Sylvio Paquet v. Minister of National Revenue, [1982] CTC 2144, 82 DTC 1148

Roland St Onge [Translation] —The appeal of Mr Sylvio Paquet came before me on January 21, 1981 in the city of Montreal, Quebec. At issue is whether the profits generated from the sale of certain lots must be considered business income instead of capital gains for the 1973, 1974, 1975 and 1976 taxation years.

The facts of this appeal are clearly stated in the notice of appeal in paragraphs 5, 6, 7, 8, 9 and 10 inclusive; they read as follows:

5. The appellant acquired these lots from his father, Alphonse Paquet, a farmer, on December 28, 1972; the acquisition in its entirety was set out in a contract of sale recorded before Antoine Hamel, notary, as number eleven thousand two hundred and forty-six (11246) of his minutes, a copy of the said contract having been filed in support of this notice of appeal as number A-1:

6. It was only after urgent and repeated requests by his father, then in his seventies, that the appellant and his brothers and sisters acquired a portion of the land that had belonged to his father for several years, that is, since 1939;

7. It was solely for the purpose of relieving his father, Mr Alphonse Paquet, of a burden that he was no longer able to carry alone that the appellant, Mr Sylvio Paquet, agreed after considerable hesitation to acquire a portion of the said land;

8. It was never the intention of the appellant to acquire these lots or this land for the purpose of reselling them at a profit;

9. Afterwards, without any soliciting on his part and without any manner of advertising, a number of persons approached the appellant on different occasions, asking him to sell them certain portions of the land he had acquired;

10. In certain instances, the appellant agreed to sell the land, most often at a price below the market value.

Citing the reasons outlined below, the respondent argued that the sale of the lots constituted an adventure in the nature of trade:

9(a) The appellant is the owner of certain portions of lot two hundred and fifty- three (P253) of the official land register of the parish of L’Ancienne Lorette, registration division of Quebec City;

(b) These lands formerly belonged to the appellant’s father, Alphonse Paquet, who ran a farm on the said lands for the production of dairy products and who had subdivided a number of lots in order to compensate for the declining income from his farm business;

(c) As a result of repeated offers by his father, the appellant acquired, by notarized deed dated December 28, 1972, these portions of lot two hundred and fifty-three of the land register of the parish of L’Ancienne Lorette;

(d) Since September 1972, the appellant has been an employee of the roads maintenance department of the municipal corporation of the Town of L’Ancienne Lorette and during the taxation years 1973 to 1976, he never operated the farm located on lot P253 and he never cultivated the land on the said lot;

(e) The appellant held onto the land situate on lot P253 only for a short period of time and as early as 1973, the very next year following the acquisition of the land on December 28, 1972, he sold six subdivided lots from lot P253, with sales totalling $12,488.00;

(f) During each of the taxation years under review, the appellant regularly sold subdivided lots from lot P253, that is, six (6) lots for the 1973 taxation year, six

(6) lots for the 1974 taxation year, three (3) lots for the 1975 taxation year and four (4) lots for the 1976 taxation year;

(g) During each of the taxation years under review, the appellant applied himself to upgrading the lands situate on lot P253 so as to increase their marketability; such work included, among other things, excavation and surveying.

At the hearing, the appellant testified as follows: for thirty-nine years, his father was the owner of a farm that he ran until 1970. In recent years, he also subdivided a portion of his farm and sold 25 to 30 lots. He often thought about dividing his property and spoke of this to the appellant on two or three occasions. At a family gathering, he offered to transfer the farm to his children or to sell it to outsiders. The appellant obtained the residential part of the farm as he was already residing in that area. Without having to negotiate a price, his father sold him the said land for the sum of $44,000 — $2,000 in cash and the balance payable at $2,000 per annum, with interest at 6 per cent.

The appellant had never before engaged in a real estate transaction. Not long after the transfer, he sold two lots that his father had already promised, and after preparing a subdivision plan, he disposed of 15 lots, selling them to neighbours, relatives or acquaintances, without going through real estate agents and without publishing any sort of notice.

Counsel for the appellant summarized the facts and referred the Board to the following two cases:

(1) John Lloyd McGuire v MNR, [1956] CTC 98. In this case, 20 out of a total of 54 lots had been sold, and I quote from 98:

HELD:

(ii) That there should be no distinction between selling the land as a whole or selling parts of it and the sale by the taxpayer of his own property did not constitute a business.

EDITORIAL NOTE:

“Now, as I said before, there is no question but that a man has the right to sell his property and if it was not purchased as a venture or for speculation I don’t think he is liable for income tax on any profit he might make.’’

This theme is developed later in the judgment

. . I don’t think it makes any difference whether he sold the whole property as a whole or as a half or in fifty pieces.”

(2) Cosmos Inc v MNR, 28 Tax ABC 193, and I quote:

The evidence showed no action in the nature of trade on the part of the appellant. The appeal was allowed.

Counsel for the respondent referred the Board to a list of authorities:

A. Cragg v MNR, [1951] CTC 322; 52 DTC 1005;

B. Regal Heights v MNR, [1960] CTC 384; 60 DTC 1270;

C. Morev Investments Ltd v MNR, [1972] CTC 513; 72 DTC 6421;

D. Rickron Realties Inc v MNR, [1973] CTC 355; 73 DTC 5287;

E. Pierce Investments Corp v MNR, [1974] CTC 825; 74 DTC 6608;

F. Clemow Realty Ltd v The Queen, [1976] CTC 129; 76 DTC 6094;

G. Voth v MNR, [1959] Tax ABC 414; 59 DTC 478;

H. Moluch v MNR, [1966] CTC 712; 66 DTC 5463;

I. Doré v MNR, [1964] Tax ABC 46; 64 DTC 501;

J. HC Smith v MNR, [1960] CTC 391 ; 60 DTC 1282, upheld in 63 DTC 1121 ;

K. McGuire v MNR, [1956] CTC 98; 56 DTC 1042.

The evidence showed that at no time did the appellant ever engage in real estate transactions that could have labelled him a speculator. He did not seek to acquire these properties, but rather was obliged to accept the transfer in order to comply with the wishes of his father, who by reason of his advanced age (77) was unable to attend to his affairs by himself, and who wished to transfer his property to his children. Thus he acquired the property in question under very special circumstances and even if it were his intention to resell it, that is not sufficient to argue that these sales constitute an adventure in the nature of trade. One could say that the appellant inherited these lands from his father, whose property they had been for 39 years.

Moreover, at the time of the sale the appellant’s role much more closely resembled that of an owner than a speculator; I refer to Hudson’s Bay v Stevens (1909), 5 TC 424. Ordinarily, a speculator does not purchase property from his father in order to sell it for profit. The profit made, therefore, is not the result of an adventure in the nature of trade. Had the appellant sought to purchase these lands in order to resell them at a profit, the situation would be altogether different. However, this was not the case as these lands were conveyed to him within the context of a father-son relationship. Once he had become the owner, he was then entitled to continue with the transactions that his father had engaged in without having to pay more taxes than his father did.

The property was transferred to the children for minimal sums, and even if the transaction that conferred ownership on the appellant took the form of a deed of sale, the substance of the transaction appears to be something else altogether. Nor can the transferred lots be considered an inventory property and thus taxable, since neither the father nor the son were speculators.

Consequently, I consider that the conduct of the appellant was not that of a speculator, but rather that of a son who, upon acquiring title to his father’s property and wishing to dispose of it, was not obliged to give it away, but was entitled to dispose of it by seeking to obtain the highest price.

For all these reasons, the appeal is allowed and the matter referred back to the respondent for reassessment.

Appeal allowed.