Charles Emile Marquis v. Minister of National Revenue, [1972] CTC 2398, 72 DTC 1328

Maurice Boisvert:—This appeal is from an assessment of appellant’s income for the taxation year 1967.

The appeal was heard in Quebec, Province of Quebec on October 13, 1971 by the then Tax Appeal Board.

This appeal was lodged because, for the year in question, the respondent added the proceeds of the sale of an immovable property to the net income declared by the taxpayer, taking the view that such proceeds were a taxable profit.

During 1965 appellant, a professional engineer and quite well-to-do, disposed of a property located in the Town of Villeneuve, a suburb of Quebec City, and realized a profit of $27,634.48.

The facts may be summarized as follows: in 1963 appellant was the majority shareholder in François Marquis Ltée (hereinafter referred to as “the Marquis company”), a general building and development contractor for public and private work projects. He disposed of his shares and loaned the Marquis company $625,000. By way of repayment, the Marquis company ceded appellant two properties, one on Joffre Street and the other on Raymond Casgrain Street, both located in Quebec City. The first was sold and appellant sustained a loss of $10,000. The second was exchanged, on June 1, 1966, for 53 subdivided lots in the Town of Villeneuve. The value of the property on Casgrain Street was set, like the 53 lots, at $64,865.52.

On May 11, 1967 the 53 lots were sold en bloc for $92,500. to a Martin Boivin, a building contractor in the area. The purchase price was payable in five years, and bore interest at the rate of 6%.

Respondent claims that: (a) appellant was engaged in the real estate business; (b) the lots exchanged were sold within a year; and (c) appellant has been, and in 1967 still was, a shareholder and a director in companies engaging in the real estate business.

In reply to these contentions, appellant states that: (a) as a shareholder and a director, he could not be connected to the industry and business of the companies in which he had made investments; and (b) the companies in which he had invested some of his capital were neither his agents nor his representatives.

The question to be answered is a very simple one. Was appellant a dealer in real estate in 1966 and 1967, or did he merely realize on an earlier investment by disposing of properties which he had accepted as repayment for large sums of money advanced?

It is admitted that he had an interest in the Marquis company from 1957 to 1963; but on March 20, 1963 he sold all his shares to a third party for $673,593.80. He has had no connection since then with the Marquis company, either as a shareholder or as a director. However, he became a creditor the moment he loaned the said company $625,000. From March 21, 1963 to December 31 of the same year the company repaid him the sum of $475,000, including, as a giving in payment, the property located on Joffre Street, valued at $45,000, and that on Casgrain Street, valued at $94,000, but encumbered with a mortgage for $36,197.62. After three years he decided, as he was entitled and free to do, to dispose of both properties, which had become somewhat unsatisfactory investments. The evidence indicates he was able to sell one of them, and lost $10,000 in the exercise. On the other the best he could get was an exchange, as we have just seen. It has been shown that the properties on Joffre and Casgrain Streets were operating at a loss, the reason being that the zoning for the areas had been changed from residential to industrial. Noise, crowd, traffic, sports, the establishment of a curling club, etc were making it very difficult, if not impossible, to rent apartments in the two apartment houses.

In short, the whole of the case against appellant for 1966 and 1967 is that in prior years he apparently sold his residences. This is not enough to lead to the conclusion that he was a real estate dealer. Clearly, when he acquired the lots in the Town of Villeneuve, he intended to sell them at a profit if such a profit could be had. Since when has a person who invests his capital in immovable property or in stocks and shares not been entitled to contemplate selling them, and realizing a profit from doing so? Thinking about making a profit is not a commercial act; nor is the realizing of one’s capital a commercial act. The fact that he put the property in the hands of brokers for them to sell it is not significant. Purchasing in order to sell, and realizing one’s capital are two things which must not be confused.

The evidence submitted by appellant, which was not confuted, thrust aside the presumption established by subsection 46(7) and the assessment must be vacated. In support I would mention the following cases: Bonneville Realty Inc v MNR, [1969] Tax ABC 577; 69 DTC 417; Elgin Cooper Realties Ltd v MNR, [1969] CTC 426; 69 DTC 5276; Cham poux v MNR, [1970] CTC 603; 71 DTC 5001.

For the above reasons I would allow the appeal.

Appeal allowed.