Townsview Properties Limited v. Minister of National Revenue, [1976] CTC 2405, 76 DTC 1298

The Assistant Chairman:—Townsview Properties Limited (hereinafter sometimes called “Townsview”) has appealed to this Board from assessments for tax for its 1970 and 1971 taxation years. Another company, G Stanley Mann Investments Limited (hereinafter sometimes called “Mann”) which was a a wholly-owned subsidiary of Townsview, has also appealed to this Board from an assessment for tax for its 1971 taxation year. Two of the three assessments in question were made on the basis that the person assessed had made a profit from an adventure in the nature of trade in connection with a real estate transaction, and so the profit was from a business and consequently to be included in its income. The third assessment relates to a loss carried forward. Townsview, by two transactions (one in 1959 and the other in 1963), acquired three parcels of land and Mann, by one transaction in 1963, acquired one parcel. The land acquired by Mann was contiguous to that acquired by Townsview. Both Townsview and Mann, by separate transactions but at the same time in the calendar year 1970, sold their property to the Government of Ontario. As a result of that sale, each company realized a substantial profit which the respondent has included in its income. Because of the circumstances outlined above the two appeals were heard on common evidence. The properties in question, except for a small lot which was owned by Douglas Leaseholds Limited (hereinafter referred to as “Douglas”), fronted on the south side of a road which was called Dixon Road or the Airport Road in the Township of Etobicoke. The rear portion fronted on the north side of Carlingview Road. At the time of acquisition in 1959 there was a lot between the westerly limit of the land purchased by Townsview and Indian Line Road (now known as Highway 427). A few years after the purchase that property was purchased by the Ontario Government so that there was no land privately owned between the land in question and Indian Line Road. The land was a short distance from Toronto International Airport.

As to the two companies, Mann has had only one transaction, namely, the purchase of the land in question and its sale some seven years or so later; Townsview has had many purchases and sales, some of which produced gains (and some losses) which were considered by Townsview to be taxable (or deductible) and were so reported and were also so accepted by the respondent. Likewise Townsview had many purchases which it considered to be investments and the revenue therefrom, subject to expenses, was annually reported as income. It happened that in several instances it sold the “investment property” realizing a gain which it considered to be a capital or non-taxable gain. The respondent did not disagree. Townsview also acquired many properties which are still retained by it or by other companies for whom the properties were acquired. It should be noted that at the time the properties in question were purchased, George Mann had a one- third interest in Townsview which interest increased so that he held all its issued shares at the time of the sale. Mr Mann in the early 1970’s controlled indirectly a a public corporation, Unicorp Financial Corporation (hereinafter sometimes referred to as “Unicorp”). From the late 1960’s until recently Unicorp controlled the United Trust Company (hereinafter sometimes referred to as “United”). A few months ago United became a wholly-owned subsidiary of the Royal Trust Company (hereinafter sometimes referred to as “Royal”) and Unicorp, in ex- change for its interest in United, became a substantial minority shareholder of Royal. Many of the real estate transactions Townsview had were the acquisition of buildings for United.

Mr Mann became connected with the real estate industry in Metropolitan Toronto in 1954 and from then till about 1968 he was spasmodically, on a small scale, a house builder. He became connected in 1956 with the real estate firm in Toronto known an Mann & Martel. At that time his father was a senior member of that firm. Mr Mann became a real estate broker but he worked with the firm as an administrator rather than as a salesman. Another activity of Townsview was the acquisition of buildings to be used as offices for Mann & Martel. Mr Mann who was the main witness in the appeal was chairman of the board of Unity Bank, a consultant with Royal, and vice-chairman of the board of Mount Sinai Hospital in Toronto. He was also prominently connected with several other companies. With the assistance of Exhibit A-1 Mr Mann explained the many real estate transactions carried out by the companies controlled by him.

Mr Mann stated that the reason for the acquisition of the parcel in 1959 was to erect a motel. He saw the area as ideal for the small centre corridor type of motel realizing, of course, it was then on the main highway to the airport. In February 1960 Mr Mann caused to be incorporated an Ontario company with the name of Toronto International Airport Hotel Limited. He did this as he wished to have the name at his command. He thought it was a popular approach, having seen hotels similarly named after the nearby airport in other cities. The parcel of land immediately to the west of the purchased property and adjacent to the Indian Line Road, shortly after his purchase, became a “tank farm’’ for aviation fuel for the Toronto International Airport. I understand a tank farm consists of many large tanks used for the storage of aviation fuel. Mr Mann stated he went to the Ontario Municipal Board to oppose the building of the tank farm but without success. He was advised that the farm was completely safe but he felt otherwise and did not proceed with his planned motel for that reason. In 1962 the Ontario Department of Highways, to widen Indian Line Road, purchased all of the property between the westerly limit of Townsview’s property and Indian Line Road abutting on Townsview’s property. It was a boon to Mr Mann and to his plans in that the tank farm would no longer exist and his land had a green belt beside it to Indian Line Road. With this change Townsview acquired its second parcel in 1963 and Mann acquired its parcel in 1963. The purpose now was to build, for lease, a complete hotel with all facilities, rooms, banquet halls, swimming pool, sauna, beverage room, cocktail lounge and all other features normally found in such establishments. The total acreage of all purchases was just in excess of 10 acres. The parcel acquired by Mann had a motel; actually a converted home with about 20 rooms, which the vendor had operated. On the sale, the vendor retired but an operator was found and some rental revenue was received. The purchaser was given a two-year lease. However, the lease contained a clause requiring the tenant to vacate any time on 90 days’ notice.

Mr Mann realized that his plan for a full-service hotel could not proceed with the lot owned by Douglas in the middle of his property fronting on Dixon Road. The Douglas lot had an oil company as a tenant and there was an operating service station on the property. By letter of August 18, 1964 Mr Mann wrote, in effect, asking Douglas to transfer that lost to his company and his company would build a service station nearby in keeping with the hotel concept. Douglas replied by letter of September 9, 1964 enclosing a copy of a building elevation indicating that it would appear an amicable settlement could be reached. At about the same time, Mr Mann wrote to the municipal offices of the Township of Etobicoke advising of his plans for a hotel and expressing his concern as to the size of the sewer he had heard the township was going to put in on Dixon Road. The township replied that the sewer was capable of accommodating up to a 500-suite hotel. Mr Mann by telephone approached the Hilton Hotel people in Montreal but they evidenced no interest. He then approached Seaway Hotels Limited (hereinafter sometimes referred to as “Seaway”) in Toronto as he had heard they had had an option on the last parcel purchased but had let it lapse. Correspondence passed between him and Mr Orenstein and it appeared from meetings with Mr Orenstein and Mr Hamann, an architect of the firm Bregman & Hamann, that matters were moving forward. The type of lease was discussed and put into writing; the term—25 years, the rent, who would supply what fixtures, working drawings be prepared by competent architects, etc. In December 1964 a second floor plan of the proposed building was drawn up. It showed the parking area and, in addition, the proposed new location of the service station. A further set of plans (dated incorrectly January 1964) were drawn up in January 1965 and at this stage there were then sufficient plans to go to working drawings. In April of 1965 he had his solicitors prepare a draft lease agreement between Toronto International Airport Hotel Limited and the Seaway Hotels Limited which was a 25-page document, containing in some places figures and in others blanks, and it was submitted to him for approval. Around this time he ceased getting a response from Seaway and in so far as Seaway was concerned the matter died. In July of 1965 he, through a friend, approached the Four Seasons group but without success. In 1967 he approached an American concern, the Marriott Motor Hotels, but they were not interested. Mr Mann did point out that some time later that chain did buy a parcel of land about 3,000 or 4,000 feet west of the subject land on the opposite side of Dixon Road and now have a sign indicating they are going to build a hotel but to date nothing has been built. He loaned to Mr E EM Sprackman, CA the plans he had for the hotel to see whether he could interest a group in Bramalea in the venture but without success.

Oral offers to sell were received but all were discouraged and rejected. In 1967 and 1968, while real estate was coming back, the market was not good. While the project was still on his mind, it was by no means his sole concern or occupation. Late in 1969 he was approached by Gibson Willoughby Limited, a a real estate firm in Toronto, on behalf of Park’n Fly of Toronto Limited, a company then being incorporated. Park’n Fly was an American concept. They had several parking areas near prominent airports. A traveller would park his car at the concern’s premises and they would bus him to the air terminal. On his return the traveller would be met with his car. Park’n Fly wanted to enter into a lease arrangement with option to renew and with an option to buy. Mr Mann agreed to the lease with certain options but not including an option to buy. To placate the potential tenant he proposed that Park’n Fly be given the right of first refusal were the land to be sold. In December 1969 Park’n Fly submitted two leases they had signed on property near the San Francisco Airport and another near an Ohio airport. A lot-grading plan was prepared as the land required some grading. Mr Mann then approached the municipal authorities of the Township of Etobicoke to ascertain its requirements to have the land used as a parking lot and to obtain building requirements. He was advised by the township authorities nothing could be done as the property was frozen by the Department of Highways. He was advised by that Department that there was to be no access to the subject property from Dixon Road or Indian Line Road. He advised Park’n Fly of the problem but stated they could get access from Carlingview Road which, as mentioned, ran along the southern boundary of the land in question. Park’n Fly were no longer interested and the matter then died.

He saw his solicitor who approached the Department of Highways to get access to the property from Dixon Road but he was unsuccessful. The property was effectively sterilized by that action and, after some time, all the land in question was purchased by the Province. Mr Mann’s evidence was frequently corroborated by copies of correspondence, either to or from him, as well as evidence given by two members of the law firm who acted for him in connection with the negotiations with Park’n Fly and with the Department of Highways. Also the problem of ingress and egress was corroborated by a professional engineer who had been with the Department of Highways since 1956 and was now the Area Manager for the Ministry of Transportation and Communications with the Province of Ontario. Generally, it was explained, under The Highway Improvement Act, RSO 1960, c 171 as amended, some highways became controlled access highways which meant in effect, within a certain radius of such a highway, if an owner of land wished to have access from that highway he had to get permission from the Department of Highways. Until 1963 Dixon Road was not a controlled access highway but in that year it was so designated by O Reg 174/63 dated June 27, 1963. After that date, to get access to the property in question, a person would have to apply for a permit and, in the opinion of the engineer, until 1965 a permit would have been granted. In 1965 a Highway Traffic Plan which would affect the lands in question was brought into existence and that plan could have come to the attention of the public at large as highway officials would have approached municipal officials for their comments on it. With another plan of July 1967 he clearly would not have recommended access to the subject land as it clearly interfered with the traffic flow and would create a traffic hazard. Until the year 1971 he would not recommend access to the property but would after 1971 as there were changes to the plans which affected the property favourably.

One solicitor clearly confirmed the lease negotiations with Park’n Fly, if confirmation were needed. The other solicitor communicated with officers of the Department of Highways in 1969 for access and even went so far as to suggest his client would be satisfied with ingress from Dixon Road and egress from Carlingview. He was advised there was to be no ingress from Dixon Road. The indication was given to the Department that the land was effectively sterilized and it would appear that his client would have a claim for injurious affection of land. The matter finally culminated in an offer to sell being made for both the properties. It should be noted that while the offer in each case was by the vendors, the form used was that of the Department of Highways. Both offers contained a clause that, inter alia, the payment was for all entitlements stated in The Expropriations Act, SO 1968-69, c 36. The offers were on the basis that both properties had to be purchased by the Province or neither would be sold. In due course the sales were finalized resulting in a profit for each company. It should be noted in passing that the solicitors for Mr Mann, having heard from their client that the Province was, in 1974, willing to sell the said land, wrote to the Department to advise that their client would repurchase the same. He was orally advised that the facts he had were incorrect. This Board was advised that the land is still not being used in any way.

Counsel for the Crown took the position that Townsview and Mann, through Mr Mann, had at least a secondary intent, when each acquired its property, to turn it to account by selling, if not an alternative intent to do so. Counsel indicated this in the course of the hearing when he, quite properly in the opinion of this Board, only cross-examined Mr Mann. His efforts were, through his examination of Mr Mann, to establish this secondary or alternative intent. Mr Mann was not concerned with financing for Townsview’s initial purchase as the proposed motel would not be that expensive. The plans prepared for the Seaway Hotel cost in the vicinity of $1,800 which was an insignificant amount as Mr Mann explained that an architect would really get his fee when the building plans were prepared and he was undoubtedly hoping he would get the whole job.

The submission to me by counsel for the appellant was that the land in question in each instance was acquired for the purpose of investment through the erection of a hotel/motel and leasing it to a third party to operate and there was never any substantial change of intent. The only possible change of intent was not one of substance, rather a change in the vehicle. After the Seaway efforts collapsed and after a few years of looking around, a new leasehold vehicle was found— Park’n Fly. It was not a hotel/motel leasing but it was a lease to a third party. Counsel for the Corwn did not suggest that Townsview or Mann or Mr Mann’s intent was not investment when the lands were purchased and he clearly did not suggest it was not that when he negotiated with the Seaway Group and Park’n Fly, but he did suggest there was an alternative or secondary intent at the time of purchase.

I am of the opinion that even though Mr Mann was an astute businessman in many fields, as well as a person who was quite familiar with dealing in real estate, in so far as the properties involved in this appeal are concerned, they were acquired with the intention expressed by Mr Mann, namely, for an investment. I accept Mr Mann’s evidence without hesitation and I believe I would have done so even if it had not been so fully corroborated and I cannot see how, in light of the confirmation it received, any of it can be rejected. In a recent appeal to this Board, Investors Leaseholds Limited v MNR, [1976] CTC 2211; 76 DTC 1163, which involved a corporation controlled by Mr Mann, a colleague of mine stated at page 2212 [1163] as follows:

Townsview Properties Limited is controlled by George S Mann, who also has interests in a number of other companies which hold or have real estate. His involvement in real estate dates back to 1954 when he started dealing in mortgages and building houses. He took over his father’s real estate brokerage firm, Mann and Martel, which firm was subsequently taken over by the United Trust Company, of which company Mann is the executive vice- president. He is also Chairman of the Board, a director and a member of the Executive Committee of the Unity Bank. It is common knowledge that Mann is an experienced and knowledgeable dealer in real estate. This was amply substantiated during his testimony, particularly when he was referred to Exhibit A-1, a lengthy summary of his and his companies’ real estate involvements. Of these involvements, some eleven properties are still held by his companies as income-producing investments.

and at page 2214 [1165] he concluded as follows:

During the course of the examination-in-chief by the appellant’s counsel and the able cross-examination of Mr Mann by counsel for the respondent, I took particular note of the demeanour and conduct of the witness. I believe it is settled law that a real estate dealer may also be an investor in real estate, in which case, for obvious reasons, he comes under far closer scrutiny than an inexperienced taxpayer would be subjected to. I found him to be a most credible and forthright witness. Viewing the evidence in its totality, including the documentary evidence that was filed, I cannot find any portion thereof that in my humble opinion would be open to the inference that is suggested by counsel for the respondent. Indeed, the evidence in support of the appellant’s contention is overwhelming. Similarly the evidence of Mr Finley, who acted for the other side, as well as that of Mr Zsolt, has been equally beyond reproach as to credibility and integrity. While this latter evidence was presented by the two gentlemen for the other side of the problem, that is, the side of the lessee and the owner of the hotel building, it also fully corroborated the evidence of the appellant as presented by the witness George S Mann.

I can only reiterate his comments.

The appeals are allowed and the assessments referred back to the respondent for reconsideration and reassessment in accordance with these reasons.

Appeals allowed.