Denis Lacasse v. Minister of National Revenue, [1979] CTC 2560, 79 DTC 434

Roland St-Onge [TRANSLATION]:—The appeal of Mr Denis Lacasse came before me on June 22, 1978 at Montreal, Quebec. The question was whether a real estate transaction which took place in the course of taxation year 1973 gave rise to a capital gain or income.

The circumstances of this transaction were related in the reply to the notice of appeal, as follows:

2. The appellant and Mr Gérald Larose, a building contractor and father-in-law of the appellant, became the joint purchasers of half each of a thirty-arpent farm for $17,500, $6,500 of which was paid on the actual day of the sale as a down payment;

3. The same day, the appellant sold Mr Gérald Larose, the co-owner, his share of the property in the building and in a part of the land for $5,000;

4. On October 13, 1973, the appellant and Mr Gérald Larose sold the land for $31,000;

5. The appellant never made use of the premises and no money was invested in them between July 5,1971, the date of purchase, and October 13,1973, the date of sale;

6. When calculating his income for the taxation year 1973, the appellant considered the personal profit realized on the sale of the land, namely $6,475, to be a capital gain;

7. Considering the profit realized to be business income, the respondent by notice of reassessment dated June 9, 1976 included the total amount of the profit realized on the sale of the land, namely $6,475, in the calculation of the appellant’s income;

8. The respondent considered that this land was held only for speculative purposes, that is, to make a profit at the time of a possible sale . . .

On the other hand, the appellant contended that:

At the time it was purchased, it was intended to be used as a place of family recreation and relaxation and not for commercial or speculative purposes.

The reason I became associated with Mr Gérald Larose in this business was a financial one; I could never have purchased this property alone. At the time, my income was not large enough to handle such a purchase alone; on the other hand, I was counting on my income increasing rapidly so that I could purchase Mr Gerald Larose’s share within five years of the date of purchase. Because of my profession, I was able to hope for such an increase in my income.

Shortly after the farm was bought, I resold my share in the house located on the farm to my partner since I did not need it and my partner wanted to invest some money in it to renovate it. It should be noted that Mr Gérald Larose is my father-in- law and he wanted to help me out in this business.

This was the only transaction of the sort that I made and it bore no relation to my work as a Chartered accountant.

The sale took place unexpectedly, following an offer received by the purchaser

At the hearing, the appellant and his father-in-law testified and the evidence showed the following. The appellant is a chartered accountant, married and the father of two children. On July 5, 1971 he purchased from his grandfather in partnership with his father-in-law, who was a building contractor at the time, a thirty-arpent farm including a house and buildings; he intended to use it as a place of family recreation and relaxation.

The same day, he resold his share in the house with land measuring 100 feet by 100 feet to his partner, with the result that he spent nothing for the purchase and realized a profit of $1,750, while keeping a 50% interest in the land.

Three months later, he bought a cottage from his father and, with the $1,750 received from his father-in-law, made the down payment.

Two years later, he sent a letter offering his land for sale to the Dominion Textile Company, whose land bordered on that of the appellant for a distance of some 1,500 feet.

In the past, his grandfather had already had transactions with this company and there had been talk for some years of the possibility of the latter’s having to construct a filtration plant.

Some time later, a real estate agent came to see the appellant and made him an offer that he and his father-in-law accepted. The appellant sold because his wife, who suffered from hay fever, did not want to go there; the father-in-law sold because his wife did not want to live in the house.

The house was moved to a neighbouring piece of land owned by the father-in-law; there had never been a precise plan for these pieces of land and apparently, because of the rock, they were not suitable for a development.

The appellant argued that to determine whether a transaction gives rise to a business income it is necessary to analyse the following factors: the intent at the time of purchase, the number and frequency of the transactions, the appellant’s occupation, the nature of the transaction and the reason for the sale.

He explained that his intent had been to have a place of recreation for his family and that he had visited the land fifteen or so times, that he had rented the cottage purchased from his father in order to be able to pay for it, that he had sold the land because his wife no longer wanted to go there and that there was therefore no longer any reason for keeping this property.

Counsel for the respondent maintained that the appellant and his partner had from the outset intended to resell at a profit, and that, to determine this, reference should be made to the following rules determined by precedent: the two-year time span, the money available for investment, the plan in view of which the land was bought, the means of financing the plan and the income that the land might yield. She referred the Board to the decision in R E Anderson v MNR, [1974] CTC 2135; 74 DTC 1103, and argued that it was necessary to go beyond the intent at the time of purchase and use the rule of “the Appellant’s course of conduct” to determine the nature of a transaction.

The Board is convinced that the pieces of land in question were purchased by the appellant and his father-in-law purely for a speculative purpose. The appellant wished to use the land as a place of recreation for his family, yet the same day that he bought it he sold the house, which he could have used as a cottage, to his father-in-law. Three months later, he bought one using the $1,750. Two years later, he offered to sell his pieces of land to the Dominion Textile Company, which happened to be his neighbour, and shortly afterward, he and his partner sold and realized a substantial profit.

Seemingly, the appellant sold because his wife had hay fever and the father-in-law sold because his wife did not wish to live in the house.

The Board believes that the conduct of the appellant and his partner was motivated by much more substantial considerations.

Many factors exist to prove that this property was in fact purchased for a speculative purpose: a thirty-arpent farm is much too large to be used for recreation by a family with two children whose father does not have any money. The purchasers never had a precise plan for deriving benefit from these pieces of land; the pieces of land in question bordered on those of the Dominion Textile Company and the grandfather had already had dealings with this company.

The appellant’s letter to the Dominion Textile Company drew the attention of the senior officers of the company to the possible purchase of these pieces of land. The pieces of land did not yield any income and were therefore very burdensome for a taxpayer who did not have the financial means.

All these factors are such as to indicate that the pieces of land were acquired in the hope of reselling them for profit at the first opportunity.

In accordance with these reasons, the appeal is dismissed.

Appeal dismissed.