Guy
Tremblay:—These
cases
were
heard
on
common
evidence
in
Edmonton,
Alberta
on
June
4,
1981.
1.
The
Point
at
Issue
Pursuant
to
the
Notices
of
Appeal
of
the
appellants
and
the
Replies
to
Notice
of
Appeal
of
the
respondent,
the
point
at
issue
is
whether
the
appellant’s
company
are
correct
in
considering
as
capital
gain
the
profit
made
on
the
disposition
of
their
interest
in
apartment
buildings
built
in
1972
and
1973.
The
appellant,
Squair
Homes
Ltd,
(hereinafter
referred
to
as
“Squair”)
which
had
interest
in
three
apartment
buildings,
sold
its
interest
in
November
1975
and
made
a
profit
of
about
$400,000.
The
appellant,
Camelot
Construction
Ltd
(hereinafter
referred
to
as
“Camelot”)
which
had
interest
in
two
apartment
buildings,
sold
its
interest
in
1976
and
made
a
profit
of
$193,326.68.
On
the
one
hand,
the
appellants
contend
that
their
original
reason
for
acquiring
an
interest
in
the
apartment
buildings
was
the
earning
of
rental
income
therefrom.
On
the
other
hand,
the
respondent
contends
that
the
appellants
were
for
many
years
in
the
business
of
land
development
and
construction;
that
the
subject
apartment
buildings
had
been
listed
for
sale
since
March
1973
and
therefore
the
original
reason
for
acquiring
them
was
for
resale.
Moreover,
the
respondent
disallowed
the
computation
of
the
deemed
cost
to
the
appellants
of
115%
of
its
actual
cost
of
construction
as
provided
in
subsection
13(10)
of
the
Income
Tax
Act
and
considered
the
profit
as
income
from
an
active
business
carried
on
in
Canada
within
the
meaning
of
subparagraph
125(1
)(a)(i)
of
the
Act.
At
the
beginning
of
the
trial,
the
parties
informed
the
Board
that
if
the
final
decision
of
the
Board
was
to
conclude
that
the
profit
was
a
capital
gain,
there
was
no
dispute
about
the
deemed
cost
and
active
business.
However,
if
the
conclusion
was
that
the
profit
was
a
business
income,
the
dispute
concerning
active
business
would
still
stand.
2.
The
Burden
of
Proof
2.01
The
burden
is
on
the
appellants
to
show
that
the
respondent’s
assessments
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
assessments
are
also
deemed
to
be
correct.
In
the
present
case,
in
paragraph
4
of
the
Replies
to
Notice
of
Appeal,
the
respondent
described
the
facts
on
which
he
based
his
assessment:
2.02.1
Assumed
Facts
Concerning
Camelot
4.
In
assessing
the
Appellant,
the
Respondent
assumed,
inter
alia,
as
follows:
(a)
the
Appellant,
as
well
as
its
associates
in
the
building
and
disposal
of
the
apartment
buildings
in
question,
is
engaged
in
the
business
of
land
development
and
construction;
(b)
although
the
Appellant
mainly
builds
residential
houses
for
resale,
the
building
of
apartment
blocks
is
a
related
activity;
(c)
the
said
apartment
buildings
were
listed
for
sale
with
a
real
estate
firm
in
March
1973,
shortly
after
their
completion,
and
on
the
sale
of
the
said
apartment
buildings
in
1975
a
commission
was
paid
to
the
said
real
estate
firm;
(d)
on
June
1,
1972
the
Appellant
entered
into
a
profit
sharing
agreement
with
Squair
Homes
Ltd,
one
of
the
Appellant’s
associates
with
regard
to
the
said
apartment
buildings,
indicating
an
intention
to
turn
the
apartment
buildings
over
for
a
quick
profit;
(e)
the
said
apartment
buildings
built
and
disposed
of
were
constructed
for
their
resale
value
rather
than
for
their
investment
potential
and
the
appellant’s
share
of
the
profit
realized
is
income
from
a
business
within
the
meaning
of
that
word
as
it
is
used
in
the
Income
Tax
Act;
(f)
the
apartment
buildings
were
not
prescribed
property
used
in
the
construction
business;
(g)
the
Appellant’s
share
of
the
profit
from
the
sale
of
the
said
apartment
buildings
was
income
of
the
Appellant
from
an
active
business
carried
on
in
Canada.
2.02.2
Assumed
Facts
Concerning
Squair
The
assumed
facts
concerning
Squair
are
mutatis
mutandis,
the
same
as
those
quoted
above
concerning
Camelot.
3.
The
Facts
3.01
Facts
Concerning
Camelot
In
his
Reply
to
Notice
of
Appeal,
the
respondent
admits
the
allegations
of
fact
contained
in
paragraphs
1
to
10
of
Camelot
Notice
of
Appeal.
They
read
as
follows:
1.
The
Appellant
(Camelot)
is
a
Canadian
controlled
private
corporation
duly
incorporated
under
the
laws
of
the
Province
of
Alberta,
having
its
head
office
at
the
City
of
Edmonton.
2.
Since
the
date
of
its
incorporation,
in
July
1969,
the
Appellant
has
carried
on
business
as
a
contractor
of
single
family
residential
dwellings.
3.
In
the
1971
calendar
year,
the
Appellant,
in
concert
with
two
other
corporations,
commenced
construction
of
two
(2)
apartment
buildings
(Keats
and
Browning)
in
the
City
of
Edmonton
for
the
purpose
of
maintaining
them
as
investments
to
derive
rental
income
therefrom.
4.
The
apartments
were
in
the
finishing
stages
of
completion
during
the
latter
part
of
the
1972
calendar
year
and
fully
completed
in
the
early
part
of
the
1973
calendar
year.
5.
The
apartments
were
being
leased
during
the
latter
part
of
the
1972
calendar
year
but
it
was
not
until
the
latter
part
of
the
1974
calendar
year
that
full
occupancy
was
achieved.
6.
For
its
1972,
1973,
1974
and
1975
taxation
years,
the
Appellant
claimed
capital
cost
allowance
on
its
interest
in
the
apartments
at
the
deemed
capital
cost
prescribed
by
subsection
13(10)
of
the
Income
Tax
Act
of
115%
of
the
actual
construction
cost
to
the
Appellant
of
its
interest
in
the
apartments.
7.
During
its
1976
taxation
year,
the
apartments
were
disposed
of
by
the
Appellant
and
the
other
two
corporations
owning
the
other
2/3
undivided
interests
and
the
Appellant
included
in
its
income
for
the
1976
taxation
year
the
sum
of
ninety-
six
thousand,
six
hundred
sixty-three
and
thirty-four
one-hundredths
($96,663.34)
dollars
representing
the
taxable
portion
of
the
capital
gain
arising
from
the
disposition
of
its
interest
in
the
apartments.
8.
The
respondent,
in
his
reassessment
from
which
this
appeal
is
taken,
assumed
that
the
entire
gain
arising
from
the
disposition
of
the
Appellant’s
interest
in
the
apartments
was
income
from
an
“active
business
carried
on
in
Canada”,
within
the
meaning
assigned
that
term
by
subparagraph
125(1
)(a)(i)
of
the
Income
Tax
Act
and
the
extended
definition
of
“business”
in
subsection
248(1)
including,
as
it
does,
an
“adventure
or
concern
in
the
nature
of
trade”.
9.
The
Respondent
also,
in
his
reassessment,
disallowed
the
computation
of
the
deemed
cost
of
the
apartments
on
the
basis
prescribed
in
subsection
13(10)
of
the
Income
Tax
Act.
10.
By
Notice
of
Objection
dated
July
7th,
1978
duly
served
upon
the
Respondent,
the
Appellant
duly
objected
to
the
reassessment,
and
by
notification
dated
August
22nd,
1979
the
Respondent
confirmed
the
reassessment.
3.02
Facts
Concerning
Squair
In
his
Reply
to
Notice
of
Appeal
the
respondent
admits
the
allegations
of
fact
contained
in
paragraphs
1
to
8
of
Squair
Notice
of
Appeal.
They
read
as
follows:
Statement
of
Facts
1.
The
appellant
(Squair)
is
a
Canadian
controlled
private
corporation
duly
incorporated
under
the
laws
of
Alberta
and
has
since
its
incorporation
carried
on
business
as
a
builder
of
single
family
residential
dwellings.
2.
In
1971
the
appellant
and
two
other
corporations
participated
in
the
construction
of
three
multiple
unit
residential
apartment
buildings
(Kipling,
Keats
and
Browning)
with
a
view
to
retaining
them
as
investments
by
deriving
rental
income
therefrom.
3.
The
first
of
the
three
buildings
was
completed
in
1972
and
the
other
two
in
1973;
and
it
was
not
until
1974
that
all
buildings
were
fully
rented-up.
4.
For
its
1971,
1972,
1973
and
1974
taxation
years,
the
appellant
claimed
capital
cost
allowance
on
the
basis
provided
for
in
subsection
13(10)
of
the
Amended
Income
Tax
Act
on
the
basis
of
a
deemed
cost
to
the
appellant
of
115%
of
its
actual
cost
of
construction.
5.
During
its
1975
taxation
year,
the
appellant
disposed
of
its
interest
in
the
three
apartment
buildings,
and
included
a
taxable
capital
gain
of
$193,108.83
in
computing
its
income
for
that
year.
6.
In
his
reassessment
from
which
this
appeal
is
taken,
the
Respondent
assumed
that
the
whole
of
the
gain
was
income
from
an
“active
business
carried
on
in
Canada”,
within
the
meaning
assigned
that
term
by
subparagraph
125(1
)(a)(i)
of
the
Income
Tax
Act,
and
the
extended
definition
of
“business”
in
subsection
248(1)
including,
as
that
does,
an
“adventure
or
concern
in
the
nature
of
trade”.
7.
The
Respondent
also,
in
his
reassessment
disallowed
the
computation
of
the
deemed
cost
of
the
buildings
on
the
basis
prescribed
in
subsection
13(10)
of
the
Act.
8.
By
Notice
of
Objection
dated
June
29,1978
duly
served
upon
the
Minister,
the
appellant
duly
objected
to
the
reassessment,
and
by
notification
dated
August
22,
1979
the
Respondent
confirmed
the
reassessment.
4.
Testimonies
and
Exhibits
4.01
The
first
witness
was
Mr
Joseph
Morrison
Squair,
construction
manager
of
Camelot.
He
owns
75%
of
the
shares
of
this
company
through
a
holding
company
called
Pennant
Developments
Ltd.
He
owns
100%
of
the
latter
company
(SN
p
37).
He
testified
that
prior
to
Camelot
being
incorporated
he
was
“involved
in
construction
of
residential
housing
for
quite
a
number
of
years,
as
a
carpenter,
farming
contractor
.
.
He
was
also
“involved
in
sales
for
other
builders”.
Prior
to
that
he
had
“spent,
in
broken
intervals,
quite
a
few
years
on
the
family
farm
with
my
Dad,
and
at
one
time
rented
it
for
myself”.
(SN
p
12).
Prior
to
the
incorporation
of
Camelot,
he
was
not
involved
as
a
principal
in
the
construction
of
buildings
except
“in
a
very
limited
way”.
He
built
through
his
connection
with
B
&
H
Homes
“one
single
family
dwelling
and
one
side-
by-side
duplex”
(SN
p
12).
According
to
him
he
was
never
involved
in
the
construction
of
apartment
buildings
for
resale
(SN
p
12).
In
cross-examination,
he
testified
that
after
the
incorporation
of
Camelot,
he
changed
his
operations
by
hiring
subcontractors
to
do
the
construction
work.
This
was
a
“normal
house
building
routine’,
“I
was
a
small
builder,
started
out
very
small”.
His
only
business
was
in
residential
house
building.
(SN
p
41)
He
also
said
that
in
1952
and
1953
he
was
a
real
estate
licenced
agent
when
he
acted
as
salesman
with
Melton
Real
Estate.
He
also
sold
for
B
&
H
Homes
and
S
&
S
Homes
(SN
p
42).
He
said
that
with
Camelot
he
“did
a
little
of
the
sales
work,
but
I
really
didn't
sell
very
many
of
my
own
houses.
The
selling
I
did
was
before
I
started
in
construction
under
the
name
of
Camelot
Construction
when
I
sold
other
people’s
houses,
but
I
sold
very
few
really
of
Camelot’s
houses”.
(SN
p
42)
4.02
Mr
J
M
Squair
explained
how
he
was
involved
in
the
construction
of
the
two
apartment
buildings
(Keats
and
Browning)
which
are
the
subject
matter
of
this
appeal
by
Camelot:
Camelot’s
offices
and
Squair
Homes
were
really,
well
it
was
a
joint
office
really.
So
we
had
daily
contact,
and
my
brother
Al,
(Allister
Ronald
Squair
—
President
of
Squair
Homes
Ltd)
having
shortly
before
that
put
together
another
project
on
adjacent
property,
he
got
considering
a
site
to
do
this
apartment
project
in
question.
He
felt
that
Squair
Homes
would
like
some
partners
in
that
project.
Naturally
I
was
the
first
one
that
was
asked
to
participate
as
a
partner
in
that
project,
joint
venture.
B
&
H
Homes
also
was
consulted
about
that.
The
site
was
available,
financing
was
available,
so
we
entered
into
an
agreement
to
do
a
joint
venture
apartment.
(SN
p
13)
In
the
project
of
Keats
and
Browning,
each
of
the
three
following
companies
had
one
third
interest:
Squair,
Camelot
and
B
&
H
Homes
Ltd
(Mr
Henry
Venoasen
being
the
major
shareholder,
director
and
president
of
this
latter
company
SN
p
38).
In
fact,
it
was
a
joint
venture
(SN
p
48).
4.03
The
witness
also
explained
his
intention
in
the
two
projects
Keats
and
Browning:
A
My
involvement
in
that
project,
and
we
refer
to
it
as
one
building,
but
really
it
was
one
project,
one
legal
title.
My
intentions
there
and
my
understanding
was
that
we
would
have
a
rental
project
as
an
asset
which
would
produce
revenue
at
some
time
when
it
was
fully
rented
and
that
we
would
have
that
as
an
asset
and
a
revenue-bearing
property.
Q
All
right.
Can
you
tell
me
why
you
entered
into
that
particular
venture?
A
Well,
I
always
had
ambitions
or
desires,
at
least,
to
own
that
type
of
property.
I
believed
that
rental
was
a
good
kind
of
income
to
have.
I
had
prior
to
that,
in
previous
years
when
I
worked
for
the
other
people,
I
had
started
out
at
one
point
to
acquire
some
rentals.
I
had
a
pair
of
side-by-side
duplex,
and
I
had
thought
that
if
I
kept
acquiring
them
one-by-one,
which
didn’t
take
much
capital
to
get
one
of
them,
that
at
some
point
I
could
dispose
of
them
and
get
into
an
apartment
for
easier
control
and
management.
This
was
an
extension
of
those
thoughts.
It
was
an
opportunity
to
have
some
rental
assets.
Q
All
right,
at
the
time
you
entered
that
transaction,
did
any
discussions
take
place
about
the
sale
of
this
Browning
and
Keats
apartment
complex?
A
No
it
didn't,
we
didn’t
discuss
selling
it.
We
were
only
discussing
acquiring.
Q
Was
it
in
your
contemplation
to
sell
the
property
upon
its
completion,
at
the
time
you
acquired
it?
A
No,
it
was
not.
I
liked
the
idea
of
rental
income
and
you
can’t
sell
and
still
have
rental
income.
(SN
p
15
and
16)
4.04
Concerning
the
construction
of
Kipling
building,
Mr
J
M
Squair
testified
as
follows:
A
In
respect
to
Kipling,
which
chronologically
started
just
a
matter
of
months
prior
to
the
Browning
and
Keats,
Squair
Homes,
through
the
efforts
of
my
brother
Al,
had
acquired
the
site.
They
had
had
plans
drawn,
arranged
the
financing,
all
in
their
name
without
really
consulting
me
about
it;
and
at
the
point
that
he
had
a
project
ready
to
start
construction
on,
he
said
to
me
one
day,
he
said
now
I’ve
got
this
project
all
ready
to
go,
I
think
I
could
use
some
help
on
it.
Now
I
have
done
my
part,
you
go
ahead
and
build;
and
so
at
that
point
I
went
ahead
and
built
it
under
the
name
of
Squair
Homes.
I
did
all
the
subtrade
negotiations,
all
the
supervision,
all
that
type
of
thing.
I
really
was
the
Site
Manager,
Project
Manager
for
that
apartment,
even
though
it
wasn’t
in
Camelot’s
name
in
any
way.
(SN
pp
13,
14)
The
witness
recalled
that
the
construction
of
Kipling
project
started
in
October
1971.
Concerning
the
arrangement
between
Squair
and
Camelot,
the
latter
acted
as
a
construction
supervisor:
A
That
arrangement
was
very
loose.
The
arrangement
was
that
if
a
sale
took
place,
Camelot
would
participate
in
it
to
a
one-quarter
interest,
if
there
were
any
profits.
We
didn’t
really
cover
in
specifics
what
would
happen
if
it
wasn’t
sold.
I
had
enough
faith
in
the
people
I
was
dealing
with
that
I
didn’t
consider
it
essential
to
have
written
agreement.
We
have
done
other
deals
the
same
way,
where
we
didn’t
write
anything.
Q
Was
it
contemplated
that
that
building
would
be
sold?
A
I
didn't
have
any
specific
contemplation
of
that,
no.
I
expected
that
it
would
be
held
as
a
rental
project.
(SN
p
15)
To
confirm
the
said
arrangement
a
letter
was
written
on
June
1,
1972
by
Camelot
and
Squair
to
Woodman
and
Scott,
accountants
for
the
two
companies.
This
letter
reads
as
follows:
Dear
Sirs:
It
is
our
intention
to
enter
into
an
agreement
with
respect
to
the
apartment
under
construction
at
8930
—
144
Ave,
Edmonton,
Alberta
(Lot
5,
Block
36,
Plan
5247
RS
Dickinsfield)
as
follows:
1.
Title,
income
and
all
other
rights
of
ownership
will
accrue
to
and
are
for
the
benefit
of
Squair
Homes
Ltd.
2.
in
return
for
supervision,
financing
assistance
and
other
services,
it
is
agreed
that
Camelot
Construction
Ltd
is
entitled
to
1/4
of
any
gain
made
on
the
sale
of
this
property.
3.
In
the
event
that
property
is
not
sold
within
one
year
from
first
occupancy,
it
is
further
agreed
that
an
appraiser
will
be
appointed
to
establish
the
fair
market
value
of
the
property.
Camelot
Construction
Ltd
is
then
entitled
to
1/4
of
any
gain
anticipated
on
the
future
disposal
of
the
property
based
on
the
fair
market
value
established
by
the
appraiser.
This
amount
is
due
and
payable
within
60
days
of
the
appraisal
date
or
on
such
terms
that
are
mutually
agreed
upon.
SQUAIR
HOMES
LTD.
Per:
(signed)
CAMELOT
CONSTRUCTION
LTD
Per:
_,,
Concerning
the
same
arrangement,
another
letter
(Exhibit
A-2),
dated
May
8,
1975
was
sent
by
the
two
companies
to
the
same
firm
of
accountants.
It
reads
as
follows:
Dear
Sirs:
Further
to
our
letter
of
June
1,
1972
with
regard
to
the
apartment
at
8930
—
144
Avenue,
Edmonton,
Alberta
(Lot
5,
Block
36,
Plan
5247
RS
Dickensfield)
we
wish
to
advise
you
of
the
following:
1.
As
a
result
of
high
vacancy
rate
one
year
after
first
occupancy,
we
have
agreed
that
the
fair
market
value
of
the
property
at
that
time
was
less
than
cost
and
therefore
there
was
no
gain.
2.
It
is
further
agreed
that
in
return
for
supervision,
financing
assistance
and
other
services
performed
Camelot
Constrution
Ltd
is
entitled
to
1/4
of
any
gain
made
on
the
sale
of
this
property
when
and
if
the
property
is
sold.
SQUAIR
HOMES
LTD
Per
CAMELOT
CONSTRUCTION
LTD
Per
An
objection
was
made
by
the
respondent’s
counsel
to
the
production
of
this
letter
(Exhibit
A-2)
on
the
basis
that
it
was
not
signed
by
Camelot.
The
objection
was
taken
under
reserve.
The
objection
is
rejected
on
the
basis
that
the
party
who
signed
the
letter
(Squair)
was
the
one
who
owned
the
building
and
the
one
who
renounced
the
advantage
in
favour
of
the
other
party
who
received
the
advantage.
This
latter
company,
Camelot,
did
not
object
to
this
advantage,
alleging
it
had
not
been
signed.
Moreover
this
letter
(Exhibit
A-2)
refers
to
the
letter
of
June
1,
1972
(Exhibit
A-1)
which
the
two
parties
did
sign.
In
cross-examination,
Mr
J
M
Squair
declared
that
Camelot
had
never
received
rental
income
from
Kipling
(SN
p
69),
but
after
the
sale
in
1975,
Camelot
received
from
Squair
25%
of
the
gain
made
on
Kipling
(SN
p
66).
4.05
Concerning
the
three
buildings
(Kipling,
Keats
and
Browning),
J
M
Squair
said
he
was
personally
involved:
I
really
was
in
charge
of
getting
the
construction
done.
Supervised
the
on-site
staff
and
the
subtrades,
and
really,
I
negotiated
with
the
subtrades
prior
to
—
and
selected
them
prior
to
commencement
of
construction.
(SN
p
17)
He
said
that
during
the
construction,
he
spent
50%
of
his
time
on
the
site.
Mr
J
M
Squair
explained
that
in
fact
he
moved
to
Kipling
in
the
spring
of
1972.
From
Kipling
he
transferred
to
one
of
the
other
buildings
where
he
remained
until
August
1975.
His
reasons
were:
“I
wanted
to
cut
down,
being
that
I
was
working
on
that
job
and
had
to
stay
close
to
it,
I
wanted
to
cut
down
travelling
time
to
and
from.
I
thought
I
could
do
a
better
job
if
I
was
on
the
site..”
(SN
p
19)
After
the
completion
of
the
three
buildings,
in
early
1973,
the
witness
looked
after
the
service
work.
During
the
next
two
years
and
a
half
he
experienced
a
lot
of
problems,
the
witness
explained:
This
covered
three
pages
of
the
transcript
(children
from
the
school
close
to
the
building,
damage
to
the
laundry
equipment,
theft
of
the
coins,
doors
“pushed
in”,
glass
broken,
fires,
aerial
on
his
car
broken,
etc).
So
in
August
or
September
1975
he
decided
to
move
to
one
of
his
empty
houses.
In
cross-examination
(SN
pp
55,
56),
Mr
J
M
Squair
said
that
he
had
engaged
a
management
agency
to
rent
the
apartment
to
tenants,
collect
the
rents,
hire
the
caretakers,
make
the
repairs,
etc.
He
did
not
say
when
this
contract
was
signed.
4.06
Mr
J
M
Squair
also
explained
the
circumstances
of
the
sales:
A
Well,
as
I
remember
it,
I
think
it
was
one
morning
when
I
came
in
the
office
after
going
around
some
of
the
projects,
and
I
came
in
the
office
probably
10:00
or
11:00
o’clock
and
I
was
met
with
the
news
that
somebody
wanted
to
sell
our
property,
they
wanted
to
show
us
an
offer;
and
so
I
was
a
little
surprised,
because
I
didn’t
know
we
wanted
to
sell
it
and
that
was
this
offer
which
did
culminate
in
sale.
Q
Can
you
tell
us
what
discussion
took
place
among
the
ventures,
if
any,
that
you
were
privy
to
with
respect
to
the
sale?
A
There
was
some
discussion
as
to
whether
we
should
sell
or
we
shouldn't
sell.
I
had
some
reservations
about
selling,
because
it
defeated
my
intention
of
acquiring
that
type
of
asset.
There
also
was
some
discussion
that
if
we
should
sell,
should
we
—
if
we
were
going
to
have
a
sale,
should
we
have
it
at
that
price,
and
it
took
us
awhile
to
really
decide
whether
we
were
going
to
sell
or
not.
We
asked
one
another,
should
we
sell,
and
discussed
some
of
the
pros
and
cons,
what
we
would
do
with
the
money
if
we
had
a
sale
or
which
way
was
—
you
know,
what
would
be
the
best
way
to
go.
So
far
as
I
was
concerned,
my
decision
was
Strictly
emotional.
I
was
really
fed
up
with
babysitting
that
thing.
I
had
it
up
to
about
there.
I
think
my
decision
—
my
decision
to
sell
at
that
point
I
think
really
swung
all
the
others.
I
can
recall
they
asked
me,
well
what
do
you
want
to
do.
I
said,
well
I’ve
just
had
enough
of
that,
let’s
sell
it.
At
that
point
they
weren’t
decided,
but
after
that
the
final
decision
was
that
we
sold.
Q
All
right,
with
respect
to
the
actual
financing
of
the
buildings,
the
financial
aspect
of
the
property,
did
you
have
any
involvement
in
those
things?
A
In
the
project
in
question,
Keats
and
Browning,
I
did
or
my
company
Camelot
Construction
did
from
time
to
time
inject
capital
into
the
project
to
cover
some
of
the
costs.
Q
Were
you
involved
in
negotiating
the
financing
or
the
acquisition
of
the
lands
at
all?
A
No,
I
didn’t
enter
into
those
negotiations.
That
was
done
through
Squair
Homes,
by
Al
Squair.
Q
With
respect
to
the
sale
in
’75,
do
you
recall
any
previous
discussions
amongst
the
venturers
before
this
offer
came,
about
selling
the
property?
A
No,
I
don’t
recall
that
we
were
discussing
selling.
Q
Do
you
recall
every
having
listed
the
property
for
sale
or
anything?
A
No,
I
don’t
remember
ever
having
listed
it.
Q
Did
you
ever
see
any
for
sale
sign
on
the
property
while
you
were
living
there?
A
No,
there
were
no
for
sale
signs.
(SN
pp
22-25)
4.07
In
fact,
the
three
buildings,
Keats,
Browning
and
Kipling
were
sold
to
the
same
purchaser,
Patrician
Land
Corp
Ltd
on
October
10,
1975
which
had
made
an
offer
to
purchase
the
three
for
$2,130,000
(Exhibits
A-7
and
A-8,
SN
pp
100,
101).
4.08
Another
witness
was
Mr
Allister
Ronald
Squair,
director
and
president
of
Squair,
who
owns
50%
of
the
shares
of
Squair
through
a
holding
company
Bigstone
Herefords
Company
Limited.
MR
A
P
Squair
owns
100%
of
the
latter
company.
Mr
Henry
Venoasen
and
MR
K
W
Scott
each
own
25%
of
the
shares
of
Squair.
4.09
It
is
admitted
by
A
R
Squair
that
the
business
of
Squair
is
building
and
selling
homes.
It
buys
pieces
of
land,
constructs
the
homes
and
sells
them
(SN
p
80).
However,
in
1971,
1972,
1973
and
1974
Squair
was
not
in
the
business
of
land
development
and
construction.
This
started
in
1976
but
only
“in
a
minor
way”
(SN
p
81).
From
the
inception
of
the
company
in
1969,
they
built
single
family
homes
and
duplexes.
The
construction
of
Kipling,
Keats
and
Browning
was
an
exception.
4.10
The
witness,
A
R
Squair,
filed
as
Exhibits
A-3
and
A-4
the
offer
to
purchase
two
pieces
of
land
on
which
were
built
Kipling,
Keats
and
Browning
buildings.
The
two
certificates
of
title
of
these
pieces
of
land
were
also
filed
(Exhibits
A-5
and
A-6).
4.11
Concerning
the
circumstances
of
the
construction
of
thethree
buildings,
Mr
A
R
Squair
testified
as
follows:
The
buildings
were
built
for
the
purpose
of
giving
ourselves
a
portfolio
of
revenue
property,
as
opposed,
you
know,
in
addition
to
our
regular
business.
Q
Was
there
some
advice
from
the
accountants
as
well
that
had
a
hand
in
motivating
you
to
build
these?
A
Prior
to
our
buying
the
lots,
there
was
some
talk
of
changes
in
the
Income
Tax
Act,
and
our
accountants
recommended
to
us
that
if
we
were
going
to
get
involved
in
that
type
of
business,
that
that
was
a
good
time
to
do
it,
because
changes
in
the
Act
were
imminent
and
they
didn’t
know
what
those
changes
were
going
to
be,
and
it
was
the
right
time
to
do
it
because
the
changes
might
be
adverse
to
holding
revenue
property
on
a
long
range
basis.
So
that
is
why
we
started
at
that
particular
time.
In
addition
to
that,
my
partner,
Henry
Venoasen,
whom
I
have
known
for
sometime,
had
been
involved
for
sometime
in
buying
land,
apartment
land
and
building
apartments
and
holding
them
for
revenue
purposes.
Those
properties,
which
they
still
own
incidentally,
and
it
really,
through
my
occasional
conversations
with
him,
looked
like
a
good
thing
to
do,
to
hold
apartments
for
long
term,
long
term
hold.
For
two
purposes.
Number
one,
they
should,
after
awhile,
show
a
good
revenue;
and
number
two,
they
provide
tax
shelter
if
you
are
making
money
in
other
areas,
which
we
hoped
to
do.
Haven’t
always
been
successful
at
it,
but
hoped
to
do.
Q
In
order
to
provide
a
tax
shelter,
was
it
your
understanding
they
would
have
to
be
held
for
a
long
time
as
an
investment?
A
Yes,
it
was.
It
was
our
intent
to
hold
it
indefinitely.
Q
And
there
was
some
feeling
that
those
rules
might
be
changed?
A
This
was
the
advice
of
our
accountants
at
the
time.
They
felt
that
there
was
changes
coming
and
they
didn’t
know
what
they
were,
but
they
really
felt
that
if
we
were
going
to
do
it,
we
should
do
it
right
away,
because
the
rules
and
law
in
force
at
the
moment
were
favourable
to
that
type
of
thing,
and
they
didn't
know
how
favourable
they
would
be
after.
(SN
pp
88,
89)
4.12
The
witness,
A
R
Squair
also
testified
about
the
listing
mentioned
in
paragraph
4(c)
of
the
Reply
to
Notice
of
Appeal:
Q
Paragraph
(c)
of
the
reply,
there’s
a
reference
to
a
listing.
Do
you
recall
a
listing?
A
No.
Q
In
March
of
’73?
A
I
don’t
recall
ever
having
given
a
listing
on
these
properties.
Q
Even
at
the
time
of
sale?
A
No,
not
at
the
time
of
sale
either.
(SN
p
90)
4.13
Concerning
the
profit
sharing
agreement
in
Kipling,
alleged
in
paragraph
4(d)
of
the
Reply
to
Notice
of
Appeal,
Mr
A
R
Squair
testified
as
follows
in
answer
to
his
lawyer’s
question:
Q
In
paragraph
(d)
of
the
reply,
Mr
Squair,
there’s
a
reference
to
a
profit
sharing
agreement
with
Camelot
Construction,
indicating
an
intention
to
turn
the
apartment
buildings
over
for
a
quick
profit.
Could
you
explain
to
the
Board
your
understanding
of
those
agreements,
which
I
understand
to
be
Exhibit
A-1?
A
Firstly,
I
have
to
disagree
with
you.
There
was
no
intention
to
sell
the
apartment
building
for
a
profit.
The
understanding
of
that
agreement,
or
my
understanding
of
it
is
simply
this.
The
apartment
was
held
in
Squair
Homes’
name.
Camelot
apartment
was
held
in
Squair
Homes’
name.
Camelot
had
earned
an
interest
by
virtue
of
their
efforts
with
regard
to
supervision
of
the
apartment
during
construction,
and
it
really
was
at
Camelot’s
request
that
their
interest
be
documented
in
some
way,
which
it
hadn’t
been
to
that
point.
So
that
looked
like
a
simple
way
of
doing
it.
(SN
pp
90,
91
)
4.14
Later,
Mr
A
R
Squair
testified
concerning
paragraph
4(e)
of
the
Reply
to
Notice
of
Appeal
which
reads
as
follows:
“The
said
apartment
buildings
were
built
and
disposed
of,
were
constructed
for
their
resale
value.”
Is
that
why
you
built
them,
for
their
resale
value
rather
than
to
hold?
A
No,
no,
certainly
not,
because
the
resale
value
of
apartments
at
this
time
was
really
below
replacement
costs.
I
mean,
we
couldn’t
sell
them
for
the
amount
of
money
we
were
building
them
for.
Q
You
knew
this
when
you
acquired
the
land?
A
I’m
not
really
sure
that
I
would
have
specifically
thought
exactly
of
that,
but
I
would
have
been
aware
at
the
time
of
the
resale,
you
know,
the
market
on
them.
What
they
were
selling
for,
and
when
we
did
our
costing
on
them
we
would
have
known
that
they
were
not
saleable
for
a
profit,
because
that
wasn't
our
intention
in
building
them.
Q
And
this
is
so
even
though
there
were
no
particular
cost
overrides,
is
that
right?
A
Yes,
that’s
true.
Q
They
came
in
on
budget?
A
Well,
close.
Q
Could
you
have
bought
other
ones
as
cheaply
as
having
built
them?
A
About
the
time
we
completed
this
project,
there
was
a
building
next
door,
and
my
memory
escapes
me
exactly
the
number
of
suites
involved
but
it
was
for
sale
at
a
price
per
suite
of
about
a
thousand
dollars
a
suite
less
than
what
our
construction
cost
was
for
a
comparable
project.
(SN
pp
95,
96)
4.15
Concerning
the
offer
the
appellants
received
on
October
7,
1975,
(Exhibit
A-7),
Mr
A
R
Squair
affirmed
that
they
had
never
solicited
an
offer
(SN
p
101).
Some
changes
were
made
and
a
new
document
was
signed
on
October
10,
1975
(Exhibit
A-8).
The
properties
were
sold
and
registered.
The
sale
price
of
$2,130,000
was
paid
in
cash.
4.16
Concerning
the
reasons
for
the
sale
of
the
buildings
the
witness
A
R
Squair
explained
that
rent
control
was
a
factor:
Q
Mr
Squair,
the
previous
witness
mentioned
a
problem
of
rent
controls.
In
his
decision
that
was
a
factor.
Was
that
a
factor
in
your
decision
to
sell?
A
Yes,
it
was,
because
at
the
time
that
we
sold,
there
was
a
great
deal
of
talk
about
rent
controls
coming.
They
appeared
to
be
imminent.
We’d
had
so
much
trouble
with
the
apartments
already,
with
the
vacancies
and
the
problems
of
management,
we
just
really
didn't
have
much
appetite
left
for
the
additional
problem
of
rent
control.
Q
Did
they
in
fact
come
into
place?
A
Yes,
they
did,
very
shortly
after
we
had
sold.
I
don’t
remember
the
exact
dates.
Whether
they
were
actually
in
place
at
the
time
of
closing
or
whether
it
happened
just
after,
but
.
.
.
(SN
pp
104,
105)
4.17
The
witness
also
pointed
out
that
they
had
a
long-term
agreement
with
the
management
company
(Scandinavian
Management):
Q
Were
there
problems
with
the
apartment?
A
Yes,
there
were.
We
had
problems
with
our
management
company,
which
we
would
probably
have
gotten
rid
of
had
we
not
had
a
contract
with
them.
Q
Was
it
a
short
term
contract?
A
I
can’t
remember
the
exact
length
of
it,
but
it
was
a
fairly
long
range
contract,
because
—
I
think
maybe
they
know
they
weren’t
good
managers,
knew
that
if
they
didn't
have
a
long
term
contract
we’d
fire
them.
I
don’t
know,
but
it
was
a
contract
that
had
still
a
considerable
time
to
run
when
the
apartments
were
sold.
Q
Would
you
enter
into
that
kind
of
a
contract
if
the
apartments
were
going
to
be
sold?
A
I
don’t
think
so.
I
can’t
think
of
a
reason
why
we
would.
It
would
be
—
the
contract
was
in
fact
a
detriment
to
a
certain
extent
to
the
sale
when
the
offer
was
presented,
and
had
we
been
anticipating
soliciting
a
sale
on
it,
I
don’t
think
we
would
have
had
that
contract
in
place.
(SN
pp
103,
104)
In
cross-examination,
he
said
that:
There
were
questions
that
arose
at
the
time
of
the
sale
of
the
apartment,
as
to
the
management
contract.
They
would
have
much
preferred
to
have
it
without
the
management
contract.
(SN
p
126)
4.18
Before
going
“into
this
venture”
of
the
building
apartment
blocks,
Mr
AR
Squair
said
in
cross-examination
that
he
consulted
Mr
Venoasen
(President
of
B
&
H
Homes)
who
had
long
experience
in
that
field:
We
had
had
discussions
about
the
time
we
had
discussions
and
advice
from
our
accountants,
and
it
was
working
very
well
for
him
and
it
was
his
advice
at
that
time
that
if
I
found
a
project
that
looked
good,
to
go
ahead
and
do
it.
(SN
p
106)
It
seems,
however,
that
Mr
Venoasen
did
not
speak
to
Mr
Squair
about
the
operation
problems:
Q
Did
you
have
any
expert
advice
with
respect
to
the
operation
of
apartment
blocks,
advice
with
respect
to
problems
you
may
anticipate?
A
No,
I
don’t
think
we
ever
anticipated
any
problems.
The
only
advice
that
we
had
would
have
been
from
Mr
Venoasen,
whose
advice
would
have
been
they’re
a
good
business
to
get
into.
(SN
pp
112,
113)
Also,
in
cross-examination,
he
testified
that
he
never
had
been
personally
involved
in
the
management
of
any
rental
properties;
not
even
within
his
family
(SN
p
109).
4.19
Concerning
the
intention
to
sell,
Mr
Kennedy,
counsel
for
the
respondent,
asked
some
questions:
Q
Did
you
at
any
time
arrange
for
the
holding
out
of
any
of
these
apartment
blocks
for
sale
from
the
time
construction
was
started?
A
No,
we
never
did
at
any
time.
Q
At
no
time
at
all?
A
No.
Q.
Did
you
let
anyone
know
at
all
that
they
would
be
for
sale?
A
No,
I
really
wouldn’t
have
done
that.
The
people
who
we
bought
the
land
from
knew
we
owned
them
and
subsequently
they
sold
them.
Q
That’s
Webber
Bros,
you
mean?
A
Right.
Q
Well,
did
you
ever
have
an
agreement
or
have
you
ever
seen
an
agreement
with
Webber
Bros
with
respect
to
the
sale
of
these
lands,
dated
March
of
.
.
.
A
I
don’t
recall
ever
seeing
such
an
agreement.
Q
Have
you
ever
had
—
did
anyone
else
have
authority
to
deal
in
that
land
besides
yourself?
I
understood
you
were
really
the
principal
behind
it
and
you
dealt
with
the
buying
of
the
land
and
the
financing
and
all
aspects
of
that
nature?
A
So
far
as
actual
authority
is
concerned,
no,
no
one
would
have
been
able
to
deal
without
going
through
me.
Q
Did
you
exercise
all
the
authority
with
respect
to
the
building
—
I
understand
Mr
Venoasen
had
not
much
to
do
with
it.
You
bought
the
land,
you
arranged
for
the
financing
and
other
than
the
actual
construction
done
by
Camelot,
you
made
all
the
arrangements
with
respect
to
the
sale?
A
That
is
basically
true.
Q
And
you
did
the
negotiating
on
the
price,
or
was
it
a
joint
decision
on
the
sale
price?
A
I
don’t
really
recall
specific
conversations
with
regard
to
the
eventual,
you
know,
the
final
setting
of
the
sale
price.
I
can’t
believe
that
I
would
have
done
it
singlehandedly
without
consulting
my
partners
though.
Q
What
specific
problems
did
you
run
into
with
respect
to
the
apartment,
that
you
decided
to
sell
it?
A
It
was
an
accumulation.
I
don’t
know
if
there
was
one
specific
one.
It
was
just
an
accumulation
of
problems.
Everything
seemed
to
be
a
problem.
The
management
was
a
problem,
collecting
rents
was
a
problem,
maintaining
the
property
was
a
problem,
the
bloody
boilers
were
blowing
up
and
burning
up
on
Christmas
Eve.
Tenants
were
complaining
and
phoning
me
at
home.
Distasteful.
(SN
pp
113-115)
4.20
Concerning
the
wording
of
Exhibit
A-1,
Mr
A
R
Squair
testified
that
he
did
not
know
who
came
up
with
the
wording
(SN
118),
but
his
only
recollection
was
that
this
letter
was
served
to
establish
Camelot’s
interest
in
Kipling’s
project.
The
counsel
for
the
respondent,
however,
asked
him
more
questions:
Q
Well,
I’ll
put
it
to
you
this
way.
I
take
it
you
would
agree
with
me
that
on
the
face
of
it
it
would
certainly
indicate
an
intention
to
sell
it?
A
No,
I
wouldn’t
agree
with
that.
It
doesn’t
say
that
to
me,
even
if
I
was
reading
it
for
the
first
time.
Q
What
is
its
intention
to
you,
if
it’s
not
for
the
sale
of
it
only?
A
Its
intention,
as
we
have
covered,
is
for
the
specific
purpose
of
establishing
an
interest
that
Camelot
held
in
the
property.
It’s
to
—
it
establishes,
in
my
mind,
the
normal
interest
accruing
to
ownership
really.
Q
It’s
all
based
on
sale
though,
it’s
all
based
on
sale.
You
don’t
know
who
came
up
with
the
wording,
you
don’t
know
.
.
.
A
I
really
don’t,
I
don’t
recall
who
wrote
the
letter,
I
really
don’t.
I
signed
it,
but
whose
wording
it
is,
I
don’t
really
recall.
Q
But
do
you
recall
anything
about
the
entering
into
of
an
agreement?
Was
there
an
agreement
entered
as
was
.
.
.
A
You
have
it
in
your
hand,
sir.
Q
It
says
in
this
letter,
“It
is
our
intention
to
enter
into
an
agreement
with
respect
to
the
apartment
as
follows
.
.
With
certain
agreements
—
or
certain
provisions.
You
were
writing
to
your
own
accountants
telling
them
you
intended
to
do
this.
Was
there
any
.
.
.
A
This
may
even
have
been
a
request
from
the
accountant.
I
don’t
recall
exactly.
My
best
recollection
is
that
this
was
done
to
establish
Camelot’s
interest.
(SN
pp
120,
121)
4.21
In
cross-examination,
it
was
established
that
there
was
an
appraisal
of
Kipling
property
in
1974
and
the
purpose
was
to
establish
the
value
of
the
building:
“for
the
purpose
of
my
selling
a
piece
of
my
interest
to
Mr
Scott”,
said
Mr
A
R
Squair.
Indeed
Mr
Scott
bought
one-third
of
interest
in
Squair.
4.22
The
cash
investment
of
Squair
in
the
building
was
about
$30,000,
“the
total
difference
between
the
two
mortgages
and
the
cost
of
construction,
there
was
less
than
a
hundred
thousand
dollars.
So
our
investment
would
have
been
one-third
of
that”.
(SN
125)
4.23
Mr
A
R
Squair
said
that
financial
difficulty
was
not
the
basis
of
their
decision
to
sell:
Q
Was
Squair
Homes
experiencing
any
financial
difficulties
at
all
in
its
operation
where
it
had
to
sell
the
apartment
and
get
the
capital
out?
A
No,
none
at
all.
1975
was
a
very
good
year
for
us,
but
we
felt
in
view
of
our
distaste
for
apartments
anyway,
things
were
going
good,
we
felt
we
could
take
that
capital
and
invest
it
to
better
use
in
our
house
building
operation.
(SN
p
126)
Concerning
the
intention
of
selling,
he
said:
Squair
Homes
never
had
any
intention
of
selling
the
apartment
block,
and
we
never
did
have
that
intention
until
the
offer
was
.
.
.
the
realtor
phoned
and
said
we
have
an
offer,
do
you
want
to
sell.
(SN
p
128)
Personally,
Mr
A
R
Squair,
owns
four
or
five
rental
properties
which
are
halves
of
duplexes.
They
were
acquired
after
the
completion
of
the
three
buildings
involved
in
the
present
case.
He
keeps
them
for
rental
income
(SN
129).
4.24
According
to
Kenneth
Walker
Scott,
chartered
accountant,
former
auditor
of
the
appellant’s
company
and
director
of
Squair
since
January
1975,
the
decision
of
the
construction
of
the
three
buildings
had
something
to
do
with
impending
changes
in
tax
rules.
In
1971,
there
was
a
lot
of
discussion
as
to
whether
or
not
capital
cost
allowances
could
be
deducted
and
offset
against
other
income
from
apartments.
“It
was
widely
held
that
it
would
not
be
—
this
would
not
be
possible
after
1971.”
(SN
132).
By
building
in
1971,
the
appellants
thought
they
would
probably
fall
within
the
exceptions.
4.25
In
the
financial
statements
of
the
appellants,
the
rental
income
was
treated
as
investment
income
or
long-term
holdings
rather
than
as
inventory.
The
buildings
were
classified
in
Class
6
with
10%
depreciation
(SN
133,
134).
4.26
Financial
statements
for
the
years
ending
December
31,
1972,
1973,
1974
and
1975
were
filed
as
Exhibit
A-9
to
confirm
the
former
affirmations.
Concerning
the
sale
of
the
building
Mr
Scott
testified
as
follows:
A
Yes,
I
had
started
with
Squair
Homes
as
Secretary-Treasurer
and
Director
of
the
company
in
January
1975,
and
about
early
October
of
that
year,
Mr
Squair
approached
me
and
said
we’re
going
to
get
an
offer
on
the
apartment,
shall
we
sell
them;
and
showed
me
the
offer,
and
a
day
or
so
later
I
was
quite
surprised
at
the
amount,
because
a
year
earlier
or
six
months
earlier
when
I
bought
into
the
company,
they
were
valued
at
$500,000
less
than
that.
So
I
was
quite
surprised
in
the
increase
in
value,
and
my
answer
to
him
as
to
whether
or
not
we
should
sell
was
that
I
believed
the
housing
business
was
going
very
well,
that
business,
prospects
looked
excellent
for
1976.
I
thought
with
additional
capital
we
could
do
much
better
in
the
housing
business
over
the
next
years.
Make
much
more
profit
with
it
than
rental
income
would
produce
to
us
in
the
company.
Q
So
you
recommended
that
it
should
be
sold
as
well?
A
Yes.
(SN
p
135)
In
cross-examination,
he
affirmed
the
same
point:
A
I
advised
them
—
yes,
I
advised
them
to
sell
because
the
housing
business
was
doing
quite
well
and
we
were
having
a
good
year
and
prospects
were
really
looking
good
for
1976,
and
the
offer
came
along
at
what
I
thought
was
in
excess
of
market
value
of
the
property.
As
far
as
I
was
concerned
the
property
was
worth
oh,
maybe
a
million
and
a
half,
a
million
and
six
hundred
thousand
dollars;
and
here
was
someone
prepared
to
pay
$2,130,000,
or
approximately
that.
I
thought
the
offer,
in
that
sense,
was
too
good
to
refuse,
and
I
believe
that
we
could
use
the
excess
cash
that
the
sale
would
generate
to
further
increment
our
profits
from
our
housing
operation.
(SN
p
145)
4.27
Mr
Scott
said
that
with
the
additional
capital
they
could
build
many
more
houses.
In
1975,
Exhibit
A-9
shows
that
approximately
$460,000
was
paid
out
to
the
directors
by
Squair.
4.28
Mr.
Scott
affirmed
he
never
asked
for
any
listing
(SN
141).
5.
Law—Cases
at
Law—Analysis
5.01
Law
The
main
provisions
of
the
Income
Tax
Act
involved
in
the
present
case
are
section
3,
subsections
9(1),
13(10),
125(1),
248(1)
(definition
of
“business”).
Those
provisions
will
be
quoted
during
the
analysis
if
they
are
useful.
5.02
Cases
at
Law
The
counsel
for
the
parties
referred
the
Board
to
the
following
cases
at
law:
1.
Roy
M
Power
v
HMQ,
[1975]
CTC
580;
75
DTC
5388;
2.
Kit-Win
Holdings
(1973)
Limited
v
HMQ,
[1981]
CTC
43;
81
DTC
5030;
3.
Hiwako
Investments
Limited
v
HMQ,
[1974]
CTC
542;
74
DTC
6360;
4.
Hiwako
Investments
Limited
v
HMQ,
[1978]
CTC
378;
78
DTC
6281;
5.
Wolf
Von
Richthofen
v
MNR,
[1968]
CTC
544;
68
DTC
5346;
6.
HMQ
v
Rockmore
Investments
Ltd,
[1976]
CTC
291;
76
DTC
6156;
7.
HMQ
v
Cadboro
Bay
Holdings
Ltd,
[1977]
CTC
186;
77
DTC
5115;
8.
Conrad
Leduc
v
HMQ,
[1981]
CTC
21;
81
DTC
5017;
9.
Greenbranch
Investments
Limited
v
HMQ,
[1980]
CTC
514;
80
DTC
6384;
10.
Glacier
Realties
Limited
v
HMQ,
[1980]
CTC
308;
80
DTC
6243;
11.
Paul
Racine
et
al
v
MNR,
[1965]
CTC
150;
65
DTC
5098;
12.
James
J
Horvath
v
HMQ,
[1980]
CTC
467;
80
DTC
6350;
13.
Acro
Developments
Co
Limited
v
MNR,
[1979]
CTC
2839;
79
DTC
727;
14.
J
A
Leroux
Inc
v
MNR,
[1979]
CTC
3051;
79
DTC
834;
15.
Charwood
Investments
Limited
v
MNR,
[1978]
CTC
2545;
78
DTC
1411.
5.03
Analysis
As
the
respondent’s
assumed
facts
on
which
the
reassessment
is
based
are
deemed
to
be
correct
(para
2),
it
is
important
to
analyze
the
evidence
to
see
whether
the
appellants
have
reversed
the
burden
of
proof.
They
must
show
that
the
said
assumed
facts
described
in
subparagraph
(a)
to
(g)
of
paragraph
4
of
the
Reply
to
Notice
of
Appeal
(para
2.02.1
for
Camelot
and
para
2.02.2
for
Squair)
are
not
correct.
5.03.1
Subparagraph
4(a)
of
the
assumed
facts
reads
as
follows:
(a)
the
Appellant,
as
well
as
its
associates
in
the
building
and
disposal
of
the
apartment
buildings
in
question,
is
engaged
in
the
business
of
land
development
and
construction;
It
is
admitted
in
the
Notices
of
Appeal
that
the
two
appellants’
companies,
since
their
incorporation,
carried
on
business
as
contractors
of
single
family
residential
dwellings
(paras
3.01
and
3.02).
Concerning
Camelot
Mr
J
M
Squair
said
“I
sold
very
few
really
of
Camelot’s
houses”
(para
4.01).
Concerning
Squair,
however,
its
business
was
admitted
to
be
the
building
and
selling
of
homes
(para
4.09).
The
two
appellants
were
not
involved
in
the
business
of
land
development.
This
fact,
however,
does
not
necessarily
mean
that
therefore
the
sale
of
the
apartment
buildings
resulted
in
a
business
profit.
Many
times
the
Courts
have
explained
this
principle.
In
the
recent
case
of
Kit-Win
Holdings
(1973)
Limited
v
HMQ,
[1981]
CTC
43;
81
DTC
5030
at
50
[5035]
Cattanach,
J
said:
I
cannot
conclusively
conclude
from
the
history
of
Mr
Rosenberg’s
numerous
transactions
in
real
property
that
he
is
a
trader
therein,
speculative
or
otherwise
and
even
if
it
were
possible
to
so
conclude
such
a
conclusion
would
not
preclude
a
trader
from
acquiring
a
capital
asset
and
holding
that
asset
as
such.
As
the
Lord
Justice
Clerk
pointed
out
each
transaction
must
be
considered
according
to
its
particular
facts.
5.03.2
Subparagraph
4(b)
of
the
assumed
facts
reads
as
follows:
(b)
although
the
appellant
mainly
builds
residential
houses
for
resale,
the
building
of
apartment
blocks
is
a
related
activity;
On
the
one
hand,
the
construction
of
residential
homes
and
the
construction
of
apartment
buildings
are
activities
of
the
same
physical
nature.
On
the
other
hand,
even
if
residential
homes
were
for
resale,
(as
is
the
case
with
Squair)
this
does
not
necessarily
mean
that
the
apartment
buildings
were
for
resale,
as
is
contended
by
the
Courts
(see
quotation
above).
5.03.3
Subparagraph
4(c)
of
the
assumed
facts
reads
as
follows:
(c)
the
said
apartment
buildings
were
listed
for
sale
with
a
real
estate
firm
in
March
1973,
shortly
after
their
completion,
and
on
the
sale
of
the
said
apartment
buildings
in
1975
a
commission
was
paid
to
the
said
real
estate
firm;
All
the
witnesses
affirmed
in
Court
that
the
apartment
buildings
were
never
listed
with
a
real
estate
firm
(J
M
Squair,
para
4.06;
A
R
Squair,
para
4.12;
and
K
W
Scott,
para
4.28).
Mr
J
M
Squair
also
said
they
had
never
put
a
“For
Sale”
sign
on
the
property
(para
4.06).
Concerning
the
payment
of
a
commission
“to
the
said
real
estate
firm”
—
there
was
no
testimony
at
all
on
this
point.
However,
in
the
tender
to
purchase
there
is
the
following
clause
in
Exhibit
A-8:
We
hereby
accept
the
above
offer
according
to
its
terms
and
conditions
and
agree
to
do
all
things
necessary
to
complete
the
sale.
I/WE
hereby
charge
the
property
with
the
commission
due
Webber
Bros
Realty
Ltd
and
authorize
the
said
firm
to
deduct
their
commission
from
the
deposit
money
whether
forfeited
or
otherwise.
This
clause,
however,
is
not
significant
in
revealing
the
intention
of
the
vendor.
It
is
indeed
a
standard
clause,
in
an
offer
to
purchase
a
property.
It
seems
that
in
certain
provinces
the
commissions
are
automatically
collected
from
the
purchaser
and
from
the
vendor.
5.03.4
Subparagraph
4(d)
of
the
assumed
facts
reads
as
follows:
(d)
on
June
1,
1972
the
Appellant
entered
into
a
profit
sharing
agreement
with
Squair
Homes
Ltd.,
one
of
the
Appellant’s
associates
with
regard
to
the
said
apartment
buildings,
indicating
an
intention
to
turn
the
apartment
buildings
over
for
a
quick
profit;
The
facts
concerning
this
point
were
lengthily
explained
in
paragraph
4.04.
The
first
comment
is
that
the
agreement
of
June
1,
1972,
to
which
it
referred,
concerns
only
the
Kipling
Building.
The
second
comment
is
that
despite
the
fact
that
the
witnesses
do
not
remember
very
well
who
drafted
the
agreement
of
June
1,
1972
(Exhibit
A-1)
and
the
agreement
of
May
8,
1975
(Exhibit
A-2)
very
well,
and
despite
the
verbal
affirmation
of
the
witnesses
that
the
documents
were
made
so
that
the
interest
of
Camelot
in
Kipling
“be
documented
in
some
way”
(para.
4.13),
it
is
very
difficult
for
the
Board
to
consider
that
the
only
way
to
document
the
interest
of
Camelot
is
in
referring
to
the
sale
of
Kipling.
The
recognition
of
the
debt,
the
payment
of
debt
and
the
guarantee
of
payment
could
be
made
in
other
ways
especially
when
two
companies
are
involved.
It
is
important
to
quote
again
paragraphs
2
and
3
of
Exhibit
A-1
and
paragraph
2
of
Exhibit
A-2:
2.
In
return
for
supervision,
financing
assistance
and
other
services,
it
is
agreed
that
Camelot
Construction
Ltd.
is
entitled
to
1/4
of
any
gain
made
on
the
sale
of
this
property.
3.
In
the
event
the
property
is
not
sold
within
one
year
from
first
occupancy,
it
is
further
agreed
that
an
appraiser
will
be
appointed
to
establish
the
fair
market
value
of
the
property.Camelot
Construction
Ltd.
is
then
entitled
to
1/4
of
any
gain
anticipated
on
the
future
disposal
of
the
property
based
on
the
fair
market
value
established
by
the
appraiser.
This
amount
is
due
and
payable
within
60
days
of
the
appraisal
date
or
on
such
terms
that
are
mutually
agreed
upon.
2.
It
is
further
agreed
that
in
return
for
supervision,
financing
assistance
and
other
services
performed
Camelot
Construction
Ltd.
is
entitled
to
1/4
of
any
gain
made
on
the
sale
of
this
property
when
and
if
the
property
is
sold.
The
Board
thinks
that
those
paragraphs
are
overly
strong
in
describing
the
intention
of
Squair
at
that
time.
Their
onus
cannot
be
reversed
by
verbal
testimonies.
5.03.5.
Subparagraph
4(e)
of
the
assumed
facts
reads
as
follows:
(e)
the
said
apartment
buildings
built
and
disposed
of
were
constructed
for
their
resale
value
rather
than
for
their
investment
potential
and
the
Appellant’s
share
of
the
profit
realized
is
income
from
a
business
within
the
meaning
of
that
word
as
it
is
used
in
the
Income
Tax
Act:
The
contention
of
Mr
A
R
Squair
on
this
point
is
described
in
paragraph
4.14
above.
His
main
reason
is
“we
couldn’t
sell
them
for
the
amount
of
money
we
were
building
them
for”
(p
95,
lines
19
and
20).
He
said
that
a
next
door
building
was
for
sale
at
$1,000
per
suite.
There
were
120
suites
in
the
three
buildings
(Exhibit
A-7
and
A-8).
This
means
$120,000
for
the
buildings.
No
evidence
was
given
of
the
exact
cost
of
the
three
buildings,
but
from
the
financial
statements
of
Squair,
the
cost
of
the
Kipling
building
(100%)
and
one-third
of
Browning
and
Keats
was
around
$823,000
(SN
p
139,
lines
13,
14
and
15
and
Exhibit
A-9).
No
evidence
was
given
concerning
the
said
“next
door
building”.
At
first
glance,
it
is
curious
that
even
in
May
1975,
it
was
agreed
that
the
fair
market
value
of
Kipling
was
less
than
the
cost
(Exhibit
A-2),
when
six
months
later
it
was
sold
because
the
offer
was
so
high
that
it
could
not
be
refused.
No
evidence
was
given
to
explain
such
an
increase
in
value.
However,
Mr
Scott
(para
4.26)
expressed
the
same
surprise
saying
that
six
months
before
they
had
been
valued
at
$500,000
“less
than
that”
—
this
means
less
than
the
offer.
5.03.6.
Subparagraph
4(f)
of
the
assumed
facts
reads
as
follows:
(f)
the
apartment
buildings
were
not
prescribed
property
used
in
the
construction
business;
in
the
sense
of
provision
13(10).
The
counsel
for
Squair
said
in
the
arguments
that
“we’re
prepared
to
concede
that”
(SN
p
154).
5.03.7.
After
considering
all
those
elements,
especially
those
in
paragraph
5.03.5,
the
Board
arrives
at
the
first
conclusion
that
the
profit
made
by
Squair
by
the
sale
of
the
Kipling
building
must
be
considered
as
business
profit.
However,
the
sale
was
not
solicited,
the
building
was
not
listed,
and
the
said
profit
was
from
an
adventure
or
concern
in
the
nature
of
trade.
Concerning
the
profit
made
on
the
sale
of
the
Browning
and
Keats
buildings,
the
Board
must
consider
the
elements
contained
in
paragraphs
5.03.1,
5.03.2,
5.03.3
and
5.03.5
and
the
facts
to
which
they
refer.
The
Board
arrives
at
the
conclusion
trhat
the
burden
of
proof
of
the
respondent’s
assumed
facts
was
reversed
and
the
profit
must
be
considered
as
capital
gain.
It
is
useful
to
point
out
that
subparagraph
4(d)
of
the
assumed
facts
does
not
directly
concern
the
Browning
and
Keats
buildings.
There
are
not
enough
elements
in
the
evidence
to
affirm
that
the
intention,
clearly
described
in
Exhibits
A-1
and
A-2
concerning
the
Kipling
Building,
directly
affect
the
intention
of
the
parties
in
the
Browning
and
Keats
buildings.
5.03.8.
Inactive
business
The
problem
is
whether
or
not
the
profit
made
by
Squair
in
the
sale
of
Kipling
must
be
considered
as
active
or
inactive
business.
The
Board
must
not
consider
the
definition
of
“active
business”
(paragraph
125(6)(d))
and
of
“income
of
the
corporation
for
the
years
from
an
active
business”
(paragraph
125(6)(e))
which
are
applicable
only
to
taxation
years
commencing
after
1979.
The
Board
considering
that
the
profit
comes
from
an
adventure
or
concern
in
the
nature
of
trade
believes
that
the
business
is
inactive.
6.
Conclusion
The
appeal
of
Squair
Homes
Ltd.
is
allowed
in
part
and
the
appeal
of
Camelot
Construction
Ltd.
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
in
accordance
with
the
above
Reasons
for
Judgment.
Appeal
allowed
in
part.
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