Mary Boychuk v. Minister of National Revenue, [1981] CTC 2098

John B Goetz:—These are appeals with respect to the appellant’s 1975 and 1976 taxation years relating to the sale of the most northerly 100 acres of the Southwest Quarter of section 24 in Township 36, in Range 5, West of the 3rd Meridian, in the Province of Saskatchewan, by the appellant to Boychuk Construction (Sask) Ltd in 1975. The respondent contends that the profit from such sale constituted income, whereas the appellant maintains that it is represented by a capital gain.

Issue

Is the profit realized on the sale of the subject land, income from an adventure or concern in the nature of trade, or does it represent the proceeds of an investment resulting in a capital gain?

Facts

The appellant was raised on a farm and married Mike Boychuk in Manitoba in 1935. They subsequently moved to Saskatchewan and farmed at Glidden and Eatonia until 1963.

Mr and Mrs Boychuk lived on the farm in Eatonia until they went to Saskatoon in 1946 and apparently started farming in the Saskatoon area in 1964. The Eatonia farm was sold in 1963. From 1947 on Mr Boychuk was active in construction work throughout the City of Saskatoon and incorporated a number of companies including development, construction and lumber companies. By agreement for sale dated January 14, 1965, the appellant acquired from Rycon and Land Ltd the land in question, for the sum of $30,000. This was on the advice of her husband and without her viewing the land. The land subsequently became part of the farming operations.

On May 27, 1974 the appellant granted an option to purchase the land to Boychuk Construction (Sask) Ltd (hereinafter referred to as “Boychuk Construction”), a company controlled by her husband, Mike Boychuk. By agreement for sale dated November 6, 1965, the land was transferred to Boychuk Construction for $250,000. On October 1, 1975 the said land was incorporated into the limits of the City of Saskatoon. The appellant says she sold the land to Boychuk Construction at the request of her husband, that she signed all papers presented to her by her husband and that any business operation was handled for her by him. She was not involved in any way in the construction business nor in the farming operations.

On April 2, 1968 Mrs Boychuk filed a caveat with respect to her agreement for sale with Rycon Land Ltd (hereinafter) referred to as “Rycon”) and her address for service was c/o Boychuk Construction, because that is “where the business was done”. She says the reason for granting the option to Boychuk Construction in May 1974 was on the advice of her husband. The City of Saskatoon was developing in the direction of their property which was immediately adjacent to the eastern City limits and it would no longer be feasible to farm. She was totally ignorant of all dealings with respect to the said 100 acres, with respect to options, subdivisions, development plans, etc. To sum up her evidence, she states quite candidly that “Mike handles my business affairs”.

Mike Boychuk, in giving evidence, says that his occupation was that of farming and construction and that he was a “businessman”. From his appearance I would doubt that he had been doing farm work for many years and that indeed he was farming land which he owned around the perimeter of the City limits of Saskatoon where the work would be done through employees and other people on his behalf. He stated that he supervised his people after five o’clock in the evening. I doubt whether there was much supervision involved on his part with respect to his farming operations, or that he had Saskatoon farm soil under his finger nails for many years. He appeared to me to be a very astute businessman and apparently surrounded himself with highly qualified personnel whose expertise he had the native ability to implement and convert into profit. He is known as an extremely successful developer in the City of Saskatoon and was able to operate a construction company which he developed to such a degree that he eventually acquired his own lumber company.

The financial returns from the 100 acres involved were approximately $10,000 earned over a period of nine years and he admitted that this was not a good return because of the climate and soil conditions.

In 1966 the City of Saskatoon issued a Community Planning Scheme which included “the Wildwood area”, said area being south and east of Saskatoon. Mr Boychuk was evasive when being questioned with respect to his knowledge of this Community Planning Scheme and purported that probably only his staff would be aware of this.

Boychuk Construction received a report prepared by Underwood McLellan & Associates Limited on the “Development of Residential Land in East Nutana” where the land was situated. This report was obtained on May 8, 1967. Mr Boychuk under cross-examination admitted that he was aware of this.

There is a further report from Makale, Holloway & Associates Ltd re Wildwood Park Development, indicating that the Wildwood scheme had been adopted by the City of Saskatoon in 1966. When being questioned with respect to this report addressed to Boychuk Construction, Mr Boychuk stated: “I don’t remember”.

Exhibit R-11 is another letter from Underwood McLellan & Associates Limited to Boychuk Construction, Attention: Mr H Koehn, who was Mr Boychuk’s second in command and a very highly qualified person whose evidence I will refer to later. This letter is dated December 8, 1967.

Mr Boychuk was presented with a letter from Boychuk Construction addressed to the City of Saskatoon, re a subdivision in Nutana. This letter is dated September 18, 1967 (Exhibit R-13). When being questioned about this letter, Mr Boychuk again said: “I don’t remember”.

There were numerous exhibits filed involving Boychuk Construction either as addressor or addressee, or as a party to the documents which Mike Boychuk could not recall. Because of his lack of memory with respect to rather key and important documents and correspondence, and having regard to his apparent astuteness, I regard his evidence with a jaundiced eye. Mr Boychuk’s company received a rather important letter dated February 27, 1968 from the City of Saskatoon, re Development Proposal Wildwood Park, Saskatoon, but he could not seem to recall the letter.

On September 21, 1973 Boychuk Construction wrote Cairns Homes (1972) Ltd with respect to the sharing of a joint venture in developing certain lands including the 100 acres in question at $2,250 per acre. This letter was signed by Mike Boychuk himself.

Mike Boychuk was a majority shareholder of Boychuk Construction and owned several other construction and development companies whose names he finally disclosed after considerable argument between counsel for the respondent and for the appellant.

In cross-examination Mr Boychuk admitted that he was familiar with the City of Saskatoon Community Planning Scheme which involved the Wildwood area (Exhibit R-7.)

As stated earlier there are so many important documents and letters of which Mike Boychuk disclaimed any knowledge that it left me in a position of having to weight his evidence very carefully. Admittedly, there was a large number of documents and exhibits filed by the respondent but they were all relevant to the appeal of Mary Boychuk who, in my view, was a simple intermediary or conduit for the activities of Boychuk Construction as it related to the 100 acres. I can only conclude that Mike Boychuk was thoroughly conversant with all activities of his companies and of documents relevant to their operations.

Counsel for the appellant placed great emphasis on the fact that the land was purchased in 1965 and not sold until almost ten years later and formed part of the farming operations of Mike Boychuk. Again alluding to his farming activities, I am sure this was all done by hired help and most of the land that he farmed was in close proximity to the City limits.

The evidence that gives me the greatest assistance is that of Harry Koehn who now lives in Victoria, B.C. and acknowledges himself as a businessman. He was general manager for the Boychuk companies for ten years and left Boychuk in March 1968. It is at that time that Mary Boychuk filed a caveat with respect to the Agreement for the purchase of the 100 acres from Rycon. Rycon was owned by Harry Koehn. He says that Mike Boychuk was the driving force behind all of the companies and that he (Koehn) had a free rein within certain bounds but with respect to sales and acquisition of land, they were always discussed with Mike Boychuk.

It was on Mike Boychuk’s instructions that Harry Koehn travelled to Los Angeles in 1964 to make arrangements for the purchase of 160 acres of land, which included the 100 acres involved in this appeal. It was agreed that Koehn and Boychuk, or his nominee, would split the land 50/50. This was subsequently changed on the insistence of Mike Boychuk whereby the 100 acres were sold to Mary Boychuk for $30,000 and the remaining 60 acres remained the property of Koehn, which land he ultimately transferred to Rycon in March 1965. The cost of the trip to Los Angeles was shared by Boychuk Construction and Rycon.

Koehn says that he never was a farmer and that “he is aware of development of the City and that the City was buying land in the area” (the location of the 100 acres involved in this appeal). This would presumably be what triggered Mike Boychuk to send Koehn to Los Angeles to acquire the property.

Mr Koehn describes Boychuk Construction as being in the business of building houses, apartments, selling lumber and building materials. With respect to all of the feasibility studies, a number of which Mike Boychuk disclaimed remembering about, they were ordered by Koehn and discussed with Mike Boychuk. They all involved the Wildwood part area which was what they planned to develop. Koehn could remember all of the reports.

It is Koehn’s assumption in discussing the purchase of the 160 acres from the people in Los Angeles that it would be used for development but that it would take at least seven to ten years before this would come about. Mr Koehn was a graduate in commerce and law and it is readily seen why he would be the general manager for Mike Boychuk. Koehn says that he also purchased land in his own right around the circumference of the City. There had been considerable controversy involving a storm drain which was ultimately approved by the City of Saskatoon and was installed in 1977 and known as the Boychuk storm sewer. This was in the 1966 schematic plan of the City and was necessary to develop Wildwood Park.

To me, at least, Harry Koehn appeared as a completely honest and candid witness and I accept his evidence as opposed to that of Mike Boychuk. Koehn acquired the 160 acres (including the 100 acres in question) through Rycon with an intent to turn the property to account if a satisfactory opportunity arose, even though it might involve a long waiting period. The fact that the 100 acres were farmed during the holding period is not of much value in that it yielded a minimal income. Mike Boychuk, through his companies or through his family corporations, owned several parcels of land located in various areas on the perimeter of the Saskatoon City limits.

The appellant was merely a convenient instrument acting on the advice and instructions of her husband who was a knowledgeable and active person in land development. Mike Boychuk would certainly be aware, because of the proximity of the 100 acres to the City limits of the City of Saskatoon, this land would ultimately be included within the City limits of Saskatoon because of its strategic location. Koehn’s evidence convinces me that the whole course of conduct of the appellant in signing relevant documents, giving an option, transferring, etc the 100 acres to Boychuk Construction was to enable Mike Boychuk (not to increase his farm holdings) to hold this property as part of his business ventures, particularly having regard to his course of conduct following the acquisition of the said 100 acres. This view is further strengthened by virtue of the fact that the appellant purchased her interest in the land in association with a company (Rycon) whose prime interest was in development of land and not in farming, and at least one of the purposes of the purchase of the 100 acres by the appellant was to enable Boychuk Construction (Sask) Ltd to use the property in a development project.

The following cases were cited by the respondent and duly considered:

Birmount Holdings Limited v Her Majesty The Queen, [1978] CTC 358; 78 DTC 6254;

Irwin A Blackstone v MNR, [1972] CTC 2484; 72 DTC 1404;

Helene Boivin v MNR, [1970] Tax ABC 565; 70 DTC 1364;

Ross Brown v MNR, [1979] CTC 2248; 79 DTC 227;

Carribean Properties Limited v Her Majesty The Queen, [1974] CTC 858; 74 DTC 660;

David Chin, Yin Chiu Chan, C.C. Wo Chin, Bill Chan, Ming Wah Gin and Nelson Chan v MNR, [1980] CTC 2296; 80 DTC 1246;

Thomas J Collins v MNR, [1980] CTC 2654; 80 DTC 1546,

Demeter Equity Limited v Her Majesty The Queen, [1979] CTC 311; 79 DTC 5230;

Glacier Realties Limited v Her Majesty The Queen, [1980] CTC 308: 80 DTC 6243;

Her Majesty The Queen v Anderson, et al, [1973] CTC 606; 73 DTC 5444;

Bernard Lehre v MNR, [1972] CTC 255; 72 DTC 6224;

Gilles Maille v MNR, [1979] CTC 2590; 79 DTC 444;

Manru Realty Limited v MNR, [1972] CTC 501; 72 DTC 6415;

David C. McDonald v Her Majesty The Queen, [1974] CTC 836; 74 DTC 6644;

Brian McKinney et al v MNR, [1978] CTC 2675: 78 DTC 1490,

MNR v M & N E Lawee, [1972] CTC 359; 72 DTC 6342;

Louise Morency-Lortie v MNR, [1978] CTC 2941; 78 DTC 1681;

Norton Investments Ltd v Her Majesty The Queen, [1978] CTC 154; 78 DTC 6078;

Marilyn A Palmer v Her Majesty The Queen, [1973] CTC 323; 73 DTC 5248;

Regal Heights Ltd v MNR, [1960] CTC 46; 60 DTC 1041;

Rosslynn Estates Limited v MNR, [1972] CTC 65; 72 DTC 6051; [1974] CTC 185;

Edward A Schaffer v MNR, [1971] CTC 577; 71 DTC 5306;

Raymond Schumph v MNR, [1979] CTC 2850; 79 DTC 723;

Harvey Clarke Smith v MNR, [1960] CTC 391; 60 DTC 1282;

Michael Starko v MNR, [1965] CTC 246; 65 DTC 5151;

Margaret Stroh & Lincoln H Stroh v MNR, [1980] CTC 2508; 80 DTC 1457;

Varennes Holdings Corp v Her Majesty The Queen, [1975] CTC 230; 75 DTC 5164;

Ann Wisniewski v MNR, [1978] CTC 2298; 79 DTC 266;

The following cases were submitted in the able argument of counsel for the appellant and were duly considered:

Demeter Equity Limited v Her Majesty The Queen, [1979] CTC 311; 79 DTC 5230;

Ika Enterprises and Developments Limited v Her Majesty The Queen, [1978] CTC 176; 78 DTC 6088;

Everlease (Ontario) Limited v MNR, [1968] Tax ABC 162; 68 DTC 180;

No 13 v MNR, 3 Tax ABC 397; 51 DTC 117;

Her Majesty The Queen v Stefan Jachimowicz, [1977] CTC 162; 77 DTC 5148;

Wolf von Richthofen v MNR, [1968] CTC 544; 68 DTC 5346;

MNR v Muzly Lawee and Naima E Lawee, [1972] CTC 359; 72 DTC 6342.

The profit realized by the appellant was taxable income. The income derived from the land as part of a farming operation was so minimal that it did not justify its purchase as a revenue-producing investment. Its very close proximity to the City limits of Saskatoon — and being so close to property purchased by the City of Saskatoon on the perimeter of its city limits — impels me to the conclusion that having regard to all the facts of this case, the only logical reason for the initial purchase would be the prospect of a future sale or development of the land and to turn it to a profit, which indeed happened. The appellant was a passive instrument or “conduit” for the obvious use and benefit of Mike Boychuk as a developer.

See Rosslynn Estates v MNR, [1972] CTC 65; 72 DTC 6051, and Harvey Clarke Smith v MNR, [1960] CTC 391; 60 DTC 1282.

I find I need not rely on any of the cases cited by counsel [other than Rosslynn and Smith (supra) in support of my position in dismissing these appeals as the facts speak strongly for themselves. The acquisition and sale of the 100 acres in question was an adventure in the nature of trade and not a capital gain.

I therefore dismiss the appeals

Appeal dismissed.