Walsh,
J:—This
is
an
appeal
from
the
income
tax
assessment
of
appellant
for
its
1967
and
1968
taxation
years.
Appellant
is
a
private
Ontario
company
incorporated
on
September
1,
1954,
90%
of
the
shares
being
owned
by
J
C
Stephenson
and
10%
by
his
wife.
While
the
company
had
very
broad
powers
in
its
charter
permitting
it
to
purchase
and
develop
real
estate,
prepare
building
sites,
lay
out
building
lots
and
clear,
build
on
and
improve
same,
its
business
had,
according
to
the
evidence
of
Mr
Stephenson,
been
confined
to
the
development
of
a
property
known
as
the
“Home
Farm”.
This
property
had
been
owned
by
his
family
for
several
generations,
the
south
50
acres
since
1841
and
the
north
50
acres
since
the
early
1900’s.
Seventeen
acres
had
been
expropriated
in
1939
or
1940
for
an
airport
and
another
18
acres
had
been
sold
during
the
1940’s
by
a
series
of
Veterans’
Land
Act
sales.
He
acquired
the
remaining
65
acres
by
purchase
from
his
father
and
sold
it
to
the
company
and
commenced
developing
and
subdividing
same.
Approximately
135
houses
were
built
on
the
southern
portion
of
it
between
1954
and
1959
at
which
time
he
stopped
building
as
he
found
he
was
losing
money
on
this
and
thereafter
merely
sold
serviced
lots.
It
is
not
this
property
with
which
the
present
action
is
concerned,
but
a
property
referred
to
as
the
“Stonehouse
Farm”
consisting
of
about
120
acres
which
was
purchased
by
appellant
in
June
1964
for
$85,000,
of
which
$25,000
was
paid
in
cash,
the
balance
consisting
of
a
mortgage
for
$60,000.
The
Stephenson
family
had
known
the
Stonehouse
family
for
many
years
but
this
property
was
not
adjacent
to
the
Home
Farm
nor
was
it
purchased
for
the
purpose
of
residential
development.
Appellant
contends
that
it
was
purchased
solely
as
an
investment.
It
was
in
the
Township
of
Whitby
and
not
within
the
limits
of
either
the
Town
of
Whitby
or
the
City
of
Oshawa,
was
at
the
time
of
the
purchase
unserviced
and,
in
fact,
could
not
be
serviced
unless
and
until
a
new
pumping
station
and
sewage
treatment
plant
was
built
as
it
was
at
a
lower
level
than
the
Town
of
Whitby
and
the
City
of
Oshawa
and
could
not
be
drained
through
the
existing
sewers
of
either
municipality.
It
was
zoned
for
industrial
use
and
was
at
the
time
of
the
purchase
and
until
its
eventual
sale
leased
to
a
farmer
who
owned
the
adjoining
farm
and
cropped
the
land
and
used
it
for
pasture.
Rental
income
for
the
years
ending
March
31,
1965
to
March
31,
1969
for
the
use
of
the
farm
and
the
three
buildings
on
it
varied
between
$1,850
and
$2,170
and
after
the
payment
of
taxes,
insurance
and
maintenance
on
it,
the
net
revenue
varied
between
a
loss
of
$78.92
in
the
year
ending
March
31,
1967
and
a
maximum
net
revenue
of
$1,200.89
for
the
year
ending
March
31,
1965.
Charging
mortgage
interest
on
the
property
against
this
resulted
in
a
net
loss
of
$599.11
in
the
year
ending
March
31,
1965,
$2,501.77
for
the
year
ending
March
31,
1966,
$3,678.92
for
the
year
ending
March
31,
1967,
$2,825.44
for
the
year
ending
March
31,
1968
and
$2,395.86
for
the
year
ending
March
31,
1969,
the
whole
as
appears
from
a
statement
prepared
by
the
company’s
auditors,
filed
as
Exhibit
A-10.
It
is
therefore
apparent
that
while
the
property
yielded
some
revenue,
it
could
not
be
considered
to
be
a
good
investment
from
the
point
of
view
of
the
revenue
it
yielded
and
was
undoubtedly
purchased
in
the
anticipation
that
it
would
increase
in
value
as
the
two
adjacent
municipalities
developed
and
expanded
and
could
eventually
be
disposed
of
at
a
substantial
profit,
as
in
fact
it
eventually
was.
The
mere
fact
that
a
property
is
purchased
with
the
intent
of
later
reselling
it
at
a
profit
does
not
of
itself
make
this
profit
taxable
as
an
adventure
in
the
nature
of
trade
as
the
intent
to
make
a
profit
can
be
as
much
a
characteristic
of
an
investment
transaction
as
of
a
business
transaction.
This
principle
was
set
forth
by
Lord
Buckmaster
in
Leeming
v
Jones,
[1930]
AC
415,
in
which
he
stated
at
page
420:
An
accretion
to
capital
does
not
become
income
merely
because
the
Original
capital
was
invested
in
the
hope
and
expectation
that
it
would
rise
in
value;
if
it
does
so
rise,
its
realization
does
not
make
it
income.
This
was
approved
by
Martland,
J
in
Irrigation
Industries
Limited
\
MNR,
[1962]
SCR
346;
[1962]
CTC
215,
in
dealing
with
the
purchase
and
subsequent
resale
of
securities
at
a
profit
and
the
same
principle
was
extended
by
Kearney,
J
in
MNR
v
Valclair
Investment
Company
Limited,
[1964]
CTC
22,
and
MNR
v
Cosmos
Inc,
[1964]
CTC
34,
tc
land
or
other
assets
capable
of
producing
income
whether,
in
fact,
the
had
done
so
to
any
substantial
extent
or
not
at
the
time
of
the
sale
See
also
the
judgment
of
Noël,
J,
as
he
then
was,
in
the
case
of
Pau
Racine,
Amédée
Demers
and
François
Nolin
v
MNR,
[1965]
DTC
5098
[1965]
CTC
150.
The
question
we
have
to
determine
in
the
present
case
is
whethe
this
property
was
really
acquired
by
appellant
as
an
investment,
as
i
claims,
or
whether
it
did
not
rather
form
part
of
the
inventory
of
th<
company,
being
acquired
and
ultimately
disposed
of
as
part
of
it
business
operations
as
a
real
estate
developer.
Although
appellant
concedes
that
the
provisions
of
its
charter
wer
sufficiently
broad,
and
the
experience
of
Mr
Stephenson
in
real
estat
was
sufficient
to
enable
it
to
subdivide
and
develop
land
for
industrie
as
well
as
residential
purposes,
it
nevertheless
argues
that
a
distinctio
should
be
made
between
what
it
could
do
and
what
the
facts
indicate
its
actual
intentions
were
with
respect
to
the
said
property,
and
the
all
it
had
ever
done
in
connection
with
the
development
of
propert
was
with
respect
to
the
Home
Farm
which
was
a
residential
develop
ment
whereas
the
Stonehouse
Farm
was
a
property
which
could
nr
be
developed
at
all
at
the
time
it
was
acquired
nor
in
the
immediatel
foreseeable
future,
and
that
therefore
it
was
entitled
to
acquire
sam
as
an
investment
just
as
if
it
had
invested
its
surplus
assets
in
stock
or
bonds
with
the
view
to
eventually
selling
them
at
a
profit,
whic
would
not
have
been
taxable
in
accordance
with
the
findings
in
th
Irrigation
Industries
case
(supra).
In
this
connection,
reference
can
i:
made
to
the
statement
of
Judson,
J
in
Regal
Heights
Ltd
v
MNR,
[196C
SCR
902:
[1960]
CTC
384,
in
which,
referring
to
the
significance
I
the
objects
clauses
set
out
in
the
company’s
charter,
he
stated
I
page
907
[390]
:
Nothing
turns
upon
such
a
statement
in
such
a
document.
The
question
be
determined
is
not
what
business
or
trade
the
company
might
have
carrie
on
but
rather
what
business,
if
any,
it
did
in
fact
engage
in.
That
judgment
dealt
with
the
doctrine
of
secondary
intention
which
not
applicable
here,
as
there
is
no
evidence
whatsoever
indicatir
that
appellant
ever
had
any
intention
of
developing
the
property
itse
and
that
the
sale
at
a
profit
was
a
secondary
intention
resulting
mere
because
the
primary
development
plan
could
not
be
carried
out.
further
proof
of
its
contention
that
it
never
had
any
intention
of
takir
the
subject
property
into
its
inventory
with
the
intention
of
developh
same,
appellant
points
out
that
the
inventory
of
land
available
for
sa
on
the
Home
Farm
still
consisted
of
approximately
20
acres
at
tl
time
the
Stonehouse
Farm
was
acquired,
that
there
was
a
great
de
of
serviced
industrial
land
in
the
area
owned
by
the
neighbouring
mu
cipality
which
was
offering
it
at
a
lower
price
than
private
develope
could
so
that
there
was
at
the
time
no
market
for
serviced
or
unserviced
industrial
property,
that
it
had
never
advertised
the
land
for
sale
or
otherwise
sought
to
dispose
of
it,
and
it
was
held
for
a
period
of
over
five
years
before
two
sales
were
made
under
threat
of
expropriation
in
1966
to
the
Town
of
Whitby
and
the
CNR.
The
subject
property
was
bounded
to
the
north
by
the
service
road
adjacent
to
the
south
side
of
Highway
401
and
to
the
west
of
the
northern
portion
of
the
property
(that
is
the
portion
north
of
the
CNR
tracks)
by
Thickson
Road
which
intersects
Highway
401
at
a
cloverleaf.
The
CNR
tracks
run
from
east
to
west
along
the
south
side
of
the
northern
portion
of
the
subject
property
and
separate
this
portion
from
the
southern
portion
of
the
property
consisting
of
some
45.6
acres.
This
southern
portion
of
the
property
is
separated
from
Thickson
Road
by
a
farm
belonging
to
someone
else
across
which
there
is
no
right-
of-way,
and
this
southern
portion
is
similarly
land-locked
to
the
south
and
east
by
properties.
belonging
to
other
proprietors
so
that
the
only
access
to
it
is
by
a
right-of-way
across
the
CNR
tracks.
The
Town
of
Whitby
bought
a
small
strip
along
the
west
side
of
the
northerly
portion
of
the
property
for
the
widening
of
Thickson
Road
in
1966
under
threat
of
expropriation.
In
the
same
year
the
CNR
also
under
threat
of
expropriation
bought
a
narrow
strip
at
the
southern
extremity
of
the
northerly
half
of
the
property
for
the
widening
of
its
main
line
and
in
a
second
purchase
bought
a
somewhat
larger
piece
of
land
on
the
northern
extremity
of
the
southern
portion
of
subject
property
for
the
purpose
of
building
a
hump
marshalling
yard.
While
there
is
some
discrepancy
in
the
dimensions
of
the
portions
taken
as
set
forth
in
the
pleadings,
surveys,
and
descriptions
of
the
properties
in
question
in
the
deeds,
this
need
not
concern
us
here.
As
a
result
of
these
sales,
appellant
was
taxed
in
the
amount
of
$4,600
in
1967
and
$9,048.20
in
1968
when
the
proceeds
were
received.
It
is
common
ground
between
the
parties
that
the
1967
assessment
of
$4,600
made
no
allowance
for
the
cost
of
acquisition
of
this
portion
of
the
property,
but
that
in
1968
an
allowance
was
made
for
the
cost
of
acquisition
of
the
property
for
which
payment
was
received
in
1967
as
well
as
for
that
for
which
payment
was
received
in
1968
so
that
taking
the
two
years
together,
which
has
been
done
in
the
present
appeal,
proper
credit
was
given
to
appellant
for
the
cost
of
acquisition
and
the
amounts
claimed
are
the
correct
amounts,
the
only
issue
being
whether
these
were
capital
gains,
as
appellant
contends,
or
income
received
from
a
trading
transaction,
as
respondent
claims.
The
balance
of
the
property
was
sold
on
June
23,
1969
to
Pinetree
Development
Company
Limited
for
$425,250
with
a
$100,000
down
payment
as
a
result
of
an
unsolicited
offer
after
an
earlier
offer
from
the
said
purchaser
in
the
amount
of
$360,000
had
been
rejected
by
appellant,
but
any
profits
which
may
have
resulted
from
this
sale
are
not
in
issue
before
me
since
they
would
relate
to
the
1969
or
subsequent
taxation
years
of
appellant
which
have
not
yet
been
assessed.
The
fact
that
the
profits
in
issue
in
the
present
appeal
resulted
from
sales
under
threat
of
expropriation
rather
than
from
an
arm’s
length
sale
by
a
willing
informed
vendor
to
a
willing
informed
purchaser
does
not
affect
their
taxability
as
such
if
it
is
found
that
the
property
was
acquired
by
appellant
as
part
of
its
inventory
for
eventual
disposal
in
the
course
of
its
business.
Appellant
company
was
merely
the
vehicle
through
which
Mr
Stephenson
carried
out
his
residential
real
estate
development
of
the
Home
Farm
and
the
company’s
intentions
when
it
acquired
the
Stonehouse
Farm
can
be
equated
with
his
intentions.
His
background
is,
therefore,
of
some
relevancy.
He
was
brought
up
on
the
Home
Farm
which
was
northwest
of
Oshawa
beyond
the
city
limits
at
the
time,
and
graduated
from
Technical
School
as
a
draftsman.
In
1939
he
became
an
apprentice
tool
designer
for
General
Motors
and
in
1942
went
to
work
in
Peterborough
for
Genelco,
its
subsidiary
which
was
making
Bofors
antiaircraft
guns.
He
attempted
to
join
the
navy
in
1943
but
was
frozen
in
his
work
at
Genelco
by
selective
service.
In
1944
his
father
was
not
well
and
needed
help
on
the
farm
so
he
got
permission
to
return
to
Oshawa
to
work
with
General
Motors
in
connection
with
the
design
of
military
trucks,
at
the
same
time
helping
his
father
with
the
farm.
In
1948
he
went
to
work
full
time
on
the
farm
but
in
1952
they
sold
the
livestock
and
he
became
a
salesman
for
the
Oshawa
district
for
Coolvent
Aluminum
Awnings
which
were
being
manufactured
there.
He
subsequently
purchased
a
dealership
from
them
and
later
became
eastern
sales
manager.
In
1953
he
discussed
a
partnership
agreement
with
the
proprietors
of
Coolvent
but
when
at
the
last
minute
they
demanded
the
collateral
security
of
a
mortgage
on
the
farm
the
deal
fell
through.
It
was
at
this
time
that
he
purchased
the
farm
from
his
father
and
incorporated
the
appellant
company
and
began
the
real
estate
development.
When
he
stopped
building
houses
in
1959
he
returned
to
school
to
obtain
his
senior
matriculation
intending
eventually
to
go
on
to
university
but
found
this
very
difficult
as
he
now
had
a
family
so
although
he
obtained
his
senior
matriculation
three
years
later
he
did
not
carry
on
further
with
his
formal
education.
He
insists
that
when
he
bought
the
Stonehouse
Farm
he
had
no
clear
idea
as
to
what
he
might
eventually
do
with
it
but
the
terms
were
quite
generous
as
the
fifteen
year
mortgage
called
for
only
6%
interest
for
the
first
five
years
and
672%
for
the
next
five
and
finally
7%
for
the
last
five
years,
plus
$2,000
a
year
on
account
of
the
principal.
The
company
had
income
from
the
sale
of
lots
on
the
Home
Farm
which
was
continuing
and
could
readily
finance
this.
Before
buying
it
he
consulted
with
the
Department
of
Highways
and
found
that
they
had
tentative
plans
for
widening
route
401
to
eight
lanes
in
about
twenty
years
and
he
felt
that
this
would
enhance
the
value
of
this
property.
After
the
CNR
built
its
marshalling
yard
on
the
property
taken
from
appellant,
this
doubled
the
length
of
the
grade
crossing
and
increased
the
height
of
the
grade
substantially
as
the
tracks
were
built
up,
making
the
crossing
from
the
southern
portion
of
the
property
to
the
north
very
hazardous.
He
attempted
to
get
them
to
build
an
underpass
but
this
was
refused.
As
a
result
of
the
building
of
the
hump
yard
and
raising
of
the
level
of
the
track
itself
the
flow
of
the
surface
water
on
the
land
which
had
formerly
been
from
west
to
east
into
a
creek
was
interrupted
by
silting
in
the
creek
resulting
in
considerable
flooding.
He
admitted,
however,
that
this
had
formed
part
of
the
claim
against
the
railway
company
when
the
land
was
purchased
from
appellant.
In
addition
to
the
housing
development
on
the
Home
Farm
appellant
had
built
a
small
shopping
centre
of
six
stores
on
a
corner
of
it
zoned
as
commercial
and
in
1959
appellant
had
sold
a
parcel
adjacent
to
this
to
Rosslynn
Plaza
Limited,
a
company
which
he
had
formed
with
another
partner
on
which
from
1965
to
1967
they
constructed
a
residential
apartment
block
which
they
intended
to
hold
as
an
investment.
Considerable
difficulties
were
encountered
in
the
construction
and
a
Mechanic’s
Lien
trial
took
place
which
the
company
lost
as
a
result
of
which
the
apartment
block
and
shopping
centre
had
to
be
sold
in
1969.
Except
for
this
unfortunate
experience
he
testified
that
he
had
been
engaged
in
no
other
speculative
real
estate
venture.
About
four
years
after
Stonehouse
Farm
was
purchased
some
favourable
developments
which
increased
its
potential
value
took
place.
The
Town
of
Whitby
on
January
1,
1968
annexed
this
territory
which
made
it
more
likely
that
proper
zoning
and
services
would
eventually
become
available
as
the
Town
had
recently
developed
an
adjacent
industrial
park
and
had,
in
1968,
obtained
the
first
industry
for
it
namely
the
Consumers’
Gas.
Certain
policies
of
the
Town
of
Whitby
had
an
influence
on
the
offer
which
appellant
received
in
1969
for
the
balance
of
the
farm.
In
order
to
maintain
a
proper
municipal
tax
base
the
town
required
developers
to
provide
a
balanced
land
assembly
consisting
of
residential,
commercial
and
industrial
lands
before
permitting
any
residential
development.
The
purchaser
of
the
subject
property
already
had
residential
and
commercial
properties
which
it
wished
to
develop
and
was
in
need
of
an
industrial
parcel
of
land
to
complete
the
necessary
assembly.
A
real
estate
agent,
McQuay,
who
had
acted
before
for
Stonehouse
when
appellant
had
purchased
the
property
in
question
approached
Mr
Stephenson
again,
this
time
on
behalf
of
the
purchasers.
Stephenson
had
not
listed
the
property
with
him
for
sale
but
eventually
agreed
to
pay
the
commission,
believing
this
to
be
the
common
practice.
The
first
offer
which
was
submitted
to
him
was
refused
but
the
later
offer
was
too
good
io
refuse
and,
in
fact,
the
agent
himself
testified
that
it
was
the
purchaser
who
established
the
price
which
was
to
be
offered
and
that
he,
himself,
felt
this
was
too
high.
He
gave
evidence
relating
to
sales
of
comparable
properties
about
this
time
and
subsequently
and
in
almost
all
cases
they
were
for
a
lower
price.
While
all
of
this
evidence
relates
to
1969
and
subsequently
it
is
relevant
in
attempting
to
determine
the
intention
of
appellant
with
respect
to
the
property.
Appellant
further
argued
that
the
fact
that
this
was
a
capital
transaction
is
supported
by
the
fact
that
the
proceeds
of
the
sale
were
reinvested
in
capital
assets
of
stocks
and
bonds.
Sidney
Hopkins,
CGA,
appellant’s
auditor,
testified
and
produced
financial
statements
of
the
company
for
the
years
1964
and
1967
to
1969
inclusive.
The
statements
indicate
that
the
company
did
not
bring
the
Stonehouse
Farm
into
its
land
inventory
under
current
assets
but
included
it
under
fixed
assets.
The
amount
of
$9,048.20
is
shown
in
the
1968
statement
as
“capital
gain
on
sale
of
rented
property”.
The
manner
in
which
the
company
treated
the
acquisition
and
sale
of
this
property
in
its
books
is
not,
of
course,
conclusive
but
nevertheless
has
some
evidential
value.
It
may
well
be
that
appellant,
as
it
claims,
had
no
intention
of
ever
subdividing
or
developing
this
property
and
was
holding
it
solely
with
the
view
of
ultimate
disposal
of
same
at
a
profit.
Certainly
it
did
nothing
to
promote
the
ultimate
development
and
sale
of
it
and
it
is
in
evidence
that
when
it
bought
it
there
was
no
definite
plan
by
the
Town
of
Whitby
to
include
this
area
in
its
territory
nor
any
indication
as
to
when
water
and
sewer
services
might
become
available
to
enable
it
to
be
developed.
It
was,
and
in
fact
still
is,
even
in
the
hands
of
the
present
owners,
being
used
solely
for
agricultural
purposes.
For
these
purposes
the
income
derived
from
the
rental
of
same
would
not,
however,
justify
the
purchase
as
a
revenue-producing
investment
and
the
justification
for
the
purchase
can
only
be
found
in
the
prospect
of
future
sale
at
a
profit.
While
the
time
at
which
the
land
would
have
increased
in
value
to
such
a
substantial
extent
as
to
justify
the
holding
of
it
for
many
years
before
a
profitable
sale
could
be
anticipated
was
incapable
of
determination
at
the
date
of
the
purchase,
it
was
nevertheless
relatively
certain
that
it
would
eventually
increase
substantially
in
value.
It
had
a
strategic
location
bordering
on
the
service
road
of
a
main
highway,
route
401,
and
was
between
two
rapidly
growing
municipalities,
the
Town
of
Whitby
and
the
City
of
Oshawa.
It
is
about
two
miles
from
the
main
General
Motors’
plant
in
Oshawa
and
about
one-
quarter
of
a
mile
from
the
Lasco
Steel
Plant
in
Whitby.
After
the
expropriations
with
which
we
are
concerned
here,
the
balance
of
the
property
was
sold
the
next
year,
which
was
some
years
earlier
than
appellant
could
have
reasonably
foreseen
at
the
time
of
the
purchase
but
this
was
purely
fortuitous
and
resulted
from
factors
beyond
appellant’s
control
and
on
which
it
could
not
have
counted
at
the
time
of
the
purchase.
To
this
extent
the
profits
realized
on
the
sale
of
the
property
would
have
constituted
capital
gain
on
the
realization
of
an
investment
had
it
not
been
for
the
fact
that
appellant
was
in
the
business
of
dealing
in
and
developing
land.
The
cases
of
Brampton
Brick
Limited
v
MNR,
[1963]
Ex
CR
305;
[1963]
CTC
57,
Commissioners
of
Inland
Revenue
v
Reinhold,
34
TC
389,
and
Irrigation
Industries
Limited
v
MNR
(supra)
can
be
distinguished
therefore
since
in
each
of
these
cases
the
investment
in
question
was
an
isolated
transaction
entirely
outside
and
apart
from
the
regular
business
activities
of
the
taxpayer.
The
facts
of
the
present
case
also
result
in
its
being
distinguishable
from
my
recent
judgment
in
the
case
of
Bead
Realties
Limited
v
MNR,
[1971]
CTC
774,
since
in
that
case,
although
some
of
the
principal
shareholders
of
the
company
had
had
some
experience
in
dealing
with
real
estate,
it
was
not
the
principal
business
of
any
of
them,
and
moreover
there
was
evidence
of
serious
attempts
made
to
develop
the
property
as
a
revenue-producing
investment
by
constructing
industrial
buildings
on
it
to
the
specifications
of
potential
tenants
for
the
purpose
of
leasing
same
to
them.
I
found
that
this
was
the
real
intention
of
the
parties
at
the
time
of
the
purchase
of
the
property
and
that
there
was
no
secondary
intention
of
selling
same
at
a
profit
except
in
the
general
sense
that,
as
has
been
stated
in
several
cases,
anyone
will
sell
anything
of
which
he
is
not
obliged
to
retain
the
ownership
provided
a
price
is
offered
which
is
too
good
to
refuse.
Accordingly,
the
profits
on
the
sale
of
the
property
as
the
result
of
a
very
generous^
unsolicited
offer,
as
in
the
present
case,
were
held
not
to
be
taxable,
but
the
distinction
lies
in
the
fact
that
the
owners
had,
for
some
time,
been
endeavouring
to
develop
the
property
in
such
a
manner
as
to
receive
substantial
investment
income
from
same,
while
in
the
present
case
no
such
development
was
attempted
nor,
in
fact,
was
it
possible.
Had
the
present
property
been
bought
by
Mr
Stephenson
himself
there
might
have
been
a
serious
question
as
to
whether
it
could
not,
in
fact,
be
considered
as
an
investment
by
him
on
which
the
profits
resulting
from
the
sale
would
avoid
taxation
as
an
isolated
transaction
of
an
investment
nature.
While
he
had
considerable
experience
in
dealing
with
and
developing
real
estate,
the
evidence
indicated
that
he
had
never
been
in
the
business
of
speculating
in
it
and
he
had
been
in
other
businesses
in
addition
to
real
estate.
While
it
is
true,
as
I
previously
stated,
that
in
the
case
of
a
company
such
as
appellant
wholly
controlled
by
one
shareholder,
the
intentions
of
the
company
must
be
considered
as
identical
with
those
of
the
shareholder,
the
business
of
the
company
is
not
necessarily
the
same
as
that
of
the
shareholder.
The
same
shareholder
might
control
several
companies,
each
engaged
in
an
entirely
different
business
and
might
thus
be
engaging
in
several
different
businesses
whereas
each
company
would
be
confined
to
the
business
in
which
it
was
engaged.
While
the
appellant
in
the
present
case
had
only
dealt
with
the
subdivision
of
the
Home
Farm,
the
construction
and
sale
of
houses
on
it,
the
subsequent
sale
of
lots
on
it,
and
the
construction
and
operation
of
a
shopping
centre
in
connection
with
this
development
and
this
may
well
have
been
the
primary
reason
for
which
Mr
Stephenson
caused
it
to
be
incorporated,
it
nevertheless
was
given
wide
powers
in
its
charter
to
deal
in
and
develop
real
estate
of
every
nature.
I
am
not
prepared,
therefore,
to
make
the
fine
distinction
which
appellant
seeks
to
the
effect
that
such
a
company
can
buy
some
real
estate
for
development
and
include
it
in
its
inventory
and
other
real
estate
as
an
investment
and,
by
the
simple
device
of
including
it
in
its
fixed
assets,
avoid
tax
on
any
profit
resulting
from
the
eventual
resale
of
same.
While
the
company
could
properly
include
as
fixed
assets
an
office
building
which
it
was
occupying
in
connection
with
the
operation
of
its
business,
I
am
of
the
opinion
that
in
view
of
the
very
wide
powers
given
to
it
in
its
charter,
any
other
properties
acquired
by
it
should
be
included
in
inventory
and
profits
from
the
disposal
of
same
taxed
as
regular
business
profits.
For
the
above
reasons,
appellant’s
appeal
against
the
assessment
in
respect
of
its
1967
and
1968
taxation
years
is
dismissed
with
costs.
STEWART
&
MORRISON
LIMITED,
Appellant,
and
MINISTER
OF
NATIONAL
REVENUE,
Respondent.
Supreme
Court
of
Canada
(Martland,
Judson,
Ritchie,
Spence
and
Pigeon,
J
J),
January
25,
1972,
on
appeal
from
a
judgment
of
the
Exchequer
Court,
reported
[7970]
CTC
431.
Income
tax
—
Federal
—
Income
Tax
Act,
RSC
1952,
c
148
—
12(1)(a),
(b)
—
In
1963
the
appellant
corporation,
a
firm
of
industrial
designers,
formed
a
US
subsidiary
to
carry
on
a
similar
business
in
New
York.
The
New
York
office
had
its
own
staff,
letterhead,
invoices,
etc
but
was
master-minded
by
the
appellant,
which
supplied
or
guaranteed
the
funds
required
by
the
subsidiary
for
rent,
salaries,
travelling
expenses
and
other
operating
expenses.
Funds
so
advanced
by
the
appellant
were
shown
on
the
books
as
loans.
The
New
York
office
failed
to
prosper
and
was
closed
in
1966,
leaving
the
appellant
with
an
irrecoverable
outlay
of
$72,343
which
it
sought
to
deduct
in
that
year
on
the
ground
that
the
New
York
office,
though
set
up
as
a
separate
legal
entity,
was
in
fact
operated
as
a
branch
of
the
Canadian
company.
That
view
was
accepted
by
the
Tax
Appeal
Board
but
the
Board’s
decision
was
reversed
by
the
Exchequer
Court.
HELD
(per
curiam):
The
appellant’s
advances
were
correctly
classified
as
loans
to
its
American
subsidiary
and
the
deduction
of
the
appellant’s
losses
had
been
rightly
found
to
be
prohibited
by
paragraph
12(1)(b)
of
the
Act.
Appeal
dismissed.
J
G
Edison,
QC
and
R
D
Dalgarno
for
the
Appellant.
G
W
Ainslie,
QC
and
J
R
Power
for
the
Respondent.
CASE
REFERRED
TO:
L
Berman
&
Co
Ltd
v
MNR,
[1961]
CTC
237.
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