Kerr,
J
—This
is
an
anneal
in
respect
of
the
income
tax
assessment
of
the
appellant
for
his
1968
taxation
year.
The
contested
issue
relates
to
a
profit
realized
on
the
sale
of
an
apartment
building
property.
The
appellant
claims
that
the
building
was
constructed
and
operated
as
a
capital
asset
to
provide
rental
income:
for
him
and
his
wife
and
to
provide
a
place
for
them
to
live.
The
respondent
claims
that
the
profit
is
income
from
a
business
within
the
meaning
of
sections
3
and
4
and
paragraph
139(1
)(e)
of
the
Income
Tax
Act.
The
apartment
property
is
called
“County
Down”.
It
is
in
White
Rock,
British
Columbia.
The
land
was
acquired
by
the
appellant
in
1964.
Construction
of
the
building
was
commenced
in
July
1265,
and
completed
in
1966.
The
appellant
and
his
wife
moved
into
the
build-
ina
in
late
1965
and
lived
there
and
looked
after
and
managed
the
property
until
it
was
sold
in
December
1967.
The
profit
realized,
the
emount
of
which
is
not
disputed,
was
$69,494.17.
The
evidence
indicates
that
County
Down
is
a
frame
apartment
building,
with
27
suites.
There
are
two
penthouse
suites,
one
of
which
was
occupied
by
the
appellant
and
his
wife.
The
building
has
many
attractive
features,
including
a
“U”
shape
that
gives
an
unobstructed
view
to
most
of
the
tenants,
an
inner
court
yard,
corridors
with
natural
light
and
ventilation,
an
elevator,
zone
controlled
heating,
and
special
television
antenna.
According
to
the
architect
who
designed
the
building,
Mr
Heiss,
and
other
witnesses,
there
were
features
that
were
better
than
usually
found
in
apartment
buildings
in
White
Rock,
and
they
increased
the
cost
of
the
building.
County
Down
is
near
the
business
core
of
White
Rock,
which
is
about
28
miles
south
of
Vancouver
and
is
becoming
a
retirement
locality.
A
statement
showing
the
source
of
the
funds
for
the
purchase
of
the
land
and
construction
of
County
Down
(Exhibit
A-1)
was
given
in
evidence.
The
land
was
acquired
in
1964
for
$4,600,
part
of
which
came
from
the
proceeds
of
the
sale
of
a
duplex
house
owned
by
the
appellant.
The
money
for
construction
included
$151,000
obtained
on
a
mortgage
from
Western
Canada
Savings
&
Loan
Company
in
July
1965,
$20,000
obtained
from
one
Maddock
on
a
second
mortgage,
$10,000
on
another
mortgage
(Oak),
and
several
small
personal
loans.
The
statement
puts
the
equity
of
the
appellant
in
the
property
at
$23,169.21,
out
of
a
total
cost
shown
in
the
statement
of
$188,289.84.
The
building
was
constructed
by
Carline
Construction
Ltd,
a
company
which
the
appellant
caused
to
be
incorporated
in
1965,
and
which
is
owned
by
the
appellant
and
his
wife.
The
appellant
used
the
company
to
build
County
Down
and
a
number
of
houses.
The
appellant’s
premises
were
used
for
the
company’s
office
purposes.
The
appellant
has
a
historical
background
as
a
lumber-mill
worker
and
house
builder
prior
to
building
County
Down.
He
had
a
grade
XI
education,
married
at
about
19
years
of
age,
took
a
course
in
lumber
grading
and
shipping,
started
work
in
that
capacity
in
1950
and
a
few
months
later
moved
to
Vancouver
where
he
was
employed
as
an
export
grader
in
a
lumber
mill.
In
1950,
making
use
of
his
basic
knowledge,
he
built
a
small
house
on
Tanner
Street
in
Vancouver
and
lived
there
for
about
four
years.
In
1953
he
bought
a
lot
on
Patrick
Street
in
South
Burnaby
and
built
a
home
on
it
and
he
and
his
wife
moved
into
it.
This
property
was
financed
by
sale
of
his
first
house
and
a
mortgage.
He
lived
there
until
1957,
then
sold
the
Burnaby
house
and
built
another
house
in
Surrey
nearer
his
place
of
employment,
.financing
it
by
sale
of
the
Burnaby
home
and
through
a
mortgage.
He
lived
there
until
1959,
then
sold
it
and
built
a
4-suite
apartment
house
and
lived
there
in
one
of
the
suites
for
about
two
years,
then
traded
it
for
a
larger
7-suite
apartment
house,
which
he
sold
and
acquired
two
more
properties
and
later
sold
them.
In
1961
he
built
a
duplex
at
112
Avenue,
Surrey,
in
which
he
lived
until
he
moved
into
County
Down
in
1965.
During
the
years
in
which
he
was
building
those
houses
he
was
working
night
shift
at
the
mill
and
putting
up
the
houses
in
his
spare
time,
getting
credit
and
favourable
prices
from
the
mill.
His
earnings
from
the
mill
were
about
$300
to
$400
per
month,
and
there
were
some
earned
bonuses.
His
wife
helped
as
much
as
she
could
in
the
building
of
the
houses,
painting
and
in
other
ways.
In
1966
and
1967
and
in
the
years
following
the
sale
of
County
Down
the
appellant
was
actively
engaged
in
the
business
of
acquiring
land
and
in
building
houses
for
sale,
to
a
much
greater
extent
after
sale
of
County
Down
than
prior
thereto,
all
done
in
the
name
of
Carline
Construction.
His
1968
income
tax
return
shows
that
he
received
earnings
of
$7,600
from
Carline,
which
was
proceeds
from
the
building
of
the
houses,
and
$4,800
from
similar
sources
in
1967.
He
is
working
manager
for
Carline
at
a
salary
of
$20,000
for
1972,
$16,000
for
1971.
The
appellant’s
activities
in
acquiring
land
and
building
and
selling
houses
in
the
years
concerned
were
factors
leading
the
respondent
‘o
treat
the
County
Down
transaction
as
a
business
venture
for
profit.
The
appellant
testified
that
he
left
his
job
as
a
sawmill
worker
to
work
on
the
construction
of
County
Down.
As
to
his
purpose
in
building
it
he
said
that
he
realized
that
he
could
not
advance
further
in
his
sawmill
occupation
and
he
and
his
wife
decided
to
build
County
Down
and
have
it
for
rental
income
and
as
a
home;
he
had
been
working
night
shift
for
years
in
the
sawmill
and
had
built
some
houses
in
his
spare
time,
with
his
wife
helping
with
some
of
the
labour
involved,
such
as
painting;
he
had
no
thought
of
selling
County
Down
until
after
numerous
unexpected
and
disturbing
problems
developed
in
the
operation
of
the
apartments.
The
appellant
and
his
wife
testified
as
to
those
problems,
including
that
of
a
senile
tenant
who
wandered
about,
another
tenant
who
was
imagining
she
was
hearing
strange
noises
and
was
calling
the
appellant’s
wife
in
the
middle
of
the
night,
a
tenant
who
was
overrunning
her
bathtub,
the
occurrence
of
fires
in
some
apartments,
heart
attacks
suffered
by
other
tenants,
and
the
finding
of
one
tenant
dead
in
his
apartment.
Mrs
Ross
had
to
bear
the
brunt
of
these
problems
with
the
tenants,
as
she
was
looking
after
the
building
and
her
husband
was
away
from
it
much
of
the
time
building
another
house,
particularly
in
1967,
in
order
to
augment
their
income.
He
said
that
their
dream
of
operating
the
apartment
building
went
sour
and
it
was
only
after
that
situation
had
developed
and
he
was
being
urged
by
a
real
estate
salesman,
Robinson,
to
sell
the
property,
that
he
and
his
wife
talked
the
situation
over
and
decided
to
give
up
the
operation
of
the
apartment
project
and
sell
the
property.
In
her
testimony
Mrs
Ross
corroborated
her
husband’s
evidence
both
in
detail
and
generally.
As
to
the
sale
of
the
property,
the
appellant
said
that
Robinson,
the
real
estate
agent;
approached
him
in
the
spring
of
1967
and
wanted
him
to
sell,
but
he
refused.
A
few
months
later
Robinson
again
urged
him
to
sell,
and
as
by
this
time
he
was
fed
up
with
the
problems
in
the
operation
of
the
apartments
he
agreed
to
give
Robinson
a
listing
for
sale
at
an
asking
price
of
$270,000,
which
was
based
on
a
rental
return
basis.
In
September
Robinson
brought
an
offer
from
one
Vyburin
to
buy
the
property
for
$252,000,
on
terms
that
would
provide
a
down
payment
of
$52,000,
assumption
of
a
first
mortgage
of
$148,000,
and
a.
second
mortgage
of
$52,000
to
the
appellant
that
would
give
him
monthly
payments
of
$400.
The
down
payment
enabled
him
to
pay
$20,000
on
his
second
mortgage
borrowing
to
construct
the
building,
and
$10,000
on
the
Oak
mortgage,
plus
the
salesman’s
commission
of
$6,500,
and
provided
a
balance
that
he
was
able
to
use
to
buy
other
land.
He
said
that
the
monthly
payment
of
$400
on
the
second
mortgage
was
particularly
attractive
in
the
circumstances.
He
testified
that
he
had
made
no
other
effort
to
sell
the
property
and
that
after
its
sale
he
had
not
built
nor
operated
any
other
apartment
building.
The
appellant’s
income
tax
returns
for
the
years
ending
February
28,
1967
and
1968
show
rental
income
from
County
Down
of
$27,737
and
$25,027,
respectively,
and
there
was
an
expectation
of
continuing
rent
returns
of
about
those
amounts.
Mr
Robinson,
the
real
estate
salesman,
testified
that
in
the
spring
of
1967
he
was
trying
to
find
a
house
for
a
client
and
he
got
in
touch
with
the
appellant
respecting
a
house
that
the
latter
was
then
building.
This
led
to
him
meeting
the
appellant
in
County
Down,
and
he
proposed
that
Ross
put
up
the
property
for
sale
and
engage
him
as
his
agent
to
sell
the
property.
But
Ross
replied
that
he
intended
to
keep
the
property
as
a
home
and
was
not
interested
in
selling
it.
About
six
weeks
later
Robinson
had
a
client,
Vyburin,
who
owned
an
apartment
building
and
wanted
to
sell
it
and
purchase
another
one,
so
he
went
again
to
Ross.
But
again
Ross
rebuffed
him
and
said
that
in
no
way
was
County
Down
for
sale.
Robinson
said
that
again
in
June
he
was
urging
Ross
to
sell
and
he
suggested
a
price
to
Ross.
On
this
occasion
he
thought
he
could
see
a
weakening
on
the
part
of
Ross
and
so
he
persisted
in
his
efforts
to
get
Ross
to
give
him
a
listing
of
the
property
for
sale.
Eventually
Ross
agreed
to
give
him
the
listing
at
an
asking
price
of
$270,000.
He
then
took
Vyburin
to
see
it,
but
Vyburin
was
unfavourably
impressed
with
the
rental
return.
Robinson
then
advertised
it
for
sale
in
the
Vancouver
Sun,
without
the
appellant
being
aware
of
it.
In
September
he
contacted
Vyburin
again
and
told
him
that
he
thought
he
could
guarantee
a
sale
of
the
apartment
building
owned
by
Vyburin,
and
he
would
also
endeavour
to
get
the
County
Down
rents
raised.
Vyburin
then
made
an
offer,
which
Robinson
took
to
the
appellant,
and
after
some
negotiating
an
agreement
for
sale
(Exhibit
A-2)
was
entered
into
on
October
7,
1967
on
terms
that
included
a
sale
price
of
$252,000,
a
down
payment
of
$1,000
and
a
further
payment
of
$51,000
on
December,
1967,
a
first
mortgage
of
$148,000,
and
a
second
mortgage
of
about
$52,000
to
the
appellant
that
would
give
him
monthly
payments
of
$400,
all
subject
io
Vyburin
being
able
to
sell
the
apartment
building
he
then
owned,
and
subject
also
to
new
rental
rates
for
the
County
Down
apartments
to
be
effective
on
December
1,
1967.
Mrs
Ross,
wife
of
the
appellant,
testified
respecting
their
years
prior
to
County
Down
when
her
husband
was
working
in
the
sawmill
and
building
houses
in
spare
time;
they
had
gradually
moved
up
to
a
better
standard
of
earnings
and
living,
and
decided
to
build
County
Down
to
be
operated
for
rental
revenue
and
to
be
also
their
home.
She
was
active
in
giving
ideas
for
the
planning
and
facilities
to
be
incorporated
in
the
building.
She
was
tired
of
her
husband
working
night
shift
and
trying
to
build
houses
in
his
spare
time
to
supplement
his
mill
earnings.
It
was
their
intention
that
they
would
have
one
of
the
penthouses
as
their
own
home
and
that
she
would
be
on
hand
to
look
after
the
building
and
apartments
generally,
attend
to
the
needs
of
the
tenants,
do
cleaning,
look
after
the
collection
of
the
rents,
and
help
otherwise
to
manage
the
building.
They
regarded
White
Rock
as
being
a
less
expensive
place
than
Vancouver
in
which
to
live.
They
intended
to
make
County
Down
their
home
for
the
future
and
had
never
discussed
or
considered
the
possibility
of
selling
it,
until
after
the
unexpected
problems
in
its
operation
developed.
Mrs
Ross
also
said
that
in
1965
they
had
some
young
tenants
who
were
unsatisfactory
and
they
got
rid
of
them;
also
that
the
occupancy
in
1966
was
at
a
level
that
was
hardly
sufficient
for
their
commitments
and
her
husband
built
a
house
to
earn
additional
money;
by
the
spring
of
1967
occupancy
had
improved,
but
the
unexpected
and
disturbing
problems
and
difficulties
with
some
of
the
tenants,
already
referred
to,
had
developed;
they
had
planned
to
have
older
tenants,
but
the
problems
that
actually
developed
were
much
greater
than
they
had
expected.
When
Robinson
first
proposed
that
they
sell
the
property
they
were
not
interested,
but
the
problems
continued
and
by
the
latter
part
of
1967
she
felt
that
she
could
not
continue
to
face
them,
she
discussed
the
situation
with
her
husband,
and
when
Robinson
came
back
later
they
decided
to
see
whether
a
satisfactory
sale
could
be
arranged
—
and
the
sale
to
Vyburin
eventually
resulted.
There
was
no
cross-examination
of
Mrs
Ross.
Mr
Heiss,
the
architect,
testified
that
the
appellant
wanted
special
features
for
the
apartment
building,
a
better
than
ordinary
building,
that
he
and
his
wife
wanted
it
as
their
home,
and
that
they
never
discussed
with
him
the
economics
of
the
building
or
the
resale
value
of
the
property.
Another
witness,
Mr
Olson,
called
by
the
appellant,
testified
that
he
was
in
the
building
supplies
business
in
the
1960’s
and
had
supplied
the
appellant
with
building
materials,
including
some
for
County
Down.
He
had
not
discussed
with
the
appellant
his
intentions
in
building
County
Down,
but
the
appellant
had
indicated
that
he
could
almost
sit
back
and
live
on
the
income
he
expected
from
the
apartment
wilding.
Another
witness,
Mr
Axdmen,
called
by
the
appellant,
testified
that
he
worked
with
him
in
the
mill
and
the
appellant
had
told
him
that
he
wanted
to
get
away
from
the
sawmill
work
and
was
going
to
build
the
apartment
building
and
would
live
there.
The
witness
had
expressed
doubt
that
White
Rock
was
a
good
place
for
an
apartment
project,
but
the
appellant
said
that
he
had
the
land
and
had
to
start
somewhere;
and
the
possibility
of
selling
the
building
had
never
been
mentioned.
Mr
Hanley,
a
retired
gentleman
who
formerly
had
carried
on
a
real
estate
business
in
White
Rock
and
who
was
called
as
a
witness
by
the
appellant,
testified
that
the
appellant
had
been
in
and
out
of
his
office
in
connection
with
land
that
he
wanted
to
sell
(not
the
County
Down
land)
and
in
his
conversations
he
had
indicated
that
he
intended
‘o
have
one
of
the
suites
in
County
Down
as
his
permanent
home.
Mr
Hanley
was
convinced
that
he
knew
the
appellant’s
intentions
in
respect
of
County
Down
and
said
that
there
were
“no
ifs,
ands
or
buts”
about
the
appellant’s
intentions
to
have
his
permanent
home
in
the
subject
apartment
building.
This
witness
was
not
cross-examined.
Another
witness
was
Mr
Morris,
the
appellant’s
brother-in-law,
who
testified
that
the
appellant
and
his
wife
had
always
definitely
said
that
they
intended
to
stay
in
County
Down,
and
he
was
positive
that
they
had
no
intention,
until
after
they
had
the
troubles
with
the
tenants,
to
cell
the
property.
The
evidence
shows
that
the
appellant
has
a
background
and
history
as
a
builder
of
houses,
in
what
I
regard
as
a
comparatively
small
way
while
he
was
working
in
the
lumber
mill
and
in
his
spare
time
using
his
skill
and
opportunities
to
augment
his
mill
earnings.
His
County
Down
venture
was
on
a
much
larger
scale.
It
was
financed
mostly
on
mortgage
money,
as
many
projects
of
that
kind
are
financed.
In
his
situation
he
did
not
have
the
money
to
contribute
a
large
equity
to
the
cost
of
the
project,
but
contributed
his
labour.
After
he
sold
County
Down
he
went
into
building
houses
for
sale
in
a
large
way,
by
this
time
having
left
his
job
in
the
mill,
and
reached
a
better
financial
position
with
the
profit
from
the
sale
of
County
Down
and
a
better
credit
rating.
While
these
activities
are
factors
to
be
considered
in
determining
the
character
of
the
County
Down
transaction
they
are
not
conclusive
in
that
respect
and
not
inconsistent
with
the
appellant’s
position
that
he
constructed
County
Down
as
an
investment
to
earn
rental
income
and
at
the
same
time
to
give
him
and
his
wife
a
desirable
place
in
which
to
live
while
operating
the
apartment
building.
They
had
previous
experience
in
owning
and
operating
small
apartment
houses
while
living
in
one
of
the
apartments
in
such
houses.
The
evidence
of
the
appellant
and
his
wife
as
to
the
difficulties
encountered
in
the
operation
of
County
Down
is
uncontradicted.
There
is
also
independent
evidence
supporting
their
evidence
that
they
built
County
Down
for
revenue
earning
purposes
and
as
a
place
in
which
to
live,
with
no
intention
of
selling
it.
Mr
Robinson
was
emphatic
that
when
he
first
suggested
to
the
appellant
that
he
sell
the
property
the
appellant
rejected
the
suggestion
and
said
he
was
not
interested
in
selling
it,
that
he
intended
to
keep
it
as
a
home.
Mr
Heiss,
Mr
Axdmen,
Mr
Olson,
Mr
Hanley
and
Mr
Morris
also
corroborated
the
appellant’s
testimony
that
County
Down
was
to
be
a
rental
revenue
earning
investment
and
a
home
for
the
appellant
and
his
wife.
I
have
no
doubt
that
those
witnesses
were
willing
to
be
of
such
help
as
they
could
to
the
appellant
in
his
dispute
with
the
income
tax
Department,
yet
I
cannot
think
that
they
were
not
giving
their
evidence
truthfully
and
according
to
their
recollection.
They
professed
to
have
some
knowledge
of
the
intentions
and
plans
of
the
appellant
and
his
wife
in
respect
of
County
Down
prior
to
its
sale,
and
their
associations
with
the
appellant
and
his
wife
were
such
as
to
give
them
that
knowledge.
The
appellant
built
County
Down,
lived
in
it
for
about
two
years,
and
operated
it
for
rental
income.
His
wife
played
her
full
part.
The
undertaking
looked
to
be
one
that
would
enable
the
appellant
to
leave
his
job
in
the
mill,
have
a
respectable
income
from
the
building,
a
place
to
live,
and
time
on
the
side
to
build
houses
for
sale
for
profit
to
augment
his
income.
Their
plans
were
realistic,
their
hopes
and
prospects
were
bright.
It
was
not
until
after
unexpected
difficulties
with
tenants
in
the
operation
of
the
apartments
arose
that
Mrs
Ross
felt
they
could
not
carry
on
as
planned,
and
even
then
they
rejected
for
a
time
the
suggestion
of
Mr
Robinson
to
sell
and
take
a
profit.
The
evidence
of
the
appellant
and
his
wife
as
to
their
intentions
in
building
County
Down
for
permanent
revenue
earning
purposes
and
as
a
place
to
live
while
they
operated
the
other
apartments
in
the
building,
and
that
they
sold
it
only
because
of
unexpected
problems
in
its
operation,
coupled
with
an
unsolicited
but
favourable
offer
of
purchase,
is
not
unreasonable
or
implausible.
It
is
corroborated
by
credible
independent
evidence,
and
I
think
that
the
evidence
as
a
whole
does
not
warrant
an
inference
to
be
drawn
that
County
Down
was
a
speculative
venture
in
which
the
appellant
envisaged
not
only
rental
revenue
for
a
time
but
also
a
profitable
sale
of
the
property
at
an
appropriate
opportunity,
or
that
it
was
what
amounts
to
an
adventure
in
the
nature
of
trade,
or
that
the
profit
realized
on
its
sale
was
a
profit
from
a
“business”.
Therefore
the
appeal
will
be
allowed
and
the
assessment
made
upon
the
appellant
for
his
1968
taxation
year
will
be
referred
back
to
the
respondent
for
reassessment
on
the
basis
that
the
profit
realized
on
the
sale
of
the
County
Down
property
was
not
a
profit
from
a
business.
The
appellant
will
be
entitled
to
his
costs
of
the
appeal,
to
be
taxed.
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