeed, if gains were realized from the farm lands still retained and farmed, the appellants might well contend that the gains would be on capital account. But that matter is not before the Board today. However, that prospect of capital gain, in my mind, cannot be put forward in the circumstances of this appeal as a major, motivating factor. It does not even sustain itself, as I see it, for what is referred to sometimes as a secondary intention. It is simply a fact that the appellants, under the circumstances known to them, proceeded to acquire and consolidate farm lands and, in the process, took advantage of existing legislative circumstances in arranging their affairs for a future, possible situation. That is their complete right and privilege.

I am satisfied that while the appellants were aware of such a prospect at the date of acquisition (possible future advantage from subdividing), that did not provide a motive to them for such acquisition. The sole motive (certainly the prima facie purpose) at acquisition was for the purpose outlined by the appellants — investments for immediate farming. That is what was carried out.

The appeals are allowed.

Appeals allowed.