Delmer
E
Taylor:—These
appeals
against
income
tax
assessments
for
the
years
1974
and
1975
were
heard
in
Vancouver,
British
Columbia,
on
December
5,
1979.
In
these
assessments
the
Minister
of
National
Revenue
taxed
profits
realized
by
the
appellant
on
certain
real
estate
transactions,
as
on
income
rather
than
on
capital
account.
Both
appeals
deal
with
the
same
issue
and
were
heard
on
common
evidence.
In
assessing
the
appellant,
the
respondent
relied,
inter
alia,
upon
the
provisions
of
sections
3,
4,
9
and
248
and
Subdivision
c
of
Division
B,
Part
I
of
the
Income
Tax
Act,
RSC
1952,
c
148
as
amended
by
s
1
of
c
63,
SC
1970-71-72.
It
is
noted
for
the
record
that
an
appeal
was
also
launched
against
an
assessment
related
to
the
1976
taxation
year
but,
due
to
a
legal
technicality,
it
was
not
pursued
at
the
same
hearing
and
on
consent
of
both
counsel,
the
1976
appeal
was
adjourned
sine
die.
Background
In
1973
the
appellant
purchased
a
certain
parcel
of
real
estate
in
Vancouver
operated
as
a
building
for
rental
purposes
(the
“property”
or
the
“building”).
In
1974,
she
received
final
approval
for
registration
of
the
building
for
sale
of
individual
units
under
the
Strata
Titles
Act
(STA)
and
during
the
taxation
years
in
question
she
realized
profits
from
the
sale
of
these
units.
Contentions
For
the
appellant:
—the
purpose
of
the
acquisition
was
to
earn
rental
income;
—
the
property
was
to
be
administered
by,
and
provide
employment
for
the
appellant,
her
fiancé
and
her
sister;
—the
circumstances
of
the
acquisition,
including
the
reasons
therefor,
the
(personal)
occupation
of
one
of
the
suites,
the
financing,
and
the
change
of
the
appellant’s
job,
are
proof
that
the
property
was
not
ac-
quired
as
a
speculative
property
but
as
a
capital
investment
to
provide
long-term
security,
work
and
rental
income;
—only
upon
registration
of
the
property
pursuant
to
the
Strata
Titles
Act
was
the
property
changed
in
use
to
become
inventory.
For
the
respondent:
—the
appellant
realized
profits
of
$82,628.21
in
1974
and
$101,424.67
in
1975
from
the
business
of
trading
in
real
estate,
specifically
from
the
sale
of
apartments
comprising
the
property;
—the
suites
of
the
property
were
inventory
to
the
appellant;
—a
motivating
reason
for
the
acquisition
of
the
property
was
the
expectation
that
it
could
be
sold
either
whole
or
by
suites
for
profit;
—the
sale
of
the
apartments
was
the
culmination
of
a
scheme
of
profitmaking
conducted
by
the
appellant;
—
if
the
property
was
acquired
as
capital
property,
which
is
not
admitted
but
specifically
denied,
the
appellant
is
put
to
strict
proof
of
the
cost
attributed
by
the
appellant
on
the
conversion
to
inventory
to
the
extent
that
the
said
cost
operates
to
reduce
the
amounts
of
profit
otherwise
included
in
income
by
the
respondent.
Evidence
The
appellant
gave
evidence
on
her
own
behalf,
from
which
the
following
salient
points
are
extracted:
—
she
had
been
a
real
estate
agent
in
Toronto,
Ontario,
for
12
years
prior
to
coming
to
Vancouver,
British
Columbia,
in
1972;
—
in
October
of
that
year,
shortly
after
arriving
in
Vancouver,
she
obtained
her
mortgage
broker’s
licence;
—as
a
mortgage
broker
with
a
local
firm,
she
arranged
financing
for
individuals
and
businesses,
and
placed
available
funds
for
clients,
earning
from
these
efforts
about
$2,000
per
month;
—
in
January
1973,
at
which
time
she
had
about
$30,000
of
her
own
funds,
she
made
an
offer
to
purchase
the
subject
property,
and
took
possession
on
April
1,
1973
after
arranging
very
expensive
primary
and
secondary
financing;
—the
purchase
was
motivated
by
her
efforts
to
find
gainful
employment
for
her
fiancé
and
at
the
same
time
have
a
place
in
which
they
could
live,
since
he
was
good
at
practical
mechanical
things;
—she
quit
her
job
as
a
mortgage
broker
in
March
1973;
—
her
sister
came
out
from
Toronto
in
1973
to
live
with
her
in
the
apartment
building;
—she
did
extensive
repairs
and
renovations
(spending
about
$10,000)
after
the
acquisition;
—there
were
18
suites
with
17
parking
places;
—she
raised
the
rentals
when
it
could
be
done;
—she
had
started
efforts
to
register
the
building
under
the
STA
in
July
of
1973
on
the
suggestion
of
an
acquaintance,
Mr
Karp;
—she
had
renewed
her
efforts
to
obtain
such
registration
in
the
fall
of
1973
with
the
assistance
and
on
advice
of
another
acquaintance,
Mr
Devlin;
—
Mr
Devlin
had
also
assisted
her
in
changing
the
building
to
meet
“Strata
Title’’
specifications,
and
had
assisted
her
in
the
refinancing
required
to
sell
the
units;
—there
were
continuing
financial
problems
right
from
the
time
she
bought
the
property,
and
little
money
was
left
over
each
month
for
her
own
use,
or
that
of
her
sister
or
her
fiance;
—the
relationship
with
her
fiance
did
not
proceed
smoothly
and,
after
several
short
separations,
he
left
permanently
in
December
1973;
—
until
the
final
registration
in
January,
1974,
she
had
remained
quite
ambivalent
about
the
prospect
of
keeping
the
building,
selling
the
building
or
selling
it
as
individual
units;
—she
had
even
leased
one
or
two
units
as
late
as
December
1973;
—the
cost
of
refinancing
and
settling
with
the
tenants,
etc,
was
very
substantial
when
she
converted
the
building
to
units
for
sale;
—
in
summary,
her
reasons
for
change
of
intention
(originally
long-term
investment,
rent,
work
and
income
as
a
capital
asset,
to
an
inventory
asset
for
sale
as
units)
was
that
the
manager
she
had
at
the
building
died
in
1973,
her
fiance
left
her,
and
the
financial
problems
in
keeping
it
for
rent
were
unreasonable.
Mr
Karp,
a
local
businessman
who
had
been
acquainted
with
the
appellant
when
she
was
working
as
a
mortgage
broker,
contacted
her
in
July
1973,
suggesting
that
she
at
least
apply
for
registration
under
the
STA
since
it
might
be
an
asset
at
some
later
time.
It
was
his
evidence
that
the
appellant
did
not
seem
to
be
knowledgeable
at
all
about
such
matters,
and
perhaps
he
himself
wrote
the
original
letter
for
her,
to
request
such
registration.
Mr
Devlin
(noted
above)
has
been
living
in
a
51-suite
apartment
building
across
the
street
from
the
subject
property,
and
managing
it
for
the
owner.
He
was
a
real
estate
agent
in
1973
and
contacted
the
appellant
in
about
November
of
that
year,
first
to
see
if
she
wanted
to
sell
the
building,
and
on
being
turned
down
on
that
suggestion,
he
recommended
she
register
it
under
the
Strata
Titles
Act,
and
assisted
her
to
do
so,
including
the
subsequent
sale
of
the
units.
In
his
view
the
appellant
had
little
knowledge
about
how
to
proceed
and
when
approval
under
the
STA
was
granted
by
the
municipality,
she
did
not
seem
to
understand
what
to
do
if
anything
in
processing
the
matter.
Several
documents
were
filed,
some
by
the
appellant,
and
some
by
the
respondent.
Certain
significant
portions
from
some
of
these
are
reproduced:
Exhibit
A-4
INTERIM
AGREEMENT
(Adopted
by
Real
Estate
Board
of
Greater
Vancouver)
Copyright
DATE
January
26th
1973
RECEIVED
FROM
Dorothy
May
Hughes
and
Richard
Lee
Naylor
Apt
209—945
Marine
Drive,
West
Vancouver,
BC
THE
SUM
OF
One
Thousand
&
Five
Hundred
Dollars..../100
DOLLARS
CASH
CHEQUE
XXXX
BEING
DEPOSIT
ON
ACCOUNT
OF
PROPOSED!
Lot
Block
Dist
Lot
Plan
PURCHASE
PRICE
OF:
1
&
2
49
548
STREET
CITY
OF
ADDRESS
1450
Chesterfield
Avenue
(18
Ste
apt
Bldg)
North
Vancouver,
BC
|
THE
PRICE
OR
SUM
OF
|
|
FOR:
|
Two
Hundred
&
Thirty
Five
Thousand
Dollars
|
$235,000
|
Payable
on
the
following
terms,
namely
(Cash)
|
|
|
Two
Hundred
&
Five
Thousand
Dollars
|
205,000
|
Of
which
the
deposit
shall
form
part.
The
balance
as
follows:
|
|
By
way
of
Promissory
Note
to
Vendor
|
30,000
|
Due
and
payable
on
1st
April,
1974,
at
10%
pa
interest
and
payable
at
interest
only,
on
the
1st
of
every
month
at
$250.
Vendor
to
deliver
clear
title,
free
of
any
encumberances.
This
offer
is
subject
to
Purchaser
successfully
arranging
new
financing
on
or
before
March
15th,
1973.
Upon
notification
of
successful
arrangement
of
new
financing
by
Purchaser,
Vendor
to
give
rent
increase
notice
of
10%
of
present
rents
to
all
tenants,
present
rules
and
regulations
permitting.
Exhibit
A-14
1450
Chesterfield
Ave,
Apt
109
NORTH
VANCOUVER,
BC
July
16th,
1973
Mayor
&
Council,
209
W
4th,
NORTH
VANCOUVER,
BC
RE:
MOUNTAIN
VIEW
APARTMENTS
Dear
Sirs:
I
am
the
owner
of
the
above
mentioned
18
suite
apartment
building,
situated
on
a
120
x
120’
corner
lot,
fronting
Chesterfield
Avenue
at
15th
Street,
one
block
away
from
busy
Lonsdale
shopping
area
with
bus
stop
right
in
front,
very
attractive
landscaping,
balconies
with
view
of
North
Shore
Mountains
and
Lions
Gate
Bridge,
100%
parking,
cablevision,
coloured
bathroom
fixtures.
This
building
has
just
been
painted
from
top
to
bottom
on
the
exterior.
The
legal
description
is:
Lots
1
and
2,
Block
49,
DL
548
Enclosed
kindly
find
picture
of
front
and
back
of
building.
It
has
been
brought
to
my
attention
that
there
is
a
demand
for
Strata
Title
Apartments
in
this
area,
having
looked
at
a
10
suite
building
2
doors
away
which
is
15
years
old,
just
converted
to
Strata
Title
units.
Therefore,
I
would
request
that
you
please
favour
my
application
for
converting
this
building
into
Strata
Title
Apartments.
Looking
forward
to
hearing
from
you
at
your
earliest
convenience,
I
remain,
Yours
Truly,
MOUNTAIN
VIEW
APARTMENTS
(Miss)
Dorothy
M
Hughes
Exhibit
A-19
THE
CORPORATION
OF
THE
CITY
OF
NORTH
VANCOUVER
209
West
Fourth
Street,
North
Vancouver,
BC
Phone:
988-7121
OFFICE
OF
THE
CITY
CLERK
A
S
J
Gibb,
FCIS
January
30,
1974.
Miss
Dorothy
M
Hughes,
301-1450
Chesterfield
Avenue
North
Vancouver,
BC
Dear
Miss
Hughes,
Re:
Application
for
Strata
Subdivision
(Conversion)
1450
Chesterfield
Avenue
This
will
confirm
that
the
City
Council
at
its
Regular
Meeting
held
on
January
28th,
1974,
approved
your
application
for
the
subdivision
of
the
apartment
building
at
1450
Chesterfield
Avenue
under
the
Strata
Titles
Act.
This
approval
was
given
in
view
of
the
fact
that
your
application
for
subdivision
was
made
prior
to
the
policy
that
Council
adopted
on
August
6th,
1973,
which
was
to
refuse
all
applications
for
Subdivision
of
existing
buildings.
It
is
understood
that
in
approving
this
application,
the
Council
does
not
in
any
way
pass
upon
the
merits
of
the
Prospectus,
and
does
not
warrant
the
truth
or
accuracy
of
anything
contained
therein,
nor
does
it
directly
or
impliedly
warrant
the
condition
of
the
subject
of
the
said
Strata
Subdivision
nor
its
compliance
with
City
By-laws.
It
is
further
understood
that
you
undertake
to
supply
to
each
prospective
purchaser,
prior
to
their
entering
into
any
form
of
agreement
to
purchase,
the
Prospectus
as
approved
in
connection
with
your
application.
Yours
truly,
(Sgd)
A
AS
J
Gibb
A
S
J
Gibb
City
Clerk
LW/hc
cc
|
City
Administrator
|
cc
|
City
Engineer
|
Exhibit
A-22—
Page
1
CUNNINGHAM
&
RIVARD
APPRAISALS
LTD
107-140
W
15th
ST,
N
VANCOUVER
BC
985-8761
Ref:
F-1500
|
January
15,
1974
|
IAC
|
|
777
Hornby
Street
|
|
Vancouver
1,
BC
|
|
|
Attention:
Mr
J
Herriot
|
Dear
Sir:
|
|
In
accordance
with
your
written
request
of
January
9th,
1974,
I
have
completed
an
appraisal
of
the
property
legally
described
as:
Lot
1
and
2,
Exc
E
20’,
Bl
49,
DL
548,
Plan
957,
located
at
1450
Chesterfield
Ave,
North
Vancouver,
BC.
After
inspecting
the
above
property
and
analyzing
the
data
gathered
during
my
inspection
and
subsequent
investigation,
it
is
my
opinion
that
the
maket
value
of
the
property
described
above
when
completed
as
condominium
units
is
FOUR
HUNDRED
AND
SIXTY
THOUSAND
DOLLARS
($460,000).
A
report
containing
16
pages
and
Addenda
is
attached
and
forms
the
basis
for
this
opinion.
I
hereby
certify
that
I
have
no
interest,
present
or
contemplated,
in
this
property.
Yours
truly,
CUNNINGHAM
&
RIVARD
APPRAISALS
LTD
(Sgd)
G
W
Garben
G
W
Garben,
AACI
GWG/ple
The
appraisal
report
by
Cunningham
&
Rivard,
identified
and
presented
by
the
appellant,
was
a
lengthy
and
detailed
document
but
no
one
from
that
firm
appeared
as
a
witness.
Argument
On
the
main
point
at
issue,
the
favourable
points,
according
to
counsel,
were
that
the
appellant:
—
in
order
to
purchase
the
building,
took
out
a
five-year
mortgage
with
a
substantial
penalty
clause
for
early
payment;
—took
out
a
second
mortgage
at
an
atrociously
high
interest
rate—18%
per
annum;
—
renovated
several
of
the
suites,
did
work
on
the
heating
system
and
the
furnace
room;
—
put
in
an
office
just
off
the
lobby;
—
brought
her
sister
from
Toronto,
out
of
a
secure
employment
position
to
help
her
run
the
building;
—
moved
into
the
building
herself
with
her
fiance;
—
rented
suites
in
November
1973,
for
which
on
registration
under
STA
she
had
to
pay
the
residents
a
penalty.
Counsel
recognized
the
difficulties
in
the
appellant’s
position:
—“she
made
some
financial
mistakes—but
that
is
not
evidence
of
secondary
intention
to
convert
and
sell.”
—“the
letter
of
July
16
(the
application
for
registration
under
STA)
(Exhibit
A-14)
is
frankly
naïve
and
I
think
it
shows
she
didn’t
really
understand
what
she
was
getting
into
and
didn’t
bother
too
much.
.
.
.
She
just
wrote
a
letter
and
I
do
not
think
that
indicates
any
sophisticated
understanding
whatsoever
of
what
she
was
getting
into,
nor
does
it
show,
I
submit,
that
she
had
changed
her
mind
in
any
way.
There
was
(simply)
an
avenue
available
to
her
that
Mr
Carp
persuaded
her
she
should
keep
there.”
—.
Mr
Devlin
in
November
(1973)
was
pushing
her
to
give
him
a
listing,
kept
on
asking,
you
know,
came
back
twice
and
said
I
want
a
listing
of
this
building.
‘If
you
are
in
financial
difficulties,
give
me
a
listing’
and
she
refused,
she
would
not
even
give
him
a
price.”
By
way
of
summary
for
the
appellant:
—“.
.
.
the
taxpayer
did
not
have
any
intention
of
conversion
into
Strata
Title
suites
at
the
time
she
acquired
the
building
and
she
acquired
the
building
at
a
capital
asset,
which
she
wished
to
keep
as
a
source
of
revenue
and
also
of
course
she
did
not
have
an
alternative
intention,
or
a
secondary
intention,
or
an
intention
one
way
or
another
as
the
various
cases
have
put
it,
to
dispose
of
the
building
at
a
profit.”
—..
at
the
day
she
bought
the
building,
the
time
she
bought
the
building
...
she
did
not
have
any
intention,
other
than
the
intenion
to
keep
the
building
as
an
ongoing
source
of
revenue
ultimately.”
—‘‘Miss
Hughes
had
the
situation
with
the
manager
dying
and
her
fiancé
leaving,
of
being
unable
to
operate
the
building,
and
that
was
one
of
the
events
that
triggered
the
decision
to
Strata
Title.”
On
the
subsidiary
point
in
the
appeals
(the
effective
date
of
the
change
of
use),
counsel
noted
that
the
best
(and
only)
evidence
availabe
was
the
appraisal
report
submitted,
and
summarized
his
position
in
the
following
way:
There
was
nothing
in
the
evidence
which
leads
one
to
consider
that
she
was
embarked
on
a
firm
course
of
conversion
until
January,
when
finally
she
goes
to
IAC
and
says,
please
tell
me
how
I
do
this
and
they
say,
get
an
appraisal,
she
got
an
appraisal
there
and
then
proceeded.
In
addition,
he
gave
as
judicial
references
the
following:
H
Moluch
v
MNR,
[1966]
CTC
712;
66
DTC
5463;
Pinehill
Investments
Limited
v
MNR,
[1967]
Tax
ABC
233;
67
DTC
204;
White
Forest
Lodge
Ltd
v
MNR,
[1971]
Tax
ABC
961;
71
DTC
642;
Normae
Investments
Limited
v
MNR,
[1969]
CTC
468;
69
DTC
5326;
[1970]
CTC
325;
70
DTC
6234;
Hiwako
Investments
Limited
v
Her
Majesty
the
Queen,
[1978]
CTC
378;
78
DTC
6281;
Roy
M
Power
v
Her
Majesty
The
Queen,
[1975]
CTC
580;
75
DTC
5388.
Counsel
for
the
respondent
put
forward
for
the
Board’s
consideration
the
following:
.
.
.
I
am
not
going
to
refer
to
all
decided
trading
cases
since
Californian
Cooper
Syndicate
v
Harris
(1904),
5
TC
159
I
am
also
not
going
to
say
that
a
lady
with
a
real
estate
licence
and
who
has
been
a
mortgage
broker
cannot
have
a
capital
gain.
I
am
not
going
to
say
that
really
because
something
was
subdivided,
which
I
suggest
‘‘stratafying”
really
is,
I
am
not
going
to
suggest
that
is
vital
to
the
case
of
Such
a
person.
I
am
not
going
to
say
that
the
fact
we
have
a
very
short
holding
period
is
fatal
to
the
case.
I
am
not
going
to
say
that
even
though
on
the
face
of
it
it
is
a
very
very
poor
investment,
and
finally,
I
am
not
going
to
say
that
the
mere
fact
that
someone
would
hope
that
an
investment
property
would
go
up
in
value
necessarily
brings
in
the
much
feared
secondary
intention.
But
what
I
am
going
to
Say
is
if
you
consider
each
of
these
factors,
I
suggest
the
inference
you
are
entitled
to
draw
is
that
this
was
an
adventure
in
the
nature
of
trade
and
by
the
definition
of
the
Income
Tax
Act,
a
business
with
the
consequence
that
the
entirety
of
the
gain
is
to
be
included
in
income.
.
.
.
I
Suggest
that
the
Courts
in
these
matters
go
one
step
further
...
there
may
have
been
a
valid
reason,
or
what
you
put
forward
as
a
valid
reason
down
the
road
for
sale,
but
the
question
becomes
whether
or
not
at
the
time
you
bought
this
(property),
the
sale
down
the
road
was
foreseeable.
If
you
knew
when
you
bought
the
thing
very
well,
or
ought
to
have
known
that
down
the
road
something
is
going
to
happen,
there
is
going
to
be
a
reason
where
you
have
to
sell,
the
reason
the
short
holding
period
becomes
important
and
the
Courts
find
on
those
facts
that
the
acquisition
of
the
property
was
an
adventure
in
the
nature
of
trade.
I
suggest
those
factors
entitle
you
to
draw
the
inference
that
this
was
a
trading
transaction.
On
the
subsidiary
point,
counsel’s
perspective
was:
On
the
conversion
question,
I
have
a
few
things
to
say.
First
of
all,
my
learned
friend
has
made
reference
to
a
document
that
is
in
evidence
as
the
best
evidence.
Now,
the
evidence
we
are
talking
about
here
is
opinion
evidence
and
I
would
suggest
that
the
best
evidence
is
the
opinion
of
the
gentleman
from
Cunningham
&
Rivard,
his
viva
voce
testimony
which
could
be
exposed
to
my
questions
and
any
questions
you
may
have,
Mr
Chairman.
That
is,
Mr
Chairman,
I
suggest
the
manner
in
which
the
Board
ought
to
apply
the
best
evidence
rule
in
these
circumstances.
.
.
.
my
learned
friend
has
made
somewhat
a
telling
slip
of
the
tongue
in
describing
the
evidence
there
.
.
.
He
says
this
is
the
best
evidence
of
the
value
of
the
building.
This
is
not
the
best
evidence
of
the
value
of
the
building.
This
is
the
best
evidence
of
seventeen
condominium
units.
(Italics
mine—Chairman)
.
.
.
if
my
learned
friend
had
led
evidence
as
to
the
fair
market
value
of
an
apartment
block
as
such,
that
is
the
price
for
which
it
would
go,
assuming
the
various
methods
of
real
estate
appraisal,
income
replacement,
this,
that
and
the
other,
that
might
be
a
different
market.
But
I
would
suggest
the
asset
to
be
valued
is
the
apartment
block
as
a
whole.
...
The
next
problem
my
learned
friend
has
is
this,
by
his
test
it
is
not
until
January
that
the
property
assumed
this
value.
We
have
from
a
very
early
date,
from
July
16th,
evidence
to
some
intention
to
have
the
property
“stratafied”.
The
evidence
has
been
part
explained
by
viva
voce
testimony
to
the
effect
that
it
was
not—it
was
a
half-hearted
application.
Well,
again,
evidence
for
you
to
weigh,
Mr
Chairman,
but
I
suggest
that
in
taking
a
number
it
is
incumbent
upon
you
to
take
a
date,
a
conversion
date,
but
I
would
suggest
the
evidence
is
that
July
would
be
that
conversion
date
rather
than
January.
I
particularly
draw
that
to
your
attention
in
view
of
the
rather
astronomical
rise
in
price
of
these
particular
units.
While
counsel’s
judicial
reference
list
was
appropriately
extensive,
he
requested
the
Board’s
specific
attention
to
certain
views
expressed
in
the
following:
Normae
Investments
Limited
v
MNR,
[1969]
CTC
468;
69
DTC
5326;
Normae
Investments
Limited
v
MNR,
[1970]
CTC
325;
70
DTC
6234;
Harmony
Investments
Limited
v
MNR,
[1965]
CTC
14;
65
DTC
5009;
Lars
Willumsen
v
MNR,
[1967]
CTC
13;
67
DTC
5022;
J
A
Verret
v
MNR,
[1960]
CTC
361;
60
DTC
1195;
Be-Vi
Investment
Corporation
v
Her
Majesty
The
Queen,
[1975]
CTC
636;
75
DTC
5444;
Harry
Moluch
v
MNR,
[1966]
CTC
712;
66
DTC
5463;
J
Bert
Macdonald
and
Sons
Limited
v
MNR,
[1970]
CTC
17;
70
DTC
6032;
Hiwako
Investments
Limited
v
Her
Majesty
the
Queen,
[1978]
CTC
378;
78
DTC
6281.
Findings
Dealing
with
the
subsidiary
point
first,
the
Board
would
make
the
following
comments:
—The
date
of
January
15,
1974
(the
date
of
the
appraisal
report)
is
significant
to
the
appellant,
apparently
only
because
it
is
generally
concurrent
with
the
date
at
which
municipal
approval
of
the
registration
under
STA
was
granted.
In
effect,
the
appellant
having
gone
to
the
bank
for
financing,
and
agreed
to
get
a
valuation
report,
it
should
be
accepted
by
the
Board
(if
I
correctly
follow
counsel)
that
the
building
was
at
that
date
inventory
for
sale,
and
the
Minister
should
be
permitted
to
tax
from
that
point,
on
an
“income”
basis
since
the
purpose
of
the
building
had
changed.
—
This
aspect
of
“change
of
purpose”,
the
relevant
date
and
the
valuation,
are
points
effectively
raised
by
the
appellant
and
only
recognized
obliquely
by
the
respondent
since
the
Minister’s
basic
argument
is
that
the
purpose
for
the
building
should
be
treated
from
acquisition
date
as
on
income
account.
It
is
necessary
in
examining
this
part
of
the
appellant’s
position
for
the
Board
to
assume
that
the
appellant
is
portraying
that
she
had
fulfilled
the
conditions
inherent
in
paragraph
45(1)(a)
(and/or
paragraph
13(7)(a)
of
the
Act:
(1)
For
the
purpose
of
this
subdivision
the
following
rules
apply:
(a)
where
a
taxpayer,
(ii)
having
acquired
property
for
the
purpose
of
gaining
or
producing
income
therefrom
or
for
the
purpose
of
gaining
or
producing
income
from
a
business,
has
commenced
at
a
later
time
to
use
it
for
some
other
purpose,
he
shall
be
deemed
to
have
(iii)
disposed
of
it
at
that
later
time
for
proceeds
equal
to
its
fair
market
value
at
that
later
time,
and
(iv)
immediately
thereafter
reacquired
it
at
a
cost
equal
to
that
fair
market
value;
—On
or
about
January
15,
1974,
accordingly,
the
intention
of
the
appellant
with
regard
to
the
use
of
the
property
changed
from
“rental”
to
“sale”,
or
at
least
from
“the
purpose
of
gaining
or
producing
income”
to
“some
other
purpose”.
I
have
some
difficulty
following
the
significance
of
January
15,
1974
simply
because
I
see
nothing
more
critical
about
that
date
in
order
to
fulfill
those
conditions
(in
subparagraph
45(1
)(a)(ii))
than
in
any
other
date
related
to
this
matter.
The
pertinent
phrase
in
that
section,
as
I
see
it,
is
“has
commenced
at
a
later
time
to
use
it
for
some
other
purpose”
(Italics
mine).
It
is
evident
that
the
appellant
continued
to
use
the
building
as
a
capital
asset
for
the
production
of
rental
income
for
some
time
after
January
15,
1974.
It
is
also
evident
that
she
did
not
sell
even
the
first
of
the
individual
units
until
some
time
later
in
1974.
However,
I
fail
to
see
how
such
new
or
altered
intention
which
must
emanate
from
the
appellant,
can
be
dependent
upon
external
factors
such
as
municipal
approvals.
The
active
verb
in
the
phrase
is
“commenced”,
not
“use(d)”,
and
it
may
be
argued
that
this
appellant—“has
commenced
.
.
.
to
use
the
property”
for
some
other
purpose,
as
far
as
income
tax
is
concerned,
when
it
an
be
determined
she
first
deviated
from
her
alleged
original
intention
by
identifying
the
building
she
owned
as
the
asset
upon
which
she
was
basing
her
application
for
registration
under
STA.
The
appellant
could
not
have
obtained
such
approvals
without
it,
and
without
using
it
in
this
way.
It
would
appear
to
me
that
counsel
is
interpreting
subparagraph
45(1
)(a)(ii)
too
restrictively
by
saying
that
only
after
January
15,1974
could
it
be
said
that
a
different
form
of
profit
production
(“income
from
inventory”,
rather
than
“gain
on
capital”)
was
available
to
the
appellant.
In
my
view,
however,
the
“some
other
purpose”
is
very
general
and
refers
to
any
use
of
the
property,
not
necessarily
its
use
in
production
of
profit
or
in
any
other
particular
way,
simply
that
the
taxpayer
“has
commenced
at
a
later
time
to
use
it
for
some
other
purpose”.
It
is
not
incumbent
upon
the
Minister,
in
a
matter
of
this
nature,
to
establish
the
precise
characteristics
of
“some
other
purpose”
which
may
be
perceived
in
the
actions
of
a
taxpayer
who
“has
commenced
to
use”
a
property
in
a
manner
which
appears
inconsistent
with
the
original
“purpose
of
gaining
or
producing
income”
therefrom.
It
is
for
the
taxpayer
to
establish
that
the
action
is
consistent
with
the
original
intent,
and
failing
to
do
so
leaves
him
at
serious
risk
of
the
conclusion
that
there
was
“some
other
purpose.”
It
would
of
course
be
completely
unreasonable
for
the
Board
to
take
a
position
that
the
owner
of
a
capital
asset
could
never,
during
the
currency
of
that
asset,
consider
or
examine
other
uses
without
risking
different
income
tax
consequences,
and
I
do
not
so
propose.
The
possibility
of
sale
or
change
in
use
of
an
asset
probably
always
exists.
I
do
hold,
however,
that
it
would
clearly
rest
with
the
taxpayer
to
show
that
the
actions
taken
and
circumstances
surrounding
them
should
not
lead
to
the
conclusion
that
there
had
been
a
change
in
intended
use
at
that
point
sufficient
to
impair
the
integrity
of
the
original
intention.
There
have
been
cases
dealing
with
“applications
to
subdivide”,
etc,
which
have
gone
in
the
taxpayer’s
favour—the
application
as
such
was
not
convincing
proof
at
that
time
of
any
change
in
the
original
capital
intention.
To
my
recollection,
these
decisions
favourable
to
the
taxpayer
have
only
been
where
such
application
for
a
subdivision
plan
related
to
a
totally
different
purpose,
eg
a
requirement
to
bring
in
a
road,
the
desire
to
dedicate
a
certain
parcel
for
the
taxpayer’s
personal
use,
etc.
Even
the
consideration
of
a
possible
alternate
use
for
a
property
at
the
date
of
acquisition,
or
thereafter,
certainly
need
not
be
fatal
to
the
appellant’s
position,
but
positive
action
which
would
lead
to
such
an
alternate
use
may
not
so
easily
be
dismissed,
and
must
be
clearly
and
satisfactorily
explained.
The
Board
dealt
with
the
general
subject
of
acquisition
and
sale
of
property
in
the
recent
decisions
of
Sam
Grossman
v
MNR,
[1979]
CTC
2132;
79
DTC
141,
and
Regin
Properties
Limited
v
MNR,
[1979]
CTC
2149;
79
DTC
156.
While
some
differences
might
be
highlighted
between
the
purchase
and
the
sale
of
a
parcel
of
land
(whether
it
be
subdivided
or
whole),
and
the
purchase
and
sale
(with
STA
registration)
of
units
of
an
apartment
block,
in
my
view
they
are
not
sufficient
in
themselves
as
distinctions
to
characterize
the
profit
from
either
one
for
treatment
diametrically
opposite
to
that
of
the
other.
I
am
not
aware
of
jurisprudence
which
would
place
major
stress
on
how
the
profit
from
the
asset
was
realized—in
whole
or
at
various
intervals—
in
a
determination
of
the
nature
of
that
income.
Subdividing
the
land
for
sale
(or
“stratifying”
the
building
in
this
case)
is,
as
I
noted
before,
prima
facie
evidence
of
an
intention
to
sell,
but
not
doing
so
would
not
preclude
a
similar
intention.
I
have
noted
that
in
Demeter
Equity
Limited
v
Her
Majesty
the
Queen,
[1979]
CTC
311;
79
DTC
5230,
there
had
been
an
application
to
subdivide
the
property
there
in
question,
and
yet
the
judgment
was
in
favour
of
the
appellant.
I
would
suggest
that
the
distinction
is
that
in
Demeter
(supra),
the
gain
realized
and
at
issue
in
that
appeal
did
not
arise
in
any
way
from
the
effort
at
subdivision
which
had
been
commenced,
and
then
aban
doned.
I
do
not
interpret
that
decision
to
be
binding
upon
the
Board
in
this
matter.
The
proposition
put
forward
by
counsel
for
the
appellant
is
that,
at
the
most,
when
filing
the
application,
the
appellant
was
only
keeping
open
her
options
and
exploring
the
possibilities.
Prima
facie,
the
action
of
applying
for
“stratification”,
in
my
view,
would
be
more
indicative
of
a
person
considering
the
sale
of
the
property
as
opposed
to
being
committed
to
retaining
it
as
an
investment.
But
even
counsel’s
explanation
that
the
taxpayer
was
only
“maintaining
her
options”
tends,
under
the
circumstances
of
this
case,
to
confirm
the
Minister’s
obvious
conclusion
that
she
had
commenced
to
use
the
property
at
least
for
the
purpose
of
opening
up
an
option
or
keeping
one
open
that
had
always
been
available.
In
the
instant
case,
as
I
see
it,
there
would
appear
to
be
only
one
possible
purpose
for
making
the
application
to
register
the
building
under
the
STA—it
would
be
at
least
the
consideration
of
disposal
of
the
asset,
preferably
by
way
of
the
individual
units.
For
the
Board
to
reach
a
conclusion
other
than
that,
it
would
be
necessary
for
the
appellant
to
show
that
the
purpose
of
such
an
application
was
to
maintain
the
building
as
a
capital
asset
for
rental
purposes.
There
has
been
no
evidence
adduced
or
testimony
provided
which
would
lead
in
that
direction.
Indeed,
in
this
matter,
such
an
assertion
would
be
a
complete
contradiction
in
terms,
in
my
opinion.
The
Board
therefore
concludes
that,
to
whatever
degree
section
45
of
the
Act
has
any
application
in
this
appeal,
the
effective
date
would
be
July
16,
1973.
Since
that
is
barely
three
months
after
acquisition
and
there
is
no
evidence
to
the
contrary,
the
Board
also
concludes
that
there
had
been
no
material
increase
in
the
value
of
the
property
in
the
interim
other
than
that
added
directly
by
the
appellant,
and
no
inherent
capital
gain
can
be
attributed
between
those
dates.
The
issue
then
becomes
whether
or
not
the
total
gain
realized
on
the
sale
of
the
asset
(eventually
as
units)
is
on
account
of
capital
or
income.
I
have
reviewed
the
information
brought
out
at
the
hearing
and
while
I
accept
the
assertion
of
the
appellant
that
her
intention
was
to
use
the
property
as
a
rental
investment
(in
fact
she
did
so
for
a
period
of
time),
several
obstacles
have
not
been
overcome
by
her
in
the
mandatory
requirement
to
prove
that
such
an
investment
intention
was
the
only
intention,
or
that
no
other
possible
use
provided
a
motivating
factor
in
the
acquisition.
While
possibly
not
fatal
to
the
appellant’s
case
on
an
individual
basis,
the
following
factors,
when
viewed
in
a
cumulative
fashion,
are
the
obstacles
as
I
see
them:
—the
historical
financial
data
regarding
the
building
indicated
that,
as
a
rental
proposition,
it
was
not
a
sound
investment.
—the
above
conclusion
would
have
been
available
to
virtually
any
interested
party,
but
it
should
have
been
particularly
evident
to
the
appellant
in
view
of
her
business
background.
—
no
effort
was
made
by
the
appellant
to
assume
the
mortgage
obligations
existing
at
the
time
of
acquisition,
and
no
reason
was
provided
to
the
Board
why
this
was
not
done
or
at
least
attempted.
What
little
information
regarding
those
original
obligations
that
can
be
gleaned
from
the
testimony
and
evidence,
indicates
they
were
more
attractive
than
the
obligations
incurred
by
the
appellant
unless
such
original
obligations
were
not
themselves
in
jeopardy
to
the
degree
that
such
an
assumption
was
not
possible.
—financial
difficulties
(which,
as
above,
could
easily
be
foreseen)
were
encountered
almost
immediately
after
acquisition.
—there
was
little,
if
any,
possibility
that
the
building
as
such
an
“investment”
could
support
the
appellant
herself,
let
alone
her
sister
and
her
fiance.
—the
appellant
left
her
employment
at
the
date
of
purchase,
and
there
is
no
indication
that
she
earned
or
attempted
to
earn
income
after
that
date
outside
of
the
building
operation.
Her
rationale
is
that
she
left
her
employment
to
devote
her
attention
to
the
building,
and
in
addition
her
sister
came
to
live
there
to
help
her,
as
did
her
fiancé.
While
I
can
accept
that
for
a
short
period
of
time
immediately
after
acquisition
there
might
have
been
some
call
on
one
or
two
or
three
people
to
carry
out
repairs,
etc,
and
as
“managers”,
I
cannot
conclude
that
the
complexity
of
operating
an
18-unit
yearly
rental
block
(which
at
least
for
a
while
also
had
a
superintendent)
would
warrant
such
effort
and
dedication
for
investment
purposes
alone
and
would
require
the
appellant
to
leave
her
employment.
—there
is
no
reason
to
conclude
that
the
“repairs
and
improvements”
carried
out
by
the
appellant
immediately
after
acquisition
would
have
been
more
necessary
for
a
simple
rental
operation
than
for
purposes
designed
to
improve
the
building
for
later
disposal.
—the
appellant
had
some
$30,000
in
cash
of
her
own
funds
at
the
time
of
acquisition.
Yet
she
went
to
great
trouble
to
obtain
external
secondary
financing
at
a
high
interest
rate
and
with
an
early
repayment
date,
instead
of
using
her
own
funds.
The
explanation
provided
to
the
Board
that
the
$30,000
was
required
for
“operating
capital”
is
insufficient,
and
indeed
there
is
no
indication
that
the
appellant
did
expend
any
major
part
of
those
particular
funds.
The
net
result
is
that
on
acquisition
of
an
asset
at
a
total
cost
of
$235,000,
she
had
at
risk
an
amount
of
only
$1,500.
—
barely
three
months
after
acquisition,
the
appellant
made
application
for
the
registration
under
STA.
This
was
aggressively
and
deliberately
pursued
by
her,
and
with
success.
The
impressions
of
both
Mr
Karp
and
Mr
Devlin
that
the
appellant
was
quite
naïve
about
the
possibilities,
prospects
and
problems
of
such
stratification
and
reluctant
to
proceed,
are
difficult
to
see
in
light
of
the
history
and
record
of
this
transaction.
Summary
I
have
reviewed
the
aspects
of
the
matter
which
counsel
indicated
should
be
regarded
as
favourable
to
the
appellant’s
cause.
In
my
view,
however,
either
they
are
neutral
or
negative
with
regard
to
that
cause,
and
I
do
not
see
in
them
the
positive
aspects
asserted
by
counsel.
Any
possible
positive
interpretations
fall
considerably
short
of
counterbalancing
the
clearly
unfavourable
aspects
of
the
case
recognized
by
counsel
himself,
in
argument.
The
obligation
on
the
appellant
imposed
by
the
Act
(to
establish
that
a
factor
motivating
the
purchase
of
the
property
in
question
was
not
the
prospect
of
sale
of
the
asset
itself
at
a
profit)
has
not
been
met.
Decision
The
appeals
for
the
taxation
years
1974
and
1975
are
dismissed.
Appeal
dismissed.