Neil G Orser, Polaris Holdings Ltd, Lloyd Gladstone Powell, Michael Piro v. Minister of National Revenue, [1982] CTC 2302, 82 DTC 1332

D E Taylor:—These appeals, heard on common evidence in Edmonton, Alberta, on February 10, 1982, were lodged against income tax assessments for the following years:

Dr Lloyd G Powell (“Powell”) — 1975 & 1976

Polaris Holdings Ltd (“Polaris”)— 1975 & 1976

There were four matters at issue in these appeals, all gains on sales or property — the total appeal therefore in all aspects reflects a “trading case” dispute. The Board is required to determine whether each individual gain was on income or capital account. The amounts of the individual gains are not contested, and therefore dollar amount references will be minimal in this decision and only noted when the basic principle may be either highlighted or affected by these amounts. Identification and definition are assigned to the transactions for purposes of this decision as follows:

The general context of the appeals can be found in the Notices of Appeal filed with the Board. Certain sections therefrom are quote for background only, without attributing thereto any necessary validity with regard to the rationale for the transactions or the conclusions asserted:

Powell (applicable where appropriate to Orser and Piro)

— The appellant investigated the medical facilities at the Hamlet of Sherwood Park and discovered that many medical services were unavailable in the Sherwood Park area due to the lack of a nearby hospital.

— The appellant investigated the possibility of developing a facility which would be suitable for carrying on the practice of medicine in conjunction with a medical clinic to include laboratory, x-ray and emergency facilities and obtained favourable indications.

— The appellant located a 6.29 acre parcel of land (the “Hooke Property”) on which was located a large house which could be adapted to allow the appellant to locate his medical practice on the premises, prior to further development of the parcel by construction of a medical clinic.

— In 1972 the appellant, Piro and Orser each acquired an undivided one-third interest in the Hooke property and held the property under the firm name and style of “Polaris Holdings”.

— The legal description of the Hooke property is Lot 23, Plan 4382 MC and Lot 27, Plan 963 MC, both in Campbelltown Heights Subdivision, in the Hamlet of Sherwood Park.

— The house was converted into office space and used for the appellant’s medical practice.

— Further investigations were then carried out in order to expedite the development of the proposed medical clinic.

— “Polaris Holdings” in this context is not “Polaris Holdings Ltd”, the corporate appellant. “Polaris Holdings” is a partnership, as far as the evidence would attest.

— The municipal authorities then indicated that they did not intend to approve further non-residential development in the area of the Hooke Property for some years and, further, indicated that the appellant should move his medical practice from the area.

— the appellant moved his medical practice into other premises at the Hamlet of Sherwood Park and his former office on the Hooke Property was converted into a residence in early 1975.

— An unsolicited offer to purchase the Hooke Property was received and, in view of the inability to develop the Hooke Property due to the views of the municipal authorities, the Hooke Property was sold by Polaris Holdings on September 15, 1975. The appellant reported his share of the profit received on the sale of the Hooke Property as a capital gain in his tax return for the 1975 taxation year, less a reasonable amount as a reserve in respect of the proceeds of disposition of the property which were not due to the appellant until after the end of the taxation year.

— The appellant had developed an interest in riding, jumping and race horses and wished to purchase a farm larger than the acreage on which he lived, in order to pursue his interest in these horses. The appellant investigated the possibility of developing a suitable facility and located a parcel of farm land (the “Triple Crown Farm”) whch property is legally described as a portion of Northeast 1/4

— 4 — 49 — 23 West of the 4th, approximately 30 miles south of the Hamlet of Sherwood Park.

— In December, 1974 the appellant, Hosam Ibrahim and Maria Lange each acquired an undivided one-third interest in the Triple Crown Farm.

— Subsequently, during the next 18 months the appellant purchased the interests of Hosam Ibrahim and Maria Lange and became the sole owner of the Triple Crown Farm.

— The appellant formulated plans to develop a large operation on the Triple Crown Farm including corrals, stables and a riding arena, which operations would produce revenue from the boarding of other horses, the staging of riding shows and other similar activities.

— The location of the Triple Crown Farm some distance away from centres of population was not appropriate for such an operation and, as a result, the appellant sold the Triple Crown Farm on May 15, 1976, using the sale proceeds to purchase farm property in a favourable location upon which the appellant has constructed substantial facilities, which farm property has been retained by the appellant.

— The appellant reported the profit received on the sale of the Triple Crown Farm as a Capital gain in his tax return for the 1976 taxation year, less a reasonable amount as a reserve in respect of the proceeds of disposition of the property which were not due to the appellant until after the end of the taxation year.

— In February, 1976 the appellant purchased an undivided one-half interest in an apartment building (the “Edmonton Apartment Building”) located at 10236 — 156 Street, in the City of Edmonton.

— The appellant did not take an active role in the management of the Edmonton Apartment Building, which active management was conducted by the owner of the remaining interest in the building, and at the behest of the other owner the property was sold on June 1, 1976.

— The appellant reported his share of the profit received on the sale of the Edmonton Apartment Building as a capital gain in his tax return for the 1976 taxation year, less a reasonable amount as a reserve in respect of the proceeds of disposition of the property which were not due to the appellant until after the end of the taxation year.

Polaris:

— At all material times the shareholders of the appellant were individuals who were Lloyd G Powell, a medical doctor (“Powell”), Michael Piro (“Piro”) and Neil G Orser (“Orser”).

— Powell investigated the medical facilities at the Hamlet of Sherwood Park and discovered that many medical services were unavailable in the Sherwood Park area due to the lack of a nearby hospital.

— Powell investigated the possibility of developing a facility which would be suitable for carrying on the practice of medicine in conjunction with a medical clinic to include laboratory, x-ray and emergency facilities and obtained favourable indications.

— Powell located a 6.29 acre parcel of land (the “Hooke Property”) on which was located a large house which could be adapted to allow Powell to locate his medical practice on the premises, prior to further development of the parcel by construction of a medical clinic.

— In 1972 Powell, Piro and Orser each acquired an undivided one-third interest in the Hooke Property and held the property under the firm name and style of “Polaris Holdings”.

— The house was converted into office space and used for Powell’s medical practice.

— A 3 acre parcel of property (the “Ball property”) adjoining the Hooke Property became available and was purchased by the appellant (to facilitate financing) in May, 1974 since, inter alia, this property gave better access to the Hooke property.

— The legal description of the Ball Property is Lot 28, Plan 4382 MC, Campbelltown Heights Subdivision, in the Hamlet of Sherwood Park.

— Further investigations were then carried out in order to expedite the development of the proposed medical clinic.

— The Municipal authorities then indicated that they did not intend to approve further non-residential development in the area of the Hooke and Ball Properties for some years and, further, indicated that Powell should move his medical practice from the area.

— Powell moved his medical practice into other premises at the Hamlet of Sherwood Park and his former office on the Hooke Property was converted into a residence in early 1975.

— An unsolicited offer to purchase both the Hooke and Ball Properties was received and, in view of the inability to develop the Hooke and Ball Properties due to the views of municipal authorities, the Hooke Property was sold by Polaris Holdings and the Ball Property was sold by the appellant, both on September 15, 1975. The appellant reported the profit received on the sale of the Ball Property as a capital gain in its tax return for the 1975 taxation year, less a reasonable amount as a reserve in respect of the proceeds of disposition of the property which were not due to the appellant until after the end of the taxation year.

— The appellant had incurred non-capital losses which were reported as deductions in arriving at taxable income in its tax return for the 1974 taxation year.

Contentions

For the appellant(s):

— The gain realized on the sale of the Hooke property in their 1975 taxation year was a Capital gain as the sole intention of the appellant(s) was to participate in the development and building of a medical clinic and then retain the development to produce rental income.

— The sale of the Hooke property was due to frustration of their efforts by municipal authorities to develop the property as aforesaid, the property was sold pursuant to an unsolicited offer.

— The gain realized on the sale of the Triple Crown Farm in the 1976 taxation year was a Capital gain as the sole intention of the appellant(s) was to develop a farming operation and build the necessary facilities, and then to retain the development to produce income.

— The sale of the Triple Crown Farm was due to the unsuitable location of the property for the type of development planned by the appellant(s) after purchase of the Triple Crown Farm and that farm property was subsequently purchased in a more favourable location upon which such development was carried out.

— The gain realized on the sale of the Edmonton Apartment Building in the 1976 taxation year was a Capital gain as the sole intention of the appellant(s) was to retain the property as a long-term investment producing rental income.

— The sale of the Edmonton Apartment Building was due to the decision of the owner of the remaining interest in the property, which decision was imposed upon the appellant(s).

— The gain realized on the sale of the Ball property in the 1975 taxation year was a Capital gain as the sole intention of the appellant(s) was to develop and build a medical clinic and then retain the development to produce rental income.

— The sale of the Ball property was due to frustration of their efforts by municipal authorities to develop the property as aforesaid, and the property was sold pursuant to an unsolicited offer.

For the respondent

— The Hooke property was sold within 34 months from the date of purchase.

— The Hooke property had never been zoned for commercial industrial development and the zoning restrictions were known to the appellant(s) at the time of the purchase of the land.

— No actual plans for development of the Hooke property were made because of the zoning restrictions.

— The farm was sold within 18 months from the date of purchase.

— The appellant(s), at the time of purchase of the farm, was (were) aware of the proximity of the farm in relation to populated areas.

— The farm was not revenue producing at the time of its purchase by the appellants), and he (they) made no attempts to make it into a revenue producing property.

— There were no existing buildings on the farm at the time of purchase, and the appellant(s) carried out no construction on the site during the period of his (their) ownership.

— The appellant(s) never used the farm for corrals, stables or as a riding arena;

— There was no documentation of any intended development of the farm;

— The apartment was sold within 3 months from the date of its purchase;

— A motivating reason for the purchase of the Hooke property, the farm and the apartment by the appellant(s), was the expectation that these properties would be resold at a profit.

— The Ball property was sold within one and one half years from the date of purchase.

— The Ball property had never been zoned for commercial industrial development and zoning restrictions were known at the time of purchase of the land;

— No actual plans for development of the Ball property were made because of the zoning restrictions.

— A motivating reason for the purchase of the Ball property was the expectation that it would be resold at a profit.

Evidence

Each of the three individual appellants testified regarding his personal responsibility and involvement, and each also dealt with his relationship to the corporation Polaris. In general, the basic facts were those portrayed in the Notices of Appeal referred to above. There were, however, certain other points brought out mainly by Powell which I consider to be relevant:

Apartment

Dr Powell and Mr Ibrahim, a pharmacist in the same plaza (Maplewood) from which Powell practised medicine, were partners in the purchase of a 12-suite building in February 1976 for about $136,000, which then sold in June 1976 for $170,000. Both the purchase and the sale were Ibrahim’s idea, but he needed financial assistance from Powell. Powell was never in the building and, due to a shortage of finances, was unable to “buy out” Ibrahim’s interest when he wanted to sell, so Powell also agreed to sell.

Farm

Powell’s interest in horses continued, and Triple Crown was located some 27 miles south of Sherwood Park on Highway 21. Mr Ibrahim, his one partner, was the same person with whom he had acquired the apartment building. Mrs Lange, the other partner, was the wife of the bank manager in the Plaza. The prospect of the purchase had first arisen in a discussion between Powell, Ibrahim and Mr Lange. Mrs Lange had some knowledge of farming and raising horses, but she had not been required to put up any part of the $10,000 down payment. When she left the partnership in February 1976 (to move to another city), Powell bought out her interest for $6,000.

In July 1976, Powell acquired Ibraham’s share for $10,000. the farm had 160 acres and it had only been used while owned by Powell to permit a friend to park a trailer there and look after the property. For his purpose (to develop a proper horse-raising establishment), Triple Crown was too far away. It was pointed out for the record that about the time he sold Triple Crown, he did acquire a 40-acre farm nearer to his residence and, by investing some $250,000 in buildings and improvements, he now has 2 stallions and a band of brood mares of his own, besides boarding horses for others. His interest in horses, and raising them, has not abated.

Ball

Polaris (the company) was incorporated for the acquisition of Ball on the legal advice obtained by the three individual appellants. Efforts were made (but without success) to acquire additional land adjoining Ball to make the total holdings on that corner into a “square” which they considered to be better suited to development purposes.

Hooke

At acquisition, Hooke was zoned “country-residential” but was directly across the road from an existing small shopping plaza. The development and expansion of the City of Edmonton, therefore, had reached but not crossed the road on which the Hook property fronted. It was Powell’s intention to establish his own medical practice there and then, with his partners, expand into a small shopping plaza or office complex which would be compatible with his professional work. After moving to Edmonton from Yellowknife, he had practised in conjunction with other doctors for about two years before going out on his own again. From his professional experience in Yellowknife and his building experience there (referenced later), he could foresee no difficulties in getting necessary zoning changes, etc, to proceed as he planned. He was given a permit by the municipality to practise medicine in the house located on Hooke and did so for some three years.

Dr Powell’s difficulties in practising his profession there arose because he was trying to establish a “clinic” which would contain adequate laboratory and X-ray facilities, or to establish on the site a small “emergency” type hospital facility since there was none in the area. These possibilities (“clinic” or “hospital”) arose subsequent to the acquisition of the property, when only the shopping plaza facility had been contemplated. The lack of municipal services and water facilities prevented him from going ahead — indeed he could not get a permit to do so for the clinic or the hospital, and together with his partners and Polaris, he eventually sold out after moving his practice to Maplewood Plaza, where he is yet.

Orser and Piro are Yellowknife businessmen who combined with Powell to build four apartment buildings in Yellowknife when Powell was practising medicine there. During the 1960’s they constructed and retained these buildings, comprised of some 200 rental apartment units held by Polaris Holdings — the partnership. In 1976, the partners sold one of the four buildings in Yellowknife at a profit, and subsequently disposed of the others. When contacted by Powell about the acquisition of Hooke, Orser and Piro simply saw it as a southern extension of their Yellowknife interests, particularly when Powell would be on the spot to look after matters, and the rental which would come from the property — not only Dr Powell using the main house as his office, but the rental of the two bungalows also on the property, each one containing two units. They were unaware of any long term difficulties which could arise from either servicing or zoning — and concluded that in five years or so, they could fulfill their plans of building a plaza. Financing did not appear to be a problem since each one of the three was reasonably well established and had credit available.

Argument

Counsel for the appellants proposed the following as significant points in favour of allowing the appeals:

Hooke and Ball

— There was no evidence that any of the partners was a trader in land;

— Powell had earlier experience in Yellowknife in building up a clinic;

— He practised medicine at the Hooke site for almost three years;

— Since Powell was allowed to practise medicine, he foresaw no problem on other zoning changes he might wish in the future;

— He had other doctors practising with him who also might have been interested in the clinic;

— Financial capacility existed in the partnership to carry out the “plaza” idea at Hooke;

— The partners were not “sophisticated” land developers, particularly in the Edmonton area, or they might have been more concerned about services and zoning at the date of purchase of Hooke. However, their experience in Yellowknife led them to believe that such things could be overcome.

— Ball was acquired with the intention of making the total site more viable. If they had not intended to proceed to build the “plaza”, they would not have bought Ball:

— The road construction had put a physical impediment in the clinic operation — but only after it had been there some two or three years.

— The partners had already developed a substantial and stable apartment rental business in Yellowknife;

— The acquisition of Hooke was just an extension of the Yellowknife business.

Triple Crown

— Powell had lived on an “acreage” lot in the country ever since moving to Edmonton;

— He liked horses;

— He considered the prospect of raising horses in his retirement years would be a good objective;

— Triple Crown would have been suitable, as a matter of fact, because it had 160 acres as opposed to 40 at the present farm site which, for location reasons only, was more suitable;

— On the sale of Triple Crown, he immediately purchased a new “horse” farm — the current 40 acres, and has invested some $250,000 therein.

Apartment

— This purchase was in the same manner as the other rental holdings in Yellowknife.

— The decision to sell had been that of Ibrahim, not Powell.

Counsel made particular reference to the following cases:

Racine, Demers and Nolin v MNR, [1965] CTC 150; 65 DTC 5098; The Queen v D L Anderson and Jean Emily Beckingham, [1973] CTC 606; 73 DTC 5444; Joyce E McDonald and David C McDonald v The Queen, [1974] CTC 836 & 838; 74 DTC 6644, and R F Maclsaac v MNR, [1974] CTC 576; 74 DTC 6380.

The following quotations from Racine et al, at 159 and 5103, and at 160 and 5104 respectively, were cited:

Thus, it appears that the fact alone that a person buying a property with the aim of using it as capital could be induced to resell it if a sufficiently high price were offered to him, is not sufficient to change an acquisition of capital into an adventure in the nature of trade. In fact, this is not what must be understood by a “secondary intention” if one wants to utilize this term.

To give a transaction which involves the acquisition of capital the double character of also being at the same time an adventure in the nature of trade, the purchaser must have in his mind, at the moment of the purchase, the possibility of reselling as an operating motivation for the acquisition; that is to say that he must have had in mind that upon a certain type of circumstances arising he had hopes of being able to resell it at a profit instead of using the thing purchased for purposes of capital.

The problem of the respondent in the present case has this in common with the hypothetical example of the shopping centre which I have just mentioned in so far as there is no direct evidence that the possibility of reselling the land in question was considered in the minds of the appellants when they decided to make their purchase; in fact the evidence is to the contrary. All the evidence presented by the appellants is to the effect that no such intention existed in their minds and the respondent has offered no evidence which could contradict this evidence and I must even add that this evidence of the appellants has not even been challenged by cross-examination.

Counsel for the respondent asserted that:

Hooke and Ball

— there was no evidence to support the alleged intention to build a plaza, clinic or hospital;

— the partners merely hoped that zoning and municipal servicing would favour them;

— the fact that the might be termed “unsophisticated” should mean they would have investigated the possibilities at greater depth than they did, before buying Hooke;

— no evidence that Powell had developed a “clinic” at Yellowknife, certainly not one with laboratory and X-ray facilities. He had a medical office at Yellowknife and opened one at Hooke in Edmonton.

— At acquisition, the partners seemed to accept a five-year delay at Hooke before they could build — and there was no reason they could not have regarded a longer period as just as acceptable if they had viable plans for the site;

— After leaving Hooke, Powell simply continued to do as he had always done — run a medical practice. There is no indication of progress or interest in a plaza, a clinic or a hospital.

Triple Crown

— No farm background in Ibrahim, little in Powell, and no evidence of any from Lange, although it is contended that she would be the guiding force in the development.

— The difference in the distance (some 22 miles) between Triple Crown and the doctor’s present “horse” farm is not very great.

— He had no need for 160 acres at Triple Crown if he now runs a viable operation on 40 acres.

Apartment

— The appellant and Ibrahim simply saw an opportunity to purchase and sell the property at a profit. There was never any intention of holding it as a long-term investment. No information has been provided regarding its viability or future as such an investment.

As case law, counsel referred the board to the case of Sam Grossman v MNR, [1979] CTC 2132; 79 DTC 141.

Findings

Apartment

Even allowing for the fact that Powell was involved in the rental of property both in Yellowknife and at Hooke, I do not view the acquisition of the Edmonton apartment with Ibrahim as part of that business structure. Powell took no interest in either the acquisition or the operation of the apartment, and made no effort to acquire the interest of Ibrahim when the pharmacist wanted to sell. I am not persuaded that Powell was so short of available funds at the time of the sale that he could not have quite readily made arrangements to acquire Ibrahim’s interest had he chosen to do so.

There is no evidence regarding the objective and intentions of Ibrahim, and it cannot simply be concluded that this was for an investment purpose in the light of the substantial profit in a short space of time. Powell has provided no reason for his own interest in the property other than to aid a friend, and I am unable to see therein any reason to disturb the assessments of the Minister on this point.

Farm

The subsequent activity of Powell in establishing what appears to be a very substantial horse farm operation on the new 40-acre property would tend to add support to his contention that he intended to do so at Triple Crown. However, as opposed to that, we have him acquiring only a 1/3 interest, one of the other partners being a pharmacist whose interest or experience in farming or horses has not been established. In fact, Mr Ibrahim lost interest in an apartment block (above) rather quickly, and there is no reason to assume his dedication to Triple Crown. As for Mrs Lange, the prospect of her developing and running the farm, apparently on the basis that she knew more about such matters than the other two partners, is not one which I find very convincing, particularly since she put up no money in the down payment, and there is no evidence that she frequented the site or made any kind of contribution to the project. I give little weight to the assertion that Powell could not finance Triple Crown by himself and needed partners. That does not hold up in light of his other concurrent activities and financial transactions, as well as the fact that he quite rapidly acquired the other partners’ interests.

Ball

It might appear at first glance that since the gain was realized on this piece of property in the same sale that dealt with Hooke, it should not have separate consideration from that of Hooke. However, that is not the case as I see it. Ball was purchased in May 1974 and the reason advanced for its acquisition was that it “gave better access to the Hooke property”. Such a reason presumes that in May 1974, Powell and his two partners not only retained but wanted to stabilize their prospects of building a plaza, clinic or hospital on or near the Hooke site, and the added area would be valuable to such an endeavour. In early 1975, according to the testimony, Powell stopped practising at Hooke and moved to Maplewood for two reasons: first, that it was now evident the municipality would not provide services and water, and second, that road construction at the corner would impede access to Hooke for a period of 4 to 6 months. In September 1975, Ball (together with Hooke) was sold.

As for the “4-6 month access problem” argument, I find it untenable. It is unlikely that a municipality would virtually put out of business an established medical practice on a particular site if the municipality wanted it there, and if the practitioner had solid authority to stay there. Arrangements for access and utilization could have been made. Even if it were a reason for temporarily moving from the property, it is not a reason for selling the property unless the main reason for acquisition of Hooke in the first place was simply to establish a doctors’ office, not a plaza, hospital or clinic. No indication was given of the lease arrangements made in 1975 at Maplewood by Powell — they may have been quite lengthy.

The “lack of services” argument appears to me to be equally unsupportable. In effect, the appellants contend that the prospect of the municipality permitting and aiding the alleged “plaza” development was strong and viable in May 1974, but had disintegrated by early 1975. To reach that conclu- sion, it is necesary to find that Powell was not experiencing difficulties with his alleged plans for Hooke before May 1974, after having been on the site for some two years. The evidence and testimony, however, would tend to support a view that Powell was permitted, perhaps only reluctantly, to even keep his medical practice on Hooke during that period, but received no encouragement or assistance in the plan to make it the focal point of something much larger — plaza, clinic or hospital. The municipality wanted no such expansion at that time, it is not yet developed in 1982, and apparently will only be serviced when the municipal timetable and finances call for it. The evidence to support any contention that the “pressure” for Powell to move his medical practice from Hooke came only subsequent to the acquisition of Ball, was not provided to the Board and, equally, there is no substantive evidence to support a contention that the municipality had actually supported the development plan of Powell before that date.

In my view, Powell’s opportunity to practise his profession at Hooke was tenuous right from the start, and did not include or imply from the municipality plans for extension or enlargement of the type described at the hearing. Whatever may have been the reason for purchase of Ball (and there could have been several, including the fact that the already owned adjacent Hooke property was now regarded to have increased in value), that reason did not relate to its potential as part of a commercial development plan for the Hooke-Ball site. It is my assessment of the evidence and testimony by the time of the acquisition of the Ball site, Powell was having no success with his original “plaza” concept and that the prospect of a “clinic” or an “emergency hospital” was not progressing either.

Hooke

The support is slim indeed which the appellants can find in the facts to establish their claim that Hooke was purchased with a commercial — and only commercial — purpose in mind — to build a plaza (the clinic and hospital idea were not foreseen at the date of purchase). There was already a plaza across the road and there is no indication of market study or viability analysis; the property was less than ideal since it was not a corner property; it was zoned country-residential, not commercial; there were no municipal services to the property, and no assurance of them from the municipality; the experience of the partners had been in the residential field, not the commercial or industrial rental field; there were no projections of cost, construction or financing problems made, nor any indication of a possible major tenant (see Trans Canada Holdings Limited v MNR, [1980] CTC 2791; 80 DTC 1689.

I am satisfied that the basic requirement at the time of the purchase of Hooke was for Powell to find a location from which he could practise medicine. Hooke also provided a prospect for commercial development. It is his testimony that there was nothing else available that was more suitable at the time — the only plaza which had office space was Brentwood, and it already contained a medical clinic. Even at that, it is highly doubtful in my mind that Powell had anything from the municipality other than a very tenuous permission to operate a medical practice at the site for the immediate future — he managed to do so for almost three years. His interest in establishing a clinic or hospital at some other location, or even to hold Hooke-Ball, for that purpose, deteriorated quite rapidly after his move to Maplewood and the subsequent offer from purchasers of Hooke-Ball. However, those facts, somewhat against the appellant, must be weighed against two substantial and positive facts. In acquiring Hooke, Powell did so in conjunction with his two long-time partners with whom he had enjoyed a commercial (property rental) relationship in Yellowknife where he still retained a substantial interest; and he did operate the property commercially for about three years — for his medical practice, and receiving other rental income. His partners trusted his judgment (their testimony) and accepted his view that there was a long-term investment reason for the acquisition — perhaps in about five years’ time, they understood. There was no evidence presented which would indicate a contention that the three partners had engaged, individually or collectively, in Yellowknife, in land trading transactions for gain. I am quite satisfied that the three partners were well aware that the Hooke property should retain its value and that, in the event development was not possible, it could be sold and probably at a profit. They were all businessmen familiar with real estate matters in general, if not with such matters in Edmonton, in particular. Nevertheless, I am equally satisfied that within the framework of a very preliminary general idea of what they might do with the property, the objective of using Hooke and building a suitable development thereon was the prospect considered likely and viable at the date of acquisition, rather than any conscious intention to hold it for resale at a profit. The partners’ background, experience, business and personal association, together with their existing inventory of rental property, persuade me that way. The appeals will be allowed with regard to the gain on Hooke.

I should add that the negative decision with regard to Ball and the affirmative decision with regard to Hooke accord with my understanding of the quotations from Racine (supra) cited by counsel for the appellants. All the more so when those quotations are taken in the light of the intervening paragraph on 159 and 5103-5104 respectively from the same judgment:

When a man purchases a large expanse of land for the avowed purpose of building on it, for example, a shopping centre and of renting stores to yield an income from rent, but at the moment of the purchase he does not make any arrangement at all to obtain the permanent financing of a considerable amount of money that he must invest or which will be required for the purposes of his project, or any arrangement at all to obtain tenants, and he has not obtained any information at all concerning the question of learning if the site in question possesses the characteristics necessary and adequate for such a project, or when this plot of land is situated in a sector which is adjacent to another sector which is growing and which is in full expansion on the periphery and where the value of these lands has already begun to rise or where the purchaser possesses experience in the realm of real estate which allows him to anticipate the changes which may arise in real estate values, there arises an almost irresistible inference that this man had the idea when he made the purchase that if he did not succeed in making the necessary arrangements to establish a shopping centre, he would indubitably be able to resell this land at a profit.

With regard to Grossman (supra) four general circumstances are enumerated on 2145 and 152 respectively, upon which the Minister may assess a gain on income account, as follows:

Therefore, at the risk of certain selective perception, one may elucidate as follows from the above summary of cases (particularly that of Hiwako [1978] CTC 378; 78 DTC 6281):

(1) where there was “an expectation on the part of the purchaser, at the time of purchase, that . . . it could be sold at a profit and that such expectation . . . induced him to make the purchase . . or

(2) “If property is acquired when there is no business . ..”; or

(3) “one possibility in the mind of the purchaser is to use the property as the capital asset of a proposed business” ; or

(4) . . the purchaser has not considered how he will use it (the property)” (italics mine).

The Minister may then make the assumption that the gain is on income account, and assess accordingly.

In my view counsel for the Minister quite properly relied upon this quotation, but it should be noted that it continues on the same page:

It then rests with the appellant, on appeal to prove that “he was not motivated in making the purchase by an intention to use the property in an adventure or operation in the nature of trade”.

Although the evidence in favour of the appellants is slim indeed, it cannot be said with certainly in the instant appeal with regard to Hooke that:

(1) an expectation to sell induced the partners to purchase Hooke.

(2) There was no business (in fact there was rental income).

(3) the proposed business (shopping plaza) was just a possibility or totally impractical.

(4) The appellants had not considered how they would use it.

The Minister was completely in order to assess the gain on Hooke as on income account, but the appellants have managed to remove it from that category, in my view.

I am not persuaded that in an appeal of this kind, it is necessary for a taxpayer to show a complete and detailed program for development — at least at the very early stages of the planning. He is not required to take into account all eventualities and to overcome all odds, thereby turning the property into use as originally perceived, no matter what may be the cost or effort involved. However, it must be demonstrated that the plan, as he proposes it to the Board, was reasonable, feasible and practical under the circumstances which existed at the time, and further that it was likely to be profitable. The testimony of the appellants has shown desire and intention, as well as a measure of capacity and capability including financial capability, at least up to the level of acquiring and holding the property and possibly beyond that point, in any development.

I am prepared to accept the testimony of the witnesses that, at the date of acquisition of Hooke, the idea of resale had not been a motivating factor, but I do not agree that the evidence supports a conclusion that this same innocence was maintained at the time of the purchase of Ball.

Decision

The appeals of Messrs Neil G Orser and Michael Piro are allowed. The appeal of Dr Lloyd Gladstone Powell is allowed in part in order that he may claim as on capital account his share of the gain on the Hooke property. In all other respects his appeal is dismissed. The appeal of Polaris Holdings Ltd is dismissed. The entire matter is referred back to the respondent for reconsideration and reassessment in a manner not inconsistent with these Reasons for Decision.

Appeals allowed in part.