Rivermede Developments Limited v. Minister of National Revenue, [1985] 1 CTC 2357, 85 DTC 338

Tip, TCJ:—The appellant corporation appeals against its 1977 tax reassessment which included in income a gain made in the year from a disposition of vacant land in Vaughan Township, Ontario.

The appellant was incorporated under the laws of Ontario in 1954. The original shareholders of the appellant were members of the Crang family, Jethro Crang, Douglas Crang, Percy Dallner, Arthur V. Elliott, Fred Gander and their accountant, John Spence.

In 1960 the shareholders of the appellant incorporated Cranspen Developments Limited (“Cranspen”) for the purposes of acquiring real estate. On March 31, 1960 Cranspen acquired 134 acres, known as “the Lawson farm”, in the Township of Vaughan and on June 30 acquired 80 acres in the Township of Vaughan fronting on Keele Street (“Keele Street property”) and 103 acres in the same Township fronting on Dufferin Street (“Dufferin Street property”). These properties were transferred to the appellant in the early 19605.

The Keele Street and Dufferin Street properties were zoned for agricultural uses when the properties were acquired by the appellant.

At the time of acquisition of the three properties by the appellant the shareholders of the appellant were June Crang, Patricia Crang, June Dallner, Ruth Elliott and Patricia Gander, wives of the former Crang family shareholders, and Mr Spence.

Upon acquiring the Keele Street and Lawson Farm properties the appellant applied for rezoning to permit the construction of industrial and commercial buildings on these properties which would be part of an industrial park named

Vaughan Acres Industrial Park. As a condition to the registration of a plan of subdivision on the Keele Street and Lawson properties, the appellant was required by the Township to convey approximately 11 acres of the Dufferin Street property to the Township. The appellant sold the sites of the industrial park from 1965 to 1970 and treated the proceeds therefrom as income. In the 1960s the appellant considered preliminary plans for the development of the Dufferin Street property, but what these plans were is vague. Services were not yet available. However after 1971 the appellant learned the government of Ontario intended to build a highway which would run through the middle of the property, and in 1973 the Government of Ontario designated 50 out of 93 acres of the property and surrounding lands as “greenbelt”; in the appellant’s view the greenbelt designation would have rendered future development plans for the Dufferin Street property effectively impossible. The appellant engaged counsel to make representation to the appropriate ministries of government for exemption of the property from the “greenbelt” designation and to offer the property for sale to the Province of Ontario; representations were made on July 4, 1975 and on November 18, 1976 an offer for sale to sell the property to the Province was executed by the appellant. The offer was accepted and the transaction closed on January 28, 1977. The treatment of the proceeds of this sale are in issue.

Mr Jethro Crang appeared as a witness on behalf of the appellant. He was a shareholder of the appellant from incorporation to 1960 when it appears he transferred his shares to his wife. At present Mr Crang manages the family’s investments and administers his late father’s estate. Mr Crang testified that the Crang family was strongly influenced by their late father, Jethro K Crang, who in his lifetime was a farmer and businessman. The late Mr Crang, who died in 1980, farmed a 200-acre farm in 1921 at what is now Jane and Wilson Streets in Toronto; in later years he acquired additional acreage and in 1955 purchased an 1800-acre farm which he operated to 1972. The witness, Douglas Crang, and Fred Gander were also engaged in the farm operation. From 1936 to about 1946 the senior Crang also carried on an insulation business and in 1947 opened a farm equipment business which the family operated for three years. In 1951 the late Mr Crang built Crang Plaza on the Barrie-Toronto highway; the witness stated that the Crang Plaza was the first shopping plaza built in Canada. Various members of the Crang family owned the plaza which was sold in the late 1960s or early 1970s after the family realized it was not feasible to “redo” the plaza.

Mr Elliott and Mr Dallner and to a lesser degree, the witness, “looked after” the tenants of the plaza.

The late Mr Crang also owned a citrus grove in Florida which was sold in 1980 after some 60 years of ownership.

Jethro Crang testified that his father had a very strong influence on the family and his policy was to retain ownership of the properties he acquired. “He instilled this into me and my brothers and (this) was a successful philosophy as far as we were concerned.”

The appellant corporation was incorporated, according to Jethro Crang, to acquire the land at Weston Road and Sheppard Avenue in Toronto, previously farmed by his father, and then to subdivide and sell the property; the proceeds of sale would be applied to pay the senior Crang the balance of purchase price and to acquire other real estate. Services had been put through the land and taxes were too high to use the land for farming. Mr Crang said the property was sold to the appellant as a method of passing family assets to another segment of the family for long-term growth potential. A residential subdivision was registered on the property and the property was sold in a single transaction. The elder Crang was paid the balance of purchase price and the appellant purchased the Keele Street and Dufferin Street properties with the balance of the proceeds.

Mr Crang testified that the appellant had different plans for the Keele Street property and the Dufferin Street property. He stated the appellant knew that the Keele Street property would be zoned industrial almost immediately because the Township and the Canadian National Railways were working in concert for the development of the area. On the other hand the appellant knew the Dufferin Street property would be serviced only some time in the future. The appellant had no resources to develop the Dufferin Street property but did know the Keele Street property was ripe for development.

The Dufferin Street property was thus put on “the back burner’’ until services were available on the understanding “we would build and lease on Dufferin once the services came”. Members of the Crang family were frequently in touch with the Township engineer and were of the view the Dufferin Street property would be serviced “around the mid 1970s’’.

By 1965 the appellant was involved with the Canadian National Railways and Vaughan Township in the development of Vaughan Acres Industrial Park. The appellant was considering building an industrial mall in the area and had corresponded with the Federal Department of Public Works offering to lease a post office, with the Canadian Imperial Bank of Commerce to lease space for a branch office and the Toronto Daily Star for a warehouse. Members of the Crang family indicated they had experience in leasing and managing rental property and a family friend, George Schram, was an experienced builder who with Mr Jethro Crang formed a corporation to build the project on the appellant’s property. The Crangs were of the view the Keele Street project would be successful.

However the industrial mall was never built on the Keele Street property because it could not attract sufficient tenants, according to Mr Crang. The competition valued its land lower than did the appellant and the competition and lack of cash flow forced the appellant to sell the sites on properties it owned in the industrial park.

The appellant did not foresee similar problems with the Dufferin Street property since “it was a long way off”. The Dufferin Street property was “longterm’’, would be in a “mature area and we could ride out any delay”, according to Mr Crang. Mr Crang referred to the Dufferin Street property as a “retirement project and (to) pass along to the children as (this) was Crang family policy”. The sale of the Keele Street property, again according to Mr Crang, “would guarantee money for Dufferin”. On the Dufferin Street property the appellant would build to lease; Mr Schram would be the contractor and his brother, the architect, and the appellant would promote and manage the property.

In the early 1970s it was expected the Allen Expressway would be extended to Dufferin Street. To Mr Crang the Dufferin Street property was now “better than ever”. However the Dufferin Street property was still zoned agricultural. The only reason for its sale, according to Mr Crang, was because the property had been split into two by the Province and was destroyed as a potential long-term investment. Profits from the sale were invested in mortgages.

In cross-examination Mr Crang acknowledged that the Dufferin Street property, like the Keele Street property, was described as inventory in financial statements of the appellant.

Mr Ronald McPherson, an auditor, who had worked in Mr Spence’s firm and is the appellant’s accountant, also testified. He corroborated Mr Crang’s evi- dence that the appellant had connections with a builder (Mr Schram) and that Mr Crang and Mr Elliott had management experience. He also indicated that in the 1960s the Dufferin Street property “was not a major issue” since the Keele Street property was active.

Mr Crang’s wife, June Crang, a shareholder and director of the appellant, testified that as far as she was concerned it was hoped to retain the Dufferin Street property to build and lease, although she could not say for sure what the intent was when the property was originally acquired.

I find difficult to accept Mr Crang’s evidence that the Dufferin Street property was different from the other properties acquired and sold by the appellant. It may well be that if things had worked out differently and the Province of Ontario had not divided the land, the appellant may have built an investment project on the Dufferin Street property. But to me, the appellant was always prepared to sell this property unless it was more advantageous to hold on to it. Not one property acquired by the appellant was retained, notwithstanding the philosophy purportedly instilled by the late Mr Crang on his children. Even the first property acquired by the appellant, a property acquired from Mr Crang Sr, was acquired to sell. While it may have been the late Mr Crang’s philosophy to retain ownership of the properties he acquired there is no evidence that his children practised this philosophy; rather the evidence, in so far as the appellant is concerned, is that the appellant sold each property it owned.

At one point in his testimony Mr Crang said the Dufferin Street property was acquired to pass along to the children, to which I understood the grandchildren of the deceased Crang. Earlier he had testified the original property acquired by the appellant, the property at Weston Road and Sheppard Avenue, was purchased from Mr Crang Sr as a method of passing family assets to another segment of the family; yet this particular property was acquired by the appellant to sell at a profit and after paying the vendor the balance of purchase price, the proceeds were to be used for acquisition of more land. I see nothing inconsistent in the sale of the Dufferin Street property from the appellant’s other sales of property. Here too property was sold and the proceeds of sale invested, presumably for the benefit of the third generation of the Crang family.

In my view the appellant was in the business of selling land and the sale of the Dufferin Street property was in the course of the business.

The appeal will be dismissed.

Appeal dismissed.