6610048 Canada – Federal Court of Appeal confirms that a quick exit from a development project at a gain was on income account

The taxpayer acquired an assembly of lots between 2006 and 2008 for development as a mixed use (commercial and residential) project close to a proposed train station that would link the site (in the downtown of the City of Masouche) by train to Montreal. The Court found no reversible error in the Tax Court judgment confirming that gains (realized mostly in 2009) from various dispositions of the lots, before construction had commenced, were on income account. LeBlanc JA stated:

[T]he TCC scrupulously followed the approach … required of it under Safeway. In particular, it concluded from the evidence before it that the appellant's sole motivation at the time of the acquisition of the land in question was clearly to resell it at a profit, noting in this regard that the appellant had never intended to carry out the development project desired by the City of Mascouche. …

[T]he lands in question … were located in close proximity to the future train station … [and] the City of Mascouche had undertaken, in order to facilitate the implementation of the development project on the axis of such station, to modify its urban plan and by-laws, to achieve, before the end of 2007, free circulation on the land and to complete certain infrastructure work. All of this, in the opinion of the TCC, made it objectively foreseeable that the value of the land would increase significantly and rapidly.

Finally, the principals had a real estate development background and the project entailed significant risks (which the taxpayer reduced by exiting early at a gain.)

This case may solidify the reputation of Safeway as being the leading case in the area.

Neal Armstrong. Summary of 6610048 Canada Inc. v. The Queen, 2021 CAF 229 under s. 9 – capital gain v. profit – real estate.