Helen M Ness, Lloyd B Ness v. Minister of National Revenue, [1982] CTC 2328, 82 DTC 1293

Guy Tremblay:—These cases were heard on common evidence in Edmonton, Alberta, on March 3rd, 1982.

1. The Point at Issue

The point at issue is whether the appellants, husband and wife, are correct in computing their income for the years 1975 and 1976 by considering as capital gains, the profits made in selling different properties purchased not before 1974 and sold not after 1976.

The main contention of the appellants is that, because of the illness of the husband, they had to resell.

The respondent contends that the profits are business income because the intention of the appellants at the time of the purchase was to resell. There are at least 7 properties which were purchased and resold within 30 months.

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 6 of the Replies to Notice of Appeal, the respondent described the facts on which he based his assessment:

2.02.1 Assumed Facts Concerning Helen M Ness

6. In so assessing the Appellant, the Respondent assumed, inter alia, that:

(a) the property was purchased with joint funds by the Appellant and her husband Lloyd Ness, and registered jointly;

(b) the rental loss from the property was reported by the Appellant’s husband in his income tax return for 1976;

(c) the Appellant’s husband had a previous history of buying and selling property, having sold in 1975 and 1976 seven properties within 5 to 15 months from the date of purchase;

(d) the property described in paragraph 2 herein was purchased with the knowledge and expectation of an increase in the value of the property and that expectation was realized;

(e) the property produced no rental income;

(f) the Appellant and her husband had a secondary intention of selling the property at a profit at the time it was purchased.

2.02.2 Assumed Facts Concerning Lloyd B Ness

6. In so assessing the Appellant, the Respondent assumed, inter alia, that:

(a) between January 1974 and December 1976 the Appellant bought and sold 9 separate properties;

(b) the properties described in paragraph 2 herein were single family dwellings situated mainly in areas of new residential development;

(c) the properties described in paragraph 2 herein were held by the Appellant for periods ranging from 5 months to 15 months;

(d) on two of the properties in question substantial improvements were undertaken

for the purpose of putting them in a more marketable condition;

(e) rent revenues for the properties described in paragraph 2 herein were very low resulting in rental losses in the 1975 and 1976 taxation years:

(f) the properties described in paragraph 2 herein were purchased with the knowledge and expectation of an increase in their value and that expectation was realized;

(g) the properties described in paragraph 2 herein were purchased for their resale value rather than for their investment potential:

(h) the Appellant had a secondary intention of selling the properties described in paragraph 2 herein at a profit at the time they were purchased.

3. The facts

3.01 Mr Lloyd Ness and Mrs Helen Ness reside in the City of Edmonton, Alberta.

3.02 The appellant, Mr Lloyd Ness, said that he admits the facts described in paragraphs 2 and 3 of the Reply to Notice of Appeal. It reads as follows:

2. During the 1975 and 1976 taxation years the Appellant purchased and sold the following properties:

1975

		Date	Price Price	Gain Gain
(a)	703 Village on the Green
	Edmonton
	purchase	July/74	$28,100
	sale	Sept/75	35,000	$ 6,900
(b)	5710 - 143rd Avenue
	Edmonton
	purchase	Aug./74	26,000
	sale	Sept/75	36,000	10,000
(c)	143 Dover Meadow
	Calgary ( Z> interest)
	purchase	Dec./74	17,000
	sale	Oct./75	21,000	4,000
(d)	66 Ridgewood
	Edmonton
	purchase	May/75	33,000
	sale	Sept/75	34,800	1,800
		Total gain		$22,700
	1976
		Date	Price Price	Gain
(e)	181 Ridgewood
	Edmonton
	purchase	Apr./75	$35,000
	sale	Feb./76	42,000	$ 6,300

(f) 14320 - 80th Street

Edmonton

	purchase	May/76	42,000
	sale	Dec./76	42,000
(g)	328 Hermitage Road
	Edmonton
	purchase	May/76	38,000
	sale	Dec./76	38,000
		Total gain	$ 6,300

3. In October, 1975 the Appellant jointly with his wife, Helen M Ness, purchased a property at 515 Village on the Green, Edmonton, Alberta. This property was sold in July, 1976 and the sale was reported in the income tax return for 1976 of Helen M Ness.

3.03 Concerning the assumptions of fact quoted in paragraph 2.02.2, the appellant, Mr Lloyd Ness, said that:

(a) he admits subparagraph (a);

(b) he admits subparagraph (b);

(c) he admits subparagraph (c);

(d) he admits subparagraph (d);

(e) he admits subparagraph (e); and

(f) he denies subparagraphs (f), (g) and (h).

3.04 For the years involved the appellant, Lloyd Ness, reported rental income as follows:

3.05 Mr Ness testified that in 1973, he was manager of a Co-op Service Centre. However, in March 1974 he had a heart attack and then had to spend a few months at the hospital. During the following years his health was “up and down”, but no evidence was given that he had to return to the hospital or that he had had another heart attack.

3.06 The appellant said that in 1979 he bought another property which he still owns.

3.07 During the years involved he jointly purchased properties with other partners. These properties were also sold.

3.08 In his income tax return for 1975 and 1976 Lloyd Ness reported a taxable capital gain of 113,350 and $3,150 for each of these years respectively with regard to the sale of the 7 properties described above.

3.09 By notices of reassessment dated December 6, 1977, the respondent included in the income of Lloyd Ness the sum of $22,700 for 1975 and of $6,300 for 1976, being the total gain from disposition of the properties described above.

3.10 Concerning the purchase and the sale of the property located at 515 Village on the Green, Edmonton, Alberta, it was stated that it was $38,000 and resold for $48,000.

3.11 In her income tax return for taxation year 1976, the appellant Helen Ness, reported a taxable capital gain of $5,000 with respect to the sale of the property located at 515 Village on the Green, Edmonton, Alberta.

3.12 By the notice of reassessment dated December 13, 1977, the respondent included in the income of the appellant, Helen Ness, the sum of $10,000 being the total gain from the disposition of the said property located at 515 Village on the Green, Edmonton, Alberta.

4. Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in the present case are section 3, subsections 9(1) and 248(1) definition of “business”. They shall be quoted if necessary during the analysis.

4.02 Analysis

4.02.1 Appellants’ Argument

The appellant, Lloyd Ness, said that:

(a) he filed his taxation report in the manner it was explained to him on the phone by an employee of the Department of National Revenue and pursuant to the tax guide;

(b) the profit of the other partners in some sales were considered as capital gain; and,

(c) following or as a consequence of his heart attack he decided to invest in rental properties without intending to sell them.

On this point, Mrs Helen Ness, wrote in her Notice of Appeal that the property at 515 Village on the Green was sold because of her husband’s illness “which consumed her time and interest for several months leaving her little time for the care of rental property”.

4.02.2 It is crystal clear that the information given on the phone by the employee of the respondent to explain how to complete the income tax report has no relevance in the present case. It is the same for the information taken from the tax guide.

The manner in which the other partners have been assessed cannot be considered by the Board. It depends indeed on the facts of these cases. They were not at issue before the Board in the present case.

4.02.3 For Mr Ness, his illness was the reason for investing in rental properties. For Mrs Ness, the same illness was the reason for selling her property.

During the short period of 30 months from July 1974 to December 1976 (see para 3.02) the appellant, Lloyd Ness, purchased and sold 7 properties. This is the most important item to contradict the appellant’s contention.

4.02.4 The preponderance of the evidence in the case of Mr ness is in favour of the respondent’s thesis. The appellant did not reverse the burden of proof.

4.02.5 Concerning the case of Mrs Ness, the Board must apply the theory that she was a silent partner of her husband and shared his intention. When one looks indeed at the different transactions, one can state that 3 properties were sold in September 1975 by her husband. One month later, in October 1975, the property of 515 Village on the Green was purchased with joint funds by Mr and Mrs Ness. It was sold in July 1976. No evidence was given for July 1976 about Mr Ness’s health as alleged in her Notice of Appeal. No evidence was given to contradict the assumed facts described in para 2.02.1.

It is the Board’s opinion that the profit made by Mrs Ness was income from an “adventure or concern in the nature or trade” pursuant to the definition of “business” of the Income Tax Act:

248. (1) In this Act,

“business” includes a profession, calling, trade, manufacture of undertaking of any kind whatever and includes an adventure or concern in the nature of trade but does not include an office or employment;

4.02.6 According to Mr Ness his share in the property located at 515 Village on the Green was 50%. The rental loss of the said property was reported by the husband, Mr Ness. However, the whole profit of the sale was computed in Mrs Ness’s income. Mr Ness candidly admitted in his testimony that he wished to keep his own income in a lower bracket.

Normally, the Board would share the profit and would decide to tax Mrs Ness only for 50%. However, pursuant to the proceedings, that point is not at issue and the Board has no jurisdiction to decide.

5. Conclusion

The appeals are dismissed in accordance with the above Reasons for Judgment.

Appeals dismissed.