Hamlyn
T.C.J.
:
These
are
appeals
with
respect
to
the
1989
and
1990
taxation
years.
In
computing
income
for
the
1990
taxation
year,
the
Appellants
reported
in
their
income
a
portion
of
the
gain
realized
from
the
sale
of
a
property
on
capital
account.
In
reassessing
the
Appellants
for
the
1989
and
1990
taxation
years,
the
Minister
of
National
Revenue
(the
“Minister”)
treated
the
sale
of
the
property
on
income
account,
including
in
the
income
for
the
1989
taxation
year,
the
Appellants’
portion
of
the
gain
realized
in
the
sale
of
the
property
and
adjusted
the
income
reported
by
the
Appellants
for
their
1990
taxation
year
to
delete
the
capital
gain
included
by
the
Appellants
from
the
sale
of
the
property.
Issue
The
issue
in
this
case
is
whether
the
Appellants’
gain
from
the
sale
of
property
was
on
capital
account,
which
is
the
Appellants’
position,
or
on
income
account,
which
is
the
Respondent’s
position.
Evidence
and
Admissions
At
the
outset
of
the
trial
there
were
certain
admissions
made,
which
I
will
review,
and
within
those
admissions
I
have
also
added
certain
facts
that
have
been
proved
at
the
trial.
Specifically,
on
or
about
the
27th
of
March
1987
Alex
Vettese
entered
into
an
agreement
of
purchase
and
sale
to
purchase
the
property
consisting
of
one
lot
described
as
Lot
11,
Plan
65M,
2674
Ringwood
Drive,
Whitchurch-Stouffville,
Ontario.
It
would
also
appear
that
on
or
about
the
27th
of
March,
1987
Raymond
Reesor
(“Mr.
Reesor”)
entered
into
an
agreement
of
purchase
and
sale
to
purchase
property
consisting
of
one
lot
described
as
Lot
10,
Plan
65M,
2674
Ringwood
Drive,
Whitchurch-Stouffville,
Ontario.
The
purchase
of
the
properties,
both
properties
was
completed
on
January
4th,
1989.
The
purchase
price
for
the
properties
was
$414,840,
of
which
$375,000
was
financed
by
way
of
a
first
mortgage
with
the
Bank
of
Nova
Scotia
with
interest
at
prime
plus
1.25%.
The
balance
of
the
funds
was
provided
by
Messrs.
Vettese
and
Reesor.
The
registered
owner
of
the
property
was
C.W.L.
Developments
Inc.
(“CWL”),
a
property
incorporated
by
Messrs.
Vettese
and
Reesor
on
October
7th,
1987.
From
the
evidence
I
find
the
respective
interests
of
Messrs.
Reesor
and
Vettese
in
the
two
properties
was
based
on
the
square
footage
of
each
piece
of
input
land
and
Reesor
and
Vettese
dealt
with
their
merged
interest
to
reflect
their
proportionate
share
in
the
merged
properties.
C.W.L.
acted
as
a
bearer
trustee
for
the
Appellants
Alex
Vettese,
Angela
Vettese
(Alex
Vet-
tese’s
wife),
Mr.
Reesor
and
Walter
Reesor
(Mr.
Reesor’s
father).
On
its
financial
statements,
C.W.L.
was
stated
to
be
a
nominee
and
trustee
for
co-
tenants.
C.W.L.’s
year
end
was
September
30th.
During
the
period
of
ownership,
architectural
and
legal
fees
were
incurred
with
respect
to
the
property.
In
March
1989,
the
property
was
listed
for
sale
and
on
June
23rd,
1989,
the
agreement
of
purchase
and
sale
was
entered
into
for
the
sale
of
the
whole
property,
which
sale
was
completed
on
October
16th,
1989.
The
sale
price
for
the
property
was
$1,060,000
and
the
resulting
gain
from
the
sale
after
expenses
was
$451,143.71.
The
property
was
not
developed
or
im-
proved
during
the
period
of
ownership
and
the
property
earned
no
income
during
the
period
of
ownership.
Jurisprudence
The
jurisprudence
that
lies
behind
the
analysis
in
a
case
of
this
nature
I
have
summarised
as
follows:
the
profit
motive,
in
and
of
itself,
is
not
sufficient
to
distinguish
between
income
and
capital
gain.
The
taxpayer’s
intention
has
to
be
determined
at
the
time
of
acquisition
of
the
property
and
the
stated
intention
of
the
taxpayer
has
to
be
weighed
against
his/her
conduct
throughout
the
transaction.
No
single
factor
is
conclusively
determinative,
the
surrounding
circumstances
must
be
considered,
and
it
has
to
be
determined
whether
the
taxpayer
had
a
secondary
intention
at
the
time
of
acquiring
the
property.
The
determination
of
whether
there
was
a
secondary
intention
has
to
be
determined
when
the
taxpayer
enters
into
a
binding
agreement
to
purchase
the
property.
An
overview
of
all
the
factors
that
the
Court
must
look
at
in
determining
whether
a
primary
or
a
secondary
intention
is,
as
a
question
of
fact,
to
be
determined
in
each
case
and
a
list
of
those
factors
include
the
nature
of
the
property
acquired,
the
length
of
period
of
ownership
of
the
property,
the
frequency
or
number
of
similar
transactions,
the
corporate
structure
and
activities
of
the
taxpayer,
how
the
taxpayer
dealt
with
the
asset,
the
property
transaction
history
of
the
taxpayer,
the
ability
of
the
taxpayer
to
finance
the
undertaking,
the
feasibility
of
the
project,
market
conditions,
how
the
taxpayer
dealt
in
the
marketplace,
the
work
expended
on
or
in
connection
with
the
property
realized
and
the
circumstances
responsible
for
the
sale
of
the
property.
Analysis
There
were
two
witnesses,
the
Appellant
Alex
Vettese
and
the
real
estate
agent.
The
real
estate
agent
was
the
agent
who
dealt
with
all
transactions
involved
in
this
matter
from
beginning
to
end.
The
nature
of
the
property
acquired
was
raw
serviced
land
in
a
proposed
industrial
subdivision.
The
stated
intention
was
to
build
light
industrial
or
commercial
units
to
lease
to
tenants.
During
the
period
of
ownership,
the
property
was
not
developed.
The
period
of
ownership
was
short.
The
agreement
of
purchase
and
sale
was
signed
on
March
26th,
1987,
the
transaction
closed
January
4th,
1989
and
the
property
was
listed
for
sale
March
28th,
1989.
An
agreement
of
purchase
and
sale
was
entered
into
the
23rd
of
June,
1989
and
the
final
transaction
closed
October
16th,
1989.
The
transaction
delay
in
the
purchase
was
explained
as
a
result
of
a
delay
in
the
provision
of
services
by
the
original
vendor.
In
terms
of
a
transaction
pattern,
the
evidence
disclosed
that
there
was
no
prior
history
of
real
estate
transactions
and
that
this
was
an
isolated
transaction
for
the
Appellants.
Before
the
purchase
transaction
was
closed,
the
Appellant
Alex
Vettese
agreed
to
merge
the
property
with
Mr.
Raymond
Reesor’s
property;
they
were
adjoining
lands
in
the
same
subdivision.
Through
a
corporation,
they
decided
to
take
title
and
hold
both
properties.
The
property
was
held
by
the
corporation
as
nominee
trustee
for
Messrs.
Reesor
and
Vettese.
The
stated
intention
was
to
build
light
industrial
condos
and
office
condos.
Throughout
the
whole
transaction
both,
Messrs.
Reesor
and
Vettese,
obtained
and
relied
on
the
advice
of
one
John
Wannop
(the
real
estate
agent).
Mr.
Wannop
was
more
than
just
a
real
estate
agent.
He
assisted
them
in
the
acquisition
of
the
land,
helped
them
in
terms
of
finding
professionals
to
do
their
work
including
lawyers
and
architects,
attended
various
meetings
and
addressed
the
several
needs
including
building
design,
construction
cost,
possible
tendering,
planning,
financing
or
potential
financing
and
project
viability.
The
Appellants
seemed
to
follow
the
advice
of
Mr.
Wannop
throughout.
Mr.
Wannop
was
paid
a
fee
on
acquisition,
was
to
be
paid
a
fee
for
services
through
to
project
completion,
was
to
be
the
leasing
and
sales
agent
and
was
paid
a
commission
fee
on
the
ultimate
sale.
The
feasibility
of
the
project
from
the
evidence
of
the
Appellant
Alex
Vettese
narrowed
during
the
period
it
took
to
close
the
original
purchase.
He
stated
there
were
competitive
projects
that
would
reduce
the
market,
construction
costs
were
rising
and
architects’
availability
was
in
question.
Throughout
the
period,
the
real
estate
market
was
active.
The
evidence
of
the
real
estate
agent
was
that
the
real
estate
market
was
rising
from
mid-
1985
through
to
six
months
after
the
final
transaction.
During
the
course
of
time
between
the
original
offer
and
the
original
closing,
some
tension
arose
between
Messrs.
Vettese
and
Reesor
in
that
Mr.
Reesor
wanted
to
develop
office
type
condos
and
Vettese
wanted
only
light
industrial
condos.
It
would
appear
the
discussions
as
to
the
project
financing
never
took
the
form
of
a
commitment.
The
only
evidence
of
financing
was
the
allegation
that
the
banks
throughout
this
short
period
were
getting
tighter
but
Alex
Vettese
had
also
a
potential
private
backer.
In
terms
of
what
was
actually
undertaken,
Messrs.
Vettese
and
Reesor,
in
relation
to
the
site
itself,
cleared
debris
from
the
site
and
expended
funds
for
architect’s
services
to
develop
the
project.
Lawyer’s
fees
were
also
incurred
for
development
assistance
in
the
preparation
of
industrial
condominium
sales
agreements.
I
conclude
from
the
draft
agreement
which
is
found
at
Exhibit
R-3,
tab
12,
that
this
work
in
relation
to
the
draft
agreement
was
done
in
1987.
This
date
is
of
significance.
By
the
time
of
the
final
closing,
no
proposed
building
was
underway,
no
proposed
leases
were
signed
and
no
proposed
sales
were
signed.
With
this
background,
the
Court
must
weigh
the
stated
intention
by
the
taxpayer
at
the
time
of
acquisition
against
the
course
of
conduct
of
the
Appellants
and
determine
if
the
intention
is
supported
by
the
evidence
surrounding
the
appeal.
Conclusion
The
Appellant
Alex
Vettese
and
Mr.
Raymond
Reesor
were
two
of
the
operating
minds
behind
the
transactions.
The
Appellant
Angela
Vettese
was
a
passive
non-participant
in
the
transactions.
The
operating
minds
also
included
the
real
estate
agent;
he
advised
them,
that
is,
he
advised
Messrs.
Reesor
and
Vettese.
He
guided
them.
He
developed
the
proposal.
He
advised
the
sale
and
they
followed
his
suggestions.
His
approach
and
manner
of
the
procedure
became
the
Appellants’
approach
and
manner
of
the
procedure.
As
indicated
earlier,
the
time
span
was
very
short.
In
particular,
from
acquisition
to
listing
was
a
little
more
than
two
months,
and
between
the
initial
agreement
of
purchase
and
sale
and
the
point
of
listing,
no
income
was
generated,
no
tenancy
proposals
were
signed,
no
financing
commitment
was
made
and
further
no
construction
negotiations
appear
to
have
happened.
Mr.
Vettese’s
statement
that
the
project
was
not
for
sale
and
was
only
for
leasehold
is
qualified
from
the
outset.
I
conclude,
from
the
evidence,
it
was
the
intention
to
sell
some
of
the
units
if
for
no
other
reason
than
to
assist
with
financing
(see
exhibit
R-3,
tab
12).
But
I
also
conclude
that
the
intention
was
broader
than
that.
The
real
estate
agent,
whose
business
included
acting
for
purchasers
and
vendors,
as
he
did
in
this
case,
as
well
as
acting
for
landlords
and
potential
tenants,
does
not
stand
as
support
for
the
Appellants.
From
his
evidence,
I
conclude
all
options
would
be
available
including
sale,
as
indeed
happened
in
this
case.
His
income,
that
is
the
real
estate
agent’s
income,
was
predicated
on
real
estate
activity.
Although
he
maintained
he
was
to
charge
a
fee
for
project
development,
his
evidence
indicated
he
did
not
charge
a
fee
for
the
services
he
stated
that
he
rendered,
and
his
bottom
line
advice
was
to
sell
the
property
and
that
is
what
the
Appellants
did.
Further,
from
the
totality
of
the
evidence,
I
cannot
conclude
from
the
outset
the
Appellant
Alex
Vettese
had
the
financial
mind
set
to
the
project
he
proposed,
let
alone
the
expanded
project
that
Mr.
Reesor
proposed,
nor
does
the
evidence
disclose
at
any
time
did
he
make
the
necessary
financial
commitment
other
than
buying
the
land
in
the
first
place.
Further,
it
is
a
fact
the
acquisition
was
made
in
a
rising
real
estate
market
and
the
disposition
was
made
in
a
rising
real
estate
market
(as
stated,
the
period
of
time
was
really
relatively
short).
I
conclude
from
all
the
evidence
that
the
Appellant
Alex
Vettese
at
the
time
of
acquisition
of
the
property
had
in
mind
the
possibility
of
resale
at
a
profit
and
this
albeit
secondary
intention
was
an
operating
motivation
behind
the
original
stated
intention.
The
Appellant
Angela
Vettese
being
a
passive
individual
in
the
transaction,
is
bound
in
the
transaction
by
the
operating
and
directing
minds
of
Alex
Vettese
and
the
real
estate
agent,
and
it
follows
the
conclusion
that
their
intentions
also
apply
to
her.
Disposition
The
overall
conclusion
is
the
Appellants’
gain
from
the
sale
of
the
property
was
on
income
account.
The
decision
is
that
the
appeals
are
dismissed
and
the
Respondent
is
awarded
costs.
Signed
at
Ottawa,
Canada,
this
30th
day
of
September
1997.
Appeal
dismissed.
Email this Content