Samuel Ravida v. Minister of National Revenue, [1977] CTC 2598, 78 DTC 1030

Delmer E Taylor:—This is an appeal from an income tax assessment for the year 1973 in which the Minister of National Revenue increased the taxable income of the appellant by treating as income from business, rather than as capital gain, the profit of $112,360 realized by him on the purchase and sale of a parcel of real estate. The respondent relied, inter alia, upon sections 3, 9 and subsection 248(1) of the Income Tax Act, RSC 1952, c 148 as amended by SC 1970-71-72, c 63 and amendments thereto.

Facts

During the taxation year in question, Mr Ravida purchased some property described as Part Lot 40 Concession 4, Township of Ancaster, Ontario (hereinafter referred to as “the property’’) for $106,000 and, during the same year, sold it for $235.000, which transaction after appropriate deductions produced the gain in question.

Contentions

The position of the appellant was that he had intended to use the property as his personal residence and had received an unsolicited offer for its sale, which offer he had accepted.

The respondent asserted that:

at all material times the appellant had an extensive history of real estate trading and in fact was in the business of buying and selling real estate for a profit;

by an agreement of purchase and sale dated May 29, 1973 the appellant purchased the property known as Part Lot 40, Concession 4, Township of Ancaster with a closing date of September 27, 1973; by an agreement of purchase and sale dated September 12, 1973 the appellant agreed to sell the said property with a closing date of October 5, 1973;

on purchasing the said property the appellant did so with the intention of dealing in, trading in, or otherwise turning the same to account at a profit.

Evidence

The appellant identified and introduced a group of documents which was designated Exhibit A-1, which documents are listed as follows:

1. Schedule D—Subject Property

2. Offer to Purchase—May 31, 1973

3. Statement of Adjustments re Ravida purchase November 1, 1973

4. Original copy of survey of property

5. Deed to Property

6. Copy of agreement of Purchase and Sale re sale dated September 12, 1973

7. Original copy of Statement of Adjustments re sale dated November 1, 1973

8. Partnership Agreement

9. Agreement of Purchase and Sale—Dundas property

10. Quotation—Todoc Construction Ltd

11. Quotation—J Gollob Construction Ltd

12. Quotation—Joseph Blais

13. Listing Agreement

The appellant’s statement was that during a Sunday afternoon drive with him, his wife had noticed the “For Sale’’ sign on the property and after only some preliminary inquiries, they realized the property was ideal for their family as a residence farm. It consisted of some 90 plus acres although a survey had been needed to determine the boundaries exactly. Due to family circumstances both the appellant and his wife were convinced thr* a move from their home at 2 Cameron Avenue, Dundas, Ontario, was in their best interests and the children quickly became convinced and enthusiastic about the move. On May 31, 1973, his offer to purchase along with the $2,000 deposit cheque was accepted by the vendor, giving him until October 30, 1973 to complete the purchase (Exhibit A1-2).

On July 24, 1973, the appellant listed the property for sale at $368,000 with the Royal Trust Company (Exhibit A1-13). He did not intend to sell the property but this listing (good for only about 17 days) by the real estate representative, Mary Burton, gave him the credit he needed at his bank to borrow approximately $50.000. This, together with the proceeds from the house at 2 Cameron Avenue, Dundas, which he intended to sell, and his portion of profit on a separate real estate transaction with some other partners, would provide the funds necessary for the purchase of the property.

Although the appellant did not formally list his Dundas home for sale, he contacted a friend (a Mr Martin Miller) who attempted to find a buyer, as part of his regular real estate work. The separate real estate transaction to which reference has been made above was part of several engaged in by the appellant prior to and during the times relevant, with two other partners, a Mr Antonio Chiarella, operating as Todoc Construction Limited, and Mr John C Pelech, lawyer. This three-way partnership, apparently not given a particular name, purchased and sold land along a main arterial road on the outskirts of the Town of Ancaster. The appellant stated that the partnership dealt only within a certain geographical area which they had reason to believe would shortly be taken in as part of an expanding Town of Ancaster and thereby would increase rapidly in value. He had received permission from his partners to purchase the property which is the subject of this appea! since it was not in that geographical area and he had informed them it was for his own personal use.

During July and August 1973, the appellant had requested and received three estimates for carpentry work to be done at the purchase property to suit his wife’s requirements (Exhibit A1-10. -11 & -12). but no work had been commenced. On September 12, 1973, after a telephone call from Mary Burton, the same real estate agent at Royal Trust, he signed an offer to sell the property (Exhibit A1-6), received a $10,000 down payment and completed the sale on November 1, 1973. On the same date (November 1, 1973), the final statement of adjustments (Exhibit A1-3) was prepared on his own purchase of the property.

Under cross-examination Mr Ravida agreed he had not told Mary Burton in August that he had no intention of selling the property: that he had never signed the listing agreement with Martin Miller to sell his Dundas home, and that he still lived there: that he had been very active in the speculative real estate field with his partners, sharing in profits of several hundred thousand dollars, and their main centre of activity had been less than 3,000 feet from the subject property. Finally. it was established that he had not farmed in about 17 years and had never farmed in Canada.

Mr John Pelech, a lawyer and one of the appellant’s partners in the real estate ventures. supported Mr Ravidas contention that the property had been for his own use, according to Mr Ravida, and that since it was outside the geographical area of interest to them, they had not disapproved of the appellant's purchase of it. Mr Pelech presented as Exhibit A2 the Town of Ancaster Draft Official Plan dated April 1977, but he stated it had been of about the same general configuration in 1973, and showed the subject property outside the major area of urban proposed development.

Mr Martin Miller and Mrs Ravida corroborated the evidence given by the appellant to the extent of their Knowledge and involvement.

Argument

Counsel for the appellant argued that Mr Ravida’s business as a real estate trader during the same period should not be confused with his right to purchase a residence, and that his intention at the time of purchase was the significant point to consider. All his efforts had been directed toward accomplishing this and it would have ensued had the unexpected offer for sale not arisen. The appellant’s acceptance of the offer had caused substantial disappointment in his family and efforts had been made to retract the signed offer of purchase and Sale.

Counsel for the respondent asserted that the appellant’s conduct both at the time of signing the offer to purchase the subject property and subsequent thereto was completely consistent with the procedure he had used in all the real estate transactions to which he had been a party. Further, he asserted that the partnership agreement (Exhibit A1-8) did not require the appellant to obtain any permission from his partners for any transaction and that Mr Ravida must have been aware of the development potential of the general area in which the Subject property was situated.

Findings

The Board can come to no conclusion other than that the appellant anticipated a sudden increase in interest in the subject property when the development plans for the Town of Ancaster became more generally known to the public. The appellant’s knowledge not only of the contemporary real estate business but also of the municipal plans proposed for the general area only some 3,000 feet away from the Subject property support such a view. The Board places little weight upon the argument that because the purchase of the subject property was not conducted within the partnership set up for real estate purposes, it is somehow excluded from the total business ambit of the appellant. I find little in the evidence to support the appellant’s contention that he seriously intended to sell his Dundas home, that he took active steps to engage in farming, or that he was even prepared to do so. In the matter of Arthur E Kruger and Elmer D Bassani v MNR, [1977] CTC 2311; 77 DTC 208, I pointed out the general criteria which I felt provided guidelines for a determination of an issue such as this one, and I quote from page 2321 [215]:

In my opinion, to determine a question of the kind posed at this hearing, particularly dealing with the purchase and sale of land and considered against the background just described, requires the following:

(a) an examination of the appellants’ personal and business circumstances at the time of acquisition, as such circumstances conflicted with, or complemented, the probable fulfilment of their stated intention;

(b) a review of the efforts made and the progress demonstrated toward such stated intention as an objective;

(c) a critical consideration of the reasons advanced for the eventual abandonment or the frustration of the stated intention.

The superimposition of these criteria in the instant case shows the factual evidence to be in sharp contrast to the protestations of the appellant.

Decision

The appeal is dismissed.

Appeal dismissed.