Marilyn a Palmer v. Minister of National Revenue, [1972] CTC 2367, 72 DTC 1309

A J Frost:—This is an appeal from an income tax assessment dated June 24, 1970 in respect of the appellant’s 1968 taxation year. Upon Notice of Objection duly signed and filed, the Minister of National Revenue reconsidered the assessment and confirmed it on April 29, 1971 on the ground that the sale of Lots 22, 23, 24 and part of 25, Concession 8 in the Township of Guilford, Ontario resulted in a realized profit which was properly included in computing the taxpayer’s income. This appeal was heard on December 13, 1971 at Belleville, Ontario by the Tax Appeal Board as it was then constituted, at which time the following facts were established.

The appellant purchased the aforesaid lots by deed dated December 2, 1963 for a total consideration of $4,500 from the executors of the estate of the late John M Irwin. The property was an unserviced waterfront property in a wilderness area situated on Redstone Lake with no access except by water. The purchase was financed by way of a gift from the appellant’s mother and a loan from her husband which was subsequently repaid by the appellant. The property sold for $50,000 in 1968 thus realizing a gain of $45,500. The property according to the evidence was purchased as a retreat although the area was relatively inaccessible for that purpose. At the time of acquisition the appellant owned two other cottage properties and as things turned out she made very little use of her third waterfront property as a retreat.

On the evidence adduced it was clear that the appellant’s husband had been active in dealing in real estate matters both as a solicitor and in his personal capacity. The appellant and her husband occasionally bought and sold properties in their joint names. In 1959 they had incorporated a company called Leisure Land Limited with the object of purchasing and selling real estate. This company was relatively inactive and the appellant took no part in its management and may even have been unaware of its existence.

The subject property had been on the market some time prior to the purchase by the appellant. A real estate salesman approached the appellant’s husband concerning the purchase. He testified that it occurred to him that the said lots might be the type of property his wife would be interested in as a private wilderness retreat for herself and the family.

In 1966 a company called Brown Camps Leasing Limited acquired some adjacent lots as a treatment centre for disturbed children, which subsequently gave rise to some trespassing and the possibility of fire hazard problems. The appellant however did not observe any trespassing and did not approach Brown Camps with a view to restricting it. In 1968 Mr James B Cooper, real estate broker, approached the appellant with a signed offer from Brown Camps Leasing Limited to purchase for $50,000 the appellant’s property, which offer was accepted on the same day it was presented to her.

The evidence adduced indicated that the appellant had a philosophical turn of mind which tended to separate her from more mundane affairs, and that in fact and in mind she was not closely associated with her husband in any of his real estate transactions.

Counsel for the appellant, Mr Stuart Thom, QC in his argument advanced the theory that the appellant’s great desire for a retreat (investment) and her lack of interest in money and in the business affairs of her husband clearly indicated an “investment-in-living” philosophy, the return from which, although intangible in nature, was nevertheless real in terms of the appellant’s approach to the problems of personal and spiritual attainment.

The Board is somewhat reluctant to accept Mr Thom’s argument that the facts of the appeal indicate an investment based on the appellant’s investment-in-living philosophy, for the reason that an invisible return under such a concept cannot be equated to a return in dollars and cents. Invisible income cannot be assessed and no levy can be made against it. Hence I feel that the Board must lay aside, with deference, Mr Thom’s rather ingenious investment-in-living philosophy as having no constructive value within the scope of the Income Tax Act.

The obvious question in this case is: should the appellant be considered as subject to tax under the appropriate provisions of the Act on the ground that her husband was active in real estate, even though the evidence clearly indicates that most of his activities were unknown to the appellant and she had little real interest in his business affairs?

The Board holds the view that, although the appellant’s interest may well have been almost completely neutral, her husband had nevertheless a powerful influence in respect of such matters. The only inference the Board can draw from an examination of the whole course of conduct of the appellant and her husband is that the husband was the directing mind behind the real estate transactions of his wife. I therefore find that the gain realized on the said property must be characterized as taxable income rather than as a capital gain.

The appeal is hereby dismissed.

Appeal dismissed.