George a Lorenzon, Matteo Francilia, Nazario Matino v. Minister of National Revenue, [1981] CTC 2592, 81 DTC 479

The Chairman:—Because of their participation in some common transactions which are in issue, the appeals of George Lorenzon, Matteo Francilia and Narario Matino were, on request, heard simultaneously. Messrs Francilia and Matino were called as witnesses and gave evidence in their respective appeals. Mr Lorenzon, at the date of hearing, was in Italy and the only evidence with respect to Mr Lorenzon was given by Mr Fancilia.

Although the appellants’ agent, Mr Tony Turco, CA, was advised of the importance of Mr Lorenzon’s personal evidence as to his intentions in the acquisition and disposition of proeprty in what is generally referred to as trading cases, the agent expressed his desire to proceed with Mr Lorenzon’s appeal notwithstanding.

In reviewing the evidence, I propose to deal with each appellant separately, summarizing the various transactions in which they participated in chronological order.

Mr Matteo Francilia

Mr Matteo Francilia who, prior to 1975, was a hairdresser, became interested in real estate and took a six-month course, passed his examinations and became a real estate agent in 1976. The evidence is that Sportano Realties Corp Ltd, by whom Mr Francilia was employed as real estate agent, carried on its business principally in the eastern part of the City of Vancouver.

In 1973, Mr Francilia sold a property situated in Surrey, BC which had been acquired for purposes of investment in which he held a half interest.

In 1973, the appellant purchased a commercial and residential property which he sold in December of 1973, on the disposition of which he realized a profit.

In 1975, Mr Francilia alleges that he purchased a property on Pandora Street which he intended to make his principal residence. He visited the house with his wife prior to the purchase. Two months after purchase, Mr Francilia sold the property without ever having lived in it, alleging that his wife, who had problems in her legs found the stairs leading to the upper bedrooms too dangerous. The appellant realized a profit on the disposition of the Pandora property.

Also, in March 1975 Mr Francilia purchased a property on East Georgia Street, the rent from which covered the carrying charges and the appellant claims he was thinking of incorporating suites in the building. However, as a result of what was described as being a fantastic offer which was unsolicited, Mr Francilia sold the property in December 1975, realizing a substantial profit from the sale.

In May 1975, the appellant, in equal partnership with Mr Matino, an appellant in these appeals, purchased a residential and commercial property on Main Street. Mr Francilia testified that, although he knew the vendor personally and that the property appeared to be paying for itself, he experienced difficulties with the tenants and because of the existence of rent controls, he was unable to raise the rents. He listed the property for sale and it was sold in October 1977.

In April 1976, Mr Francilia, with Nino Carella and George Lorenzon, the third appellant in these proceedings, purchased raw land on Commercial Drive and constructed a commercial and residential property consisting of Suites on the upper floor and stores on the ground floor. The type of build- ing constructed was of the same type as others Mr Francilia had owned and which he sold allegedly because of problems with respect to tenants and low rental incomes. The property was sold in June 1977 and Mr Francilia claims the reason for selling the property was again the problems experienced with the tenants and the impossiblity of obtaining an increase in rental rates.

It is to be noted that all of the properties transacted by Mr Francilia were situated in the eastern part of Vancouver where he was employed and known as a real estate agent. This appellant also has a history of personal trading: he acquired and disposed by himself or with others of six properties from 1973 to June 1977.

Mr Francilia’s declared intention is that he acquired the property as an investment . . . in his own words: Il wanted to have something.” I accept that the appellant’s ultimate intention might well have been to acquire eventually a bona fide investment property. However, the nature of properties that were purchased; the lack of the appellant’s interest in the soundness of the construction of the buildings he purchased; the short period of time each of the properties was held; the almost casual way Mr Francilia estimated the economic viability of the buildings at a period when he knew that controlled rents could not be raised; and the heavy carrying charges on the properties do not support the contention that the appellant purchased either one of these properties as a long-term rental investment.

On the contrary, the method of financing the properties and the type of repairs that were required to be made indicate to me that the properties were purchased for resale. It might well be however that the appellant’s transactions are a series of stepping stones toward the eventual acquisition of a viable long-term investment property. That of course is not material to the present issue nd cannot be considered in disposing of the appeal.

The onus is on the appellant not only to establish that the Minister’s assessment is wrong but to support by facts his declared intention that the properties were acquired for investment purposes. In this appeal, the burden is all the more difficult to satisfy because the appellant was actually engaged as a real estate agent in most of the taxation years under review precisely in the area where all the appellant’s personal transactions took place.

Although there is nothing in the Income Tax Act which precludes a real estate agent from investing in long-term rental properties, the facts of this appeal do not establish that the subject properties were acquired by the appellant for that purpose.

Mr Nazario Matino

This appellant, a good friend of Mr Francilia, has been a real estate agent with Spartano Realties Corp Ltd for 11 years and still works there.

The appellant lived as 2515 McGill St. in Vancouver until 1971 at which time he rented the property and finally sold it in 1973.

Mr Matino explained that he had an arrangement, the details of which were not too clearly established with a Mr Trotsolini, a contractor whereby the appellant would purchase land, in partnership with Mr Trotsolini, on which houses were built for resale. It is alleged that Mr Matino did not share in proceeds of sale of the houses. In 1973 a parcel of land was acquired on Napier Street with Mr Trotsolini where it was hoped houses could be built. Because a second adjacent lot required for the project could not be acquired, the land was sold in September 1973. It is Mr Matino’s own evidence that he participated in the acquisition of the Napier Street property, not for investment purposes, but to obtain a commission from Mr Trotsolini on the planned sale of the houses that were to have been built.

In February 1975 Mr Matino purchased a property at 2620 East 5th Avenue in Vancouver, which he sold in July 1975. The reason for the sale was that he required financing for the purchase of a property on Main Street.

In May 1975 Mr Matino, with the appellant Mr Francilia, purchased a property at 6602-04 Main Street in equal partnership for $146,000, with a downpayment of $20,000. The property had been listed for sale on multiple listings.

It is Mr Matino’s evidence that he and Mr Francilia took the vendor’s word as to the condition of the property which was some 18 years old and did not inspect the property. There were problems with the furnace, the building was difficult to manage and they had difficulties with the tenants. Mr Matino testified that he knew before acquiring the property that the rents could not be raised because of controls. The property was sold in October 1977 for $170,000. Mr Matino also received a commission on the sale of the property.

The properties purchased and sold were also in the east end of Vancouver where Mr Matino was active in real estate.

Mr George A Lorenzon

The third appellant in this appeal was involved only in the Commercial Drive property with Mr Francilia and Patrizia and Nino Carella. The property was purchased in April 1976, a commercial-residential building was built and the property sold in June 1977.

All the evidence with respect to Mr Lorenzon, who was absent from the country, was given by Mr Francilia who has known Mr Lorenzon for some 20 years. Mr Francilia’s evidence is that Mr Lorenzon and his wife were in Italy, Mr Lorenzon studying architecture and Mrs Lorenzon studying medicine. Mr Lorenzon’s participation in the Commercial Drive property was on the basis of equal / share with Mr Francilia and the Carellas. Mr Francilia believes that Mr Lorenzon borrowed money from his father to participate in the project. It is alleged that Mr Lorenzon was responsible for the construction of the building even though he had no experience in construction. In cross- examination, evidence was adduced that Mr and Mrs Lorenzon left to complete their studies in Europe immediately after the Commercial Drive building was disposed of at a profit.

I find that in Mr Lorenzon’s appeal, there simply is no evidence by which the Board can determine whether Mr Lorenzon purchased the property as an investment; why he sold the property or whether he entered into the transaction to finance his wife’s and his studies in Europe. The appellant did not satisfy the onus which is on him to establish that the Minister’s assessment is wrong.

I conclude therefore that the profits realized by Messrs Francilia, Matino and Lorenzon from the sale of property in the pertinent taxation years are not a capital gain but income from a business or adventure in the nature of trade.

The appeals are therefore dismissed.

Appeals dismissed.