Patrice Roy, Patrice Roy Inc, La Galerie Du Meuble Lanctôt Inc v. Minister of National Revenue, [1982] CTC 2409, 82 DTC 1392

Roland St-Onge [TRANSLATION]:—The appeal of Mr Patrice Roy and his company Patrice Roy Inc and of Galerie du Meuble Lanctot Inc came before me on February 16 and November 3, 1981, in the city of Sherbrooke, province of Quebec: it involves a real estate transaction which took place during the taxation year 1971 and benefited the three appellants.

The facts of these appeals are well stated in paragraph 5 of the reply to the notice of appeal by Mr Patrice Roy, which reads as follows:

5. In assessing the appellant for the taxation year 1971, the respondent relied inter alia on the following presumptions of fact:

(a) the appellant is president and principal shareholder of the private company Gestion Paroi Inc;

(b) on July 22, 1971 the appellant and Mr Raymond Bergeron, president of Galerie du Meuble Lanctôt Inc, made an offer to Clarkson, Gordon & Co to purchase a piece of land on which the James United Steel Co buildings stood on rue des Grandes Fourches in Sherbrooke;

(c) this offer was accepted on August 19, 1971 by Clarkson, Gordon and Co and the sale was subsequently concluded for a price of $95,000;

(d) on October 1, 1971 Lasa Holdings offered to buy the aforementioned property from the appellant and Mr Raymond Bergeron: this offer was accepted by the appellant and Mr Raymond Bergeron on October 2, 1971;

(e) the appellant and Patrice Roy Inc, through their private company Gestion Paroi Inc, and the Galerie du Meuble Lanctôt Inc, accordingly sold the said property to Lasa Holdings Ltd for the sum of $205,000, realizing a profit of $110,000;

(f) the share of the appellant in the profits as a shareholder of Gestion Paroi Inc amounted to $42,510.70;

(g) the purchase and sale of the said property by the appellant through his private company Gestion Paroi Inc were made as a result of the knowledge of the appellant and Mr Raymond Bergeron, experienced businessmen who were well informed on events in the Sherbrooke area at that time;

(h) the appellant and Mr Raymond Bergeron expected at the time of the purchase to resell the land at a profit, and this was one of the chief reasons they bought it;

(i) in buying the land the appellant and Mr Raymond Bergeron had the secondary,

if not primary, intent of realizing a profit on the sale of the said land;

The evidence established the following facts. Mr Robert Rouleau, a real estate agent representing Lasa Holdings Ltd in the promotion of a shopping centre in Sherbrooke, was looking for a site and contacted the Industrial Commission in that city. This Commission told him of a large piece of land with buildings owned by a bankrupt company, James United Steel, which was available, and he should contact the trustee, the firm of Clarkson, Gordon & Co in Montreal. He then learned that the land was already in the hands of Messrs Bergeron and Roy. Apparently, the latter also had a project for the area. Mr Roy wanted to set up a discount shoe store and Mr Bergeron one of his “Raymond Bergeron Limitée” businesses. In the same period, Mr Rouleau was also negotiating with representatives of the city, the railway and the bus terminal for enough land to create a large shopping centre. At an interview with Messrs Bergeron and Roy, the possibility of undertaking the project together was discussed, but Lasa Holdings Ltd, which wished to undertake a much larger project than did Bergeron and Roy, was interested in the land only and did not want to use the building on it.

In cross-examination Mr Rouleau explained that it would have cost much more to use the property as Messrs Bergeron and Roy wanted then to build a new building; that it was essential for him to have the support of the municipal council in carrying out this project; that a year before the meeting with Messrs Bergeron and Roy, it was known that Lasa Holdings Ltd planned to build a large shopping centre in Sherbrooke; and finally, that when the negotiations with the city were under way, Mr Bergeron was an alderman and a member of the Sherbrooke Industrial Commission.

On November 3, 1981 five witnesses were heard:

1. Mr Patrice Roy, the appellant;

2. Mr Bruce Allanson, who knew Mr Bergeron;

3. Mr Jean Matte, a director of the Banque Canadien National, with whom Messrs Bergeron and Roy did business;

4. Mr Alex Baptiste, a member of the Industrial Commission in 1971;

5. Mr Raymond Kelly, an auditor for the Department of National Revenue.

Mr Patrice Roy:

For about four years he had been contemplating opening a shop in a second line so as to dispose of the rest of his merchandise at lower prices and so obtain additional income of $20,000 a year. In 1971 Mr Bergeron met with him and proposed that, with ten other persons, they should buy the property of James United Steel. Mr Roy explained:

I asked Mr Bergeron for a few days to think it over, and before he left me I said:

“What sort of price would be involved?” He said:

_ “I think that you could have it for about $100,000.” “Okay, I will talk to you about it”.

I called him three or four days afterwards to arrange another meeting and made him the following proposition — I said:

“Raymond, I like your idea, but ten people is way too many, and I think that the two of us could buy it: that would be plenty. The two of us will be better able to control the transaction, decisions can be taken more quickly, and communication will be easier than if there were eight or ten. Besides that, eight or ten people won’t be reaping the benefits of the work done by two”. Raymond said to me:

“It will need a lot of money right now”. I said:

“At that stage, we can go and see the bank manager”.

The property in question included five large buildings, one built of brick, which could be used for two large stores and a market, and other smaller buildings for warehouses, and the municipal valuation showed a value of $362,000 for the buildings and $200,000 for the land.

Mr Jacques Lemieux, an engineer, made a rather cursory financial analysis for the bank, which was apparently prepared to lend a quarter million.

When Lasa Holdings Ltd bought the property, no mention was made of the appellant obtaining a place in which to instal his store, because apparently there was no room for a store of this type.

In cross-examination, the appellant admitted that he had a controlling interest in two businesses, namely Développement Béliveau and Construction Fédice, which purchased land for subdivision and resale; that in 1968 his wife had bought fifty acres which were subdivided and sold at a profit; and that finally, Mr Bergeron had never reserved any space in the Lasa Holdings Ltd project for his furniture store.

Mr Bruce Allanson:

Simply testified that he knew Mr Bergeron very well and had spoken to him on business matters, and the latter had told him he wanted to relocate his furniture store.

Mr Jean Matte:

The bank loaned $95,000 for purchase of the property in question; and that a further loan of $250,000 to $300,000 was discussed for the opening of a discount store. However, he never saw any plans for such a project.

Mr Alex Baptiste:

The members of the Industrial Commission met monthly and these meetings were public. The James United Steel site included abandoned buildings which were only suited for demolition. They had dirt floors which were flooded every spring by the waters of the Rivière St-François. He had prepared a study for a shopping centre at this location which he gave to the mayor. Such reports were then usually passed on the the aldermen.

Mr Raymond Kelly:

He filed eight photos of buildings and a report specifying the replacement costs.

Counsel for the appellant argued that the two individuals had very specific plans but because one of them was an alderman this did not mean that the transaction was in the nature of trade. The only thing that could be said against them was that they sold after having the property for a month and a half: here again, a quick sale cannot in itself constitute an adventure in the nature of trade: Paul Racine, Amédée Demers and François Nolin v MNR, [1965] CTC 150; 65 DTC. 5098.

The sworn and unrefuted testimony provides direct proof of the absence of a secondary intent. Messrs Bergeron and Roy did everything to successfully complete their project, including a financial study by an engineer and discussion of a loan. they never put their property up for sale, and in his submission "when opportunity knocks it must be seized": The Queen v Stan fold Investment Corporation, [1974] CTC 19; 74 DTC 6035, and Hope Hardware & Building Supply Company Limited v MNR, [1967] CTC 120; 67 DTC 5085.

Counsel for the respondent contended that the intention of the parties was always to dispose of the land and the buildings at a profit at the first opportunity, and that the return was greater for two people than for ten. As proof of the speculative intent of the parties, he listed the following facts:

1. the agreement between an alderman and a “trader”;

2. for the purchase of a speculative site;

3. short possession of a month and a half;

4. a very cursory financial study;

5. knowledge by Mr Bergeron, an alderman, of the Lasa Holdings Ltd project;

6. Mr Bergeron never reserved any space in the shopping centre proposed by Lasa Holdings Ltd;

7. ten years later, Mr Roy still has no discount store;

8. Messrs Bergeron and Roy did not persist in their project.

In his submission, they bought and sold because Mr Bergeron was aware of the Lasa Holdings Ltd project and “there would be a higher return for two people than for ten”.

An exorbitant profit of $110,000 realized in the space of a month and a half gives serious cause for reflection to someone who must decide on the nature of such a gain. However, when as here the evidence discloses that one of the participants in the transaction may have been aware, as an alder- man and member of the Industrial Commission, of the Lasa Holdings Ltd project, it would be naive to think that at the time the appellants made their purchase they did not intend to resell the said property for a profit and that this was not one of the principal factors inducing them to sell.

As may be seen from reading the facts, the proof of intent is contradicted by th eproof of the facts. Moreover, Mr Roy gave himself away when he said:

Besides that, eight of ten people won’t be reaping the benefits of the work done by two.

These words prove that at the time of the purchase the parties had a speculative intent. Reaping a reward for their efforts can only refer to income.

For these reasons, the appeal is dismissed.

Appeal dismissed.