Helen L Eadie and Marion J Willcock v. Minister of National Revenue, [1972] CTC 2336, 72 DTC 1288

W O Davis:—These appeals were heard at London, Ontario on November 29, 1971 at a sitting of the Tax Appeal Board as then constituted.

The appellants have appealed from assessments to income tax dated September 25, 1969 in respect of the year 1967. As the evidence, in the main, was common to both appeals it was agreed that they should be heard together.

The appellants are the wives of James C Eadie and Willard W Willcock respectively, who are the controlling shareholders of Eadie and Willcock Limited developers and home builders.

In 1956 Mr Willcock and his family lived on Springbank Road, then in the village of Byron. There were two small children in the Willcock family and rapidly increasing traffic presented a problem from which the Willcocks were anxious to escape. Mr Eadie who also resided in the village of Byron was a dog fancier and as a hobby had taken to raising prize show dogs. The by-laws of the village of Byron permitted but one dog to a householder. Wishing to be freed of the restriction on his hobby Mr Eadie was anxious to relocate his home just beyond the limits of the village of Byron where there was no limitation as to the number of dogs that could be kept on his premises.

Together Mr Willcock and Mr Eadie, who were friends of long standing, looked about for a desirable location where they might build new homes and relocate their families and have room to indulge in their hobbies. At the same time, Willcock and Eadie were on the lookout for additional land which they might acquire for subdivision and development. An area of suitable land for the location of two new homes which was owned by a Mr Axford who was in the sand and gravel business and who was well known to Messrs Willcock and Eadie was found in the township of Westminster just outside the village of Byron. An agreement was reached with Mr Axford for the purchase of a 10-acre parcel of very desirable and well-treed land. This land was located in a much earlier plan of subdivision which had never been developed.

On April 4, 1957 the purchase was completed and the 10-acre parcel of land known as Lot 6, plan 547 was taken in the name of the appellant Marion Jean Willcock. Having obtained assurance from the Westminster Planning Board at a meeting of that Board on March 21, 1957 that approval would be given to dividing Lot 6 into two equal parcels of 5 acres each to enable Messrs Eadie and Willcock to each construct a home thereon, Mrs Willcock on April 5, 1957 conveyed to the appellant, Helen Lillian Eadie, the east half of the said Lot 6. Family homes were then built on each of the two 5-acre parcels by the firm of Eadie and Willcock Limited, building permits being taken out on April 26, 1957. In the final result, each of the appellants became the registered owner of a new home located pretty much in the center of their respective 5-acre parcel of land. Water was supplied by means of a well shared by the two homes.

There is no question that each of the husbands either directly or indirectly, through Eadie and Willcock Limited, furnished the necessary funds for the purchase of the land and construction of the homes, and reported the same as a gift to his wife over a three-year period and paid gift tax thereon.

The question to be resolved in these appeals is whether what has been referred to as a profit realized by the two appellants upon the sale by each of them, to Eadie and Willcock Limited, of a 4-acre part of their 5-acre holding can properly be regarded as a taxable profit.

The Minister has treated as profit the entire proceeds of sale of the land in question by each appellant, that is, the entire $16,000 with no allowance for cost.

Eadie and Willcock were so impressed with the area surrounding the two new homes that they decided to acquire in the name of Eadie and Willcock Limited an additional 15 acres of land surrounding the Original 10 acres for subdivision and development. Accordingly, a subdivision plan of the additional acreage was prepared and used in the first instance to influence the local gas company to extend its services to the two new homes. Later, it was presented to the Planning Board for approval in order that it might be registered. The subdivision initially did not include the two 5-acre parcels on which the new homes were located. However, the Planning Board insisted that these two parcels be integrated with the rest of the subdivision. To comply with the Board’s requirement 8 acres out of the original 10-acre parcel were sold by the appellants to Eadie and Willcock Limited for $4,000 an acre, a price which was agreed by the Minister to be the fair market value. These 8 acres were then included with the additional acreage which had been acquired and the whole subdivided in a manner acceptable to the Planning Board and the area was developed, Mrs Willcock retaining what became known as Lot 123 and Mrs Eadie retaining Lot 121. At the time of hearing these appeals the two homes and the land connected therewith remained in the names of Mrs Eadie and Mrs Willcock. Mrs Willcock stated that it was her intention to remain in her home at least until her children were grown up and finished school, possibly longer. Both Mrs Eadie and Mrs Willcock were firm in their assertion that they regarded these two houses as their permanent homes.

Following development, the area in which the two homes were located was taken into the City of London in 1961 and, as so frequently happens, taxes and local improvement rates and charges increased substantially and in many ways the parties were once again face to face with city living and traffic problems. In an attempt to cope with this, Mr Willcock acquired an additional parcel of land beyond the new city limits and some distance from his home and on this site he constructed a house which he uses as a retreat for himself and family on holidays and weekends, there being no telephone service or other public facilities available to the house.

There was no evidence or suggestion that either of the two appellants had ever engaged in the purchase and sale of undeveloped land at any time. The agreement of each to sell the 4-acre part of her Original 5 acres gifted to her by her husband is well understood in the circumstances and in my opinion cannot possibly be said to constitute the carrying on of a business. The evidence was that when the two houses were constructed and turned over to each of the appellants they had no thought of subsequently disposing of the property in whole or in part but on the contrary fully intended to remain and continue to live there indefinitely. The appellants testified that at the time of the hearing of these appeals they had already resided in the homes in question for fourteen years and fully intended to continue to do so.

The final agreement to sell 4 acres each to Eadie and Willcock Limited was with considerable reluctance on the part of the appellants and was only acceded to because it afforded the company the only means of having its subdivision approved by the London Planning Board and registered. There is nothing in the evidence to support a conclusion that the appellants were turning a part of their holdings to account for the purpose of realizing a profit; in my opinion they were doing nothing more than realizing in part on a capital asset. The $16,000 which each received was capital in her hands in place of the original capital asset — the 4 acres of land — which she had previously owned.

On the evidence, which is uncomplicated, I would allow the appeals herein and refer the assessments in question back to the Minister for reassessment in accordance with these findings.

Appeals allowed.