Norton Investments LTD v. Her Majesty the Queen, [1978] CTC 154, 78 DTC 6078

Urie, J (per curiam) (judgment delivered from the Bench):—This is an appeal from a judgment of the Trial Division whereby the appellant’s appeal from a reassessment for income tax dated October 30, 1973 for the appellant’s 1970 taxation year was dismissed. The reassessment added to the appellant’s 1970 taxable income the sum of $125.491.32 representing its profit from the sale of two properties on Melville Street in the City of Vancouver. For convenience sake, the properties were referred both at trial and on this appeal as Melville 2 and Melville 3. The basis upon which the reassessment was made was that the profit in question was derived from a business or from a venture in the nature of trade within the meaning, of sections 3, 4 and paragraph 139(1 )(e) of the Income Tax Act as it read in 1970.

The appellant was incorporated in British Columbia in 1935. At all material times it has been owned or controlled by the Norton family in England. That family has. since about 1890, made investments in British Columbia mainly in real estate but also from time to time in Canadian securities. Usually its activities were carried on through corporations of which they were not always the sole shareholders. The principal purpose for incorporating the appellant was to purchase and manage a theatre in Vancouver. It was sold in 1957 and the proceeds of sale were used in part to purchase a property on Melville Street (Melville 1) which was transferred to another Norton family company in 1961.

Melville 2. which adjoined Melville 1, was purchased by the appellant in 1964. The adjoining lots on the other side of Melville 2 comprised Melville 3 and were purchased in 1967. From their respective times of acquisition each of the three parcels were leased on short-term leases to a parking lot operator, for street level parking, until they were sold in 1970. The rental income was low returning just 2 to 3% on invested capital. Each lease contained 90-day termination Clauses in the event of sale and each gave to the lessee parking operator an option to purchase the property in the event of any proposed sale. at the price and on the terms of the offer of purchase or sale.

The evidence discloses that in 1970 there were indications that the City of Vancouver might be planning to expropriate certain property on Melville Street including Melville 1. 2 and 3. Notwithstanding the apprehended expropriation, a large building contractor and developer at or about that time made an unsolicited offer to purchase the three parcels. The parking operator did not exercise its right of first refusal so that the appellant, rather than have its two properties expropriated, agreed to sell them for $250,000. It is the profit that accrued to it from that sale which caused the issuance of the reassessment which is in issue in this appeal.

The question of whether or not a given transaction is one which is capital in nature or is one entered into in the course of business or as a venture in the nature of trade, the profit from which is taxable, is, as has been frequently said, essentially one of fact depending on the intention of the parties at the time of acquisition of the asset.* [1] The evidence adduced at trial clearly supports the finding of the learned trial judge that the appellant was not in the business of developing vacant city lots but rather

its business or plan was to hold them and either lease to local developers on a long-term basis, or sell them to would-be developers, or others.t [2]

From this he concluded, properly, in our view, that in respect of Melville 2 and 3 there was not a so-called secondary intention. Rather there were two alternative, equally dominant, intentions or plans—the first, ‘‘to lease to a developer on a long-term basis, the second, to turn the properties to account by sale, if a satisfactory opportunity arose’’. Ample support for this conclusion is derived from not only the direct testimony to that effect by a director of the appellant company, but also from the evidence of the short-term leases each containing the ‘‘sale and development” clauses and the willingness of the appellant to accept a low return on its investment in the properties. The learned trial judge had the obligation to accept or reject the explanations of the appellant for the latter two pieces of evidence and in the whole context of the transactions, he was quite entitled to reject them. We are thus unable to say that his inferences were not supported by the evidence.

It is also clear from his reasons that he gave consideration to the contention of appellant’s counsel that its long history of capital investment in British Columbia indicated that its real intention in purchasing Melville 2 and 3 was in accord with its tradition of buying and holding property as long-term investments which were capital in nature. The trial judge obviously deemed that the contention lacked persuasiveness when weighed against the other evidence which, to him, indicated the contrary intention, at least with respect to the acquisitions of Melville 2 and 3.

Nor is this view in any way affected, we think, by the appellant’s submission that the threat of expropriation and the unsolicited offer to purchase the subject properties provided the impelling motives for the sale at a much earlier time than had originally been contemplated. A similar argument was advanced in this Court in David C McDonald v The Queen (supra), a case which in many respects factually is similar to this one. What was said at page 837 [6645] of the report of that case is particularly apposite in dealing with appellant’s submission as referred to above:

Even if the fact is accepted that the sale was made due to a threat of expropriation, it was nonetheless a premature occurrence of the appellant’s ultimate intention, namely to sell his interest at a profit. . . .

Moreover, we are further of the opinion that the character of the transaction and the taxability of the profit arising therefrom is in no way changed simply because the appellant’s intention was to retain his interest in the land for a substantially longer period of time than, in fact, he did. Since his intention from the beginning was to sell at a profit from then on its characterization as a venture remained and thus the validity of the taxation of his gain on the sale also remained.

That reasoning is wholly applicable to the case at bar. Accordingly, for all of the foregoing reasons the appeal will be dismissed with costs.