John
B
Goetz:—This
involves
two
appeals
by
William
Jaehrlich,
one
with
respect
to
his
1972
taxation
year
and
the
other
with
respect
to
his
1974
taxation
year.
Accompanying
his
notices
of
appeal
were
appeals
by
one
John
Wagner,
a
partner
of
William
Jaehrlich
involving
identical
appeals
with
respect
to
Wagner’s
1972
and
1974
taxation
years.
The
respondent
added
the
sum
of
$33,943.78
to
their
respective
income
for
the
1972
taxation
year
and
further
added
the
sum
of
$32,223
to
their
income
for
the
1974
taxation
year.
As
the
facts
are
identical
for
both
appellants,
it
was
agreed
by
counsel
that
the
appeals
be
heard
on
common
evidence.
Facts
The
circumstances
in
the
said
appeals
relate
to
the
sale
of
lands
owned
by
Jaehrlich
and
Wagner
in
the
years
1972
and
1974.
The
appellants
maintained
that
the
profits
from
such
sales
constituted
a
capital
gain.
The
respondent,
on
the
other
hand,
contends
that
the
profits
obtained
by
the
partners
for
the
years
1972
and
1974
resulted
from
a
business
or
adventure
in
the
nature
of
trade,
and
relied,
inter
alia,
upon
sections
3,
4,
9
and
248
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
Issue
Was
the
profit
obtained
by
the
sale
of
lands
jointly
owned
by
the
appellants
in
the
years
1972
and
1974
a
capital
gain
or
did
it
result
from
an
adventure
in
the
nature
of
trade
and
constitute
income?
Findings
After
the
War,
both
appellants
came
to
Canada
from
Europe
where
they
had
worked
as
laborers
on
farms.
When
they
came
to
Canada,
the
basic
work
that
they
did
was
also
that
of
laborers
on
farms.
Jaehrlich,
for
instance,
lived
with
his
older
brother
on
a
40-acre
farm
and
had
a
market
garden
with
his
mother
for
sixteen
years.
He
was
offered
work
with
a
plastering
contractor
and
in
1958
went
to
a
trade
school
in
Winnipeg,
namely,
the
Manitoba
Technical
Institute.
He
finished
his
course
in
1959
and
at
all
times
was
working
as
a
plasterer.
It
was
here
that
he
struck
up
a
close
friendship
with
John
Wagner
who
was
also
attending
this
school.
They
both
became
certified
qualified
plasterers.
They
completed
their
course
at
the
same
time
and
were
temporarily
unemployed,
so
they
got
together
and
went
from
house
to
house
until
they
met
a
Mr
Sawatsky,
a
construction
contractor.
They
apparently
did
most
of
Sawatsky’s
drywall
and
plaster
work
and
their
business
expanded
to
such
a
degree
that
they
decided
to
incorporate
a
company
known
as
Wagner
and
Jaehrlich
Limited
in
1967,
specializing
in
drywall
work
which
was
replacing
plastering
as
the
major
wall
covering.
They
now
employ
at
least
50
men.
Jaehrlich
lived
close
to
what
is
known
as
the
Tyndall
property
and,
at
the
suggestion
of
Mr
Sawatsky,
the
appellants
purchased
the
Tyndall
property
composed
of
19.2
acres
from
a
Mr
Diawol
in
March
1971.
He
thought
that
he
and
Wagner
could
handle
it
together
as
a
farm
while
they
continued
to
be
occupied
16
hours
a
day
plastering.
He
felt
that
farming
was
a
necessary
“back-up
to
plastering
in
case
it
should
fail”.
Diawol,
who
had
purchased
the
land
from
Tyndall,
wrote
up
the
agreement
between
himself
and
the
appellants.
Jaehrlich
says
that
although
the
land
was
not
being
farmed
at
the
time
of
purchase,
his
intention
was
to
turn
it
into
a
market
garden
and
to
hold
it
for
his
children.
He
expressed
great
pride
in
the
fact
that
he
had
acquired
some
real
estate
in
Canada.
The
purchase
price
of
the
Tyndall
farm
was
$70,000
and
the
only
other
person
involved
in
the
transaction
was
Ken
Diawol
himself.
Both
Jaehrlich
and
Wagner
borrowed
money
from
friends
for
the
down
payment
of
$50,000,
although
part
of
it
came
from
the
proceeds
on
the
sale
of
a
house
that
had
been
owned
by
Jaehrlich.
The
balance
of
$20,000
was
to
be
paid
within
one
year
of
taking
title.
The
deal
was
finally
closed
on
May
3,
1971,
when
they
took
possession.
Jaehrlich
said
that
when
they
bought
the
property
Diawol
told
him
that
taxes
were
$200
but
when
the
tax
bill
came,
it
was
over
$700
which
upset
him
very
very
much.
He
was
told
by
Diawol
that
the
rural
municipality
had
upgraded
Manely
Avenue
and
extended
the
sewer
and
water
lines
into
the
area.
This
had
happened
prior
to
the
purchase
of
the
Tyndall
farm
by
the
appellants.
Both
Jaehrlich
and
Wagner
contended
that
their
sole
purpose
in
purchasing
the
land
was
to
have
farm
land
which
they
could
farm
as
a
market
garden.
They
did
nothing
on
the
Tyndall
farm
because
they
were
so
busy
working
for
Sawatsky
who
advised
them
to
subdivide
a
portion
of
the
land.
On
September
19,
1971,
they
filed
a
development
application
with
the
City
of
Winnipeg
(the
property
being
within
the
City
limits
of
Winnipeg)
and
obtained
a
plan
of
subdivision
composed
of
11
acres
along
Manley
Avenue,
which
is
shown
in
Tab
I
of
Exhibit
A-1.
The
“X”
pencil
marks
on
Exhibit
A-1
on
Manley
Avenue
indicate
houses
that
had
been
newly
built
and
fresh
excavations
which
were
there
at
the
time
of
purchase.
In
the
spring
of
1972,
two
acres
were
actually
subdivided
and
three
of
the
lots
were
sold
to
Wagner
and
Jaehrlich
Limited.
Houses
were
built
on
lots
1,
2
and
3.
In
all,
the
company
built
eight
houses
on
lots
1,
2,
3,
4,
5,
6,
10
and
11.
This
was
all
done
in
the
summer
and
fall
of
1972.
They
subcontracted
the
construction
of
the
buildings,
plastered
them
themselves
and
sold
them
in
the
fall
of
1972.
Sawatsky,
through
his
lumber
supplier
Levin,
wanted
to
purchase
the
remaining
lot
and
some
17
acres,
and
had
a
real
estate
agent
approach
the
appellants.
An
agreement
for
sale
of
the
remaining
Tyndall
property
was
entered
into
on
October
30,
1972,
and
was
drawn
by
the
appellants’
solicitor.
A
“consideration”
portion
of
the
agreement
was
struck
out
and
initialled
by
the
purchaser,
and
a
casual
look
at
what
was
deleted
from
the
document
indicates
that
the
appellants
wanted
to
obtain
a
larger
down
payment.
They
also
wanted
to
free
themselves
from
any
involvement
from
the
condition
and
covenant
whereby
at
least
57
building
lots
would
be
approved
in
a
development
plan
along
Bentley
Street,
and
from
the
obtention
and
satisfaction
of
any
plans
required
by
the
City
of
Winnipeg
to
construct
sanitary
sewers,
storm
sewers,
watermains,
paved
roadways,
etc.,
and
many
other
approvals
which
would
have
made
the
sale
conditional.
As
it
turns
out,
the
agreement
became
a
very
short
one
after
all
the
deletions
and
makes
it
a
clear
sale
from
the
appellants
to
Myrna
Holzberg
Levin,
through
Park
Realty
Ltd.
as
agents
for
the
vendors.
It
must
be
remembered
that
on
May
3,
1971,
the
appellants
paid
$70,000
for
the
total
19.2
acres
(which
averages
out
to
approximately
$3,600
per
acre),
a
price
far
in
excess
of
the
sale
price
at
that
time
for
land
purchased
for
agricultural
purposes
anywhere
in
the
vicinity
of
the
City
of
Winnipeg.
Prior
to
December
31,
1971,
the
subdivided
lots
had
been
sold
to
Wagner
and
Jaehrlich
Limited
for
the
total
amount
of
$34,800.
Wagner
and
Jaehrlich
Limited
is
a
company
wholly-owned
and
controlled
by
the
appellants.
In
1972,
for
some
reason
or
other,
the
appellants
repurchased
three
of
these
lots
from
Wagner
and
Jaehrlich
Limited
for
the
total
price
of
$7,500.
Having
sold
a
number
of
lots
when
they
were
approached
by
Park
Realty,
they
sold
the
remaining
two
lots
plus
17.2
acres
of
land
for
the
sum
of
$135,661.10
on
or
about
December
28,
1972.
This
resulted
in
profits
to
each
of
the
appellants
in
the
amount
of
$33,943.78.
When
the
appellants
were
approached
by
Park
Realty
acting
for
Levin,
they
indicated
they
wanted
farm
land
not
far
from
where
they
were
and
the
Inkster
farm
(which
is
outlined
in
pencil
on
Exhibit
R-3)
was
shown
to
them.
Taxes
on
this
property
were
in
the
neighbourhood
of
$500.
Mr
Ryall,
solicitor
for
the
appellants,
drew
an
offer
to
purchase
on
behalf
of
William
Jaehrlich
and
John
Wagner
through
Park
Realty
Ltd,
agent
for
the
vendor,
for
what
is
known
as
the
Inkster
property,
the
purchase
price
being
$105,000.
That
property
was
composed
of
29.328
acres
of
land.
This
agreement
was
dated
January
2,
1973
and
on
page
1
thereof
the
last
paragraph
reads
as
follows:
It
shall
be
a
condition
precedent
to
this
agreement
that
the
purchasers
receive
approval
of
a
plan
of
subdivision
from
the
City
of
Winnipeg
acceptable
to
the
purchasers
prior
to
the
15th
day
of
April,
1973.
The
purchasers
must
advise
the
vendor
of
the
acceptance
or
non-acceptance
of
this
condition
by
the
15th
day
of
April,
1973.
Both
appellants
disclaimed
any
knowledge
of
this
rather
relevant
paragraph
with
a
very
important
condition
attached,
which
paragraph
they
had
deleted
from
the
agreement
for
sale
of
the
Tyndall
property.
It
is
also
interesting
to
note
that
the
typing
of
this
paragraph
is
in
larger
type
than
the
balance
of
the
agreement.
I
do
not
believe
that
the
appellants
were
not
aware
of
this
clause
but
rather
that
they
were
completely
aware
of
the
condition
that
was
laid
out
and
this
therefore
belies
their
statement
that
they
were
forced
to
sell
the
Tyndall
property
because
the
taxes
were
over
$700.
They
purchased
the
Inkster
property
where
the
taxes
were
over
$500,
for
the
pride
of
ownership,
and
to
establish
a
market
garden.
They
admitted
they
had
made
no
survey
of
the
cost
of
farming,
had
not
inquired
what
was
involved
in
market
gardening,
knew
that
there
was
no
water
on
either
the
Tyndall
or
the
Inkster
property,
that
the
Inkster
property
was
within
the
boundaries
of
Metropolitan
Winnipeg
and
very
close
to
developed
residential
areas
of
the
City.
Their
only
farming
activity
on
this
land
was
the
burning
of
stubble
for
one-half
day.
Although
they
had
purchased
an
old
tractor,
nothing
further
was
done
on
the
Inkster
farm
during
the
spring
and
summer
of
1973
as
the
appellants
were
‘’awful
busy
and
more
drywall
work
was
being
done”.
The
tractor
which
they
purchased
was
an
old
Massey-
Ferguson
which
cost
them
$1,100.
With
respect
to
the
Inkster
purchase,
they
reiterated
“We
were
very
proud”.
They
knew
when
selling
the
Tyndall
property
that
Sawatsky
wanted
to
develop,
and
indeed
he
did.
Of
the
lots
turned
over
to
Wagner
and
Jaehrlich
Limited,
lots
7,
8
and
9
were
turned
back
to
the
appellants;
Wagner
now
owns
lot
7
in
his
own
right
and
has
buit
a
house
there.
Lots
8
and
9
were
involved
in
the
sale
to
Levin.
Wagner,
in
giving
evidence,
indicated
that
he
put
$8,000
onto
the
down
payment
and
borrowed
$17,000
from
his
neighbour
who
was
a
widow.
The
only
security
was
“a
piece
of
paper
between
us”.
He
admitted
that
the
Tyndall
property
was
seven
miles
from
where
he
lives
and
that
no
farming
had
been
done
on
either
properties.
He
also
admits
that
he
never
checked
the
price
of
farm
land;
that
no
soil
tests
were
performed;
that
he
obtained
no
information
with
respect
to
the
yield
of
various
crops
and
never
learned
the
“carrying
costs”
for
land
in
the
area.
His
mind
was
solely
directed
to
market
gardening
which,
according
to
the
evidence
of
the
Government
appraisal
consultant,
could
only
be
carried
on
along
the
area
of
the
river
where
there
was
plenty
of
water.
Ken
Diawol,
when
selling
the
Tyndall
property,
stated
that
houses
were
developing
in
the
area
in
1967
and
1968,
and
that
a
friend
on
his
had
built
25
houses
a
block
or
two
from
the
Tyndall
farm.
The
taxes
were
set
in
1969
or
1970
when
sewers
and
water
were
brought
in.
Taxes
went
sky
high
in
general
in
the
area.
Jaehrlich
was
living
in
the
area
at
this
time.
In
making
the
sale
of
Jaeherlich
and
Wagner,
there
was
no
discussion
of
farming
and
the
only
purpose
Diawol
could
see
for
their
purchase
of
the
land
was
that
they
wanted
to
build
it
up
with
the
City
growing
in
that
direction.
He
says
he
made
no
misrepresentations
with
respect
to
taxes
and
added
that
the
new
streets
resulting
from
the
upgrading
of
the
property
by
the
rural
municipality
would
make
it
obvious
to
anyone
living
in
the
area
that
taxes
would
go
up.
The
tax
bill
would
come,
nevertheless,
from
the
City
of
Winnipeg.
Robert
Caron,
an
appraisal
consultant
and
Fellow
of
the
Real
Estate
Institute
of
Canada,
gave
evidence
on
behalf
of
the
respondent.
He
is
an
accredited
member
of
the
Appraisal
Institute
of
Canada
and
has
spent
five
years
in
appraising.
He
is
Chairman
of
the
Winnipeg
Appraisal
Institute.
He
gave
lectures
on
appraising
at
Winnipeg
at
a
Tax
Foundation
meeting.
He
produced
Exhibit
R-2,
a
map
of
the
City
of
Winnipeg,
prepared
by
the
Manitoba
Government,
which
shows
the
green
areas
(which
would
be
the
logical
place
for
a
market
garden).
The
Tyndall
property
was
identified
in
yellow
with
a
“T”.
The
Metro
Development
Plan
of
1968
was
a
bible
of
how
develop-
ment
would
proceed
and
the
trend
it
would
take.
In
1972
the
City
took
over
this
area
and
the
Metro
Development
Plan
was
adopted.
This
was
for
the
orderly
development
of
land
in
the
perimeter
area
of
Winnipeg.
In
1968
the
Tyndall
property
would
be
classified
as
future
living
area
or
reserved
for
public
use.
To
indicate
the
rapid
development
of
the
value
of
the
properties
in
the
area,
he
stated
that
in
1971
the
29.42
acres
of
the
Inkster
property
were
evaluated
at
$2,270
per
acre.
In
1973
when
purchased
by
the
appellants,
it
was
evaluated
at
$3,570
per
acre.
These
figures
clearly
reflect
the
development
potential
rather
than
use
for
farm
purposes
and
all
of
the
purchases
were
being
made
by
land
developers.
Most
assuredly,
the
professed
intention
of
the
appellants
to
use
the
Inkster
farm
in
place
of
the
Tyndall
farm
as
a
market
garden
seems
rather
weak
and
frail
when
considering
the
above
facts.
On
March
21,
1974,
the
appellants
were
approached
by
Castlewood
Homes
to
buy
the
Inkster
property
at
$10,000
per
acre,
which
offer
was
refused
by
the
appellants.
The
appellants
were
very
proud
of
the
fact
that
they
forced
Castlewood
Homes
to
increase
their
offer
to
purchase
by
$100,000
and
sold
the
property
for
$286,200,
resulting
in
a
gross
profit
to
each
of
the
appellants
in
the
sum
of
$143,100
in
their
1974
taxation
year.
Every
case
must
be
decided
on
its
own
facts
and
the
critical
question
of
the
intention
of
the
appellants
in
the
purchase
of
the
property
is
whether
credence
can
be
given
to
their
avowed
intention
to
farm
the
land,
or
whether
the
possibility
of
resale
at
a
profit
was
an
operating
motivation
in
purchasing
it.
Jaehrlich
and
Wagner,
in
my
view,
were
very
knowledgeable
about
the
construction
and
development
business
in
the
City
of
Winnipeg,
having
been
active
in
plastering
and
drywall
work
in
construction
work
throughout
the
City
for
many
years.
They
could
obviously
see
which
way
the
City
was
growing
and
developing.
They
had
a
close
relationship
with
Sawatsky,
a
very
successful
land
developer.
It
was
Sawatsky’s
suggestion
and
advice
that
they
purchase
the
Tyndall
property.
It
was
undoubtedly
Sawatsky
who
told
them
to
buy
the
Inkster
property
in
that
he
(Sawatsky)
wanted
to
buy
the
Tyndall
property
to
develop
it.
See
Clemow
Realty
Limited
v
Her
Majesty
the
Queen,
[1976]
CTC
129;
76
CTC
6094,
at
135
and
6098
respectively:
In
all
cases
of
this
sort
the
ultimate
decision
must
rest
from
a
finding
of
fact
as
to
what
was
the
real
intention
of
the
taxpayer
(in
this
case
as
represented
by
Mr
Siroteck)
at
the
time
the
property
was
purchased
and
whether
there
was
any
secondary
intention
that
in
the
event
the
proposed
building
development
could
not
be
carried
out
the
property
could
in
any
event
be
sold
at
a
profit.
In
reaching
a
conclusion
on
this
question
of
fact
the
expressed
intention
of
the
owner
of
the
property
is
less
important
than
the
indications
given
as
to
his
intentions
by
his
subsequent
conduct
with
respect
to
it
following
the
acquisition.
A
leading
case
on
the
doctrine
of
secondary
intention
is
that
of
Regal
Heights
Limited
v
MNR,
[1960]
SCR
902;
[1960]
CTC
384;60
DTC
1270,
in
which
Judson,
J
stated
at
905,
388
and
1272
respectively:
There
is
no
doubt
that
the
primary
aim
of
the
partners
in
the
acquisition
of
these
properties,
and
the
learned
trial
judge
so
found,
was
the
establishment
of
a
shopping
centre
but
he
also
found
that
their
intention
was
to
sell
at
a
profit
if
they
were
unable
to
carry
out
their
primary
aim.
From
the
time
of
the
acquisition
of
the
Tyndall
property
to
the
time
of
the
sale
of
the
Inkster
property
in
1974,
the
appellants
performed
no
farming
whatsoever,
acquired
no
farming
machinery
and
were
strictly,
it
seems
to
me,
mainly
concerned
with
the
obtaining
of
a
profit
from
the
resale
of
the
properties,
as
they
were
told
would
happen
by
Mr
Sawatsky.
There
is
not
the
slightest
bit
of
evidence
to
incidate
to
me
that
their
conduct
did
not
demonstrate
an
adventure
in
the
nature
of
trade
and
profits
obtained
therefrom
were
taxable
as
such,
either
as
developers
or
in
the
alternative
an
abiding
secondary
intention
to
sell
at
a
profit.
There
is
nothing
to
support
the
suggestion
that
the
profits
made
from
the
sale
were
a
capital
gain.
The
possibility
of
resale
at
a
profit
was
the
key
operating
motive
for
the
acquisition
of
the
Tyndall
and
Inkster
properties,
and
the
appellants
whole
course
of
conduct
throughout
belies
their
“pride
in
owning
a
property”
and
the
intention
of
using
the
land
as
a
market
garden.
Development,
or
price
appreciation
—
not
investment
—
was
the
primary
and
sole
motivation
behind
the
purchase
of
the
Tyndall
and
Inkster
properties.
The
following
cases
were
cited
and
considered:
Her
Majesty
the
Queen
v
Douglas
Lloyd
Anderson
and
Jean
Emily
Beck-
ingham,
and,
Joyce
E
McDonald
and
David
C
McDonald
v
Her
Majesty
the
Queen,
[1973]
CTC
606;
73
DTC
5444;
Edward
A
Shaffer
v
MNR,
[1971]
CTC
577;
71
DTC
5306;
Irwin
A
Blackstone
v
Her
Majesty
The
Queen,
[1973]
CTC
842;
73
DTC
6020;
John
Muzyka
v
MNR,
34
Tax
ABC
409;
64
DTC
168.
For
the
above
reasons,
I
dismiss
the
appeals.
Appeal
dismissed.
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