Kerr,
J:—This
is
an
appeal
by
Charles
Chaffey
in
respect
of
a
reassessment
wherein
tax
in
the
sum
of
$12,359.09
together
with
interest
in
the
amount
of
$483.37
was
levied
in
respect
of
his
1968
taxation
year.
This
appeal
was
heard
together
with
an
appeal
by
Erwin
Taylor
in
respect
of
a
reassessment
wherein
tax
in
the
sum
of
$16,572.95
was
levied
in
respect
of
his
1968
taxation
year.
The
appeals
were
heard
together
on
common
evidence.
The
notices
of
reassessment
for
both
appellants
are
dated
March
29,1972.
The
appellants
were
partners
under
a
written
agreement
dated
August
22,
1960
and
they
had
been
partners
also
for
some
years
prior
thereto,
and
the
issue
involved
in
the
appeals
is
the
disallowance
of
a
loss
of
$60,365.23
incurred
by
the
partnership
in
1968
on
the
disposition
by
the
partnership
in
that
year
of
an
interest
in
a
company
called
“Canadia
Niagara
Falls
Limited”,
hereinafter
called
‘‘Canadia’’.
The
partnership
held
4,964
common
shares
of
Canadia,
acquired
at
a
nominal
value
of
$200;
the
partnership
had
also
made
advances,
recorded
as
loans,
to
Canadia,
amounting
at
that
time
to
$231,878.46.
On
January
31,
1968
half
the
said
shares
and
half
the
indebtedness
owed
to
the
partnership
by
Canadia
in
respect
of
the
said
advances
were
transferred
to
a
company
called
“Fermo
Holdings
Limited”
giving
rise
to
a
loss
in
that
respect
of
$60,365.23
to
the
partnership.
The
partners
claimed
that
the
loss
was
deductible
in
computing
the
net
income
of
the
partnership
for
income
tax
purposes,
and
each
of
them
deducted
his
respective
share
of
such
loss
in
computing
his
income
for
his
1968
taxation
year.
The
Minister
disallowed
the
deductions
on
the
ground
that
the
said
loss
to
the
partnership
was
considered
to
be
a
capital
loss.
Canadia
was
incorporated
in
1964
with
the
intention
that
it
would
operate
a
tourist
attraction
on
land
being
acquired
by
Chaffey,
Taylor
and
other
associates
in
the
City
of
Niagara
Falls.
The
land,
about
40
acres,
was
acquired
in
1965
by
the
Chaffey-Taylor
partnership
and
six
other
persons,
namely,
Dr
Samuel
Kanovsky,
Murray
Fish,
John
and
Primo
Pennachetti
(or
their
holding
company
“Fermo
Holdings
Limited”),
Thomas
Oliver
and
Carl
Beccario.
Each
of
them
had
a.
/9
interest
in
the
land
and
each
contributed
an
equal
sum
of
money
towards
the
purchase
of
the
land.
Title
was
taken
in
the
names
of
trustees,
nominees
on
behalf
of
the
beneficial
owners.
A
portion
of
the
land
was
then
leased
to
Canadia
by
a
lease
dated
August
20,
1965
(Exhibit
A-5)
between
“Zacko
Holdings
Limited”,*
a
trustee
and
nominee
of
the
owners
as
lessor,
and
Canadia
as
lessee.
The
lease
was
for
12
years,
with
an
option
for
renewal
for
two
further
periods
of
5
years
each.
The
intention
was
that
Canadia
would
develop
and
operate
a
tourist
attraction
on
the
leased
part
of
the
land,
including
miniature
scale
models
of.
important
Canadian
buildings,
a
miniature
golf
course,
and
a
waterway
and
ships,
along
the
lines
of
the
famous
“Madurodam”
tourist
attraction
in
Holland.
The
shareholderst
of
Canadia
at
that
time
were
the
owners
of
the
land,
and
one
C
Compton-
Smith,
who
was
not
one
of
the
owners.
Canadia
constructed
models
of
buildings
on
the
leased
land
and
erected
an
administration
building
housing
a
restaurant,
gift
shop,
office
and
a
workshop,
and
operated
the
attraction
until
1969.
Funds
were
advanced
to
pay
the
original
cost
of
construction
of
the
models
and
buildings
and
costs
of
operations
from
time
to
time.
The
advances
were
by
way
of
loans
to
the
company
by
the
shareholders,
with
the
exception
of
Compton-
Smith;
the
company
also
obtained
bank
loans
for
the
same
purposes,
which
were
guaranteed
by
the
landowners,
and
part
of
the
advances
so
made
was
to
enable
the
company
to
repay
the
bank
loans.
The
advances
were
made
generally
pro
rata
by
the
landowners
according
to
their
respective
interests
in
the
ownership
of
the
land,!
and
interest
was
payable
on
them,
but
apparently
none
was
paid
and
whatever
interest
was
owed
was
forgiven.
The
operation
was
not
successful
financially,
and
on
January
31,
1968
Chaffey
and
Taylor
sold
to
Fermo
Holdings
Limited
(which
was
one
of
the
landowners
and
also
one
of
the
shareholders
of
Canadia)
half
their
interest
in
the
40
acres,
half
their
shares
in
Canadia
and
half
the
indebtedness
Canadia
owed
to
them
on
their
advances.
As
already
stated,
the
Minister
disallowed
the
deductions
claimed
in
respect
of
the
loss
on
the
advances;
but
allowed
the
loss
claimed
by
the
partnership
and
Taylor
and
Chaffey
in
respect
of
the
sale
of
the
interest
in
the
land.
The
pleadings
are
substantially
the
same
in
both
appeals.
In
the
notices
of
appeal
it
is
alleged,
in
substance,
that,
inter
alia,
the
Taylor-Chaffey
partnership
was
carrying
on
the
business
of
lending
money
and
buying
and
selling
real
estate
with
a
view
to
profit;
that
the
partnership
and
several
other
persons
(collectively
called
“the
developers”
in
the
notices)
acquired
the
40
acres
in
the
City
of
Niagara
Falls
for
the
purpose
of
rezoning,
redevelopment
and
sale
at
a
profit,
and
as
an
incident
of
its
development,
with
a
view
to
increasing
its
value
and
as
part
of
an
adventure
in
the
nature
of.
trade,
determined
to
develop
part
of
the
land
by
expending
money
on
the
construction
of
a
tourist
attraction
through
the
instrumentality
of
Ganadia;
‘that
funds
were
advanced
to
Canadia
by
the
developers
and
the
funds
represented
costs
incurred
in
the
course
of
an
adventure
in
the
nature
of
trade;
that
the
loss
(above
mentioned)
subsequently
incurred
by
the
partnership
was
a
business
loss
within
the
meaning
of
sections
3,
4
and
paragraph
139(1)(e)
of
the
Income
Tax
Act
and
deductible
as
such
in
accordance
with
paragraph
139(1)(x);
in
the
alternative,
that
at
all
relevant
times
the
partnership
was
in
the
business
of
lending
money
and
that
the
said
loss
constitutes
a
loss
arising
in
the
ordinary
course
of
the
business
of
lending
money
and
is
deductible
in
computing
income
pursuant
to
paragraph
11(1)(f)
of
the
Act.*
At
the
trial,
counsel
for
Chaffey
and
Taylor
submitted,
in
line
with
what
was
put
forward
in
the
notices
of
appeal,
that
the
advances
made
by
the
partners.
to
Canadia
were
(a)
outlays
or
expenses
incurred
in
an
adventure
in
the
nature
of
trade,
or
(b),
in
the
alternative,
loans
made
in
the
ordinary
course
of
their
business,
part
of
whose
ordinary
business
was
the
lending
of
money,
and
that
to
the
extent
the
amounts
became
bad
or
doubtful
debts
they
are
deductible
under
paragraph
11(1)(e)
or
(f).
In
his
replies
to
the
notices
of
appeal
the
Minister
admits
that
the
sale
by
Chaffey
and
Taylor
of
a
one-half
interest
in
the
debt
due
to
them
by
Canadia
resulted
in
a
partnership
loss
to
them
in
the
amount
of
$60,365.23;
and
the
Minister
says
that
in
assessing
each
of
the
appellants
he
assumed
that
Canadia
leased
the
land
and
constructed
the
administration
building
and
exhibits
for
the
purpose
of
carrying
on,
and
did
carry
on
between
1965
and
1970,
a
business
of
operating
tourist
attractions;
also
that
in.
assessing
the
appellants
he
assumed
that
the
funds
advanced
to
Canadia
were
to
provide
it
with
working
capital
for
the
carrying
on
of
its
business;
and
the
Minister
submits
that
the
said
loss
was
a
loss
of
capital
the
deduction
of
which
is
prohibited
by
paragraph
12(1)(b)
of
the
Act;
and
that
no
part
of
the
business
of
Chaffey’s
and
Taylor’s
ordinary
business
was
the
lending
of
money
and
the
debt
owed
to
them
by
Canadia
did
not
arise
from
loans
made
in
their
ordinary
course
of
business,
so
that
no
part
of
the
loss
on
account
of
the
debt
is
deductible
pursuant
to
subsection
11(1)
of
the
Act.
At
the
trial,
counsel
for
the
Minister
took
the
same
position
as
in
the
replies
to
the
notices
of
appeal.
Chaffey
and
Taylor
gave
evidence
as
to
their
business
backgrounds
and
activities.
When
in
high
school
Chaffey
worked
in
a
law
office
in
Welland
in
connection
with
real
estate
and
mortgage
transactions,
and
after
completing
high
school
he
started
to
work
full
time
in
that
office
in
the
early
1940’s.
A
few
years
later
Taylor
began
similar
work
in
the
same
office,
and
about
1956
he
and
Chaffey
formed
a
partnership
and
thereafter,
while
continuing
to
work
closely
with
the
law
firm,
engaged
in
arranging
mortgages
and
matching
lenders
and
borrowers,
for
a
commission,
and
they
also
bought
and
sold
real
properties
and
bought
and
held
mortgages.
They
entered
into
a
formal
written
partnership
agreement
in
August
1960
(Exhibit
A-1),
dividing
in
equal
shares
their
income.
In
the
late
1940’s
Chaffey
and
nine
friends,
comprising
an
informal
group,
were
pooling
$50
each
per
month,
and
also
borrowing
from
the
bank,
and
were
using
the
money
to
purchase
mortgages
or
whatever
they
could
make
a
profit
on.
These
ten
persons
then
became
incorporated
as
Harno
Investments
Limited,
and
the
company
carried
on
their
former
activities,
with
the
individuals
continuing
to
contribute
their
$50
per
month,
this
time
to
the
new
company.
H-arno
also
had
a
wholly
owned
subsidiary,
Rano
Investments
Limited,
a
special
type
of
company
incorporated
under
subsection
3(2)
of
The.
Corporations
Act
of
Ontario
(now
The
Business
Corporations
Act),
with
power
to
lend
money
on
the
security
of
real
property.
Thereafter,
from
time
to
time,
Chaffey
and
Taylor,
with
various
other
persons,
incorporated
pairs
of
real
estate
and
mortgage
companies
under
sections
1
and
2
of
that
statute,
and
they
became
shareholders
of
the
companies
and
advanced
funds
to
them,
as
needed,
upon
which
interest
was
charged.
A
number
of
such
companies
(including
Zacko
Holdings
Limited,
previously
referred
to
in
connection
with
the
Canadia
transaction)
and
other
companies
in
which
the
Taylor-Chaffey
partnership
had
shareholdings,
mostly
minority
shareholdings,
are
indicated
briefly
next
herein,
along
with
various
real
estate
transactions
in
which
the
partnership
was
directly
or
indirectly
involved:
1.
Media
Finance
Company
Limited
and
Media
Holdings
Limited.
Taylor
and
Chaffey
promoted
them,
and
Taylor
managed
their
real
estate
and
mortgage
transactions.
2.
Parthia
Investments
Limited
and
Parthia
Holdings
Limited.
Taylor
promoted
and
managed
them.
The
Taylor-Chaffey
partnership
had
a
2/25
shareholding.
3.
Timberhome
Securities
Limited
and
Timberhome
Holdings
Limited.
The
partnership
had
a
2/10
shareholding.
4.
Fivo
Investment
Company
and
a
subsidiary.
5.
Zacko
Investments
Limited
and
Zacko
Holdings
Limited.
Zacko
was
Incorporated
in
the
early
1960’s.
Chaffey,
Taylor
and
three
lawyers
in
the
law
firm
were
the
shareholders
at
that
time,
with
equal
shareholdings.
The
purpose
was
to
develop
real
estate,
purchase
mortgages,
and
invest
in
the
real
estate
and
mortgage
fields.
The
Taylor-Chaffey
partnership
advanced
funds
to
the
companies
from
time
to
time,
including
$60,000
at
the
start.
It
was
intended
that
the
companies
would
carry
on
the
real
estate
and
mortgage
activities
in
which
Chaffey
and
Taylor
were
engaging.
There
was
an
understanding
among
the
shareholders
that
it
was
a
joint
venture,
everyone
participating
in
the
decisions
as
to
the
transactions,
and
generally
Taylor
would
bring
proposed
transactions
for
consideration
and
if
there
was
a
lack
of
unanimity
among
the
shareholders
those
who
wished
to
proceed
with
a
transaction
were
free
to
do
so
on
their
own,
which
sometimes
happened.
There
was
also
a
relationship
between
Zacko-Nebo
and
the
previously
mentioned
companies
under
which
Zacko-Nebo
provided
management
for
them
through
Taylor.
Zacko-Nebo
was
paid
a
finder’s
fee
for
putting
transactions
together
and
placing
mortgages
with
the
companies
and
also
received
a
fee
for
servicing
the
mortgages.
Besides
having
a
40
per
cent
shareholding
in
Zacko-Nebo
the
Taylor-Chaffey
partnership
also
received
compensation
through
a
salary
paid
by
Zacko-Nebo
to
Taylor.
6.
T
C
and
B
Investment
Company
Limited,
whose
business
was
land
development.
The
Taylor-Chaffey
partnership
had
a
50
per
cent
ownership.
The
company
developed
a
property
owned
by
the
partners
in
the
Kitchener-
Waterloo
area;
purchased
property
in
Thorold,
land
and
dwelling
units,
and
subdivided
the
land,
repaired
the
houses
and
sold
them;
and
built
a
shopping
centre
in
Stoney
Creek.
The
partners
sold
their
shares
in
the
company
after
about
3
years.
7.
Host
of
Niagara
Limited,
owed
by
Chaffey,
Taylor
and
certain
other
persons,
who
advanced
money
to
the
company,
with
which
it
purchased
land
in
Niagara
Falls
with
the
intention
of
building
a
motor
hotel,
but
the
project
was
abandoned
when
part
of
the
land
was
expropriated,
and
the
remainder
of
the
land
was
then
sold.
8.
Falls
Way
Hotel
Limited.
The
Taylor-Chaffey
partnership
owned
a
25
per
cent
interest
in
this
company
upon
its
incorporation
by
them
and
6
other
persons.
The
company
built
the
Falls
Way
Hotel
in
Niagara
Falls,
and
still
owns
it,
and
Chaffey
operates
it.
It
was
financed
by
advances
by
the
shareholders.
A
40-room
addition
to
the
hotel
was
built
by
the
group
and
leased
to
the
company,
and
the
Taylor-Chaffey
partnership
receives
its
share
of
the
rental
income.
9.
The
Chippewa
Inn,
purchased
for
$360,000.
Chaffey
originated
the
purchase
and
Taylor
brought
parties
together
to
provide
the
necessary
money.
The
group
included
Zacko-Nebo,
Harno,
Parthia,
and
certain
individuals.
The
Taylor-Chaffey
partnership
got
a
fee
of
5
per
cent
of
the
purchase
price
for
putting
the
transaction
together,
and
Zacko-Nebo
receives
a
yearly
management
fee.
10.
Land
in
Fonthill,
purchased
by
Parthia
and
another
person,
and
divided
into
40
lots,
which
were
sold
in
the
course
of
several
years.
Taylor
developed
the
purchase
and
subdivision,
and
the
Taylor-Chaffey
partnership
was
compensated
through
Parthia.
11.
The
Lincoln
Plaza
Shopping
Centre
in
Welland,
built
by
Zacko-Nebo.
Taylor
put
the
development
together,
and
the
partnership
received
compensation
through
Taylor’s
salary
from
Zacko-Nebo.
12.
An
extension
of
the
Lincoln
Plaza
Centre
by
a
partnership
consisting
of
Zacko-Nebo
and
Subilomar
Limited,
owned
by
one
Mayer.
Taylor
and
Chaffey
were
actively
involved,
along
with
companies
in
which
they
were
shareholders.
13.
5
homes
in
St
Catharines,
purchased
by
Zacko-Nebo
and
later
resold.
14.
3
industrial
buildings
in
Niagara
Falls,
purchased
in
1962
by
Zacko-
Nebo
and
resold
about
5
years
later.
Chafey
and
Taylor
engineered
the
purchase,
and
Taylor
engineered
the
sale.
15.
10
lots
in
Niagara
Falls,
purchased
by
Zacko-Nebo,
Fermo
Holdings
and
Mayer
in
anticipation
that
a
factory
would
be
built
on
the
lots
for
the
Oneida
company,
but
the
plans
fell
through,
and
nine
of
the
lots
were
subsequently
resold.
16.
N
D
H.
Developments
Limited,
a
company
in
Toronto
that
speculates
in
land
and
land
development.
Taylor
and
Chaffey
became
shareholders
and
made
advances
to
the
company,
and
later
sold
their
interest
in
the
company
at
a
profit.
17.
A
transaction
in
which
the
Taylor-Chaffey
partnership
advanced
money
to
a
realtor
in
St
Catharines,
Henry
Spurek,
and
acquired
a
49
per
cent
interest
in
his
business,
which
interest
Taylor-Chaffey
later
sold
to
Zacko-
Nebo,
and
the
business
became
incorporated
as
Dinsdale
Realty
Limited.
18.
70
acres
on
Rice
Road,
Welland,
bought
by
Zacko-Nebo
and
a
development
company
called
River
Realty,
about
30
acres
of
which
were
later
sold.
Taylor
was
instrumental
in
engineering
the
purchase
and
sales
as
an
employee
of
Zacko-Nebo.
19.
50
acres
on
Rice
Road,
Welland,
in
which
the
Taylor-Chaffey
partnership
acquired
an
interest
after
Zacko-Nebo
declined
to
participate.
The
land
is
being
held
for
development
or
sale.
20.
6
acres
in
the
Toronto
area,
which
Zacko-Nebo
and
another
person
bought,
and
they
later
sold
part
of
it.
21.
6
lots
with
frontage
on
Lake
Erie,
purchased
for
the
personal
purposes
of
Chaffey
and
Taylor.
Chaffey
took
2
of
the
lots
and
built
a
house
there
for
himself,
Taylor
took
2
of
the
lots,
and
the
other
2
were
resold.
22.
27
acres
bought
from
the
Estate
of
Clarence
Davidson.
Zacko-Nebo
purchased
the
property
and
later
resold
it.
23.
The
Beverly
Hills
Hotel
in
Toronto,
bought
in
1965.
The
Taylor-Chaffey
partnership
became
interested
in
this
project
during
its
planning
stage.
Zacko-Nebo
declined
to
participate.
The
partnership
then
organized
another
group,
formed
a
company
called
Paro
Investments
Limited,
in
which
Taylor
and
Chaffey
held
a
20
per
cent
interest,
and
Chaffey
was
president,
Taylor
was
secretary,
and
both
were
directors.
The
hotel
was
owned
by
2
other
companies,
Fishers
Four
Limited
and
Stola
Investments
Limited.
Paro
bought
stock
in
these
other
companies
and
advanced
money
to
them
for
the
hotel
project,
$108,000
to
Stola
and
$36,000
to
Fishers
Four.
Paro
later
sold
its
‘shares
in
those
companies
at
a
profit
which
has
been
assessed
for
tax
by
the
Minister
on
the
assumption,
according
to
information
given
on
examination
for
discovery,
that
Paro’s
dealings
with
Stola
and
Fishers
Four
were
speculative
in
nature
in
that
they
were
designed
to
yield
to
Paro
a
profit
on
the
contemplated
resale
of
the
shares
it
acquired
in
those
companies,
and
consistent
with
such
assumptions
the
Minister
allowed
loans
to
those
two
companies
as
deductions
in
computing
the
profit
realized
by
Paro
on
the
sale
of
the
shares.
Chaffey
spends
a
considerable
portion
of
his
time
managing
the
Falls
Way
Hotel,
and
Taylor
looks
after
the
mortgages
and
real
estate
business
on
behalf
of
the
companies.
The
various
mortgage
companies
in
which
Chaffey
and
Taylor
have
shareholdings
also
carry
on
a
mortgage
business,
either
providing
money
on
mortgages
or
acting
for
mortgage
lenders.
The
number
of
mortgages
run
to
about
250
to
300
yearly,
and
the
amount
of
all
the
mortgages
at
the
time
of
the
trial
was
about
$18,000,000.
The
bulk
of
the
money
invested
by
the
company
in
mortgages
was
money
belonging
to
the
companies,
but
it
was
money
which
the
shareholders
had
provided
or
guaranteed
for
the
purposes.
The
preponderance
of
the
advances
made
by
the
Taylor-Chaffey
partnership
to
the
companies
were
to
companies
in
which
Taylor
and
Chaffey
were
shareholders.
They
did
not
in
the
years
1964
to
1971
personally
or
as
a
partnership
lend
money
otherwise,
except
for
some
small
personal
loans,
nor
advertise
that
they
personally
or
as
a
partnership
had
money
to
lend
to
the
public.
In
that
respect,
the
following
testimony
of
Chaffey
appears
at
pages
155-6
of
the
transcript,
where
he
was
cross-examined
by
counsel
for
the
respondent:
Q.
No,
all
right.
So
then
I
take
it
that
throughout
1964
to
1971
the
only
companies
that
you
or
Mr
Taylor
acting
in
partnership
advanced
money
to
were
companies
in
which
you
or
Mr
Taylor
had
a
shareholding
interest?
A.
That’s
correct.
Q.
Did
you
lend
to
anyone
else
in
those
years
other
than
companies?
A.
Oh,
small
personal
debts.
Q.
Could
you
specify?
A.
A
student
going
through
school.
I
lent
some
money
to
a
student
going
through
school,
but
just
small
personal
things,
nothing
that
would
be
significant,
I
don’t
think.
Q.
This
was
no
regular
thing?
A.
No.
Q.
Now,
did
you
or
Mr
Taylor
advertise
in
any
publication
or
otherwise,
on
the
radio,
television,
I
don’t
know,
in
any
way,
that
you
or
Mr
Taylor
or
both
of
you
acting
in
partnership
were
lending
money
to
anyone
or
willing
to
lend
money
to
anyone?
A.
Not
as
a
partnership,
just
through
the
companies.
Q.
Pardon
me,
“through
the
companies”,
you
mean
the
companies
advertised
that
they
had
money
available
for
lending?
A.
Nebo-Zacko.
Q.
Nebo-Zacko.
But
I
mean
you
personally,
did
you
personally
or
Mr
Taylor
personally
advertise
that
you
personally
and
Mr
Taylor
personally
had
money
to
lend?
A.
No.
and
at
page
226,
on
re-examination
by
counsel
for
the
appellants:
:
Q.
Now,
Mr.
Chambers
also
pointed
out
that
the
Taylor-Chaffey
partnership
at
least
since
1960
has
not
advertised
that
it’s
in
the
money
lending
business
to
the
public,
that’s
correct?
A.
That’s
correct.
Q.
Now,
we
did
however
review
a
substantial
number
of
cases
in
which
the
Taylor-Chaffey
partnership
has
lent
money
to
various
private
corporations?
A.
Yes,
sir.
Q.
In
which
the
Taylor-Chaffey
partnership
is
a
shareholder
as
well?
A.
Yes.
In
that
respect
also
Taylor
was
questioned
by
Mr
Chambers
as
to
whether
he
was
personally
engaged
in
the
mortgage
business
between
1964
and
1971,
and
the
following
appears
at
pages
288
and
289
of
the
transcript:
His
Lordship:
Do
you
understand
just
what
Mr
Chambers
is
asking
you?
I
think
what
he
is
trying
to
find
out
from
you
is
to
what
extent
either
you
or
Mr
Chaffey
lent
money
in
your
personal
capacity
on
mortgages.
Mr
Chambers:
That’s
exactly
it,
yes.
A.
Usually
it
was
through
these
various
companies
that
we
were
associated
with
that
we
loaned
the
mortgage
money.
Now,
there
might
be
the
odd
one,
I
would
have
to—I
haven’t
finished
looking—but
most
of
the
mortgages
that
we—were
directed
to
various
companies
that
we
were
associated
with.
Q.
These
companies
loaned
the
money
on
the
security
of
mortgages?
A.
Yes.
Q.
And
these
companies
were
the
mortgagees?
A.
Yes.
Q.
All
right.
The
question
was
whether
you
loaned
any
moneys
on
mortgages—where
you.
were
the
mortgagee,
in
other
words,
personally,
Mr
Taylor,
Mr
Chaffey?
His
Lordship:
Which
goes
back
to
the
question
whether
or
not
either
he
or
Mr
Chaffey
had
a
reputation
in
the
community
of
lending
money
personally
on
mortgages?
Mr
Chambers:
That’s
right,
yes.
A.
Most
of
our
mortgage
lending
was
done
through
the
various
companies
that
we
were
associated
with.
Q.
Wasn’t
it
all
the
mortgage
money,
Mr
Taylor?
A.
Beg
pardon?
Q.
Wasn’t
it
all
or
substantially
all
the
mortgage
money
that
was
loaned—
A.
The
larger
portion
of
it
I
believe
is
correct.
Q.
—was
loaned
by
the
companies?
A.
I
believe
that’s
correct.
However,
Taylor
also
said
that
he
and
Chaffey
were
lending
money
directly
and
personally
prior
to
1960.
Taylor
is
a
director
and
officer
of
most
of
the
companies
in
which
he
and
Chaffey
have
shareholdings,
and
he
said
that
it
is
well
known
in
their
area
that
they
are
in
the
moneylending
and
mortgage
business;
that
potential
real
estate
and
mortgage
transactions
and
deals
come
to
the
attention
of
himself
or
Chaffey
or
some
member
of
the
Zacko-Nebo
board
of
directors
and
if
a
deal
looks
as
it
could
be
handled
at
a
profit
it
is
then
brought
first
to
that
board
for
acceptance
or
rejection,
and
if
it
is
not
accepted
by
Zacko-Nebo
any
of
the
group
are
free
to
get
involved
in
it
otherwise.
Now,
moving
again
to
the
acquisition
of
the
40
acres
in
Niagara
Falls,
and
the
Canadia
transaction.
The
appellants
testified
that
when
the
land
was
being
acquired
there
were
discussions
as
to
how
it
could
be
developed
and
increased
in
value,
including
its
potential
for
a
motel,
a
tourist
attraction
and
a
shopping
centre,
with
5
acres
for
the
motel,
10
for
the
tourist
attraction
and
the
remainder
for
a
shopping
centre,
other
tourist
attractions
or
whatever
would
be
the
highest
and
best
use.
Compton-Smith
introduced
the
concept
of
the
tourist
attraction.
The
appellants
testified
that
they
thought
it
would
bring
a
traffic
flow
and
be
profitable
and
would
attract
other
tourist
attraction
businesses
to
use
other
portions
of
the
land,
and
that
it
would
lead
to
the
development
of
the
land
and
enhance
its
value.
It
was
therefore
decided
to
start
off
with
a
tourist
attraction
and
Canadia
was
incorporated,
its
objects,
as
stated
in
its
letters
patent,
being:
(a)
To
carry
on
the
business
of
operating
tourist
attractions;
(b)
To
operate
all
kinds
of
machines
and
equipment
for
the
said
purpose;
and
(c)
To
operate
a
lunch
counter
and
restaurant.
Canadia’s
lease
(Exhibit
A-5)
of
the
tourist
attraction
portion
of
the
40
acres
provided
for
an
initial
term
of
10
years,
with
an
option
to
the
lessee
to
renew
it
for
a
further
period
of
two
terms
of
5
years
each,
and
for
payment
of
an
annual
rent
of
$19,200
or
an
amount
based
on
a
percentage
of
the
gross
sales
of
the
company,
whichever
amount
is
the
greater,
and
rent
for
the
renewal
period
to
be
determined
upon
exercise
of
the
option
to
renew
the
lease.
As
to
the
length
of
the
term
and
the
provision
for
escalation
of
rent,
Taylor
and
Chaffey
said
that
the
long-term
lease
would
make
the
Canadia
operation
more
viable
and
more
marketable,
and
that
if
the
operation
had
been
profitable
they
would
have
retained
their
interest
in
the
company
unless
they
found
a
willing
buyer,
and
that
they
would,
as
owner
of
an
interest
in
the
land,
still
continue
to
share
in
the
profits
of
the
tourist
attraction
through
the
rental
income
based
on
a
percentage
of
the
sales,
even
after
disposing
of
their
shares
in
the
company.
The
balance
sheets
of
Canadia
show
advances
by
shareholders
totalling
$887,928.67
as
at
December
31,
1967
and
$987,099.05
as
at
the
end
of
1968.
Its
schedules
of
fixed
assets
show
such
assets
in
the
amount
of
$872,005.45
at
December
31,
1967
and
$890,294.26
at
the
end
of
1968.
The
income
tax
returns
of
Canadia
show
no
revenues
in
the
years
1964
and
1965
(before
it
opened
for
business)
and
net
losses
in
those
years
of
$43,156.15
and
$108,245.73,
respectively;
gate
admissions
of
$33,006.14
in
1966,
$71,122.29
in
1967,
$91,335.99
in
1968,
and
net
losses
of
$288,292.03,
$202,567.48
and
$194,679.35,
respectively,
in
those
years.
After
reducing
their
shareholding
in
Canadia
to
2,482
shares
in
January
1968
Taylor
and
Chaffey
later,
before
the
end
of
that
year,
purchased
784
shares
from
Compton-Smith,
who
prior
thereto
had
6,000
shares,
as
he
wanted
to
withdraw
from
the
venture
and
was
bought
out
by
other
shareholders.
By
June
1970
Taylor
and
Chaffey
had
increased
their
shareholding
to
3,374
shares.
The
appellants
said
that
by
early
1969
it
was
clear
to
the
beneficial
owners
of
the
land
that
the
Canadia
tourist
attraction
would
not
be
profitable
and
they
decided
to
terminate
it
and
to
change
the
business
of
the
company
from
that
of
a
tourist
attraction
operation
to
that
of
a
land
developer
which
would
develop
the
land
and
perhaps
sell
it;
and
in
furtherance
of
that
change
in
plans
all
the
original
40
acres,
together
with
some
adjoining
lots
that
had
been
acquired,
were
sold
to
Canadia
under
an
agreement
dated
March
24,
1970
(Exhibit
A-8).
Subsequently
Canadia
entered
into
an
agreement
with
Subilomar
Properties
(Ontario)
Limited,
dated
May
19,
1970
(Exhibit
A-6),
for
sale
of
a
portion
of
the
land
for
use
as
a
regional
shopping
centre,
and
a
building
permit
was
obtained,
but
a
court
injunction
was
obtained
against
construction
of
the
proposed
shopping
centre,
and
the
transaction
fell
through.
After
that
agreement
was
entered
into
the
tourist
attraction
buildings
were
razed
and
the
models
were
removed
to
storage.
Canadia
later
entered
into
an
agreement
(Exhibit
A-10)
dated
December
1,
1974
with
Western
Realty
Shopping
Centres
Ltd,
which
provides,
inter
alia
and
subject
to
certain
conditions,
for
sale
of
the
greater
portion
of
the
land
to
the
latter
company,
and
for
a
rezoning
to
permit
construction
on
it
of
a
regional
shopping
centre,
in
which
Canadia
will
own
an
interest.
Prior
to
that
change
in
plans
for
Canadia,
the
only
plan
that
Canadia
had,
as
a
company,
was
the
construction
and
operation
of
a
tourist
attraction.
There
was
evidence
that
money
was
advanced
to
the
Taylor-Chaffey
partnership
by
Elwood
Glenn,
C
J
Clarke
and
J
L
Fulop
in
connection
with
Canadia.
The
arrangement
is
set
forth
in
a
document
(Exhibit
A-11),
dated
May
17,
1972,
signed
by
Taylor,
Chaffey,
Glenn
and
Clarke
(Fulop
being
deceased),
and
I
think
that
the
following
excerpts
from
the
document
indicate
substantially
the
substance
of
the
arrangement:
1.
In
approximately
April,
1968,*
at
a
time
when
it
appeared
that
Canadia
was
going
to
be
a
successful
venture,
these
individuals
invested
the
following
sums:
|
.
..,
Elwood
Glen
|
—
|
$7,500.00
|
|
C
J
Clarke
|
—
|
$18,037.50
|
|
Frank
N
Fulop
|
—
|
$5,000.00
|
Frank
Fulop’s
investment
was
not
a
direct
cash
investment.
In
fact,
his
limited
company
F
N
Fulop
Plumbing
and
Heating
Ltd
had
done
certain
work
for
Canadia
in
April,
1968,
and
there
was
a
balance
of
$5,000.00
owing
to
F
N
Fulop
Plumbing
&
Heating
Ltd.
In
effect,
Taylor
and
Chaffey
agreed
to
pay
this
$5,000.00
by
asigning
to
F
N
Fulop
Plumbing
and
Heating
Ltd
a
proportionate
interest
in
their
investment
in
Canadia.
Canadia
then
gave
Erwin
Taylor
and
Charles
Chaffey
credit
for
this
amount.
2.
The
arrangement
between
these
three
investors
and
Erwin
Taylor
and
Charles
Chaffey,
was
that
they
were
to
receive
a
proportion
of
Taylor
and
Chaffey’s
interest
in
Canadia
Niagara
Falls
Limited.
.
.
.
3.
These
three
investors
Elwood
Glenn,
C
J
Clarke
and
F
N
Fulop
Plumbing
and
Heating
Ltd
were
to
share
in
the
profits
of
this
investment
and
also
the
losses.
They
were
to
contribute
proportionately
as
further
funds
were
required
and
were
to
receive
any
profits.
Thye
were
also
to
guarantee
their
portion
of
the
bank
loan
of
approximately
$750,000.00
at
the
Bank
of
Montreal.
However
(1)
no
further
amounts
have
been
requested
from
these
three
investors
and
(2)
no
guarantees
have
been
signed
by
these
investors.
Taylor
and
Chaffey
have
decided
not
to
request
any
further
funds
or
guarantees
and
thus
there
is
no
further
liability
by
Elwood
Glenn,
C
J
Clarke
and
F
N
Fulop.
5.
The
present
standing
of
Erwin
Taylor
and
Charles
Chaffey
in
this
investment
is
as
follows:
.
(d)
Canadia
Niagara
Falls
Ltd
and
the
whole
investment
are
in
serious
difficulties.
Attempts
are
being
made
to
re-zone
and
sell
the
land.
Previous
attempts
to
re-zone
the
land
have
resulted
in
litigation
and
the
attempt
to
re-zone
has
been
unsuccessful.
Any
profits
available
from
the
sale
of
this
property
will
be
paid
proportionately
to
Elwood
Glenn,
C
J
Clarke
and
the
Estate
of
Frank
N
Fulop
which
is
the
assignee
of
this
investment
from
F
N
Fulop
Plumbing
and
Heating
Ltd.
As
to
the
formation
of
the
numerous
companies
Taylor
said
that
in
the
case
of
transactions
in
which
Zacko-Nebo
did
not
participate
the
transactions
would
be
undertaken
sometimes
through
a
partnership
arrangement
and
sometimes
through
formation
of
a
new
company,
it
being
simpler
to
operate
as
a
company,
particularly
where
a
number
of
persons
were
involved.
Chaffey
also
said
that
such
arrangements
in
which
partnerships
or
joint
ventures
are
formed
to
develop
land
are
common
with
him
and
Taylor
and
that
the
various
participants
put
up
their
share
of
the
costs
as
they
go
on.
The
advances
made
by
Taylor
and
Chaffey
to
Canadia
and
other
companies
were
not
included
by
them
as
expenses
or
in
computing
their
income
in
their
tax
returns
for
the
years
1964
to
1971,
except
that
there
was
shown
in
their
returns
for
1968
the
loss
which
is
in
issue
in
this
appeal
and
the
loss
on
the
sale
of
/2
of
their
interest
in
the
40
acres
to
Fermo
Holdings
in
that
year,
and
in
their
returns
for
1971
the
profit
on
the
disposition
of
the
remainder
of
their
interest
in
the
land
to
Canadia.
Having
outlined
or
referred
to
a
large
portion
of
the
evidence
and
contentions,
I
will
now
indicate
my
conclusions.
Firstly,
as
to
the
acquisition
of
the
40
acres
in
Niagara
Falls.
On
my
appreciation
of
the
evidence
!
have
reached
the
conclusion
that
the
business
of
the
Taylor-Chaffey
partnership
included
the
acquiring
of
land
or
interests
in
land
to
be
developed
or
sold
or
otherwise
turned
to
advantage,
and
that
in
the
course
of
that
business
the
partnership
acquired
part
ownership
of
the
40
acres
as
a
speculative
venture
of
a
trading
character
in
which
the
land
would
be
developed
or
sold
or
otherwise
turned
to
advantage.
Secondly,
and
specifically
in
respect
of
Canadia.
It
is
my
conclusion
that
the
Taylor-Chaffey
partnership
joined
with
the
other
owners
of
the
land
and
with
a
non-owner,
Compton-Smith,
to
form
Canadia
as
a
separate
venture
with
an
intention
to
construct
a
long-term
tourist
attraction
and
operate
it
for
the
purpose
of
deriving
income
from
its
operation,
and
it
was
operated
with
that
intention
and
for
that
purpose
until
hope
for
its
profitability
was
lost
after
much
money
had
been
invested
in
it
and
it
became
apparent
that
its
operation
was
not
living
up
to
the
original
expectations
for
it.
It
appears
to
me
that
Taylor
and
Chaffey
were
at
the
start
very
confident
that
the
operation
of
such
an
attraction
in
Niagara
Falls
modelled
on
the
concept
of
the
Madurodam
tourist
attraction
in
Holland
would
be
successful
in
its
own
right,
and
although
they
also
thought
the
tourist
attraction
would
enhance
the
value
of
the
land
and
attract
development
for
the
portion
of
the
land
not
required
by
Canadia,
that,
in
my
opinion,
was
to
be
an
indirect
side
effect
of
the
operation
of
the
attraction,
and
the
governing
and
dominant
motive
for
the
formation
of
Canadia
and
the
establishment
of
the
tourist
attraction
was
the
belief
that
it
had
a
particularly
attractive
earning
potential
on
a
long-term
basis.
Taylor
said
that
even
as
at
the
first
of
February
1968,
when
he
and
Chaffey
sold
/2
of
their
interest
to
Fermo
Holdings,
with
the
resulting
claimed
loss,
they
had
not
given
up
hope
that
Canadia
could
carry
on
its
business
successfully,
but
they
just
could
not
continue
to
carry
the
heavy
expenditures
that
were
demanded
at
that
time.
The
advances
made
by
the
Taylor-Chaffey
partnership
to
Canadia
were,
in
my
opinion,
loans
to
provide
it
with
working
capital
and
were
outlays
of
a
capital
nature,
the
loss
of
which
was
a
Capital
loss
to
the
partnership
and
to
the
partners,
the
deduction
of
which
is
prohibited
by
paragraph
12(1)(b)
of
the
Income
Tax
Act.
The
case
made
on
behalf
of
the
appellants
for
a
contrary
conclusion
that
Canadia
and
its
tourist
attraction
was
an
adventure
in
the
nature.
of
trade,
a
part
of
the
promotion
and
development
of
the
land
for
resale
at
a
profit,
that
Taylor
and
Chaffey
intended
to
sell
their
interest
in
Canadia
when
its
tourist
attraction
became
profitable,
and
that
their
advances
to
Canadia
were
outlays
incurred
in
such
an
adventure
in
trade
and
therefore
the
loss
claimed
by
them
is
deductible,
impressed
me
favourably
at
times
in
my
consideration
of
the
appeals,
and
some
of
the
evidence
tends
to
support
a
conclusion
to
that
effect,
but
on
the
whole
I
finally
came
to
the
conclusion
as
above
stated.
As
to
the
alternative
contention
of
the
appellants
that
the
lending
of
money
was
part
of
the
ordinary
business
of
their
partnership
and
that
the
advances
in
question
to
Canadia
were
loans
made
in
the
ordinary
course
of
such
business,
within
the
meaning
of
paragraph
11(1)(e)
or
(f)
of
the
Income
Tax
Act,
I
think
that
the
evidence
does
not
establish
that
such
was
the
case
in
the
years
1964
to
1968.
The
evidence
shows
that
certain
companies
in
which
Taylor
and
Chaffey
were
officers
and
shareholders
carried
on
a
large
mortgage
business
under
their
corporate
powers
and
that
Taylor
and
Chaffey
provided
shareholders’
advances
to
them
for
that
purpose,
that
they
also
provided
shareholders’
advances
to
other
companies
and
their
share
of
advances
as
participating
purchasers
of
real
estate
or
other
assets,
but
I
do
not
think
that
the
making
of
such
advances
proves
that
the
lending
of
money
was
part
of
their
ordinary
business,
or
that
the
evidence
as
a
whole
proves
that
it
was.
The
appeals
will
therefore
be
dismissed
with
costs,
to
be
taxed.
As
the
appeals
were
heard
together
on
common
evidence,
the
respondent
will
be
entitled
to
only
one
set
of
counsel
fees
at
trial,
to
be
apportioned
equally
between
the
appellants.
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