Arthur R Ammerman* v. Her Majesty the Queen, [1976] CTC 616, 76 DTC 6356

Mahoney, J:—The issue is whether the profit realized by the plaintiff on the disposition in 1973 of an interest in real estate acquired in 1959 is taxable as a capital gain or as income. There is no dispute to the calculation of the profit. By agreement, this appeal was heard on common evidence with the appeals of Wilbert G Ammerman, Norma I Ammerman and Wallace H Ammermant [1] from assessments arising out of the profit realized on the same disposition.

The plaintiff was, at all material times, a real estate agent in Hamilton, Ontario. He had been so engaged since 1952. in 1957 he obtained his own broker’s licence and caused Mohawk Realty Limited (hereinafter called “Mohawk”) to be incorporated in March 1958. He was president, a director and owner of 20% of its shares. Harry Speranzini and Jack Silverthorne, who were involved in some of the transactions hereafter described, were also directors of Mohawk, each owning 20% of its shares. Early in the spring of 1959 the subject property was listed for sale with Mohawk. The plaintiff was the listing agent.

The subject property was an irregularly shaped parcel of 36.25 acres with a 400-foot frontage on a concession road and two 66-foot frontages on the stub ends of other road allowances which would have had to be extended into, or through, the property to permit its subdivision. Its zoning was agricultural. It was located in Barton Township, south of and some 6 miles from the central core of the City of Hamilton. The Ontario Municipal Board had, on January 28, 1959, made an order annexing portions of four townships, including the subject property, to the City. City by-laws were adopted giving effect to the annexation and, on April 29, 1959, were registered in the Land Registry. They had the effect, inter alia, of imposing a ‘‘freeze” on rezoning, and consequently on any subdivision and development not compatible with existing zoning, pending adoption of a plan by the City. The annexation was originally to have been effective July 1, 1959 but a subsequent order of the OMB postponed it to January 1, 1960 and the final order was itself registered June 9, 1959. Because of a misdescription in the schedules of lands, the earlier by-laws were replaced by new by-laws to the same effect registered in the Land Registry May 13, 1959.

Among those to whom the plaintiff showed the property was the lawyer who had incorporated Mohawk. That lawyer and his partner were looking for an investment as “a hedge against inflation” and for their “pensions”. There is no evidence as to how they dealt with their investment except that the acquisition was in the names of their wives. The lawyers, it is said, were not knowledgeable of real estate investment and, as a condition o! their each taking a /3 undivided interest in the property, they asked the plaintiff to take the other [1] /3 “as kind of a guarantee” that it was a good investment. The plaintiff, because he wanted to build his home on his share of the parcel, did not want

The plaintiff was a veteran and had, in 1953, qualified for assistance in the establishment of a small holding under the Veterans Land Act, RSC 1952, c 280. To do this, he needed at least 2 acres and would have to repay re-establishment credits he had previously taken. The evidence is that a veteran was required to establish his residence on the small holding and carry on some activity there that would render it partly self-sustaining. The plaintiff did not indicate what partly self- sustaining activity he proposed to engage in on his small holding. He did indicate that, having spent his childhood on a farm, he disliked the crowding typical of contemporary urban life and. wanted room around his home. It is apparent, on the evidence, that this yen for elbow room was of rather recent origin and, once formed, singularly lacking in urgency. The plaintiff still lives in the house he bought in Hamilton in 1955.

In 1958 the plaintiff and another of his Mohawk associates acquired a lot on 42nd Street in Hamilton as an accommodation to a valued client who needed cash. The lot’s zoning permitted construction of a triplex. The plaintiff formed the intention of building a triplex and living in one of the units while renting the other two. This intention was frustrated by the sale of the property eight months after. its acquisition. That was perhaps fortunate for him as it would seem challenging to proximate a rural life style in a Hamilton triplex.

The plaintiff’s efforts to get his 1/9 interest in the subject property to the point where his intention to build his home on the 4 acres, more or less, were casual. He visited the township office once prior to annexation. After annexation, he enquired of the Hamilton planning authorities a couple of times a year when there on other business. He was confident that in time the zoning would change and severance of his parcel and house construction would follow. He made no formal applications. He did not attempt to expedite the inevitable. He had no particular part of the property in mind for his home site when he bought his interest and did not, while he owned it, ever settle on one.

The plaintiff testifies that his intention in taking an interest in the property was to make the sale and to obtain a piece of land suitable for the VLA small holding. There were existing small. holdings along the other side of the concession road on which the parcel fronted and he had no reason to doubt that the Director, VLA would approve the same across the road. His impression of the zoning in the area was that where residences were built on small properties it was zoned for such and otherwise it was agricultural. He had no reason to doubt, in view of the piecemeal development and, what is I believe usually called, spot zoning theretofore prevailing that he would have any difficulty getting his 4 acres zoned and severed for the small holding.

In mid-November 1959 he visited the municipal office of Barton Township. It was on this occasion that he learned, for the first time, of the proposed annexation and that, because of it, his intention to sever and build on his small holding would have to await the deliberations of Hamilton’s city planners. Acceptance of this aspect of the plaintiff's story involves acceptance of the following propositions:

1. The plaintiff, a real estate agent active in the particular market, was not aware of an annexation order in effect in respect of a parcel of land listed for sale with him and which, over a period of at least several weeks, he actively tried to sell and then decided, himself, to join in buying.

2. The plaintiff, an experienced realtor, having decided to buy an interest in a parcel of land, made no title search.

3. None of the plaintiff's associates in the purchase, two practising lawyers and two active realtors, all in business locally, either knew of the proposed annexation or told him about it if they did.

Taken individually, none of those propositions is easy to accept. Taken in combination, they are incredible.

I do not believe the plaintiff's evidence as to his intentions when he acquired his interest in the property. His conduct was simply not consistent with his story. I am left with no doubt that he intended, when he bought his interest, to sell it at a profit when a favourable opportunity presented itself and that he was fully aware that the opportunity would likely be some considerable time in the future because of the annexation and consequent freeze. His appeal will be dismissed with costs.

In 1963 Speranzini wanted to dispose of his 1/9 interest. Other efforts failed and the plaintiff approached his brothers Wilbert and Wallace. They decided that the 2 acres, more or less, that each would obtain on subdivision and severance was just what they wanted for their respective home sites. Wallace reached the conclusion without ever seeing the property. Wilbert drove by it but did not otherwise inspect it. In the result, Wilbert Ammerman and his wife Norma jointly purchased half of the 1/9 interest and Wallace Ammerman purchased the other half. They were, of course, aware of the annexation and freeze and that their intentions to build could not be given effect until Hamilton’s planners had done their work. They had no idea when that would be and did not try to find out nor to speed the process; they were confident it would happen some day and were content to wait. Finally, after ten years, an unsolicited offer to purchase came along. Those with larger interests wanted to accept it and they, reluctantly but without protest or any overt effort to realize their decade-old intentions, went along with the rest.

While their story is shorter and simpler than the plaintiff’s, their conduct was equally inconsistent with what their intentions are said to have been.* [2] I do not believe their story and have no doubt that they, like the plaintiff, intended when they bought to sell at a profit when a favourable opportunity came along. Their appeals, too, will be dismissed with costs.