Yin Kai Tsao, Rosalind Wai-Yue Cheng Wong v. Minister of National Revenue, [1982] CTC 2801, 82 DTC 1821

John B Goetz:—This is an appeal with respect to the appellant’s 1976 taxation year. It was agreed by counsel that the appeals of Rosalind Wai-Yue Cheng Wong with respect to her 1976, 1977 and 1978 taxation years (80- 1113, 80-1114 and 80-1115) be heard on common evidence.

Issue:

The issue is whether the purchase of vacant farmland adjacent to the City of Edmonton was an adventure in the nature of trade or a bona fide investment on capital account, which would result in a capital gain if the land was later sold at a profit.

On or about November 7, 1970, the appellant and Dr. Rosalind Wong (hereinafter referred to as “Wong”) each purchased an undivided / interest in 50.25 acres known as Block C, Plan 6301 MC for $101,603.23 each. This land was north and adjacent to the City of Edmonton.

The interests of the appellant and Wong were acquired from Alexander Mandryk, Don Althen and Paul Madge who were the purchasers by an agreement for sale dated November 6, 1969 of the said land from Henry J. Cresswell of Edmonton, farmer.

In August, 1976, the said 50.25 acres were sold to Bronson Homes Ltd and the appellant’s proportionate share of the sale proceeds amounted to $589,400, and after deducting costs of $123,922.56, the appellant’s proportionate net profit amounted to $465,477.44.

The Crown contended that the proceeds or profit from such sale was a trading transaction and that Tsao, in common with the other part owners of the property, had acquired the property with the common intention of turning the property to account by means of a resale as a part of an adventure in the nature of trade or profit-making concern or undertaking.

The respondent relied, inter alia, upon sections 2, 3, subsection 9(1), paragraph 20(1)(n), subsection 115(1), sections 116, 118, subsection 248(1), section 253 and subsection 162(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellant and Wong, on the other hand, maintained that their purchase of the property was for an investment purpose pure and simple and relied on the provisions of the Income Tax Act. Tsao’s notice of appeal in this respect reads as follows:

In 1976, as a result of an unsolicited offer for the interest in the said lands belonging to the Appellant, together with the interest of the owners of the other undivided two-thirds (24) interest in the said land, the appellant sold his interest in the said land to BRONSON HOMES LTD, for a total sale price of ONE MILLION SEVEN HUNDRED AND SIXTY-EIGHT THOUSAND TWO HUNDRED ($1,768,200) DOLLARS, for the entire interest, FIVE HUNDRED THOUSAND ($500,000) DOLLARS, in cash, and ONE MILLION TWO HUNDRED AND SIXTY-EIGHT THOUSAND TWO HUNDRED ($1,268,200) DOLLARS, by a Five (5) year mortgage from the Purchasers to the Vendors.

Wong relied upon paragraph 4 of her notice of appeal, which reads as follows:

The Appellant owned her undivided interest in the said land from the date of the Assignment and thereafter without interruption until the sale of that interest described in paragraph 5.

Facts:

Tsao was a medical practitioner in Hong Kong where he was a resident at all relevant times for this appeal. In 1969, because of a cultural revolution in China, he came to Canada and invested $100,000 in term deposit in Vancouver. In Edmonton, he met with Wong, with whom he had been a friend for years. Wong had purchased a house in Laurier-Heights in Edmonton and the appellant purchased the adjoining vacant lot.

In 1970, Mandryk visited Tsao in Hong Kong and prevailed upon him to go to Edmonton, and induced Tsao and Dr. Wong to each purchase an undivided / interest in the property in question. Althen and Madge acquired the remaining interest. Tsao said he wanted a safe investment. The vendor of the land retained possession; Tsao received no income but paid taxes each year. He admitted in cross-examination that he was aware of the proximity of the land to Edmonton and he expected the land, from the information he received from his co-owners, would appreciate in value.

Wong came to Edmonton in 1969, bringing with her money from Hong Kong. She had her lawyer incorporate Four Seas Investment Ltd, which company owned property on Jasper Avenue in Edmonton and operated a drug store and a variety store. She was the major shareholder and Tsao owned 25% of the issued shares. The Company paid taxes on its property which it sold in 1974. She had had a mastectomy in 1969 and invested in the property (farmland) in 1970 because she felt she might not be able to work anymore.

Subsequently she received many phone calls from developers to purchase the property, and in that Althen and Madge wanted to sell, she advised Tsao in Hong Kong of an offer to purchase for $1,768,200 from Bronson Homes Ltd. Both Tsao and Wong acted through their lawyers and agreed to sell their undivided / interests in the land.

Findings:

1. Wong acted as Tsao’s agent in Canada through their lawyer.

2. Wong and Tsao acted in concert with Althen and Madge in a venture, the ultimate aim of which was to make a trading profit.

3. There was no income from the land — only expenses (Tsao sent his taxes c/o Dr. Wong).

4. There were no plans for development — only the expectation that the land, having regard to its proximity to the “booming” (words of Dr. Tsao) City of Edmonton, would appreciate in value and would be and was sold at a substantial profit.

5. Dr. Tsao signed the original Agreement for Sale on November 4, 1970 when he returned to Canada. While in Canada, he signed the offer for sale to Bronson Homes Ltd, and gave full authority to his lawyer to finalize the sale for him. They did everything for him and, even though he was in Hong Kong, his business was being conducted here in Canada for him.

6. Tsao and Wong pooled their funds for the downpayment for the land, the balance of the principal payment being paid by instalments. They joined interests for joint business venture; to that degree they were real partners.

Wong and Tsao had shares in Four Seas Investments Ltd, a Canadian company which owned property in Canada and which was sold at a profit. This comes within the definition of “business” as defined in the Act.

Though the purchase and sale of the property may be argued to be an isolated venture not coming within the meaning of the term “business”, the findings above, in my view, make the ultimate profit a gain in an operation of business in carrying out a scheme for profit making. Counsel for the respondent argued that this was clearly the joint intention of Tsao and Wong from the outset:

Canada does not have a tax treaty that saves the Appellant from paying taxes in Canada. Section 2(3) of the Income Tax Act is very clear and says that where a person is not taxable under sub-section 1 in the taxation year — that refers to a resident of Canada — they are taxed on any income when employed in Canada, carrying on business in Canada, or disposing of taxable Canadian property, according to Division D — and Division D refers to Section 115 of the Application Rules to Determine Income for a non-resident of Canada.

We are dealing here with section 253 of the Act and, on the facts of this case, both appellants fall within the provisions of that section and the other sections of the Act as set out in the Replies to Notices of Appeal.

It was a profit-making venture ab initio, pure and simple. See Birmount Holdings Limited v The Queen, [1978] CTC 358; 78 DTC 6254 (a decision of the Federal Court of Appeal) and David C McDonald et al v The Queen, [1974] CTC 836; 74 DTC 6644.

I therefore dismiss the appeals.

Appeals dismissed.