Robert D Tate v. Minister of National Revenue, [1974] CTC 2088

The Chairman (orally: April 2, 1973):—This is an appeal by Robert D Tate against the reassessment of the Minister of National Revenue for the taxation year 1970, and it is one of those cases that fall within the classification known as trading cases. It is agreed between the parties that the appeal of John Retzlaff, which is number 72-953 of the Tax Review Board, will follow the event in this appeal, No 72-952.

The appellant Tate, Mr Retzlaff and the company known as Heit and Sibbald Ltd together purchased a piece of property in the southeast end of Edmonton in the early part of 1967 for the price of $64,000. They were each one-third owners of the property and they held it until, in. or about the first part of 1970, it was sold—under, I think it is fair to say, a threat of expropriation—at a considerable profit.

The individuals involved, Messrs Tate and Retzlaff, were engaged at the material time with a company known as Coronet Machine and Supply Limited that operated in the general area of the subject property. Without going into detail, that company, which I shall hereafter refer to as Coronet, was a machine-works company, whose operation was tied to the oil industry, and it eventually got into the light-plant business which, roughly described, is the supply of electricity, by way of batteries or services other than normal hydro, to campsites and remote areas where hydro is not available.

Mr Tate and Mr Retzlaff were called as witnesses on behalf of the appellant and they gave as their reason for purchasing this land their belief that Coronet would expand in the years ahead and would need room for that expansion—and, when I say “ahead”, I am thinking now of 1966. They spent some time travelling in the general area in their spare time and on weekends trying to find property that was available for purchase. They found this property, of approximately 35 acres, for sale at $1,800 an acre and, as Mr Tate put it, “We knew that the prices were going up”. I may be paraphrasing but, even though they did not need the property at the immediate time of purchase, it was prudent, in his view and in that of Mr Retzlaff, to purchase it for use in the future. The evidence also indicates that land in the area was going for seven or eight thousand dollars an acre, and this makes the decision of the appellant look rather astute. At the same time, it is conceded that, while this property was within the boundaries of the City of Edmonton, it was in an area that had been annexed by the municipality in or about 1964 and there was a considerable amount of activity to the north of this property, that is to say, between it and the heart of Edmonton, at a distance of only half a mile away, or even less. I suppose it is therefore evident, even to the untrained eye, that the city was expanding in a southerly direction, which is in the direction of the International Airport. However, the International Airport is still a considerable distance outside the city, and I don’t think any importance should be attached to the mere fact that both the property in question and the airport are situated to the south of the City of Edmonton.

Mr Tate’s evidence is that they did not need the land immediately, that they had a 5-year lease, and that it would take them, I believe, 8 years to pay off the property, to which they were not to get title until all the payments were made according to the agreement of purchase and sale filed as Exhibit A-1, which provided for, as I recall it, a $14,000 down-payment and $50,000 payable at something like $600 a month until the balance was paid off.

As already mentioned, there was a third “partner”, and I use that term in quotes, in the transaction, and that was Hett & Sibbald Limited, represented by a Mr Nigro, who owned 50% of the shares of that company and was engaged in the lumber business. Tate and Retzlaff felt they did not require, or would not require, all the land and, perhaps because they felt they could use some financial assistance, persuaded Hett & Sibbald Limited, through Mr Nigro, to enter the project with them.

Testifying for the respondent, Mr Nigro said he looked at the site and saw other commercial and industrial developments in the area and thought this would be a good place to establish a lumber yard and a planing mill, where he could supply rough lumber, lumber being the main business in which he was concerned. He also says that there was no great need at that moment for the property, because a graph of the lumber industry between 1960 and 1968 would consist of little more than a straight line. There was an upsurge in 1969, but he said it didn’t continue.

In any event, it has been pointed out that, through his company, he was also an appellant before the Board as a result of the reassessment that took place following the sale of this property, and although I am satisfied that he gave his evidence in a fair and straightforward manner, he could not but be affected by the knowledge that the outcome of this appeal would also affect him.

Conversely, counsel for the respondent has entered as exhibits the financial statements filed with the income tax returns for the material years of Mr Nigro’s company, Hett & Sibbald Limited, and I take the position that, although that company has also appealed to this Board from its assessments, it is not unlike a co-defendant in a normal law- suit, where admissions by one defendant would not be admissible to the detriment of another defendant but would only be used against the defendant making such admissions. I say this with reference to a certain conclusion which appears on the financial statement of Hett & Sibbald Limited. How or why it is included there is not material to this case and will not form any part of the basis upon which I shall determine the outcome of this appeal.

In all these trading cases, as I have said many times, one must try and look to the true intent of the appellants at the material time and keep in mind that it is always easy to be wise after the event and to credit to appellants, on some occasions, a knowledge that, although it seems apparent now, may not have been so to them at the material time. It has been my practice to try and find, in the substance of a transaction, some corroboration for the intention expressed by the purchaserappellant in the witness box. Someone pointed out in a case recently, by reference to a long-standing decision, that if the appellant in a trading case was not prepared to take the stand and assert his original intention was to retain the property for a non-taxable purpose, then the case would not have reached the appeal stage, and so it is the very least that the appellant can do. One therefore expects appellants to give that evidence and, looking back over the years, I believe that they give “their best recollection” of what their intention was at the material time.

So, for these reasons, I—and I think the members of this Board generally—try to piece together from the other bits of information revealed, either through exhibits or testimony, what circumstances might sub- santiate the contentions of one party or the other in these appeals.

There are some things about this transaction that I cannot overlook. We have the situation where, although none of the individuals were engaged, either personally or through shareholdings, in real estate transactions or in any company involved in real estate transactions, they were obviously astute businessmen familiar with the City of Edmonton. They made no attempt to check the zoning, or, if they did make an attempt and if they did know, as they should have known, that the property they purchased was in an area zoned for agricultural use, that knowledge should have immediately brought to their minds the need for an eventual zone change before they could fulfil their obligations or satisfy their desires to expand in a location which was, as they have said, desirable for the reason that their suppliers and their customers were in the surrounding area. They did nothing whatsoever to have the zoning changed and they did nothing to move their operation, although this is explained by the fact that there was a dip in their business. Yet, if an organization known as Guthrie Mc-Laren Drilling Limited were able to obtain a zone change, they were prepared, within 15 months of the purchase of the property, to enter into an agreement— if I accept the testimony before me—to turn this property into a trailer court.

Mr Cuthill, of Guthrie McLaren Drilling Ltd, gave evidence that his company had many transient workers who were engaged by the company and who lived in trailer accommodations while so employed. It was becoming nearly impossible to acquire facilities for them in or about the City of Edmonton, and his company was prepared to invest $100,000 to $150,000 to make this land available to its employees as a trailer site within a short distance of the company’s operation. It was Cuthill who made the application to the City for a zoning change. Tate, who was the spokesman for himself and the other two partners who were involved in the transaction, took no action in this regard and left it to Cuthill to deal with the City. The City turned down the application for this project, which, according to Cuthill, would have been a profitable operation had it been allowed to proceed, and eventually would have made use of the entire parcel of land in question.

With their business in a period of, not depression in the sense in which we use it, but, in the economic sense, certainly on the downswing, Tate and Retzlaff did nothing to enhance their opportunity to obtain investment returns from this property. Subsequently, almost three years to the day from its purchase, the property was sold at $4,100 an acre to the Alberta Housing and Urban Renewal Corporation, whose representatives arrived at this purchase figure through negotiation and after, I have no doubt, threatening expropriation. However, as has been pointed out by counsel for the respondent, whether or not expropriation is the means of disposal is not relevant to the taxability of the profits.

The situation and the surrounding circumstances lead me to the conclusion that the appellant in this case entered into the transaction purely and simply as a matter of speculation, a business venture in the nature of trade; that it was the intent, at all times, to make a profit on the transaction when the opportunity presented itself, and that the profit realized resulted from foresight in purchasing land in an area that was eventually going to be engulfed by construction and development.

In my view, it makes no difference whether the subsequent purchaser turned out to be a company, created by the Alberta Government, which may not have been in existence at the time the land was purchased, or whether one of the other expanding companies might have achieved the same result.

From the inactivity of the appellant in this case, I cannot conclude that there was any real intent to use this land for the future development of Coronet. The mere fact that the partners sold it and were not able to replace it, even on the terms of some $20,000 an acre that is in evidence as the current asking price for suitable land, indicates to me that they would have moved more quickly had they really desired this property for their future business operations. It is also questionable whether, even had they moved earlier, they would have been successful in getting the zoning changed to industrial, because it appears that the City of Edmonton intended that this area would not be zoned industrial for some years, and again I cannot help but come to the conclusion that their foresight led them to believe that the property had a value much greater to them than any possible future use in their business operation.

For these reasons, and from the material filed as exhibits, I feel that the appellant has failed to discharge the onus of showing that the Minister was wrong, either in fact or in law, in the assessment before me, and the appeal is therefore dismissed. The appeal of John Retzlaff will therefore also be dismissed.

Appeal dismissed.