Irwin a Blackstone v. Her Majesty the Queen, [1973] CTC 842, 74 DTC 6020

Mahoney, J:—This is an appeal against the reassessment of the plaintiff’s 1967 income tax return whereby there was added to his income an amount of $6,037.56, being his share of the reduction for that year of a reserve established under section 85B of the Income Tax Act, as it then stood, in respect of the proceeds from the sale of a quarter section of land near Calgary.

The plaintiff has been resident in Calgary since 1947. Educated in the law, he worked in his father-in-law’s hat business for 5 years, then, in 1953, articled and, in 1954, was admitted to the bar of the Province of Alberta. He has since engaged in a general practice with some emphasis on labour law and derives about 25% to 30% of his income from routine real estate work.

Aside, presumably, from the acquisition of one or more personal residences, he, together with his brother, acquired a duplex over 20 years ago which was disposed of at a loss in 1953; he acquired an interest in the property which gave rise to this action in 1958 and disposed of that interest in 1965 and, also in 1965, he acquired a 5% interest in another parcel of land which he still owns. The plaintiff also accepted a couple of lots as a fee “years ago” and another lot as a fee in 1969.

The property in question lay just outside the limits of the City of Calgary in 1958. Its east boundary was the northern most half-mile of the westerly city limits. It was contained within an area which the Report of the Royal Commission on the Metropolitan Development of Calgary and Edmonton, published in January 1956, recommended be added to the City. Order No 25860 of the Public Utilities Board of the Province of Alberta, effecting the annexation, was made December 29, 1961.

Development of a university in Calgary on a site in the northwest quadrant of the city had been publicly discussed throughout the 1950’s and, on July 18, 1957, execution of the lease of the university site by the City of Calgary to the University of Alberta was announced. A much heralded sod turning occured November 1, 1958.

On October 7, 1958 Leo Paperny executed an offer to purchase the property at a price of $83,400, payable $13,400 down and the balance in seven $10,000 instalments on November 1 in each of the years 1959 to 1965 inclusive, without interest, with the proviso that the vendor should have “free use of the property by payment of taxes”. The offer further stipulated that the vendor would release and give title to 40-acre parcels “upon payment in full for same, based on $500.00 per acre”. This offer was accepted by the vendor on October 8.

Leo Paperny, now deceased, was the plaintiff’s wife’s uncle as well as his client. The plaintiff had acted as Paperny’s solicitor in a previous acquisition of land in northwest Calgary but knew of no other real estate transactions by Paperny. Further, the plaintiff knew of no other real estate dealings by any of the other persons whom he knew to be taking interests in the property.

Paperny advised the plaintiff that he was going to buy the property and that there would be others in the deal. He invited the plaintiff to take a 10% interest. The plaintiff visited the farm with Paperny and decided to accept the invitation on the basis that it would be “a good deal”. What the plaintiff saw was a 160-acre farm with house and outbuildings at the north end and the nearest urban houses visible in the distance some miles away. This was the only occasion on which he visited the property and he is not, today, aware of what use has since been made of it.

The plaintiff acted as solicitor for the purchasers. A formal agreement for sale dated December 15, 1958 was prepared by the vendor’s solicitors showing Leo Paperny, his son, Maurice Paperny, Harry Sheftel and Normal Libin as purchasers, each as to an undivided one-fourth share. On October 31, 1958 Maurice Paperny wrote the plaintiff as follows:

I hereby assign to you 40% of my undivided 25% interest in the North east Quarter of Section One Township 25, Range 2 West of the 5th Meridian, Province of Alberta purchased by Leo Paperny, Sheftel Bros, Norman Libin and myself from Charles and Sarah Cox.

As my interest is undivided I agree to hold your interest in trust for you and turn it over at any time you require it.

This will acknowledge receipt from you of the sum of $1000.00 representing your share of the amount of the purchase price due November 1, 1958. This interest is being assigned to you at my cost.

In the end result, there were 17 individual owners of undivided interests in the property. The Leo Paperny interest was divided:

The Maurice Paperny interest was divided 15% to Maurice Paperny and 10% to the plaintiff. The Harry Sheftel interest was divided, in equal 8 1/3% shares, among three daughters-in-law and the Norman Libin interest was divided equally among three children.

Except for Snell and Steinfeld, the various persons among whom Leo Paperny divided his nominal interest were related to him by blood or marriage. Steinfeld was an employee and Snell an independent chartered accountant. There is no evidence of inter-relationship between the Paperny, Sheftel and Libin groups. Members of the Paperny family held an undivided 48% interest in the property and members of the Sheftel and Libin families each held 25%.

Individually, the plaintiff’s 10% interest was second in magnitude only to Maurice Paperny’s 18%. The plaintiff’s wife sold a $1,000 savings bond to provide the payment acknowledged in the letter previously quoted. Funds for all other payments were derived from current earnings of his law practice. No money was borrowed and no other investments realized.

Leaving aside the plaintiff for the moment, Harry Sheftel is the only person who had an interest in the property of whom there is evidence suggesting that he might have been a trader in real estate at the time. However, it appears that Leo Paperny, not Harry Sheftel, was the initiator of the transaction and there is no evidence that the plaintiff relied upon Harry Sheftel or his advice in deciding to buy and sell his interest.

The plaintiff says that, while he was a subscriber to a Calgary daily newspaper between 1947 and the date of acquisition of the property, he was not aware of the pending university development at the time he took his interest, nor, he says, does he recall even hearing of the Royal Commission Report recommending annexation until his examination for discovery in this action.

The plaintiff says that there was never any agreement among the group as to what would be done with the property. He regarded his 10% interest as his to deal with as he wished and had not thought about possible situations that might arise should his wishes and those of others in the group diverge.

Sometime during the latter part of 1965 Maurice Paperny advised the plaintiff that a land development company had made an offer for the property. The offer was unsolicited. The property had never been listed for sale. A series of meetings among the owners ensued in which the plaintiff participated. Initially, some of the owners, including the plaintiff, were unwilling to sell. Apparently the only reason for the unwillingness was the price offered. The price was increased and all the owners finally agreed to accept the offer.

On September 28, 1965 the owners entered into an agreement with a trust company whereby they agreed to cause title to the property to be transferred to the trust company and directed that it enter into an agreement for sale with the land development company. The trust and land development companies executed an agreement for sale, dated as of November 1, 1965, providing a purchase price of $416,000 payable $20,000 on execution; $20,000 on November 1, 1966 and the balance in equal instalments with interest at rates varying from 4% to 6% annually, on November 1 in each of the years 1967 to 1972 inclusive.

I cannot find that the transactions into which the plaintiff has entered over the years constitute a pattern of trading in interests in real estate, nor can I find that in this transaction he so relied upon any of his co-owners as to have their motives or conduct imputed to him. I accept his statement that there was no “group intention” with respect to the property. The plaintiff’s acquisition and disposition of his interest in the property must, in my view, stand as an isolated transaction respecting which his motives and conduct alone are material.

The plaintiff’s failure to recall the Royal Commission Report or the pending development of the University of Calgary at all, much less as being factors in his decision to take the interest in the Cox property, is understandable. It is, after all, now some 15 years after the event. However, as a resident of Calgary for more than ten years, he must have been aware, in 1958, that it was a growing city. He did have visual evidence of its physical approach, however distant, when he viewed the property.

In order to arrive at the conclusion he did, namely that acquisition of that interest would be a good long-term investment, the plaintiff must have had something in mind and there is no direct evidence before me as to just what that was. He acknowledges that he had no intention of farming the property. There is no evidence that he took any action whatever to try to derive any income from it.

I think that the fact is simply that the potential value of the property was obvious. The plaintiff recognized a good buy when he saw one. The commitment to find $1,000 annually to pay his share of the purchase price involved some sacrifice, particularly during the early years. The plaintiff decided to assume the commitment, make the sacrifice and wait for the opportunities that would almost certainly present them- selves. As it turned out, the first opportunity to present itself proved satisfactory to him and he took it.

The plaintiff cited the cases of MNR v Valclair Investment Company Limited, [1964] CTC 22; 64 DTC 5014; MNR v Cosmos Inc, [1964] CTC 34; 64 DTC 5020, and MNR v Lawee, [1972] CTC 359; 72 DTC 6342, in support of his contention that his acquisition of the interest in the Cox property should be treated as an investment rather than an adventure in the nature of trade. Valclair and Cosmos were both investment companies with substantial portfolios of stock and, in the case of Cosmos, bonds and loans as well. Both had available cash and both decided to diversify their investments by the acquisition of interests in land for which they paid fully in cash. The respondents in the Lawee case were persons of wealth, for all practical purposes refugees, seeking to invest that wealth. The availability of money for investment and the need to invest it is an important feature of each of these cases not present here.

Land and interests in land are, of course, entirely susceptible to being a subject of investment. They are also susceptible to being subject of a business. I am unable to distinguish the facts of this case in any essential particular from the facts on which the Supreme Court of Canada based its decision in MNR v Edgeley Farms Limited, [1969] SCR 608; [1969] CTC 313; 69 DTC 5228.

The gain realized by the plaintiff on the disposition of his interest in the property in question was income from business as that word is defined in the Income Tax Act. The appeal is accordingly dismissed with costs.