Minister of National Revenue v. Muzly Lawee and Naima E Lawee, [1972] CTC 359, 72 DTC 6342

Cattanach, J:—This is an appeal by the Minister from a decision of the Tax Appeal Board dated February 23, 1971 whereby appeals by the respondents herein from their assessments to income tax for their 1963 and 1964 taxation years were allowed.

As the two respondents jointly entered into the transactions which gave rise to the assessments and since the evidence and facts with respect thereto are applicable to both respondents and since the issue involved and the assumptions upon which the assessments were made are identical, the appeals of both respondents were heard together. The evidence adduced and the arguments advanced covered the appeals of each respondent.

This same procedure was followed before the Tax Appeal Board. However counsel for the parties announced at the beginning of the trial that they had reached an agreement that the evidence before the Tax Appeal Board should be accepted as evidence before me subject to the qualification that counsel for either party might adduce such additional evidence as either might consider necessary. Counsel for the Minister exercised that privilege. The advantages of such a course are obvious and l concurred therein. By way of caution in the event of the adoption of a similar course on future occasions, I would point out that when counsel agree to the adoption of evidence adduced in a prior hearing as evidence in a hearing de novo that the presiding judge be so informed and supplied with a transcript of the evidence in advance of the trial. This would afford him the necessary opportunity to familiarize himself with the evidence and be in a position to assess that evidence against any further evidence adduced and to be fully aware of the evidence when reference is made thereto by counsel during the course of their argument.

In June 1954 the respondents, who are sisters-in-law, purchased land described as Lot 32 in the Parish of Pointe Claire, Quebec for a price of $76,740.85 of which $36,740.85 was paid in cash and the balance of $40,000 was payable in two equal consecutive yearly instalments of $20,000 with interest at 5% per annum.

About a week later in the same month the respondents purchased the adjacent Lot 31 for a price of $106,184.66 which was paid in cash.

For all intent and purpose the two lots form one parcel of land.

On February 14, 1963 the respondents sold the land, that is nine years after the acquisition, to Kesmat Investments Inc for $727,175.70 of which $153,218.68 was paid in cash with the balance payable by instalments over a period of ten years without interest.

It was the amounts of the gain so realized and paid to the respondents in their 1963 and 1964 taxation years that were added to the respondents’ income by the Minister for those years that constitute the amounts here in dispute.

The issue is the usual and familiar one, as expressed in the classical case of Californian Copper Syndicate v Harris (1904), 5 TC 159, is the sum of gain that has been made a mere enhancement of value by realizing an investment or is it a gain made in the operation of a business in carrying out a scheme of profit making. Those, in essence, were the rival contentions advanced by the parties.

While the issue is an usual one, the background against which it arose is unusual.

The respondents are women who are now advanced in years. They must be in their seventh or eighth decade. They are Arabic but their faith is Jewish. Their progenitors had lived in Baghdad, now in Iraq, since biblical times. Despite the fact that the respondents are Arabic and have links with their country of origin extending for about twenty centuries and despite the fact that their mother language is Arabic, nevertheless, they were members of a persecuted minority. The majority of the population in Iraq is Moslem.

The respondents married brothers, Muzly was married to Khedouri Lawee, who is now deceased, and Naima is married to Khedouri’s brother, Ezra, who is now incapacitated having suffered a severe heart attack several months ago. There were no children to both marriages born in Iraq.

The brothers had a very successful business. They were the agents for General Motors in Iraq and Iran. They had accumulated substantial wealth. Their wives were independently wealthy.

The smouldering religious animosity of the Moslems to the Jews which has been present for centuries erupted into open conflict. Discriminatory regulations were instituted against the Jews. Political instability and violence was rampant. There was revolution. One of the respondents testified “The people (ie the Moslems) were killing Jews”.

This political instability and open physical violence forced the families to flee for their lives. Their first haven was Iran where the brothers also had a motor car agency. Then India followed by a brief sojourn in Egypt and subsequently to New York. After a stay of approximately five years in New York the families moved to Montreal, Quebec. They were uprooted from their home country where their roots had been deep, but they were successful in bringing their wealth with them. Now they were looking for a country of refuge. At that time Canada, and particularly Montreal, Quebec where the families eventually settled, appealed to them as a scene of serenity and complacency and as an end to their wanderings. It was here that they decided to settle hopeful of putting down new roots.

While the husbands had business experience it was primarily as agents for General Motors. They were in the automobile business. They accumulated great wealth. Neither brother had any experience in dealing in real estate before their arrival in Canada. As I have intimated before their wives, the respondents herein, were possessed of wealth of their own, apart from that of their husbands. Each of the respondents invested their substantial resources in a portfolio which consisted of a long list of gilt edge securities.

As to the husbands, their first business venture in Canada was an automobile agency in association with their children. This particular venture did not prove successful, no doubt due to the strange surroundings in which the husbands found themselves and the intense competition in Canada in this particular business. I suspect, although there was no direct evidence on the point, that the husbands enjoyed something in the nature of a monopoly in this business in Iraq.

The next venture the husbands entered, after investigating various possibilities, was the business of building homes for resale and they incorporated a company under the name of Sunnyview Development Inc for that purpose. In 1954 the lots were purchased in Pointe Claire with that end in view. Of those lots, 36 were sold to Sunnyview at cost. No profit was realized. Due to their inexperience and ignorance of Canadian conditions they encountered numerous difficulties. The venture proved unprofitable. Therefore they decided it would be more advantageous to subdivide the land into lots and sell the lots to experienced building contractors or individuals rather than building houses on the lots for sale. Therefore the land owned, which had not been transferred to Sunnyview, was transferred to another company incorporated under the name of Fredmir Corporation Inc also at cost.

Appended to the Minister’s Reply to the respondents’ Notices of Appeal which were heard by the Tax Appeal Board, was a schedule of the purchasing and sales of real estate by the members of the Lawee families either individually or in association with each other. This schedule was painstakingly prepared by B Desroches, an assessor in the Montreal District office of the Department of National Revenue who was a witness in the additional evidence adduced at the trial before me.

I shall reproduce the material in that schedule as it applies to the respondents:

Dame Naima Abed and Dame Muzly S. Lawee

(Wife of Ezra Lawee) (Wife of Khedouri Lawee)

50%	50%
Purchases	Salles
Date	Total

June 25/54

31 106,184.66

This is the transaction which gives rise to the present appeal.

The particulars of other transactions involving the respondents is entered as follows:

I compute the total cost of the land in Ste Therese to have been $370,248.44. The purchase price was paid in full within a year except a balance of $68,850 which was payable by instalments with interest at the rate of 5 /2% over a period of 5 years, the last instalment in the amount of $3,850 was due on March 10, 1965.

This land was bought by the respondents before they disposed of the land in Pointe Claire and it is still owned by them.

The land at Ste Therese was athwart a proposed Laurentian Highway and was subject to homologation. When the highway was built eventually a small strip of land was expropriated and the homologation was released with respect to the balance.

From the foregoing information I have calculated that the respondents expended $553,173.95 for the purchase of land, each in equal amounts.

I shall summarize the purchases and sales of land by Ezra and Khedouri Lawee as disclosed in the schedule as well as those of other members of their families.

Between May 4, 1953 and June 14, 1956 Ezra and Khedouri purchased land in St Laurent, Montreal, Pointe Claire and Sault aux Recollets to which each contributed an equal amount of the purchase price. The total of the purchase prices is substantial. A very rough calculation indicates the total to be in excess of one million dollars. Of this land a portion of the St Laurent property was expropriated in 1960. The schedule indicates that Ezra and Khedouri declared and paid income tax on the gain realized on the expropriation. In 1954 a small portion of a lot in Pointe Claire was expropriated by Bell Telephone. There was a further expropriation of land in St Laurent in 1961 which was declared and tax paid thereon. A half interest in a lot in Montreal was purchased by Ezra for a personal residence. Two lots in Montreal were sold to their sons, Alfred and Mayer, at cost. The balance of the property was transferred to Sunnyview Development Corporation Inc and Fredmir Corporation Inc at cost.

In June 1954 Khedouri was the sole purchaser of some 35 lots in Pointe Claire. These lots were transferred to Sunnyview Development Corporation Inc at cost in 1955.

Ezra Lawee and Alfred Lawee (the son of Khedouri) purchased five lots in St Laurent in 1954 at a cost of $200,000. A very small portion was expropriated by the Department of Highways in 1955. The owners still retain the balance of the land.

In 1955 Ezra and Sossoon Abed (a relative) purchased land in St Laurent for $225,000. Forty percent of their interest was sold to a daughter living in Baghdad and England and to Muzly Lawee (a respondent herein) at cost. This land is still owned by the purchasers.

In 1962 Mayer Ezra Lawee, Alfred Khedouri Lawee and Roselon Housing Corporation bought land in Ste Genevieve for $153,480. This land was sold in 1963 to Beaufort Realties Inc for $337,393.52. A profit was realized on this transaction and tax was paid thereon.

In 1963 Mayer Ezra Lawee and Alfred Khedouri Lawee bought land in St Laurent on a 50-50 basis for $217,662. This land is still owned by the purchasers.

The schedule indicates that Ezra and Khedouri made twenty purchases of land. With the exception of a small expropriation by Bell Telephone all of that land was sold to Sunnyview and Fredmir which were corporations in which the two husbands, their wives and their respective sons held the shares on a 50-50 basis between the two families.

The sale of land which gives rise to the assessment of the respondents was the sale of Lots 31 and 32 in Pointe Claire to Keswat Investment Inc on April 5, 1963.

At the time this land was purchased, that is June 1954, Muzly Lawee and her husband Khedouri were living in Montreal. Naima Lawee and her husband Ezra were living in New York and did not move to Montreal until the next year. When purchased, the lots were farms. The farms produced no revenue. The respondents purchased the land on the recommendation of a friend in Montreal who was a real estate agent. He assured the respondents that it was promising land because of possible future development.

It was adjacent to the land that had been purchased by their husbands in Pointe Claire to the extent that it could be considered as one parcel susceptible of development as a whole.

After their unsuccessful venture in the construction business the respondents’ husbands decided to subdivide the land and sell the lots. They engaged a town planner to prepare a plan of subdivision in which the land owned by their wives was included and they engaged in negotiations with the municipal authority to secure approval of the plan of subdivision. It was the husbands who conducted these negotiations even though it affected the land owned by their wives, the respondents. The persons with whom negotiations were conducted testified that they dealt exclusively with the husbands and that the wives remained passively silent in the background.

The respondents had given to their respective husbands general powers of attorney. The respondents, in 1963, spoke Arabic and had a limited facility in the English language. It was natural therefore that they should authorize their husbands to sign the requisite material for their many transactions. A casual review of the various deeds produced in evidence does not confirm that the husbands invariably signed on behalf of their wives under the power of attorney. There were instances where the wives signed on their own behalf.

There was limited and scattered development in the area of Pointe Claire in 1952 but it was not until 1956 to 1958 that anything approaching a booming development occurred in the vicinity of the property owned by the respondents and their husbands. At this point I should mention that the parish of Pointe Claire is in the town of Beaconsfield which is now a populous suburb of Montreal.

In 1957 and 1958 Monarch Construction (Quebec) Limited, a subsidiary of an Ontario construction company began development in Beaconsfield on a large scale. It acquired the land originally owned by the respondents’ husbands at Pointe Claire and built and sold houses by the hundreds.

This land in Pointe Claire was Lots 29, 29A and 30. The respondents owned the adjoining Lots 31 and 32. As previously mentioned a plan of subdivision had been prepared at the request of the husbands embracing their own land and that of their wives but that plan was never approved.

The land originally owned by the husbands, that is, Lots 29, 29A and 30 and which had been transferred to the Sunnyview and Fredmir corporations was sold to Monarch Construction in 1960 at a price of $1,163,930.36 of which approximately $175,000 was paid in cash and the balance was payable in nine instalments with interest at 6%, the last instalment being due September 26, 1969. Payment was guaranteed by a hypothec and an assignment of rentals.

It was Monarch Construction that subdivided the land and obtained approval of the plan from the town of Beaconsfield. This subdivision did not include the land owned by the respondents.

Prior to this purchase by Monarch Construction, an easement had been granted over Lots 29, 29A and 30 to the respondents permitting a right of way from Lots 31 and 32 to a public highway.

The sale to Monarch Construction was negotiated through Harne Kattan, the real estate manager of the Royal Trust Company. He considered that Lots 31 and 32 owned by the respondents could be developed by Monarch Construction in conjunction with the land it had acquired. He knew that the lots were owned by the respondents. He was anxious to have the respondents give an option to purchase their land to Monarch Construction. Monarch Construction had adequate land for its immediate needs. Mr Kattan’s purpose was to tie up the respondents’ land for a period of two years so that it could not be disposed of during that period with the hope that the land could be sold to Monarch Construction. Accordingly he directed his persuasive abilities to the husbands with the expectation that the husbands would influence their wives. He did not approach the wives directly. The option was sent directly to the wives and was signed by them, apparently with some reluctance.

On the other hand Monarch Construction was also reluctant to obtain an option to purchase. The land it owned was sufficient for its immediate and foreseeable needs. However since the option would secure the land for two years Monarch Construction considered that the option price of $2,000 was not too much to pay for this advantage. The price for the land if the option was exercised was $930,256.32. On the expiry date of the option Monarch Construction had a large number of lots left in Lots 29, 29A and 30. There was not the demand for houses that there had been. As a witness put it “Things were getting slower’. In short the boom had ended although there was still a demand but a lesser one. Therefore the option was not exercised by Monarch.

Mr Kattan tried to negotiate a further option at a lesser price but Monarch was no longer interested. Neither were the respondents.

Accordingly as stated above the respondents sold Lots 31 and 32 to Kesmat Investment Inc on February 14, 1963 at a price of $727,175.70 which was less than the option price to Monarch Construction. This company was owned on a 50-50 basis by sons of the respondents.

In paragraph 13 of the Reply to the Notice of Appeal it is alleged:

13. At the time of the transfer, the Respondent had become more acclimatized to conditions in Canada and was far removed from the political difficulties which prompted the original acquisition and meanwhile, unhappily, Canada became more subject to political instability and uncertainty so that a long-term investment in land, unfortunately, no longer offered the same measure of safety for the future that appeared to be the case at the time of the original investment back in 1954.

A further witness who was called by the Minister before me but who had not testified before the Tax Appeal Board was Mr Desroches, an assessor with the Department of National Revenue. Mr Desroches produced extracts from the bank accounts of Ezra Lawee and Khedouri Lawee and from the bank accounts of the respondents. Mr Desroches after a review of the four bank accounts was able to point to the sale of one parcel of property where the purchase price to be paid by one of the respondents was coincident with a debit in her husband’s account. The inference sought to be drawn from the coincidence in amounts of the debits and credits was that the husband supplied the wife with the precise amount required for her to pay for her half of the purchase price of the land. What was overlooked was that there was a subsequent debit in the respondent’s account and a corresponding credit in her husband’s account in an amount larger than the previous debit in the husband’s account in the precise amount of the purchase price of the land. This indicates a repayment by the respondent to her husband.

In my view this review of bank accounts is not susceptible of the inferences sought to be put upon it. First the coincidence is only applicable to one half of the purchase price in one transaction. There is no similar coincidence with respect to three other payments.

Secondly it should be borne in mind that these accounts were current and the bank paid no interest on the credit balance. Both respondents had large portfolios of blue chip securities. It is logical to assume that persons with business acumen would not keep large amounts in a non-interest-bearing current bank account. The husband advanced the requisite money to his wife to enable her to pay the purchase price. It was an accommodation loan which was repaid by the wife to her husband within the short time it took her to realize from her resources to enable her to repay.

This was testified to in rebuttal by the chartered accountant employed by the Lawees. He also added that the four instructed him to keep a very meticulous record of their transactions and the transactions among themselves which he had done.

Accordingly I am satisfied that the land was not bought by the husbands for their wives and that the husbands or one of them had not made gifts or a gift to their wives to enable her to purchase land. On the contrary I am convinced that the purchase of Lots 31 and 32 In Pointe Claire was made by the respondents from their own resources and that they had ample resources to do so.

Counsel for the Minister did not contend that a purchase of raw land with the eventual sale thereof must invariably constitute an adventure or concern in the nature of trade, nor could such contention be tenable.

In Commissioners of Inland Revenue v Fraser (1940-42), 24 TC 498, the whisky case, the Lord President (Normand) said that it is generally more easy to find that a single transaction amounts to an adventure in the nature of trade when entered into by a person in the line of that person’s ordinary trade than one outside that line of trade. From this he went on to indicate that two factors were important, (1) the person concerned and (2) the subject matter of the transaction in determining whether a transaction is an adventure in the nature of trade.

The Lord President continued at page 502 to say:

. . . The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that that is not the only purpose for which he purchased the article or the commodity, nor the only purpose to which he might turn it if favourable opportunity of sale does not occur. In some of the cases the purchase of a picture has been given as an illustration. An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession. But the purchaser of a large quantity of a commodity like whisky, greatly in excess of what could be used by himself, his family and friends, a commodity which yields no pride of possession, which cannot be turned to account except by a process of realisation, I can scarcely consider to be other than an adventurer in a transaction in the nature of a trade; . . .

From the initial language of the extract above quoted, it is readily apparent the fact that a person intends from the first to make a profit does not determine the question whether a particular transaction is an adventure in the nature of trade rather than an investment. It is inherent in every investment that the subject matter thereof will be sold and it is characteristic of a “good” investment that the subject matter will be sold at an enhanced value.

From the foregoing extract I repeat the statement of the Lord President dealing with what may constitute the subject matter of an investment where he refers to land. He said:

A man may purchase land with a view to realising it at a profit, but it also may yield him an income while he continues to hold it. If he continues to hold it, there may be also a certain pride of possession.

Applying the foregoing principles to the activities of the respondents herein the evidence, in my view, establishes that the respondents did not engage in a series of real estate transactions on their own account. It was an isolated transaction.

The principle in Leeming v Jones (1928-31), 15 TC 333, was summed up by Lawrence, LJ who said at page 354:

. . . It seems to me that in the case of an isolated transaction of purchase and resale of property there is really no middle course open. It is either an adventure in the nature of trade, or else it is simply a case of sale and resale of property. . . .

I would add parenthetically that it is either an adventure or concern in the nature of trade or an investment and if it is the latter then any profit realized is not taxable income but a capital gain. The foregoing statement of Lord Justice Lawrence received the specific approval of Lord Buckmaster on appeal to the House of Lords.

The issue before me, therefore, is simply was the purchase and sale of Lots 31 and 32 by the respondents an adventure in the nature of trade or was it merely the realization of an investment.

The Lord President in the Fraser case (supra) mentioned two important factors to be considered in determining that issue, the first being the person concerned and the second the subject matter of the purchase.

Adverting to the first factor, the respondents were no longer young in 1954. They were wives of brothers who were successful businessmen who had accumulated great wealth. Both of the respondents were also possessed of great wealth in their own respective rights. The respondents did not have a history of dealing in real estate. The purchase and sale of Lots 31 and 32 is the only instance of such a transaction. It is true that the respondents purchased land in Ste Therese but that land has not been sold. The portfolio of investments held by each respondent discloses that a very great amount of money was expended for a long list of securities in leading Canadian and United States companies engaged in a variety of businesses such as banking, transportation, Communication, electrical power and the like. Their portfolios were large, diversified and the investments were passive. They include the type of securities which conservative financial advisers would recommend as safe, in that returns by way of dividends would be reasonably certain as would the element of growth. It is evident to me that the respondents sought and acted upon expert advice in this respect. The transaction in land was not within the line of the respondents’ ordinary trade. The respondents did not have any ordinary line of trade.

In every type of investment including investment in securities there is an element of risk and consequently an element of speculation is therefore always present. The securities purchased by the respondents were such as would minimize that risk.

At the time the respondents purchased the land in Pointe Claire it was assessed and taxed by the municipal authorities as farm land. There were the incipient indications that the land was promising in that it might be in the path of development because of its location. There was some development in the area beginning about 1952. It was not until 1956 and 1958 that there was development of boom proportions. For several reasons that boom ended in 1958. It was not until the boom had subsided that the respondents gave an option to purchase the land to Monarch Construction. They had no assurance that the option would be exercised. It is, therefore, reasonable to assume that they were content to have their land tied up for the two year period of the option agreement. They could not sell it to another purchaser and they knew that Monarch was not obliged to exercise the option. At that time they had held the land for six years. They did not sell until three years later, so that they held the land for nine years although they had exhibited a willingness to sell three years earlier by giving an option to purchase.

When first purchased, the land was taxed by the Municipality as farm land at a low rate. During the period the respondents held the land it was reassessed by the Municipality as urban land and subjected to a much higher rate of taxation. It is significant to note that at no time during their nine year tenure did the respondents seek to deduct the carrying charges, such as interest at the rate of 5% per annum for two years on the unpaid balance of $40,000 of a total purchase price of $182,925.51 or municipal taxes. If the land were considered as an adventure in the nature of trade, it might well have been that those expenses were deductible in computing income. No effort was made to lodge a claim for capital cost allowance.

Adverting to the second factor to which the Lord President attributed the utmost importance which is the commodity dealt in considering in the nature of the transaction, there is no question that land may be the subject of investment. As he said it may provide a source of revenue and a pride of possession. Here the land provided no revenue to the respondents, only expense. I doubt if it inspired in the respondents any pride of possession, but because of the persons they were and the tragic experiences they had undergone, it did confer another factor very analogous to pride of possession.

Bearing mind that the respondents had experienced economic difficulties because of political instability in their native land, and that they had been the object of discriminatory legislation and arbitrary government measures as well as subjected to the constant threat and fear of physical violence or even death, it is natural that they should look for a haven that was peaceful and complacent. This they thought they had found. The experiences they had undergone would have a lasting effect and influence upon them.

While the respondents had been successful in bringing their wealth with them, nevertheless, persons who have had the experiences the respondents did, do not look upon money in the bank as the best method of achieving security. But land does that, it is durable and does not disappear. Its possession offers security and peace of mind. To many land is the only true source of real wealth and this would be particularly so in the case of the respondents.

Throughout their evidence the respondents repeatedly stated that it was their purpose to acquire the land and to hold it.

Declarations of intention by persons assessed to income tax will not secure immunity therefrom. A professed intention cannot be considered as determining what it is that the concrete acts amount to. It is only part of the evidence. Statements made as to what the respondents’ intention was at the time of acquisition of the land must be considered along with all the objective facts.

The principal thrust of the submission on behalf of the Minister was the intention of the respondents must be that of or identical to the intention of their husbands. The next premise was that the husbands were dealers in speculative real estate, a premise that is vigorously denied by counsel for the respondents. Starkly stated as it is above the proposition appears untenable, but counsel buttressed his position by a reference to many circumstances from which he sought to draw a cumulative effect.

It was the position that the directing minds behind the purchase and sale of Lots 31 and 32 in Pointe Claire were the minds of the husbands, that the wives simply did what their husbands told them to do, that the wives did not know what the next step would be but their husbands did and when the husbands decided, the wives executed. The position was not taken that the wives were the mere nominees of or trustees for their husbands, for to have done so might well have been fatal to the Minister’s case because then the proper taxpayers would have been the husbands. Rather the position taken was that the wives were merely automatons. To support that position it must be assumed that the wives were without intelligence, personality or wills of their own, that they reacted like puppets on a string manipulated by their husbands. In short it is assumed that the minds of the husbands by some magic of invisible surgery were transplanted and became the minds of their wives.

In confirmation to this dumb obedience to their husbands’ commands reference was made to the fact that each of the respondents executed a general power of attorney in favour of their husbands. These acts must be measured against the facts which prompted this course. The wives were strangers in and unfamiliar with the business methods in this country. Their husbands, because of their prior business experience, knew these methods and they had achieved some facility in the English language. The wives spoke Arabic. They did not have the opportunity to become fluent in English because they chose to remain in the background and permitted their husbands to conduct their business on their behalf. That does not mean that because their husbands conducted their wives’ transactions, the transactions of the wives ceased to be their own transactions, or that because the wives acted upon their husbands’ advice any transaction they entered into was not their own transaction. Neither do I think that justification exists for the inference sought to be drawn by counsel for the Minister that the execution of general powers of attorney constituted a mandate for their husbands and indicated a willingness on the part of the wives for their husbands to sell the land whenever the husbands decided. The execution of the powers of attorney was merely a convenient method for the respondents to authorize their husbands to carry out the formalities of the respondents’ transactions as their agents.

In Nathan Robins v MNR, [1963] CTC 27; 63 DTC 1012; [1963] Ex CR 171, my bother Noël had this to say at page 44 [1021]:

However, the fact that the appellant had counselled his wife in her venture is nothing to be surprised of and a very natural thing indeed. I might even add that this may be considered as part of the obligations of a husband towards his wife in investment matters. Any action of the husband in this regard, even when he supplies the funds necessary to his wife, should not necessarily be interpreted as establishing that she was acting as her husband’s agent or alter ego.

References were also made to many transactions in which the members of the Lawee family joined together to make purchases of real estate. A review of the purchases outlined in the schedule does not disclose that the respondents were parties to any such purchase excepting the joint purchase by the two respondents on a 50-50 basis of land in Ste Therese and Lots 31 and 32 in Pointe Claire, the transaction here under review. There is one minor exception — Muzly Lawee acquired a 17 /2% interest in land bought by Ezra Lawee and Sossoon Abed in St Laurent in conjunction with them and two of her daughters. This land is still retained by the owners.

Reference was also made to the fact that in the two corporations which the husbands caused to be formed, that is Sunnyview and Fredmir, the Khedouri family and the Ezra family each held 50% of the shares. I can attribute no significance to that fact bearing in mind that the two families were very closely knit and the two families always acted together as one. Peculiarly both of the husbands retained land in their holding in Pointe Claire for the purpose of building identically sized homes on equal areas of land. They were to be estate homes. That plan was abandoned because large estates were no longer in vogue. However the homes that the husbands did build as family residences were the same in size. One brother did not seek to outdo the other. They were the same and equal.

Many witnesses testified that they never dealt with the wives but always with the husbands. This happened in discussions with the municipal authorities when the husbands’ lands were sought to be subdivided and the respondents’ land was included in that plan of subdivision and again when the option was negotiated with Monarch Construction. In the first instance the municipal officers knew that Lots 31 and 32 were owned by the respondents but they considered that the plan of subdivision should be applicable to the land owned by the husbands and the wives together as a parcel. The real estate agent who was anxious to obtain an option on behalf of Monarch Construe- tion with respect to the respondents’ land knew that the land was owned by the respondents but he approached the husbands because he testified it was easier to do so and in the realization that his proposals would be communicated to the respondents. It was also his hope that the respondents would be amenable to influence by their husbands.

Taxation by association of ideas between close relatives does not follow. I am not concerned here with the motives or conduct of the husbands but only those of their wives, the respondents, who are alleged to be trading in Lots 31 and 32 owned by them.

The respondents were co-owners of the land. To that extent they were acting in concert. But co-ownership does not imply partnership with the attendant implication of carrying on a business which was sought to be inferred.

Even assuming, aS was suggested by counsel for the Minister, that the land was in a speculative area then the conduct of respondents is not consistent with speculation. The land was bought in 1954 and it was not sold until 1963. Except for the option granted by the respondents in 1960 they made no effort to sell the land and if the option were not exercised by Monarch Construction it precluded the respondents from selling for a further two years. A speculator in land looks for quick turnovers and puts up only the minimum amount of money that will ensure control of the land. Frequently the purchase is made with money borrowed at a high rate of interest. There is the compulsion to use little money and there is the compulsion to realize forthwith and pass on to further purchases.

This was the respondents only sale. They did not put all their money into real estate. Only a small portion was so used and the balance remained in securities. The respondents had resources available. For one lot in Pointe Claire they paid the purchase price all in cash. For the other lot there was a substantial payment in cash and the small balance was payable within two years. This is not what a speculator does. He gets as much land for as little actual cash as is possible. Therefore the respondents did not act as a speculator does but rather the facts are consistent with their being anxious to place their money in a secure investment.

The land was promising when they bought it. The boom began in 1956 and continued throughout 1958. The respondents had every opportunity to sell during that period but they did not do so. They sold after the peak of the boom had passed and realized a much lesser purchase price than they would have if they had taken advantage of the opportunities to sell at an earlier date. Buyers were available throughout the boom period. It is true that the length of time a property is held when there is a depressed market is not impressive. The opportunity to sell is not there. But the contrary is the case when property is not sold during a boom period.

It was also the submission of counsel for the Minister that while initially the purchase was for the purpose of investment only, that purpose changed in 1960 when the respondents executed an option to purchase in favour of Monarch Construction. At that time they had for their purpose the resale of the property at a profit. The significance of this submission is, as I see it, that the possibility of resale was not one of the possibilities contemplated by the respondents at the time of their acquisition of the property, but that at a later time the respondents’ intentions changed. However this fact is equally susceptible of being a decision to realize the enhanced value of a capital asset.

If I were to accept this submission, the premise upon which it was based would defeat the Minister’s appeal. It is tantamount to an admission that at the time of acquisition the respondents’ exclusive purpose was to acquire the land as an investment. I do not think that counsel meant this. What I think he meant to say was that assuming that at the time of acquisition the respondents had the sole intention of investing in the land (which he would dispute) but even accepting the correctness of that assumption, the respondents at a later time adopted the other intention of reselling the land.

This submission is based upon the principle in Regal Heights Limited v MNR, [1960] SCR 902; [1960] CTC 384; 60 DTC 1270. As I understand that case there were at the time of acquisition by the appellant of the property there involved two alternative intentions, one the proposed development of a shopping centre and the other the resale of the property in the event that it became impossible to carry out the development of the shopping centre.

The complete answer to this submission is found in the statement of the Chief Justice of this Court when he was President of the Exchequer Court of Canada when he said in Warnford Court (Canada) Limited v MNR, [1964] Ex CR 944; [1964] CTC 175; 64 DTC 5103, that for the purpose of determining whether a transaction is a transaction in the course of business or is an adventure in the nature of trade the time at which the intention of the purchaser is material is at the time of acquisition. I had occassion to enunciate the same principle in Villeneuve v MNR, [1965] Ex CR 110; [1964] CTC 287: 64 DTC 5174.

Another factor which counsel for the Minister pointed out and relied upon as indicating that there was but one intention on the part of the husbands which was to speculate in land and in which the respondents silently acquiesced was that the husbands granted a right of way over their lands in favour of the land owned by their wives, thereby rendering that land more saleable. Because the respondents land would have no communication with a public road, the respondents had the right under Article 540 of the Civil Code to claim that right of access subject to the payment of indemnification. Therefore the respondents had this right in any event. There was no evidence that the respondents paid any indemnity to their husbands but it would not be surprising if they did not.

After giving careful consideration to all the evidence, I am satisfied that the respondents acquired the lots here in question for the purpose of investment to the exclusion of any purpose of trading therein.

There are ample reasons for that conclusion.

In the circumstances peculiar to the respondents herein land is a legitimate subject matter of investment. The respondents had not engaged in an ordinary line of trade of dealing in real estate. They were persons of wealth who sought investment of that wealth.

The evidence does not disclose that the husbands made a gift of money to the respondents to purchase the land in question. Even if they did so that is not a conclusive factor to alter the fact that the wives were the actual and beneficial owners of the land.

The activities displayed by the respondents were not those ordinarily displayed by a person speculating in real estate. The land was held for a long period of time before its sale. The respondents did not take advantage of opportunities to sell when the boom was at its peak.

The respondents were persons who were capable of making their Own decisions and because they may have acted upon advice by their husbands does not alter that fact. The intention of the husbands was not the intention of the respondents. It is the motives and the conduct of the respondents that is the determining factor. I cannot regard the husbands and the respondents as one.

The fact that the land was sold is not conclusive of the matter because that fact is equally susceptible of being the realization of an enhanced value of an investment as it is with the sale being a gain in a scheme of profit making.

Because other land purchased by the respondents is still held by them, this fact has not material bearing.

If trading is negatived in the case of purchase and sale of the land at a profit, and I find that it has been so negatived, then the profit realized is an accretion to capital.

The appeals are, therefore, dismissed. The respondents are entitled to their costs.