Linden J.T.C.C.: — This is an appeal by the Crown from a judgment of the Tax Court of Canada regarding a reassessment under the Income Tax Act for the respondent’s 1987 taxation year. The issue concerns whether the gain realized by the Continental Bank of Canada (Continental) on the disposition of a partnership interest should be taxed as an income or a capital gain. The reassessment that gave rise to this appeal was an alternative reassessment regarding transactions set out in the appeal Continental Bank of Canada v. R. (sub nom. Continental Bank of Canada v. Canada), June 4, 1996, Doc. A-539-94 (F.C.A.) heard and decided concurrently with this appeal. Because of the alternative nature of the reassessment, the outcome of this appeal is dependent on the disposition in A-539-94, as the issue here arises only if the interest disposed of by Continental was in fact a partnership interest. In light of the disposition of the appeal in A-539-94, it is not strictly necessary to deal with the present issue because I found there that no partnership was formed and that no partnership interest had been created. However, in the event that that decision is found to be wrong, I will say a few words about the present issue on the assumption that what was transferred by Continental was a bona fide partnership interest.
The second issue here is raised on cross-appeal by Continental and concerns whether the gain realized by it at the time it disposed of certain notes and debentures in January of 1987 should be taxed as income or as a capital gain. This issue is independent of my finding in A-539-94 and will be treated accordingly.
The background facts to this appeal and cross-appeal are set out in A-539-94 and need not be repeated in detail. The more salient of them are as follows. On December 24, 1986, Continental Bank Leasing Corporation
(Leasing) and two subsidiaries of Central Capital Corporation (Central) formed a partnership. Leasing transferred all of its assets into the partnership, and pursuant to subsection 97(2) of the Income Tax Act elected a rollover value equal to the undepreciated capital cost of the assets. In return for this transfer, Leasing took back a 99% interest in the partnership. On December 27, 1986, as part of the voluntary dissolution of Leasing, this partnership interest was transferred to Continental pursuant to a section 88 wind-up, with the deemed disposition value of the partnership interest being the elected cost under the subsection 97(2) election.
On December 29, 1986, Continental sold the partnership interest to two subsidiaries of Central for $130,071,985, realizing a gain of $83,052,657 over the elected value. This is the gain at issue in the appeal. Central financed the purchase of the interest by issuing notes and debentures worth $95,000,000 and $35,000,000 respectively. These notes and debentures were sold by Continental in January of 1987 for a gain of $5,697,000. This is the gain at issue in the cross-appeal.
On the issue raised in the appeal, the Tax Court Judge held that in disposing of its partnership interest, Continental did not engage in an adventure in the nature of trade, and that the gain realized on the sale was therefore on capital account. The Judge reviewed the jurisprudence relating to the characterization of transactions for tax purposes. He concluded that characterization must be determined by looking to the substance of the transaction within the context it occurred. After carefully considering the evidence, the Judge stated:
It would be unrealistic to focus solely on CB’s acquisition on the winding up of CBL and resale of the interest without considering the entire context. The reasons for the immediate resale in the context of a composite transaction forming an integral part of the winding up are sufficient to dispel the inference that CB was engaged in a profit making scheme. It is not infrequent for assets, on the winding up of a subsidiary, to be transferred to the parent at the subsidiary’s cost amount under section 88, and immediately resold. Similarly, assets may be rolled by a taxpayer into a corporation at their cost amount under section 85 and immediately resold at a profit. If the assets are not inventory in the subsidiary’s or transferor’s hands they do not become inventory in the parent’s or transferee’s hands simply because of the rapid resale.
On the assumption that what was disposed by Continental was a partnership interest, I find no error in the Tax Court Judge’s conclusion. The case law has long established, and the Judge correctly determined, that in deciding whether a transaction is an adventure in the nature of trade, a Court must look to its substance within the broader context in which the transaction was performed. The leading cases in the area Minister of National Revenue v. Taylor,  C.T.C. 189, 56 D.T.C. 1125; Regal Heights Ltd. v. Minister of National Revenue,  S.C.R. 902,  C.T.C. 384, 60 D.T.C. 1270; Irrigation Industries Ltd. v. Minister of National Revenue,  S.C.R. 346,  C.T.C. 215, 62 D.T.C. 1131; Atlantic Sugar Refineries Ltd. v. Minister of National Revenue,  C.T.C. 326,  Ex. C.R. 622 suggest that a variety of criteria must be looked at to make the determination. These include the intention of the parties, whether the conduct in question was similar to that of an ordinary trader, the nature and quantity of the property in question, whether the transaction was isolated in nature, and the uniqueness of the transaction when compared to the taxpayer’s ordinary activities.
In my view, the sale by Continental of its partnership interest was capital in nature. It was not a speculative endeavor meant to generate an income profit. This is clearly suggested by the context in which the sale was executed. In light of this context, I see no basis for the Crown’s argument that the revenues are to be included in income. Continental disposed of its interest as part of an overall sale of a capital asset. This sale was but one component of a composite transaction the purpose of which was to wind up Continental’s affairs. The partnership interest was therefore sold as an incident of the dissolution of a bank through the sale of its assets. The gain arising upon the disposition is therefore capital in nature. There is no other way to reasonably view it. I find the following statement of the Tax Appeal Board in Colleaux v. Minister of National Revenue, (1963), 34 Tax A.B.C. 98, 63 D.T.C. 997 (T.A.B.) instructive:
[W]hile the above-mentioned purchase and sale transaction might well have been regarded as an adventure in the nature of trade if viewed separately from the sale of the hotel, the transaction assumed a wholly different character when viewed as part of the overall sale of the hotel.
At all times, Continental’s intention as regards the composite transaction was to realize a capital asset. The sale giving rise to the gain was therefore not a speculative endeavor to make profit. The gain was on capital account.
On the issue raised in the cross-appeal, the Tax Court Judge found that the gain from the disposition of the notes and debentures was an income gain. He stated:
I have no difficulty in concluding that the profit of $5,697,000 on the disposition of the notes and securities is on income account. The bank is a money lender and securities of this type are its stock in trade. This was not a simple acquisition of an investment which it held and subseqently disposed of in the manner in which an investor deals with stocks and bonds. In disposing of the securities it engaged the services of brokers and exchanged some of the securities for different ones, which it sold. Essentially CB, in purchasing CC’s notes and debentures, loaned money to CC and realized a profit on the trans action. The transaction does not take on a different complexion because the purpose of the loan was to enable CC to engage in the subsequent series of steps involving CBL’s portfolio of leases. The point is so obvious that further elaboration or citation of authority would be superfluous.
I agree. The transaction giving rise to the gain was in the ordinary course of Continental's business. Even though the property disposed of was part of a capital transaction, the manner in which it was disposed of determines its character. Securities were the bank’s stock in trade, and the method chosen by the bank in disposing of the notes and debentures reflects their attempt to gain a profit from the sale. In a letter dated January 15, 1987, Continental proposed to sell the notes by inviting bids from a group of investment dealers. Continental, furthermore, believed that a higher value could be created for the debentures by marketing them as split debt and warrants. Both the notes and the debentures were sold accordingly, and were sold at a profit. The profits gained from them were income profits earned in the bank’s ordinary course. No “further elaboration” is required.
Should the analysis be necessary, I find that the gain arising upon the sale by Continental of its partnership interest to be on capital account. The gain arising from Continental’s sale of its Central notes and debentures is in any case an income gain.
In light of the foregoing, the appeal and cross-appeal are dismissed. The success being divided, there will be no award of costs for either.
Appeal and cross-appeal were dismissed.