Delmer
E
Taylor
(orally:
June
10,
1977):—This
is
an
appeal
from
Fergus
Developments
and
Leaseholds
Limited
against
an
income
tax
assessment
for
the
year
1974
in
which
the
appellant
was
assessed
to
tax
as
part
of
income
account
on
two
transactions,
the
first
involving
a
particular
property
sold
in
Fergus
in
1973
for
$126,000
on
which
a
profit
of
$25,765.20
was
calculated,
and
the
second
a
property
in
Erin
sold
in
May
1974
for
$32,000
on
which
a
profit
of
$3,739.50
was
calculated.
In
the
notice
of
appeal
the
following
paragraph
is
stated:
The
sales
of
the
properties
were
necessary
steps
in
the
investment
program
of
the
company.
The
taxpayer
was
prevented
from
keeping
the
properties
because
the
continual
losses
incurred
from
leasing
these
assets
were
eroding
the
capital
of
the
corporation,
and
preventing
the
efficient
operation
of
the
development
and
leasing
program.
In
both
cases
unsolicited
and
attractive
offers
were
accepted
by
the
company,
only
because
continual
losses
incurred
on
the
properties
prevented
the
taxpayer
from
keeping
them.
The
company
sold
only
those
assets
which
would
not
produce
a
profit.
This
approach
was
not
only
necessary
to
ensure
the
efficient
operation
of
the
company,
but
was
consistent
with
the
approach
used
by
any
business
whether
the
assets
be
equipment,
mortgages
or
property.
And
the
following
reasons
for
objection,
and
appeal:
1)
The
sole
intention
of
the
Company
is
to
purchase,
develop,
and
lease
properties
to
long-term
tenants.
This
is
consistent
with
the
actual
transactions
of
the
company
since
incorporation.
The
company
is
not
in
the
business
of
buying
and
developing
properties
for
resale
and
has
never
acted
in
this
manner.
2)
The
company
does
not
have
a
history
of
extensive
buying
and
selling
of
similar
properties
or
of
quick
turnovers
of
properties,
as
evidenced
by
the
actual
transactions
of
the
company.
3)
The
company
held
the
properties
in
question
for
some
time.
The
Fergus
property
was
held
from
1970
and
the
Erin
property
was
held
from
1972.
The
properties
were
sold
only
after
it
was
evident
that
the
company
was
incurring
losses
on
the
properties
each
year.
4)
The
properties
were
sold
because
of
frustration
of
the
original
intention.
In
the
case
of
Fergus
the
company
lost
money
each
year
and
with
Erin
the
company
could
not
obtain
approval
from
the
municipality
to
develop
the
property.
5)
The
shareholders
of
the
company
are
not
professional
dealers
in
land.
Evidence
on
behalf
of
the
appellant
was
given
to
the
Board
by
Mr
Gunter
Bartsch
who
is
the
secretary-treasurer
of
the
appellant
company
and
the
controlling
shareholder
therein,
owning
two-thirds
of
the
outstanding
capital
shares.
Under
cross-examination
by
counsel
for
the
respondent
Mr
Bartsch
outlined
his
personal
and
corporate
history
in
the
real
estate
field
which
included
the
fact
that
he
was
also
president
of
a
separate
company,
Seneca
Steel
Limited,
and
the
owner
of
properties
in
Niagara
Falls,
Beamsville,
St
Catharines,
Hagersville,
Walkerton,
Fergus,
Erin,
Almonte
and
Vineland
in
Ontario.
Spring
Hill,
Nova
Scotia,
had
also
been
another
area
of
his
interest.
The
real
estate
operations
cover
a
period
from
1965
apparently
up
until
the
date
of
these
appeals,
at
least
the
year
1974.
In
all
of
these
Mr
Bartsch,
personally
or
through
a
corporate
structure,
was
either
a
controlling
or
major
factor,
and
certainly
one
of
the
major
motivators.
There
is
no
basis
on
which
to
isolate
the
two
transactions
before
this
Board
from
the
general
history
of
the
appellant
company
or
of
the
general
business
of
its
agent,
the
secretary-treasurer
of
the
appellant
company.
The
Board
can
find
no
basis
on
which
these
transactions
differ
to
the
extent
indicated
by
the
appellant.
The
company
purchased
properties
undoubtedly
with
the
desire
to
build
on
them
and
lease
them
on
a
long-term
basis,
but
Mr
Bartsch’s
own
record
and
his
own
control
of
the
company
indicate
clearly
to
the
Board
that
other
alternatives
were
available
and
the
company
would
not
hesitate
to
avail
itself
of
an
opportunity
for
profit
in
other
fields.
There
is
one
other
matter
mentioned
by
the
appellant
and
that
ts
some
question
with
respect
to
the
method
of
calculation
of
the
income
tax
involved
and
comments
were
made
in
the
notice
of
appeal
regarding
the
capital
cost
allowance
and
the
reserve
on
the
mortgages
involved.
The
Board
recommends
to
the
Minister
that
these
calculations
be
re-checked
and
any
possible
differences
be
noted
and
corrected.
There
was
no
mention
made
of
this
by
Mr
Bartsch
in
his
comments
this
morning
and
no
evidence
is
before
the
Board
that
there
is
anything
wrong
with
these
calculations.
The
Board
merely
brings
it
to
the
Minister’s
attention
as
a
matter
of
record,
but
the
responsibility
for
supporting
any
appropriate
changes
rests
with
the
appellant.
In
all
other
matters
this
appeal
is
dismissed
and
the
income
earned
by
the
company
is
on
income
account
and
not
a
capital
gain.
Appeal
dismissed.
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