Gilles Maillé v. Minister of National Revenue, [1979] CTC 2590

Roland St-Onge [TRANSLATION]:—The appeal of Mr Gilles Maillé came before me on May 31, 1978 at Sherbrooke, Quebec. The Board must decide whether property transactions occurring in the 1973 taxation year gave rise to capital gains or business income.

I quote from the reply to the notice of appeal, which summarizes a number of facts:

3. (a) On December 20, 1971, the appellant purchased a lot from his mother for $55,000:

(b) On January 11, 1973, the taxpayer sold part of this property to Les Galeries Quatre Saisons Inc for $125,000;

(c) On September 19,1973, the taxpayer sold part of this property to Les Galeries Quatre Saisons Inc, for $6,735;

(d) On December 19, 1973, he sold the remainder of the lot to Gilles Maillé Inc, a company specializing in the purchase and sale of lots, of which the appellant is president;

The appellant maintained:

(1) that he has been a farmer ever since 1946 and that most of his time has been spent in farm work;

(2) that when he acquired the family land in 1971 he had already been farming it for 10 years, after renting it from his father, who had at that time suffered a heart attack;

(3) that this land was near his own, and that over the previous 10 years (1961 to 1971) all the land had always been used to run his 100 head of cattle;

(4) that over the years he has never sold any land himself, except to Gilles Maillé Inc;

(5) that he sold the family land because he received an offer too good to turn down, that he sold it as a lot which had not been subdivided, and that he had had a street registered only because that was a condition of sale;

(6) that at the time of the sale he had never met the purchaser, nor had he any personal knowledge of his development plans;

(7) that after the sale he had to rent neighbouring land to graze his animals.

At the hearing the appellant gave the following account: like his father he had been a farmer all his life, leaving school at 17 and marrying at 23.

In 1946 he bought 36 acres of land with a barn, built a house on it and raised pigs. He was also a market gardener and bought some stock for slaughter.

In 1956 he bought from Rosaire Houle a 100 acre farm located between his father’s and his own.

About 1963 he stopped raising pigs in order to concentrate more fully on raising purebred stock. He bought a bull and cows worth up to $9,000 each, until he had purebred stock worth as much as $75.000.

In 1964 Armand Houle, a house builder, approached the appellant with a view to purchasing lots. Since it had become too expensive to retain his lots owing to local improvements which had significantly raised property taxes, the appellant decided to form the company Gilles Maillé Inc, and transferred to it the Houle farm of 100 acres and 18 acres of his original farm.

On May 1,1965 he bought 100 acres from Mr Després in order to continue raising purebred stock.

Two years before, after his father had suffered a heart attack, he had leased the family land of 16 acres by a verbal lease for $175 a year, intending to use it to separate the young heifers for a time.

In 1971 the appellant repurchased 67 acres of the Houle land from his own company in order to preserve his position as a farmer and so pay less property taxes.

Between 1964 and 1973 Gilles Maillé Inc, owned 98% by the appellant, sold 250 lots of the Houle land and 80 lots of the Maillé land, a total of 36 acres.

Mr Armand Houle, who had begun construction projects in 1963, had developed this area opposite the family land and the Rosaire Houle land.

On August 11, 1971, Mrs Anna Maillé authorized her son to sell her land. A week later, on August 19, 1971, the appellant granted an option and took steps to secure options from his mother and Messrs Beaudette and Lemay in connection with the development of a shopping centre project.

In cross-examination, counsel for the respondent filed 10 letters for the purpose of showing the active part played by the appellant in the development of the shopping centre, as well as tax returns showing that he derived much more income from his property transactions than from his farming activities.

After summarizing the facts, counsel for the appellant stated that it was the company and not the appellant that had been involved in the shopping centre project, and that if the appellant had been aware of the shopping centre project he would have advised his mother to sell and divide the proceeds among her children, and that the appellant had made a capital gain just as his mother would have, had she been the vendor.

Counsel for the respondent, for his part, maintained that this was purely a speculative venture, that the appellant’s activities had since 1964 been concentrated mainly on property transactions rather than on agriculture, that the former had produced much more income, and that the part played by the appellant, far from being passive, had assisted in the development of the shopping centre project through the renewal of the option or rezoning.

Counsel for the respondent further stated that the transaction was purely speculative because certain necessary criteria were satisfied, as for example the time factor, the many negotiations needed to complete the sale, knowledge of the locality and of possible purchasers, and the appellant’s previous behavior.

It is quite clear after reviewing the evidence submitted by both sides that the appellant purchased his family land on December 20, 1971 for the sole purpose of reselling it at a profit at the first opportunity.

Before he even purchased it, he had actually been authorized by his mother on August 11, 1971, to sell the land in question. Thus he already intended to sell it before he had even purchased it; then, no sooner had he purchased it than he took all kinds of steps to dispose of it at a profit: renewal of the option for 90 days at a time, arranging for rezoning, and even receiving a payment of $5,000 for promoting the project. He cannot therefore maintain that he took no steps to advance this project.

The facts are plain. The appellant’s behaviour shows that he bought this land from his mother not in order to carry on his farming operations, but rather to sell it at a profit.

Moreover, he has since 1964 sold a number of lots through the company in which he owns 98 per cent of the shares, and this has enabled him to enjoy an income much higher than he could enjoy from his farming operations. This also shows that even though he conducts himself as a farmer, he nevertheless has a very great knowledge of the value of lots in Sherbrooke, and knows how to go about making sales like these.

It should be remembered that even if the sales were by the company Gilles Maillé Inc, it was Gilles Maillé as an individual who acted and knew what to do.

It is true that if the mother had been the vendor the position would have been different, but that is not what happened.

When the appellant bought his family land he was not acting as a farmer owner like his father, but rather as a speculator in building lots.

The appeal is therefore dismissed.

Appeal dismissed.