Albrumac Oils LTD v. Her Majesty the Queen, [1977] CTC 29, 77 DTC 5041

Décary, J:—This is an appeal from an assessment of income tax for the year 1970. In its fiscal period which ended on June 30, 1970 the plaintiff realized an amount of $6,805 on the grant of an easement for a pipe line over its property and a further amount of $535,000 on the sale of the property itself. The issue in the appeal is whether the profit from the transactions in which these amounts were realized was profit from an adventure or concern in the nature of trade and thus income from a business as defined in paragraph 139(1 )(e) of the Income Tax Act, RSC 1952, c 148. There is no issue as to the figures Or amounts.

The plaintiff company was incorporated in 1955 under The Companies Act of Alberta. Its principal business was described as being the search for oil and the establishment of reserves and gas royalties. The business was carried on principally in the Province of Alberta. Until 1973 the company was owned by Allan Bruce McLean who was its president and made decisions for it.

The property in question consisted of 192 acres of farm land of which some 150 acres was cultivated land and most of the rest bush land. It lay adjacent to the southern boundary of the City of Edmonton and also adjacent to a 100-acre farm which Mr A B McLean had owned since 1953 and which was being farmed by a tenant. The 192-acre property included a house and some farm buildings.

At the time of its purchase by the plaintiff, in September 1965, there were five or six oil pipe lines crossing the property and immediately to the south-eastward was a property belonging to the City of Edmonton, used as a city dump. The land was weedy. It was being farmed, but in a poor way, by a tenant on a crop-sharing basis. The house and buildings were let to a tenant at $30 a month.

The property was purchased by plaintiff for $160,000, payable partly in cash and partly by the assumption of a mortgage for some $94,000. Under the terms of the transaction the plaintiff was not entitled to possession until the mortgage, which was due in April 1966, was paid off. When this had been done the plaintiff, through an agent, arranged for the increase of the rental for the buildings to $40 a month and leased the cultivated land to a new tenant for three years at $1,000 per year payable in advance. In the three years that followed the plaintiff received many inquiries on behalf of prospective purchasers, so many that at one point the company’s accountants drafted a Standard form of reply to such inquiries, indicating that the property was not for sale. Earlier replies written by Mr A B McLean had said in one instance, dated July 1967: “It is very doubtful if we would be interested in an offer on our land at this time.’’ And in another, dated June 3, 1968: “We have no plans for the sale of our land at this time.” Some inquiries were also made by persons seeking to lease parts of the land for commercial purposes—in one case for a drive-in theatre—but for one reason or another these fell through.

In or about the month of June 1969 negotiations began which led to the grant by the plaintiff to Dome Petroleum Limited of an easement for a further pipe line over the property for a consideration calculated on the basis of $2,500 per acre of the land to be used. This transaction was the source of the $6,805 referred to in the opening paragraph of these reasons. There is evidence that the plaintiff had little choice about the grant of such an easement as Dome Petroleum Limited was in a position to expropriate if necessary.

Shortly thereafter, in September 1969 the plaintiff accepted an offer of $535,000 for the property. The offer was made by a realty company on behalf of an undisclosed principal. The agent told Mr A B McLean that this principal was a large body and Mr A B McLean “more or less guessed” it was either the City of Edmonton or the government. There does not appear to have been any threat of expropriation involved but Mr A B McLean remembered a threat some two years earlier by the City of Edmonton to expropriate his 100-acre property, which threat, however, had not been carried out.

Mr A B McLean’s evidence was that his purpose in having his company acquire the land was to hold it as a long-term investment, secure in the belief that over a long term it would increase in value.

Notwithstanding this I am of the opinion that the profits realized from the sale and from the grant of the easement must be regarded as having been profits from a venture or concern in the nature of trade. There was never any plan on the part of the plaintiff to use the land in an oil or gas producing operation. Nor was it suited to any revenue-producing operation of the company. It could serve only to produce rental revenue which at some $1,480 per year bears little relation to a reasonable return on an investment of $160,000. The company could not take pride in its possession or experience aesthetic pleasure from owning farm land. And the company itself, as events have in fact demonstrated, would not necessarily remain indefinitely, or for many years, in the ownership of Mr A B McLean or his family.

The fact is that the property was a highly speculative piece of real estate. The numerous inquiries on behalf of prospective purchasers make this plain. It was in a highly speculative area on the outskirts of a rapidly growing city. It was acquired by the plaintiff because of this characteristic, not because of any virtues it possessed making it preferable to cheaper farm land elsewhere and it was sold at a greatly enhanced price for considerations directly concerned with its prospects, not as farm land, which presumably would not have been adversely affected, but its prospects for sale at an enhanced value. In the hands of the plaintiff company this land never had prospects of yielding a reasonable return on the investment except by sale at an enhanced price and it thus resembled the cases of the large quantities of toilet paper and whiskey which were purchased and later sold in the cases of Rutledge v CIR (1924), 14 TC 490, and CIR v Fraser (1942), 24 TC 498, respectively. In the latter case Lord Normand said at page 502:

There was much discussion as to the criterion which the Court should apply. I doubt if it would be possible to formulate a single criterion. I said in a case which we decided only yesterday that one important factor may be the person who enters into the transaction. (Cayzer, Irvine & Co, Ltd v Commissioners of Inland Revenue, page 491 ante.) It is in general more easy to hold that a single transaction entered into by an individual in the line of his own trade (although not part and parcel of his ordinary business) is an adventure in the nature of trade than to hold that a transaction entered into by an individual outside the line of his own trade or occupation is an adventure in the nature of trade. But what is a good deal more important is the nature of the transaction with reference to the commodity dealt in. The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that that is not the only purpose for which he purchased the article or the commodity, nor the only purpose to which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchase of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchase stocks and shares with a view to selling them at an early date at a profit, but, if he does so, he is purchasing something which is itself an investment, a potential source of revenue to him while he holds it. A man may purchase land with a view to realising it at a profit, but it may also yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession. But the purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade; and I can find no single fact among those stated by the Commissioners which in any way traverses that view. In my opinion the fact that the transaction was not in the way of the business (whatever it was) of the Respondent in no way alters the character which almost necessarily belongs to a transaction like this. Most important of all, the actual dealings of the Respondent with the whisky were exactly of the kind that take place in ordinary trade.

Lord Normand then cited with approval the test of Lord Justice Clerk in Californian Copper Syndicate v Harris (1904), 5 TC 159 at 165, and commented at page 503:

Now, if that is true of lands it is a fortiori true of the purchase and sale of a commodity like whisky in bond which, in the hands of a purchaser, has no meaning except as an incursion into the sphere of trading for profit.

Lord Moncrieff also said at page 505:

When a man deals with a trading commodity such as whisky in bulk in bond, which he has acquired merely for the purpose of resale and proceeds to sell, and there are no further material circumstances in the case, he engages in my view in trade, and in trade only, and not in the investment of capital funds.

In the leading case of MNR v J A Taylor, [1956-60] Ex CR 3 at 29; [1956] CTC 189 at 214; 56 DTC 1125 at 1139, Thorson, P referred to the nature and quality of the subject matter as affording one of the positive tests which he propounded in the following passage:

In addition to the negative propositions established by the cases they also lay down positive guides. There is, in the first place, the general rule that the question whether a particular transaction is an adventure in the nature of trade depends on its character and surrounding circumstances and no single criterion can be formulated.

But there are some specific guides. One of these is that if the transaction is of the same kind and carried on in the same way as a transaction of an ordinary trader or dealer in property of the same kind as the subject matter of the transaction it may fairly be called an adventure in the nature of trade. The decisions of the Lord President in the Livingston case (supra) and the Rutledge case (supra) support this view. Put more simply, it may be said that if a person deals with the commodity purchased by him in the same way as a dealer in it would ordinarily do such a dealing is a trading adventure: vide Lord Radcliffe’s reasons for judgment in Edwards v Bairstow (supra).

And there is the further established rule that the nature and quantity of the subject matter of the transaction may be such as to exclude the possibility that its sale was the realisation of an investment or otherwise of a capital nature or that it could have been disposed of otherwise than as a trade transaction: vide the reasons for judgment of Lord Sands in the Rutledge case (supra). And there is the statement of Lord Carmont in the Rheinhold case (supra) that there are cases “where the commodity itself stamps the transaction as a trading venture”.

In cases of this kind the intention at the time of acquiring property subsequently sold is but one of the circumstances to be considered. Here, notwithstanding any long-term intention Mr McLean may have had the circumstances as a whole point to the project in question being profit from a venture or concern in the nature of trade. Moreover, the character of the property in the hands of the plaintiff points irresistibly to the same conclusion. Finally, there is nothing in the way the purchase and realization transactions were carried out which points to any other conclusion.

The action therefore fails and it will be dismissed with costs.