Dorothy Mae Hughes v. Minister of National Revenue, [1980] CTC 2173, 80 DTC 1157

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.