A
J
Frost
(orally:
September
24,
1975):—I
shall
now
give
my
decision
in
the
appeal
of
John
S
Hilton,
appellant,
and
the
Minister
of
Nationa!
Revenue,
respondent.
This
is
an
income
tax
appeal
in
respect
of
the
appellant’s
1966
and
1971
taxation
years.
The
appellant
is
a
bona
fide
prospector
who
hetd
a
free
miner’s
licence
at
the
age
of
17,
and
who
continued
his
career
as
a
prospector
during
his
entire
adult
life
and
is
still
active.
In
January
1962,
with
the
assistance
of
two
others,
the
appellant
Staked
and
recorded
16
mineral
claims
in
the
Cariboo
Mining
Division
of
British
Columbia.
These
claims
are
known
as
the
Zephyr
Claims
1
to
16.
In
the
same
year,
the
appellant
entered
into
an
option
agreement
with
the
Heustis
Mining
Company,
and
subsequent
to
the
option
date
the
said
company
staked
Pan
1
to
5
mineral
claims,
contiguous
to
the
Zephyr
claims,
which
claims
were
buffer
or
protective
to
the
key
Zephyr
claims.
When
the
Heustis
Company
abandoned
its
development
plans,
the
buffer
claims,
that
is
Pan
1
to
5,
reverted
to
the
appellant
under
the
option
agreement.
The
appellant
made
no
effort
to
acquire
these
claims
and
no
cash
was
paid
by
way
of
consideration.
Nothing
changed
hands
which
could
be
construed
by
the
Board
as
consideration
for
the
acquisition
of
these
claims.
Subsequently
a
further
option
agreement
was
entered
into
with
the
Keevil
Mining
Company
and
with
a
similar
result.
The
appellant
in
this
instance
acquired
Xaire
1
and
2
under
the
terms
of
the
option
agreement
with
Keevil,
who
again
staked
certain
claims
as
buffer
or
protective
claims
to
the
key
Zephyr
claims.
It
is
clear
from
the
evidence
that
Pan
and
Xaire
mineral
claims
came
into
the
appellant’s
possession
from
the
options
granted
and
which
were
not
acquired
by
him
as
a
trading
asset,
but
rather
as
a
Capital
acquisition.
In
May
1964
the
appellant
optioned
the
Zephyr,
Pan
and
Xaire
mineral
claims
to
Pat
Bowes
and
Robert
Matthews,
which
claims
were
then
assigned
to
the
Gibraltar
Mines
Limited
under
an
agreement
known
as
the
Gibraltar
Option
Agreement,
which
provided
semi-annual
payments
to
the
appellant
of
$3,000
commencing
september
15,
1965
for
a
total
purchase
price
of
$1
million.
Subsequently
a
settlement
was
made
with
Placer
Development,
whereby
$650,000
was
paid
in
November
1971
for
the
entire
balance
of
the
purchase
price
under
the
Gibraltar
Option
Agreement.
In
the
opinion
of
the
Board,
the
Xaire
claims
and
Pan
claims
were
baggage
or
incidental
claims,
and
were
acquired
as
a
capital
asset
and
not
as
a
trading
asset,
and
automatically
became
the
property
of
the
appellant
when
the
Heustis
Mining
Company
and
the
Keevil
Mining
Company
failed
to
exercise
their
options.
In
the
Board’s
opinion,
title
to
the
said
claims
in
effect
flowed
through
to
the
appellant
as
the
owner
of
the
key
Zephyr
claims,
and
were
initially
acquired
by
him
as
a
prospector.
In
my
opinion,
he
is
entitled
to
the
tax
benefits
allowed
under
subsection
83(2).
However,
entirely
apart
from
subsection
83(2),
the
acquisition
of
the
Pan
and
Xaire
claims
are
by
the
nature
of
their
acquisition,
and
the
circumstances
surrounding
their
acquisition,
a
capital
gain.
I
might
also
add
that
I
have
some
reservations
as
to
whether
or
not
an
acreage
basis
is
the
proper
one
for
determining
the
distribution
of
the
proceeds
of
sale
in
a
case
such
as
this.
It
is
an
easy
approach
but
I
doubt
if
it
is
a
proper
one
for
the
allocation
of
funds
between
capital
and
income.
However,
there
is
no
need
for
such
allocation
as
the
gain
realized,
in
my
opinion,
is
entirely
of
a
capital
nature
and
is
not
income
from
an
adventure
in
the
nature
of
trade.
The
appeal
is
allowed.
Appeal
allowed.
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