Marilou E Shirley v. Minister of National Revenue, [1972] CTC 2341, 72 DTC 1286

J O Weldon:—This appeal with respect to the appellant’s 1965, 1966 and 1967 taxation years was heard at London, Ontario on September 16, 1971 under the Tax Appeal Board as it was then constituted. The parties were represented by counsel as follows: J R Caskey, Esq for the appellant and R B Thomas, Esq for the Minister.

The facts leading up to this appeal are simple, straightforward and not in dispute. In 1965, the appellant Mrs Shirley purchased a 20-acre parcel of vacant agricultural land located immediately to the south of the existing boundary of the City of London, known as part of Lot 14, Concession 3, Township of Westminster. That was done by the taxpayer on the advice of her husband S J Shirley who advised her to purchase the land (back in 1965) so that if anything happened to him “she would have something to fall back on”. Mr Shirley is the president of Shamrock Chemicals Limited which manufactures pesticides, herbicides, fertilizers and general agricultural products in a plant also located in the south end of London. The purchase price of the above- mentioned property was paid partly in cash but the larger portion thereof was secured by a mortgage on the said property in favour of the vendor.

At the commencement of her examination-in-chief by Mr Caskey, Mrs Shirley stated that she purchased the said property as an investment but did not have any plans for the property at that time and still does not have any plans for it except to hold it. When being cross- examined by Mr Thomas, the appellant made it clear beyond question that she purchased the said property as “something to hold and let appreciate”, and that she was really not thinking of obtaining revenue therefrom at the time. In that regard, Mrs Shirley steadfastly and con- vincingly maintained throughout the hearing of the appeal: that the only plan she had for the property was to hold it for a long time; that she was not planning on selling it, and that she has never done anything with or to the property since she purchased it about six years ago except that she was required to cut the weeds thereon a few weeks prior to the hearing of this appeal. Since the appellant draws a salary as an employee of Shamrock Chemicals Limited, she has been personally making the monthly payments required under the above- mentioned mortgage out of her own funds. Her evidence was clear that, in computing her income in 1965 and 1966, she did not take into account either the real property taxes or the mortgage interest paid by her in connection with the said property.

While Mrs Shirley was peacefully sitting holding her 20-acre parcel of land located immediately to the south of the City of London, the St Lawrence Cement Co — acting completely on its own initiative — made application to her early in 1967 for a right-of-way across her said property for the purpose of connecting its property (which lies to the south and west of Mrs Shirley’s property) with the CNR line running from London to Port Stanley by constructing therefrom a spur line on the proposed right-of-way. Mr Shirley acted along with his wife, the appellant herein, in the negotiations with the St Lawrence Cement Co which were given a push by a representative of the Township of Westminster. Compensation in the amount of $3,000 was finally agreed upon and an agreement providing for the right-of-way containing a lengthy surveyor’s metes and bounds description thereof was signed on April 15, 1967. The said agreement contains the following provisions:

PROVIDED that this Agreement to be subject to the Purchaser obtaining title to Part of Lot 14, in the Third Concession of the said Township as owned by Charles Cousins, of the Township of Westminster, in the County of Middlesex, Insurance Agent, lying immediately adjacent to the west of the hereinbefore described right-of-way and easement.

PROVIDED FURTHER that the within Agreement to be subject to the Purchaser obtaining a right-of-way and easement from the Township of Westminster in, over and upon a strip of land approximately Sixty-six (66) feet in width lying immediately adjacent to the east of the hereinbefore described right-of-way and easement described as “firstly” above.

PROVIDED FURTHER that the within Agreement is subject to the Purchaser obtaining the approval of the Committee of Adjustments of the Township of Westminster, or other relevant municipal body, to the within grant of right- of-way and easement as well as to the conveyances to be obtained from the said Charles Cousins and the Township of Westminster as referred to in the two preceding paragraphs.

And in further consideration of the Vendor granting to the Purchaser the aforesaid easement the Purchaser agrees to permit the Vendor at her own cost to connect such spurlines as she requires at such locations as she desires, without remuneration to the purchaser, leading from the railway line to be erected upon the easement hereinbefore granted.

IT IS AGREED that the above Agreement is conditional on the Purchaser obtaining approval of all necessary regulatory authorities to construct a railway siding across the said sixty-six (66) foot right-of-way between the easterly boundary of the hereinbefore described lands and the westerly limit of the lands of the Canadian National Railways. If such approval is refused the above Agreement shall be null and void at the option of the Purchaser.

About two years after granting the right-of-way outlined above, the Minister jumped to the conclusion that Mrs Shirley was engaging in some kind of a business in connection with her 20-acre parcel of land and issued reassessments all dated March 6, 1969 not only against her 1967 taxation year but also against her 1965 and 1966. taxation years. The pertinent portions of the three reassessments mentioned above issued pursuant to sections 3 and 4 and paragraph 139(1 )(e) of the Income Tax Act, RSC 1952, c 148 as amended, are as follows:

From my standpoint, it should be observed: that, prior to the granting of the aforesaid right-of-way to the St Lawrence Cement Co, the Minister could speculate but had no way of knowing what Mrs Shirley was going to do with her property; that the granting of the said right- of way per se clearly did not commit the taxpayer to any particular course of action in the future; that the granting of the said right-of-way cannot properly be treated as tantamount to the sale of a portion of Mrs Shirley’s property; that it is worth noting that the appellant has reserved the right to herself in said agreement dated April 15, 1967 to connect at her own cost without remuneration to the St Lawrence Cement Co such spur lines leading from the railway line as she requires at such locations as she desires to be erected upon the right-of- way and easement granted under the said agreement; that the Minister still does not know what Mrs Shirley is going to do with her said property and, according to her evidence, she does not know herself; that it is patently obvious that the Minister has acted precipitously and without justification in this matter in issuing the disputed assessments, and that the appellant has, in the result, succeeded in demolishing the basis of the said assessments.

For the reasons and observations set out above, the appeal with respect to the 1965, 1966 and 1967 taxation years should be allowed and the relevant assessments vacated.

Appeal allowed.